Accounting Standards

The Enron scandal was identified as one of the most devastating scandals in the history of modern business. The effects of this single scandal spread throughout the United States and critically calls for significant changes in financial evaluation standards (‘The Enron Effect’. 2006). In the beginning, Enron was recognized as a respected modern day company established from the merger between Houston Natural Gas company and InterNorth Natural Gas company. The merger resulted both an interstate and intrastate natural gas company in control of 37,000 miles of gas pipes.

The company kept on growing and evolving, and in August 2000, it stocks hits a record price of $ 90 a share. At that time, the company was already transformed to trading powerhouse (‘Enron Timeline’, 2002). Several names that was involved in the scandal that follows the amazing corporate success were Ken Lay, which was the chairman and CEO of the company, Jeff Skilling, who replaced Ken Lay as CEO in December 2000 and Andrew Fastow, corporate CFO. Six months after signing up as CEO, Jeff Skilling resigned and Ken Lay was named as CEO again.

In October 2001, in a condition where corporate share prices are still sky high, Enron suddenly reported a third quarter losses of $638 million and revealed a $1. 2 billion reduction on shareholder equity (‘Enron Timeline’, 2002). In the same month, Enron fired Andrew Fastow and accept a formal investigation from the SEC. The investigation revealed the historical fact that in the last5 years, Enron was experiencing losses which totaled to $586 million. In November, Enron’s share was reduced to lees than 1$.

In December, the company filed for a chapter 11 bankruptcy protection and revealed its plan for laying off approximately 4,000 workers. Afterwards, the investigation toward the entire managerial components of Enron started. The investigation led to the conviction of Arthur Andersen Company, Enron’s former auditor. David Duncan, Arthur Andersen’s auditor who worked on Enron plead guilty in April 2002 for ordering to destroy tons of Enron-related documents as the SEC began investigating the company.

The plea was a response to an investigation started in March toward Arthur Andersen for obstruction of justice (‘Enron Timeline’, 2002. Benner, 2002). As the investigation moved on, more accusation was filed on Enron’s top managers. In February 2002, Michael Kopper, Andrew Fastow’s top aide, pleaded guilty to conspiracy in committing wire fraud and money laundering conspiracy. With this plea, Andrew Fastow was also brought down by charges of fraud, money laundering and improper partnership. Surprisingly, the scandals were tracked to wider scope than just Enron’s top managers.

For instance, Lea Fastow, the wife of Andrew Fastow and former assistant treasurer in Enron was charged for conspiracy in filing false tax form in support of her husband’s deals. Tricked investors even stated that Lea Fastow was still selling Enron’s stocks allegedly, just minutes prior to the announcement that Enron’s share was dropped to near worthless. II. Accounting theory and Professional Ethics In response to the devastating scandal, accounting boards and accounting principles was attacked by criticism and accusations.

Nevertheless, accountants are also trained in ethical conducts as well as practical knowledge. Furthermore, ethical measurements are also reflected in existing accounting principles and standards. For instance, the conservatism principle, which is embedded within the core framework of preparing for annual reports, stated that in doubt, accountant and auditors must choose numbers that are less likely to overstate assets and income. These standards exist well before the Enron case took place.

Another example is the full disclosure principle, which stated that financial report must account for all material substances that might influence external opinions about the company. PART B I. Harmonization of Accounting Standards Harmonization of accounting standards is defined as continuous process of ensuring that the generally accepted national principles of accounting within a country is continuously formulated, aligned and updated to international best practices, with acceptable modifications and fine tuning to account for domestic conditions.

This concept is highly applicable because harmonization is different to standardization. With the existence of local differences, standardization of accounting principles would be hard to perform, but by allowing a certain degree of variation, harmonization becomes a highly applicable concept (Mogul, 2003). II. Technology and Harmonization In relation to the enhanced practice of accounting harmonization across countries, technology becomes one of several influential factors to the success and failure of accounting principles harmonization.

This is possible because technology has become a central part of corporate financial management. Thus, the practice of accounting principles in most companies is reflected on how they design their accounting software. Therefore, the presence of an accounting software that is reliable and widely distributed internationally will make it a lot easier to achieve the goals of accounting principle harmonization (Mogul, 2003) III. Cross Cultural Accounting Mergers and international expansions of accounting firms revealed the influence of cultural issues in accounting operations.

These accounting firms realized the great need for specifically consider cultural diversity and its effects on employee ethical sensitivity and decision making. Local partners must meet the diverse needs of local clients. Lately, the impact of cultural differences lead to the use of expatriate manager in training programs by accounting firms (Mogul, 2003).

Bibliography

‘The Enron Effect’. 2006. Time. Retrieved August 17 2007 from http://www. time. com/time/2002/enron/search Benner.

Katie. 2006. ‘Lesson from Enron: Just Say Sorry’. Retrieved August 17, 2007 from http://money. cnn. com/2006/10/25/magazines/fortune/pleabargains/index. htm? postversion=2006102511 ‘Enron Timeline’. 2002. Chron. Retrieved August 17 2007 from http://www. chron. com/disp/story. mpl/special/enron/1127125. html Mogul. Samir S. 2003. ‘ Harmonization of Accounting Standards’. Retrieved August 17 2007 from www. icai. org/icairoot/publications/complimentary/cajournal_jan03/p681-684. pdf

Various sources of accounting standards

The accounting standards originated from many different sources. These include:

• Agency of the Federal government (notably the Securities and Exchange Commission and Treasury Department).
• State regulatory commissions
• Public Accountants
• Quasi-public accounting standards-setting boards (the committee on Accounting procedures (CAP)
• The Accounting Principles Board (APB)
• The Financial Accounting Standards Board (FASB)
• Corporate Managements
• International Financial reporting Standards (IFRS)
• Financial Reporting Standards (FRS)
• International Accounting Standards (IAS)
• International Financial Reporting Interpretations Committee (IFRIC)

How to find authoritative support for a financial accounting issue and what to do if nothing is found that quite fits the issue

The Generally Accepted Accounting Principles (GAAP) are principles which have substantial authoritative support. These principles are produced by the Accounting Principles Board (APB) based on their opinion which constitutes substantial authoritative support. It is crucial to understand that substantial authoritative support can exist for principles that differ from opinion of APB.

If an accounting principle that differs materially in its effect from one accepted in an opinion of the APB is applied in financial statements, the reporting member must decide whether the principle has substantial authoritative support and is applicable in the circumstances.

• If not, the accountant would either qualify his opinion, disclaim an opinion or gives an adverse opinion as appropriate.
• If yes, the accountant would give an unqualified opinion and disclose the fact of departure from opinion.

The steps involve in searching for substantial authoritative support include; define the problem, survey relevant literature, survey present practice of organizations with similar problems, evaluate the information developed, and reach a conclusion. If nothing is found that fits the issue, best practice approach should be adopted.

Principles-based standards versus rules-based standard

Principles-based standards

• Operates in the United Kingdom
• The Combine codes
• Requires the company to adhere to the spirit
• Signed by one partner
• Where non-audit services are provided,

Rules-Based standards

• Operates in the United State
• sarbanes-Oxley Act 2002 (SOX)
• This approach instills the code rather than the letter of code
• The Audit report must be signed off by two partners
• An audit firm must not provide non-audit explanation of how independence is assured work to its clients should be disclosed

Convergence of U.S. and international accounting standards (knowledge of specific IFRS standards is not required)

Relationship between the FASB and IASB has grown ever warmer. The FASB joined the IASB for informal meetings in the early 1990s, and this led to the creation of the G4+1 group of Anglo-Saxon standard setters (US, UK, Canada, Australia and New Zealand, with the IASC as an observer) in which the FASB was an active participant. FASB and IASB reaffirm their commitment to enhance consistency, comparability and efficiency in global capital market. In October 2002, FASB and IASB announced the issuance of a memorandum of understanding (Norwalk Agreement), making significant steps toward formalizing their commitment to the convergence of U.S and international accounting standards.

The FASB has taken six key initiatives to further the goal of convergence of U.S GAAP with IFRS as follows:

• Joint projects being conducted with IASB.
• Short-term convergence projects.
• Liaison IASB member on site at the FASB office.
• Policies and procedures of FASB monitoring of IASB projects.
• The convergence research project.
• Explicit consideration of convergence potential in all board agenda

The degree of FASB’s reliance on the Conceptual Framework in setting standards within the past decade

The conceptual framework (i.e. Principle-based approach) is very important in accounting standard setting. Accounting standards are grounded by FASB framework. The FASB attempts to follow the principles-based approach to standard setting in other to encourage professional judgment and discourage over-reliance on detail rules (the regulatory framework). The conceptual framework is a direct contrast to regulatory framework by FASB. Also, the FASB reliance on conceptual framework attempts to limit additional accounting guidance.

The various meanings and determinations of income and their impact on the security market

Income is an increase in economic benefits during an accounting period in the form of inflows or enhancements of assets or decrease in liabilities. In other word, income is transactions that result in increase in equity other than those relating to contributions from equity participants.

Income is determined by using an income statement that shows various incomes and expenses. The difference gives a net income.

A company’s income statement may provide a positive or negative impact in the capital market after certain ratios have been calculated and analyze. For instance, favorable income statement of a company would cause it stock price to go up and thus impact the capital market in a positive direction.

The differences between the balance sheet versus the income statement approach in financial reporting

A balance sheet is a statement that shows a company’s financial position at a particular point in time (from the starting year of business to current year). Whereas an income statement shows the financial performance of the company during the accounting period (current year)

Assets, liabilities, capital and profits are recognized in the balance sheet, while income and expense are recognized in the income statement.

The “mark-to-market” movement and its role in the recent financial crisis

Traders simply bet on the future prices of goods or services at different point in time. The total profit or loss realized by the long trader who buys a contract at time zero and closes, or reverses, it at time T is just the change in the future price over the period. That is, Ft – F0. On the other hand, the short trader would earn F0 – Ft. Therefore, considering the above analysis, marking to market is the process by which profits or losses are accrued to traders.

It is strongly believed by most financial analyst that mark-to-market trading practice is the root of the current financial crises, which involved a lot of gambling.

Problems in the definition and valuation of liabilities

Liabilities are defined in terms of ‘probable future’ effect, thus attempting to overcome the contingency problem. This appears to be a potentially powerful method of dealing with these complex transactions although it inevitably also raises certain difficulties inherent in any general solution. In particular, the word ‘probable’ lacks a clear definition in current accounting practice, and estimating future events always introduces a degree of subjectivity.

References

1. Zimmerman, J. L & Watts, R. L. (1978): Towards a Positive Theory of the Determination of Accounting Standards. The Accounting Review vol L111 No.1
2. Whittington, G. (2007): Profitability, accountability theory and methodology. Routledge
3. Armstrong, M. S (1969): Some Thought on Substantial Authoritative Support. Journal of Accountancy
4. Johnson, J. J (2002): FASB works with IASB toward Global Convergence. The FASB Report, November.
5. Mirza, A. A & Epstein, B. J (2005): Interpretation and Application of IFRS. Wiley: USA
6. ACCA Testbook (2008/09): Financial Reporting (FR). Kaplan Publishing: Birkshire, UK
7. Marcus, A., Kane, A., & Bodie, Z. (2002): Investment. International edition, McGraw-Hill: USA

The Corporations Law which came into effect in January 1991, has made substantial changes to the way business is conducted in Australia. Previously some illegal practices are now legal, and some legal practices are now deemed to be illegal. Under the Corporations Law finical statements have to be made out in accordance to the various accounting standards. AASB 1024 and AASB 1013 are two such standards. Both these standards have been through a reform process over the last few years, and changes that have been made to them, have determined the level of compliance to the Corporations Law.

The formulation of accounting standards is based on the premise that financial information should be available to users of these statements to enable them to make decisions about the allocation of scarce resources and in the evaluation of such decisions. The ASC is the sole administering body of the Corporations Law, and it is directly accountable to the Commonwealth Attorney-General and the Commonwealth Parliament. Prior to the changes of the Corporations Law in 1991, compliance with applicable Accounting Standards as not necessary, provided that the financial statements gave a true and fair view.

Yet after 1991 changes, the compliance with the applicable Accounting Standards increased. Section 298(1) of the Corporations Law requires that ‘a companies directors shall ensure that the company”s financial statements for a financial year are made out in accordance with applicable accounting standards. ” By the interaction of section 298(1) and 299(1), “where the accounts are made out in accordance with applicable accounting standards but do not otherwise give a true and fair view of the matters … the directors must add such information and explanations as will give a true and fair view of those matters. “

Under section 224 of the Australian Securities Commission Act 1989, saw the establishment of the Australian Accounting Standards Board (AASB). The AASB supports an accounting regulatory system whereby legislation provides a “framework under which accounting regulation can be developed and implemented by a thorough due process” AASB 1024 Consolidated Accounts is one such standard. AASB 1024 requires “the consolidation of companies which are controlled even if there is less than majority ownership. The effects of most intra-group transactions will then be eliminated a part of the consolidation process” (Henderson & Peirson 1994).

A company is required to present consolidated accounts only when it is the parent entity of an economic entity which is a reporting entity. The consolidated accounts are comprised of a consolidated profit and loss account and a consolidated balance sheet. This balance sheet includes all the entities controlled by the reporting entity at the end of the financial year. Compliance with AASB 1024 became mandatory for financial statements published on and after December 31, 1991. In 1991 changes were also made to definitions in the wording of AASB 1024.

To remove the option to deconsolidate one or more subsidies of the reporting entity, The definition of ‘group accounts” was replaced by ‘consolidated accounts”. The Corporations Law also broadened the base of the ‘economic entity” to which consolidated accounting applies , no longer allowing other forms of ‘group accounting” reporting. In the Editorial of the Australian Financial Review on August 5, 1991, appeared the following paragraph: “The recently introduced standard on consolidations (AASB 1024) aims at producing a clear picture of the financial health of reporting companies.

It will certainly catch a lot of off-balance sheet devices” The functions of consolidation or group accounting is not universally accepted. AASB 1024 and the relevant sections of the Corporations Law presume that the functions is to depict the affairs of an economic entity or group of companies. One would expect consolidated accounts to contain the data in separate accounts, but not including data which are not sourced nor excluding data which are. There is concern as to the utility of the consolidated financial statements.

One such event, the $2. billion bail out of the State Bank of South Australia, confirmed the presence of doubt regarding the accounting data about groups. “The recent introduction of AASB 1024 ‘Consolidated Financial Statements” and the consequential amendments to the Corporations Law may play a significant role in determining off balance sheet financing, but these reforms have been long overdue and there still remains doubt as to their effectiveness” Prior to the changes, where the operations of a subsidiary were totally different from those of its parent company it was argued that it would be misleading to consolidate the accounts of the companies.

One immediate way of establishing the impact of AASB 1024 on companies reporting practices would be, if investments, which formerly were not reported as subsidiaries, were reported as such after December 31, 1991. If compliance with AASB 1024 has had any impact on company reporting practices it could be expected that former associates as well as former subsidiaries for which separate sets of accounts were prepared, would now be included in the consolidated accounts. After AASB 1024 became effective, referencing was no longer made to parent and subsidiary companies, but rather to controlling entities.

By this change in definition, resulting from the consolidation of an investment was taken as evidence that introduction of AASB 1024 has ‘influenced management”s choice of accounting policy. Consolidated accounts now give an accurate picture as to the profit and loss and provide more meaningful information for users of the accounts, however it would appear that there is substantial compliance with the consolidated accounts standard, yet little influence on the financial statements. The second standard to be examined is AASB 1013 ‘Accounting for Goodwill”.

Goodwill probably is the most “intangible of intangibles because it is difficult to determine just exactly what it is” . In practice it has evolved to include everything contributing to an existing business”s advantages over a new one or anything that enhances a company”s earning potential. Goodwill defined is as an entity”s unidentifiable intangible assets. These assets that are unidentifiable include “loyal and efficient employees, an established clientele, suppliers … and a good name and reputation. ” (Henderson & Peirson 1994).

Goodwill is measured as the difference between the price paid for an entity and the fair value of the identifiable net asset acquired. Fair value is defined as the ‘amount for which an assets could be exchanged between a knowledgeable, willing buyer and a knowledgeable, willing seller in an arm”s length transaction” . A distinction is drawn between internally generated goodwill and purchased goodwill. Both internally generated goodwill and purchased goodwill give rise to probable future economic benefits.

However only the latter “is to be recognised as an assets because ‘internally generated goodwill is not usually capable of reliable measurement” “. .” (Henderson & Peirson 1994). AASB 1013 was approved on April 18, 1988 and the purpose of this was in ‘regard to the acquisition of an entity, is to specify the manner of accounting for goodwill and discount on acquisition … ” . Prior to the dates before the goodwill standards were introduced, most preparers and their auditors “chose to ignore their professional responsibility to ensure compliance with the accounting standards.

Prior to the introduction of the standard, little attempt was made to establish that the amount attributed to goodwill actually reflected unidentifiable assets. This meant the goodwill amounts was inflated by omission of valuable intangible assets. With the omission of these valuable intangible assets from the balance sheet therefore understates the net worth of the reporting entity. The introduction of an accounting standard regarding goodwill had the purpose of appropriate determination and achieving the proper recording of other acquired assets.

Since the introduction of the standard, the recognition in the financial reports has reached ‘plague proportion”11 with accounting for intangibles reveals an increase in the numbers of companies recognising and amortising goodwill. It is now common place to see the recording of ” … brand names, software, patents and licences and even assets of a more nature like intellectual or sporting property” 11. AASB 1013 also served to minor service which was to reminder the reporting entity that the intangible assets, once recognised, attracted the same obligations as that of non-current assets, including depreciation and amortisation.

Accounting for goodwill has always attracted interest, and all those involved with it have their own view on how it should be reported in the financial statements. “The failure of the community to accept readily a single concept of goodwill and to adopt the consequential accounting treatment can only be explained by the nature of the product we are considering – its” intangibility11 . Both AASB 1024 and AASB 1013 have received their criticism in the past, yet both of them have many positive aspects.

Both these standard have changed management practices in the two fields. There is enough evidence for both standards to suggest that there is compliance with section 298(1) of the Corporations Law, yet in some cases this compliance is limited to the situation and the reporting entity. AASB 1013 has proven to be (prior to its introduction) a relatively large unknown quantity, now having all but changed, and with regard to AASB 1024, a more informed and detailed reports of corporate groups provide more meaningful information.

Financial statements that are simple and comparable to the general public may not be in the best interest of the managers. Managers like to manipulate ?nancial reports to suit their own interests. Financial reporting would be easy to just report whatever is in the cash till. Despite the fact that financial reporting would be simplistic, it is better to have complex account than a simple financial reporting. There is no perfect standard for any corporations in the world. An ever changing corporate world makes it harder to ascertain for the prefect standard.

However, experimentation with alternatives in a competitive regulatory environment generates data to help identify with the most wanted accounting standards. No single set of standards has been shown to be the best suited for all ?rms. The argument for regulatory monopoly in accounting is often based on the assumption that in the absence of such regulation, there will be no standards. Financial reporting standards act as a template to prevent managers from taking advantage of the shareholders cost of capital and fraudulent behaviour or thoughts.

Despite being a set of rules, the financial reporting standards still has its leeway from country to country. With a centrally planned accounting standards, standards setters are susceptible to lobbying pressure especially when disagreement arises between varies interest party. On the contrary, with regulatory competition, standards setters can avoid the lobbying pressure. This is because those who do not like the standard can freely choose another one that is suitable. Analysis For the first claim above, I agree that a simple financial report is favourable to the public but not so to the managers.

However, this may not always hold true as it may paint a biased picture favourable towards the managers. This is mainly attributed to the manipulations of the financial report for their own interest. In addition, a financial reporting that only reports the cash in the till would eliminate all the complexity of financial reporting. However, I feel that a complex financial report that depicts the true situation of a company is better than a simple financial statement that just only accounts for whatever is in the till.

Having guidelines may be easier for financial reporting but it may leave out certain “hard to count” assets and liabilities which are crucial in preparing an impartial financial report for the public. Therefore, I agree with the author that a complex financial report that may arise from regulatory competition is better and more precise compared to a guided and simple financial report. Secondly, my apprehension with the experimentations of alternatives is that in reality, corporation may not have the time or resources to try out different alternatives.

A failed experimentation with an alternative accounting standard may negatively affect the capital that will be invested in the company by investors. However, I do agree with the author that experimentation with different standards through regulatory competition will eventually lead to the perfect accounting standard for every corporation. This is due to the ever changing rules selected in accounting standards through regulatory competition. 3 No single standard setter knows the perfect standards for different industries and circumstances.

Hence, I believe that in order to have the perfect standards it is for the best to leave it to the market. Like I have mentioned above, accounting rules are always carefully chosen according to different regulatory competition. Just like the laissez faire concept. Hence, with regulatory competition, the market will decide which standards are the best by allowing corporations to experiment with alternatives. Subsequently, the main argument favouring the harmonisation of accounting tandards is the fear of having no standard with competitive regulations. However, better firms can engage the best quality of audit as an attempt to convey their quality over to investors. 2 Firms can convey such message by paying a price premium charged by audit ?rms, which are perceived to provide services of higher quality. This further proves that even without regulations there will still be standards; in fact the reports prepared will be better quality as better audit firms are employed.

The up side of using accounting standards set by standard setters is that it is prescriptive. I agree with the writer that in this case, by having prescriptive standards are actually positive as it restricts managers from exploiting the cost of capital belonging to the shareholders. In addition, not all standards that are prescriptive lack flexibility which will hinder professional judgement. An example would be the flexibility between UK GAAP, US GAAP as well as International GAAP despite all coming under the same accounting standards.

Finally, I disagree with the author to a certain extend that it will lessen the lobbying pressure. I believe that having regulatory competition may provide for more lobbying opportunities as pressure to conform to authorities who are usually the big corporations or political government are futile to resist. 4 Nevertheless, I agree with the author that regulatory competition will not eliminate lobbying pressure but lessen it. With regulatory competition, accounting standards are diversified hence reducing its vulnerability to lobbyist.

Critical appreciation Throughout the whole paper, the author has a strong stand on the differentiation of accounting standards by putting more weight on discussing on the advantages of regulatory competition that arises from differentiated accounting standards. Even though there are discussions on the advantages of having standards towards the end of the paper, there is not much emphasis. However, I agree with the author that his arguments for regulatory competition are not for the elimination of accounting standards.

I strongly believe in the Pareto efficient solution for setting accounting standards; for every accounting standards set it will not benefit everyone but as long as it benefits the majority it will be a considerably good standard. Overall, I love this article as it opens up my mind regarding the benefits we can get by adopting regulatory competition by having different accounting standards at the same time emphasised about the consequences of just having regulatory competition.

Title: Contrast and compare the method and footing upon which Nike Corporation studies on foreign currency deductions in footings of IAS 21 and all other relevant IAS IFAS ordinances. In the event if the company reports harmonizing to international criterions, discourse the deductions in relation to the criterions applied in the Home state of the corporation.

Globally, there are figure of accounting criterions, most of all, two primary accounting criterions are International Accounting Standards implemented by the International Accounting Standards Board ( IASB ) and the Generally Accepted Accounting Practice of the USA, which is implemented by the Financial Accounting Standards Board ( FASB ) . Accounting Standards are set of accounting regulations that govern the manner in how the histories ( fiscal statements ) of a corporation is displayed

At an international degree, it is the duty of The International Federation of Accountants ( IFAC ) to regulate accounting organic structures in regard of conformity with accounting criterions. The aim of the federation is to “develop and heighten world-wide accounting profession with consonant standards”1 and integrated coordination within the profession. Where a concern has an international dimension, it must adhere and follow with the international accounting criterions.

In add-on, conformity with IAS will help international concerns and international investors to interpret the relevant accounting information of the internationally trading concern. For illustration, to contrast a Gallic company with an Australian company it is needed for each company to expose their accounting information in an suitably comparable method.

IAS include a figure of criterions, each criterions trades with assorted accounting issues associating to foreign minutess and other minutess that do non hold a domestic component and therefore necessitate to be regulated at an international degree.

International Accounting Standard 21 is used for the prescription of the standard signifier of including foreign currency minutess and foreign operations in the company’s fiscal statement. Additionally, it prescribes the interlingual rendition of fiscal statements into a presentation currency. The troubles underscoring this rule are finding the employment of an exchange rate and the describing the effects of alterations in exchange rates in the fiscal statements.

Following are some of the cardinal accounting nomenclature used under IAS 21.8:

Functional currency/measurement currencyis the currency of the primary economic environment in the legal residence of company’s operation.

Presentation currency is the currency in which fiscal statements are presented.

Exchange difference is the difference ensuing from a transition of certain units of a one currency into another currency at a different exchange rate.

Foreign operation relates to the activities that are based in another state other than the coverage endeavor this include a subordinate of the parent company, associate, joint venture or a subdivision.

The measuring and presentation of fiscal statements under IAS 21 was superseded by IAS 21 ( revised 2003 ) ; this alteration is the effect of the effects of alterations in Foreign Exchange Rates. This was effectual on one-year fiscal periods get downing on or after 1^stJanuary 2005.

ISA 17 requires that revenue enhancement related issues must be compiled in fiscal histories in conformity with the IAS by exposing assets taken on rentals on the balance sheet 2. Under IAS 29.39 ( B ) and 40 corporations are under duty to place the use of methodological analysis in using IAS 29 as a revelation policy of the accounting criterions 3.

ISA 39 is used for the measurement and valuing assets and fiscal liabilities that in foreign currency. ISA 21 concerns the exchange rates in change overing foreign currency fiscal assets and liabilities into national currency by utilizing the end-month exchange currency rate 4.

International Accounting Standards are set of elaborate list of regulations prepared for comptrollers and companies for the conformity in the production of accounting statements.

International Accounting Standards Board ( IASB ) under ( SIC 30.7-14 ) permits some endeavors in other states in a hyperinflationary environment like the USA to utilize USA dollar other than utilizing the measurement currency. In the event that a corporation applies this allowance, the corporation must guarantee that impacts of hyperinflation are suitably addressed ( ISA 21.36 ) 5. However, must follow the right process by repeating the local-currency IFRS fiscal statements to the mensurating unit current at the balance sheet day of the month [ IAS29.7-8 ] [ SIC-19.5-9 ] , so, utilizing the year-end exchange rate, to interpret the fiscal statements into the stable currency for all periods presented.

SIC 19 articulated that the commissariats for fiscal information must be utile to reflect the pecuniary kernel of the cardinal events and fortunes that are relevant to that company. Furthermore, the use of currency to mensurate points in the fiscal statement must be tailored to supply information sing the company. The measuring of foreign currency points must be treated as foreign currency in the fiscal statement and the construing of fiscal statement. Inevitably, there are no commissariats under the International Accounting Standard 19 for corporation to randomly take to accommodate steps for the turning away of repeating fiscal statements that are treated in the currency of a “hyperinflationary economy” .

Hyperinflationary economic system has the undermentioned component: the accretion of non-economical assets in a stable foreign currency ; the look of well stable foreign currency is known as a financial sum, these being capital goods, rewards and rent. Price index interconnects to pricing, pay of workers and the involvement rates. Under IAS 29.3 ( a ) ( vitamin E ) the cumulative rising prices rate over three old ages will near or transcend 100 % . Finally, the pricing of recognition gross revenues are measured in a manner that compensates for the awaited loss of dickering power during the recognition period.

As an illustration, lets assume that a British company as a step of its points in the fiscal statement uses the British lb as an appropriate currency under the IAS 21. In add-on, the company restates the same fiscal statements under the rule of IAS 29, which the fortunes indicate that the British lb is the currency of “hyperinflationary economy” . On the contrary, the company is non precluded from change overing the fiscal statements to be presented in Gallic francs.

The Generally Accepted Accounting Practice ( USA ) is the accounting criterions that are used with the United States of America to regulate USA corporations. These criterions are distinctively different from IAS as “U.S. accounting criterions have become “rules-based, ” filled with specific inside informations in an effort to turn to as many possible eventualities as possible”6. Subsequent to the execution of the Sarbanes-Oxley Act of 2002 in an effort to turn to the job, required the SEC to analyze the practicableness of a principles-based accounting system. It was concluded that, feasibleness of a principles-based attack could reflect minutess at a true economic substance 7.

Within the USA legal power there is a local monopoly for the authorship of fiscal coverage criterions for public companies. The statutory authorization over fiscal coverage criterions is vested in the Securities Exchange Commission ( SEC ) and the authorship criterions are delegated to the Financial Accounting Standards Board ( FASB ) .

Most USA based corporation use the Generally Accepted Accounting Practice. In the initial contemplation of criterions, GAAP is principles-based systems that pose troubles, which tend to originate when specific criterions come up for consideration.

However, non-adoption of cosmopolitan criterions of accounting have caused great troubles to build the cost and benefits of typical and consonant fiscal coverage to get at efficient solutions. In add-on, this has created farther jobs for users of fiscal information because of the complexness in understanding the fiscal statements of abroad corporations.

However, there is concrete grounds that figure of states use the USA accounting criterions as a benchmark to manner criterions appropriate for their ain economic system. It is articulated that the Accounting Standards Board ( IASB ) , the FASB and the SEC are the best patterns in the universe. This is the ground environing USA determination non to accommodate cosmopolitan accounting criterions. In add-on, U.S. permits companies to accommodate to looser By and large Accepted Accounting Principles.

In the contrary, the president of the SEC and the FASB and IASB have reached a consensus in 2002 on working together toward a greater convergence between U.S. Generally Accepted Accounting Principles and international accounting criterions.

International Accounting Standards are used in fixing fiscal studies. It was the Lisbon Council of European Union ( EU ) to advance a sole, lasting and liquid fiscal market by the version and enforcement of a individual and united set of fiscal coverage criterions. The intent of the ISA was to set up and continue quality criterions for all individuals who used such fiscal information.

The acknowledgment of the heightening globalization made tremendous demands for a better and higher quality international accounting criterions. The European Commission favoured the proposals for IAS and challenged the SEC determination to disapprove the use of ISA in the USA markets. SEC concerns over the possible acceptance of ISA was in regard of the jobs that may originate by the non-correspondence of histories between different corporations may put some companies at a disadvantage with their opposite numbers.

In June 2001, the displaying of trade names and other rational belongings on the balance sheet of USA based corporations was titivated under the USA GAAP ( Generally Accepted Accounting Practice ) . This was the consequence of a proficient differentiation in accounting policies of USA GAAP and IFRS ; the differentiations were in relation to the amortization of good will, negative good will and hedge accounting 8. Although, the overruling benefit of using IFRS is comparable to USA based corporations. Once, the users of accounting information such as investors, stockholders and other corporation faced intensive troubles in trying to construe and understand histories of abroad companies due to the use of diverse pecuniary linguistic communication. But the current accounting policies of IFRS purposes to turn to and help in the determination doing procedure of those who are effected by accounting policies and possible investors.

Huge figure of corporation are faced with figure of trouble in regard of taking the right signifier of accounting criterion. Predominantly, big figure of USA companies, autumn into this class ; the ground behind this being that USA has its accounting criterions that are non parallel with the international accounting criterions.

This conflicting factor between the two accounting patterns render it incompatible for USA companies like Nike to do commissariats taking to follow with both accounting patterns. However, in accounting pattern this is impracticable and impracticable unless an endeavor compiles two sets of histories that comply with both patterns.

To turn to this conflicting domination on many investors and others likewise, USA committee is coming to footings with accepting the demand for high quality fiscal coverage model. As the turning insensitiveness in globalization of companies and for the protection of the activities and involvement of investors, loaners and companies, the Commission is heightening its engagement in a figure of forums to set up a universally accepted fiscal coverage model 9.

However, the SEC’s supervising and disposal for the equity of fiscal studies submitted by corporations will go on under the competitory government. At present, non much revelation on societal and environmental issues is required of US companies in contrast to demands emerging in Europe and elsewhere around the universe. However, a former legal research in 1999 by Williams suggested that the SEC coherently has the authorization to necessitate such revelations. The job being that insufficient action has been taken to implement a authorization for societal and environmental revelations by companies in the USA. US companies are neglecting to describe on environmental and societal tendencies and events that possess material impact. Consequent to the findings of a research on non-compliance with revelation regulations ; Sarbanes-Oxley attempted to better the rightness of fiscal studies and ethical criterions of companies ” 10. Problems exist in this country because of “too many different criterions, increasing costs of coverage, fright because of Kasky v. Nike, inquiries about materiality, and the fact that confirmation procedures are immature”11.

Nike is one of the top athleticss retails in the universe ; the company’s aim is to make concern with contrast mills that persistently illustrate conformity with Nike’s criterions and that operates in a lawful mode. Nike is the lone company that has created its ain criterions, programmes and activities to place reference and study issues of conformity in contract mills to assist find development.

Presently, there are no industry-accepted indexs for mensurating Next’s public presentation. Neither there are any standard coverage conditions in regard of contract mills, which can be by and large accepted. However, Nike has its ain creative activity of mensurating its ain criterions, programmes and activities to place reference and study issues of conformity in contract mills.

The concerns over whether Following Corporation complies with any accounting criterions is an unreciprocated inquiry. Another cause of concern is that “the hearers besides use questionable research methods, of which Nike merely makes the consequences public that do non harm its reputation”12.

Over the old ages Nike had been capable to case in relation to its legal duty over the conformity of its providers with local labor Torahs and the accounting patterns that were used to immune its repute. These sorts of allegations will necessarily form on the heads of consumers. Then the “Nike ‘s success, like that of so many modern companies, is all about keeping trade name values and the value of the brand”13. Fortunately, engineering is at manus to assist companies pull off this hard undertaking. Clearly, unless staff have the necessary preparation and accomplishment non merely to execute their responsibilities aptly but besides in conformity with the company ‘s ethical and concern criterions, good administration and conformity will non be achieved. That applies merely every bit much to providers as it does to the primary trade name proprietor – and it goes right to the bosom of good corporate administration 14.

In 2003, Nike adopted the Financial Accounting Standards Board Statement 142 for the appraisal of its Goodwill and other touchable assets 15. In relation to the revelation of sections of an endeavor and related information, Nike has adopted Statement of Financial Accounting Standard No131 ( 16 ) . However, far from over these steps are merely in conformity with the USA GAAP and non with the IAS.

Harmonizing to the accommodations on the fiscal statements of Nike, there were accommodations associating to the transition and interlingual rendition of foreign functional currencies into USA Dollars. This is reflected by the inclusion of the accommodations of foreign currency interlingual renditions and a constituent of accretion of the comprehensive income/losses in shareholders’ equity.

It is apparent from Nike’s histories, that the coevals of transactional income and losingss as an effectual facet of accounting of foreign exchange on the recording of assets and liabilities of the company is denominated in a typical currency other than the currency that is applicable for the company are recorded in other disbursals.

However, the inside informations of these generational minutess are non recorded in the period of their happening. However, under IAS 29, 26 and 30 it is required to describe the consequence of hyperinflation, which must be restated in footings of the mensurating unit current at the balance sheet day of the month. That the historical cost income statement by and large recognises grosss and disbursals at monetary values current at the dealing day of the month. Nonetheless, IAS provide a degree of flexibleness in following different accounting standards17.

Already, Nike was capable to figure of cases because of its falsified information on its histories ensuing from the intervention of labour workers around the universe. The legal proceedings in June 2003 involved allegations that Nike made “false statements in public dealingss materials” 18.

The troubles underscoring for Nike in the adoptability and conformity with a chosen set of accounting criterions is that Nike has operations in the USA as its legal residence of abode ; therefore, Nike is required to adhere to USA GAAP. In other words, the obstruction caused by conformity with USA GAAP means that Nike can non pick to roll up its fiscal studies in conformity with the IAS.

Nike represents fiscal statements in USA dollars instead than the measurement currency but it guarantee that the impact of hyperinflation under ISA 21.36 is adequately dealt with in the fiscal statements. This enables Nike to do conformity steps for GAAP and IAS 21.

In the USA, it is the duty of the SEC to oversee corporations on their conformity of the accounting criterions. In the event of unjust coverage, the SEC will go on to raise inquiries with the corporations and their hearers.

A corporation will be capable to disciplinary action in the event of a failure to follow with the altered coverage or auditing triggered by the unfairness in describing. In the event of relentless unfairness and non-compliance regardless of the conformity of studies to the adapted set of fiscal criterions, the SEC ( regulator ) will bespeak the incorporators of the accounting criterions to undertake the quandary.

Disciplinary action against USA hearers are functioned and segmented among the authorities and self-regulatory administrations both at federal and province degrees.

Where a USA corporation adapts International Accounting Standards, SEC has the authorization to necessitate that corporation to obtain an accounting study audited by the hearers who are capable to a regulative government that is acceptable to the SEC.

However, if a corporation failed to follow with accounting criterions and have produced deceitful histories misdirecting investors and other history users so the corporation’s comptrollers are capable to condemnable liability. The treatments in 2004 over the Parmalat dirt due to non-compliance with accounting criterions made Accounting Bodies realise that “fraud knows no national boundaries” Donaldson. Furthermore, he added “the lesson from Parmalat is a lesson for the demand of cooperation between United States and regulators around the universe that is precisely what we are naming for now” 19.

Despite of troubles arise by figure of typical accounting criterions, there are besides advantages behind the devilling frame ; the handiness of different accounting criterions has made gradual and steady betterments in the efficiency of corporate administration and in the apprehension and construing of company histories.

However, on the other terminal of the spectrum, there were and presently are underscoring troubles in the use of different accounting criterions. First, there are issues that are cause for concern particularly the issue of retreating corporations to taking to follow accounting criterions from a wide scope of picks instead than modulating on the domestic pattern of accounting criterions and curtailing the adoptability of other criterions.

There are typical differences between the accounting criterions at an international degree and USA degree, this renders it intensive for most international companies that wish to hold operation or those that already have operations and those corporation that intend to raise financess in the USA capital market as they are required to adhere to the USA GAAP. This same quandary includes Nike Corporation as it has USA operations.

¹Fiscal Reporting Alexander D and Britton A 2002 6^Thursdayedt p159

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¹¹Williams, Cynthia A. 1999. The Securities and Exchange Commission and Corporate Social Transparency. Harvard Law Review, 1197, 1998-1999, 112: 1197-1298.

¹²hypertext transfer protocol: //forum.europa.eu.int/irc/dsis/accstat/info/data/en/IAS and ESA95.htm

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¹⁹Meeting in Brussels 2004

Fiscal Reporting Alexander D and Britton A 2002 6^Thursdayedt Financial Times Prentice Hall

Williams, Cynthia A. 1999. The Securities and Exchange Commission and Corporate Social Transparency. Harvard Law Review, 1197, 1998-1999, 112: 1197-1298.

hypertext transfer protocol: //www.newagebd.com/2005/jan/27/busi.html

hypertext transfer protocol: //www.pwcglobal.com/Extweb/service.nsf/0/5A7896B9AA1585B785256C76005A20C0? opendocument # nine

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hypertext transfer protocol: //www.sec.gov/news/studies/soxoffbalancerpt.pdf

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hypertext transfer protocol: //forum.europa.eu.int/irc/dsis/accstat/info/data/en/IAS and ESA95.htm

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Meeting in Brussels 2004

MFRS 101-Presentation of Financial Statements prescribes the footing for presentation of general purpose fiscal statements to guarantee comparison both with the entity ‘s fiscal statements of old periods and with the fiscal statements of other entities. It sets out overall demands for the presentation of fiscal statements, guidelines for their construction and minimal demands for their content.

Purpose of fiscal statements

Fiscal statements are a structured representation of the fiscal place and fiscal public presentation of an entity. The aim of fiscal statements is to supply information about the fiscal place, fiscal public presentation and hard currency flows of an entity that is utile to a broad scope of users in doing economic determinations. Fiscal statements besides show the consequences of the direction ‘s stewardship of the resources entrusted to it. A complete set of fiscal statements comprises:

( a ) a statement of fiscal place as at the terminal of the period

( B ) a statement of comprehensive income for the period

( degree Celsius ) a statement of alterations in equity for the period

( vitamin D ) a statement of hard currency flows for the period

( vitamin E ) notes, consisting a sum-up of important accounting policies and other explanatory information

( degree Fahrenheit ) a statement of fiscal place as at the beginning of the predating period when an entity applies an accounting policy retrospectively or makes a retrospective restatement of points in its fiscal statements, or when it reclassifies points in its fiscal statements.

An entity may utilize rubrics for the statements other than those used in this Standard. For illustration, an entity may utilize the rubric ‘statement of comprehensive income ‘ alternatively of ‘statement of net income or loss and other comprehensive income ‘ .

Statement of fiscal place Information to be presented in the statement of fiscal place. As a lower limit, the statement of fiscal place shall include line points that present the undermentioned sums:

( a ) belongings, works and equipment ;

( B ) investing belongings ;

( degree Celsius ) intangible assets ;

( vitamin D ) fiscal assets ( excepting sums shown under ( vitamin E ) , ( H ) and ( I ) ) ;

( vitamin E ) investings accounted for utilizing the equity method ;

( degree Fahrenheit ) biological assets ;

( g ) stock lists ;

( H ) trade and other receivables ;

( I ) hard currency and hard currency equivalents ;

( J ) the sum of assets classified as held for sale and assets included in disposal groups classified as held for sale in conformity with MFRS 5 Non-current Assetss Held for Sale and Discontinued Operations ;

( K ) trade and other payables ;

( cubic decimeter ) commissariats ;

( m ) fiscal liabilities ( excepting sums shown under ( K ) and ( cubic decimeter ) ) ;

( N ) liabilities and assets for current revenue enhancement, as defined in MFRS 112 Income Taxes ;

( O ) deferred revenue enhancement liabilities and deferred revenue enhancement assets, as defined in MFRS 112 ;

( P ) liabilities included in disposal groups classified as held for sale in conformity with MFRS 5 ;

( Q ) non-controlling involvements, presented within equity ; and

( R ) issued capital and militias attributable to proprietors of the parent

An entity shall clearly place each fiscal statement and the notes. In add-on, an entity shall expose the undermentioned information conspicuously, and repetition it when necessary for the information presented to be apprehensible:

( a ) the name of the coverage entity or other agencies of designation, and any alteration in that information from the terminal of the predating coverage period ;

( B ) whether the fiscal statements are of an single entity or a group of entities ;

( degree Celsius ) the day of the month of the terminal of the coverage period or the period covered by the set of fiscal statements or notes ;

( vitamin D ) the presentation currency, as defined in MFRS 121 ; and

( vitamin E ) the degree of rounding used in showing sums in the fiscal statement.

Current/non-current differentiation

An entity shall show current and non-current assets, and current and non-current liabilities, as separate categorizations in its statement of fiscal place in conformity with except when a presentation based on liquidness provides information that is dependable and more relevant. When that exclusion applies, an entity shall show all assets and liabilities in order of liquidness.

Current assets

An entity shall sort an plus as current when:

( a ) it expects to gain the plus, or intends to sell or devour it, in its normal operating rhythm.

( B ) it holds the plus chiefly for the intent of trading.

( degree Celsius ) it expects to gain the plus within 12 months after the coverage period.

( vitamin D ) the plus is hard currency or a hard currency equivalent ( as defined in MFRS 107 ) unless the plus is restricted from being exchanged or used to settle a liability for at least 12 months after the coverage period.

An entity shall sort all other assets as non-current.

Current liabilities

An entity shall sort a liability as current when:

( a ) it expects to settle the liability in its normal operating rhythm ; MFRS 101

( B ) it holds the liability chiefly for the intent of trading ;

( degree Celsius ) the liability is due to be settled within 12s months after the coverage period ; or

( vitamin D ) it does non hold an unconditioned right to postpone colony of the liability for at least years after the coverage. Footings of a liability that could, at the option of the counterparty, consequence in its colony by the issue of equity instruments do non impact its categorization.

An entity shall sort all other liabilities as non-current,

Statement of alterations in equity

Information to be presented in the statement of alterations in equity.

An entity shall show a statement of alterations in equity. The statement of alterations in equity includes the undermentioned information demoing in the statement:

( a ) entire comprehensive income for the period, demoing individually the entire sums attributable to proprietors of the parent and to non-controlling involvements ;

( B ) for each constituent of equity, the effects of retrospective application or retrospective restatement recognised in conformity with MFRS 108 ;

( vitamin D ) for each constituent of equity, a rapprochement between the transporting sum at the beginning and the terminal of the period, individually unwraping alterations ensuing from:

( I ) net income or loss ;

( two ) each point of other comprehensive income ; and

( three ) minutess with proprietors in their capacity as proprietors, demoing separately parts by and distributions to proprietors and alterations in ownership involvements in subordinates that do non ensue in a loss of control. Information to be presented in the statement of alterations in equity or in the notes.

For each constituent of equity an entity shall show, either in the statement of alterations in equity or in the notes, an analysis of other comprehensive income by point.

An entity shall show, either in the statement of alterations in equity or in the notes, the sum of dividends recognised as distributions to proprietors during the period, and the related sum of dividends per portion.

Globalization may hold started 1000s of old ages ago with the long distance trade that connected Central Asia, China and Europe yet we can safely reason the magnitude of the trade and impact so can non be compared with what we are witnessing today. At the really nucleus of trade prevarications accounting which is said to be the ‘language of concern ‘ . With the convergence of telecommunications and information engineering, and the now ubiquitousness of the cyberspace this paper seeks to understand one of the few staying barriers to ‘full ‘ globalisation. Businesss need a unvarying manner through which they can carry on, step and unwrap their minutess so that they can be understood by any interested party around the universe. This is where the importance of holding a consonant international accounting criterion is realized. This paper looks at the construct and development procedure of international convergence of accounting criterions while it besides seeks to convey out the major unfavorable judgments / factors that could be said to be impeding the advancement towards holding harmonized international accounting criterions. The paper besides highlights both statements for and against convergence of international accounting criterions. Finally possible attacks that could be applied to aide in the hastening and/ or distributing the ‘gospel ‘ for harmonisation of the international accounting criterions are outlined in the recommendations subdivision. The paper ends with a strong pro- harmonisation decision.

Introduction

Globalization is the procedure of integrating and interaction of people, administrations and authoritiess of different states. It is driven by investing, international trade and supported by information engineering. The effects of globalisation are manifested through the alterations in people ‘s civilizations, prosperity and economic development, alterations in political systems, societies and besides alterations in the environment. With globalisation we have witnessed an increasing volume of trade in goods and services and capital flows as foreign direct investings ( Levin Institute para1 ) . As transnational companies, persons and authoritiess seek to increase their wealth through designation of feasible investing chances around the Earth, the demand for developing tools, techniques or methods that will help in doing accurate determinations has arisen.

Accounting is the linguistic communication of concern. It is used to pass on the being and development of a concern ‘ fiscal state of affairs and the public presentation of its economic entities. Fiscal information is a linguistic communication signifier, hence if we are to utilize it to do determinations on investing or taking up recognition it should non merely be apprehensible but besides be comparable. Due to the rise of new concern factors, such as the international pecuniary system and the planetary economic system, concerns need a unvarying manner through which they can carry on, step and unwrap their minutess so that they are apprehensible by any interested party around the universe ( Diaconu 1-2 ) .

In brief what we are stating is that for one to accurately compare the public presentation of two concerns located in different parts of the universe 1 would happen it much simpler if the two organisations that he was comparing used a similar accounting system for their analysis. There has been some attempt for sometime now to come up with a consonant international accounting criterion. Soon, the two major accounting criterions that are in usage are the International Financial Reporting Standards ( IFRS ) and the United States ‘ By and large Accepted Accounting Principles ( GAAP ) . The IFRS are issued by the International Accounting Standards Board ( IASB ) and are presently in usage in about 100 states ( including the European Union, Australia, South Africa etc ) .

Whereas there are many states that abide by International Financial Reporting Standards, there are many more that do non stay by it. The two noteworthy states that do non follow the IFRS are the Canadian Accounting Standards Board ( AcSB ) and the US Financial Accounting Standards Board ( FASB ) and. The IASB which is mandated with the end of making planetary criterions that are of high-quality, apprehensible, crystalline and enforceable via the International Financial Reporting Standards ( IFRS ) comprises of a 14 – member commission, from nine different countries.A

On the other manus, the Generally Accepted Accounting Principles ( GAAP ) represents

a varied group of techniques used to treat, fix and present public accounting information. GAAP is general in its methods and it is this generalization that makes it suited for version by many different types of industries. This is why many industries in the US are urged to detect GAAP rules. The Financial Accounting Standards Board ( FASB ) is the organisation granted authorization by the US Securities and Exchange Commission ( SEC ) to set up the by and large accepted accounting rules. A GAAP ‘s nucleus rules include consistence, comparison, dependability and relevancy.

United States companies and foreign subordinates of US multinationals use the US GAAP while their European Union opposite numbers and their foreign subordinates use IFRS. Due to the international political relations that belies the full IAS harmonisation attempt, most stakeholders in capital markets are forcing for the thought of an international convergence between the IFRS and U.S. GAAP as the best solution ( Diaconu 1 ) .

International harmonisation of accounting criterions has been defined as the effort to convey together different accounting systems. Samuels and Piper view it as the procedure for bring forthing a interactive consequence through the combine and blending of assorted patterns into an orderly construction ( 56 ) . Harmonization is perfectly necessary because national criterions of fiscal statements are virtually useless in today ‘s universe. Fiscal markets in states where there is more ordinance are threatened with a loss of market portion while transnational corporations must come up with multiple studies for different states where they operate in ( Nobes and Parker 19 ) . Iqbal, Melcher and Elmallah claim that there is a demand for the convergence of accounting criterions for the interest of the foreign investor who requires aid in understanding the fiscal paperss of the companies in other states where they may wish to put their financess.

Prior research on harmonisation of accounting criterions may be described as being either empirical or qualitative. Qualitative research has typically looked at the sensed advantages of convergence and its impact on standard compositors.

Empirical research on the other manus, turn toing international harmonisation of accounting criterions follows two major attacks, de jure and de facto harmonisation. De jure harmonisation involves analyzing of accounting criterions and other ordinance while de facto harmonisation entails the analysis of corporate accounting patterns within a given regulative model.

Harmonization is a “ moving mark ” and more recent studies by international accounting houses have been used to set up the extent of de jure harmonisation. De facto harmonisation is a examination of fiscal coverage patterns.

The Concept and Development Process of International Convergence of Accounting Standards

In 1973, the International Accounting Standards Committee ( IASC ) was founded to develop planetary accounting criterions. In April 2001 the IASC was reconstituted into the International Accounting Standards Board ( IASB ) which officially proposed a “ Convergence ” construct.

Convergence targeted doing the same economic minutess but in different planetary legal powers to be utilizing the same accounting attack.

Moussa outlines the development procedure of international convergence of accounting criterions as follows:

First: Convergence represents advancement through consisting the demands of incorporating international economic systems and sets the way for future development. Nevertheless, convergence requires great attempt if it is to be achieved ( Moussa 89 ) .

Second: Convergence does non equal identity. One needs to understand that states have different regulative constructions ; they have dissimilar economic environments, cultural doctrines, and even differ on the quality of comptrollers they possess. Users of accounting information are besides non likewise ( Moussa 89 ) .

Third: Convergence is a procedure. It is a procedure because in the universe there are ever new issues originating which require the states to actively and continuously innovate new mechanisms to make constructions which meet such demands as they come up. It is merely through this that states can accomplish equitability, sovereignty, international efficiency and development of planetary diverseness ( Moussa 89 ) .

Fourth: Convergence means interaction between different states, between single states and the IASB, and between the IASB and regional professional accounting organic structures. There is a demand for sustained communicating to larn from each other and to obtain common acknowledgment from each other ( Moussa 89 ) .

Moussa farther lineations three phases of international convergence of accounting criterions as illustrated below:

International Comparison refers to a comparing among different states accounting criterions. Through international comparing the differences and similarities among different national accounting systems are revealed. From such disclosures it becomes possible to supply conditions for the international convergence of accounting criterions.

International Harmonization is the international dimension of economic development that promotes international harmonisation of accounting.

International Convergence is the concluding phase for the coveted planetary convergence of accounting criterions. International convergence is being driven by the two phases listed above, international comparing and international harmonisation, and economic globalisation. The purpose is to finally stop up with planetary common accounting criterions developed through such a dynamic procedure as the one outlined above ( 90 ) .

Issues environing the development of consonant international accounting criterions ( IAS )

Historically, the US, Europe, the UK and Latin American theoretical accounts have been the four major accounting criterions theoretical accounts in usage within the industrialised states: . The International Accounting Standards Committee ( IASC ) took the lead with respects to the standardisation of these theoretical accounts.

In 1973 the UK, the US and Canada embarked on a procedure geared toward making harmonized international accounting criterions. The International Accounting Standards Committee ( IASC ) was subsequently formed and it presently has representatives from accounting organic structures in 106 states. By 1991 there had been 31 criterions issued ( Lochner, Jr. 108 ) . Fleming says that for convergence of international accounting criterions to happen the undertaking must get down with coming up with criterions for the coverage attacks required by the different national securities regulators ( 101 ) . In April 2001 the IASC was reconstituted as the International Accounting Standards Board ( IASB ) which officially proposed the ‘convergence ‘ construct.

In lesser-developed states, the International Monetary Fund ( IMF ) has aided in the standardisation attempt through their aid to authoritiess with respects to their fiscal direction processs, through accountant instruction plans and by advancing the constitution of regional accounting associations ( Fleming 102-103 ) .

A cardinal first measure to deriving an international understanding on the definition of fiscal statement points would be for the international industry to put political force per unit area on securities regulators. Second, practising comptrollers and the course of study of concern school accounting plans would necessitate to rapidly follow these international criterions. Third, authorities fiscal coverage criterions need to be made to suit in with international exchange rate coordination such as those developed by the African and Asian Development Banks, the G7 states, the International Monetary Fund and the Organization for Economic Coordination and Development ( OECD ) . Finally, the accounting organic structures in less developed states need to be reassured to follow these harmonized international accounting criterions in alternatively of burthening themselves with the immense disbursal of making domestic accounting criterions ( Weber 67 ) .

There is no denying that the procedure of coming up with internationally harmonized accounting criterions is a political procedure for illustration the FASB criterions are the consequence of complex political dialogues and procedures. The truth of the affair is that those with political power do hold vested involvements in domestic criterions. Again, each state has its ain accounting policy processes which necessitate the demand for tonss of dialogue for any state seeking to equilibrate its legal sovereignty with international cooperation.

Lochner, Jr. says that the tendency in international cooperation has been toward bilateral and trade-block understandings for illustration the convergence of European Union ‘s ( EU ) accounting criterions which is a trade-block ( 108 ) .

The issue of extra-territoriality makes it hard to implement international jurisprudence therefore national authoritiess would necessitate to spearhead and implement international accounting criterions ( IAS ) harmonisation. By and large, contracts between states tend to be more enforceable than contracts between citizens of different states.

A common statement frequently raised against the convergence of international accounting criterions ( IAS ) has been that the costs of development and acceptance of IAS criterions would far surpass its benefits. However, Goeltz believes that the manner has already been laid out by the international capital markets. These marketplaces / Bourses have quickly acknowledged the being of a planetary market to the extent that to authorise investors with the information they need to do sound investing determinations, they have gone in front to hold some gloss to convergence in the accounting criterions that they employ ( 86 ) .

In instances where authoritiess seek to privatise some of the industries they have been engaged in international accounting criterions could be adapted to so that private investors from anyplace in the universe would be able to expeditiously measure these concerns based on their fiscal records.

Developing states have become cardinal beginnings of comparative advantage in the planetary economic development particularly when we look at of import factors of production such as natural stuffs and labour. Therefore we can non disregard the importance of including developing states within the model for harmonising IAS. Having harmonized international accounting criterions will be utile when we need to mensurate the value of these developing states ‘ assets in the universe market. Besides, in order to help in the enterprises of inter-governmental economic development cooperation between states authoritiess ‘ accounting demands to be standardized ( Weber 68 ) . Again, we need to observe that developing and developing states view convergence of international accounting criterions as a gambit by the economically superior states to enforce criterions on them.

Another unfavorable judgment points to the really nature of accounting. Accounting is a flexible pattern that is it can be modified to accommodate a assortment of state of affairss. The statement here is that if accounting criterions are harmonized it would lose its flexibleness. The job would be whether the internationally set criterions would be able to fit the broad scope of phases of economic development, national fortunes and legal systems.

A inquiry on quality may originate in fortunes where the International Accounting Standards Board ( IASB ) , the organisation with the authorization of coming up with a consonant IAS, find it hard to hold consentaneous understanding on some of the accounting criterions. The belief is that IASB would be forced to do via medias so that the international accounting criterions it has come up with are accepted globally. These could connote that the criterions will be permissive and unequal.

Nobes and Parker suggest that companies would hold to edify their investors about possible inauspicious effects that this convergence of international accounting criterions could hold on the net incomes and liabilities they get to describe. They are of the position that harmonisation of IAS could shoot volatility into the balance sheets of some transnational corporations. This could be unsafe to these companies as their net incomes may be lowered ( 77 ) .

Advantages of holding a consonant international accounting criterion ( IAS )

The grandest benefit that would flux from convergence of IAS would be the easiness of comparing international fiscal information. This relaxation of comparings would extinguish one of the biggest hindrances to the flow of international investing that is it will decrease the current scruples on the dependability of fiscal statements from ‘foreign ‘ states.

Harmonization of IAS would salvage clip and money. Presently, to follow with the different national Torahs or pattern of different states so much clip and money is spent to roll up fiscal information in the cases where more than one set of studies is demanded.

Choi, Frost and Meek claim that harmonisation will raise the accounting criterions throughout the universe to the highest possible degree because it will be less hard to look into for consistence with local societal, legal and economic conditions ( 34 ) . This would be particularly good to international accounting houses with clients of houses, and whose operations consist of at least one foreign subordinate because they will be able to make comparings without excess digests. Nobes and Parker write that states which lack equal statute criterions of accounting and scrutinizing would besides stand to profit from the convergence of international accounting criterions ( 38 ) .

Another benefit that International Accounting houses could obtain with respects to the harmonisation of accounting patterns will be the decreased disbursals that they normally incur for motion of staff across national boundaries. This is because they would hold eliminated staff preparation costs and cost-of-time incurred on larning different accounting systems.

Having a consonant IAS lessens the undertaking for fiscal analysts, investors, and foreign loaners who will so be in a better place to grok the fiscal statements of foreign companies. Samuels and Piper position this as a encouragement with respects to doing it easier to raise foreign capital ( 56 ) . In add-on to that, the fiscal analysts, investors, and foreign loaners would besides be able to compare the different investing chances as they seek to do consistent, sound and more accurate investing determinations.

National revenue enhancement governments are besides bound to profit from holding a standardised accounting system because they would be able to calculate net income based on matching accounting rules and patterns.

O’Malley ( 1993 ) adds that the being of international accounting and revelation criterions would do the procedure of carry oning operational and competitory analyses needed to carry on concerns across the Earth simpler. In add-on to this, fiscal executives will besides happen it better for them to pull off cardinal relationships with providers, clients and others.

Finally, those who stand to profit the most out of the convergence of international accounting criterions would be the Multi-national companies. This is because it would so be faster and less resource demanding to pass on fiscal information within their regional, national and international concerns.

The disadvantages of holding a consonant Iowa

Nobes and Parker outlines the most cardinal obstructions to harmonisation as being three, viz. : the economic and political systems differences among states ; some states lack strong professional accounting organic structures ; and the prevailing differences of the current accounting criterions in different states ( 25 ) .

Even in instances where the figures for say a concern are generated utilizing the same international accounting rules, states would still exhibit significant differences, economic and/or cultural, that would prevent simple readings. Accounting criterions are a contemplation of a given society ‘s demands and positions for illustration the Gallic Commercial Code is much more compliance-oriented than the U.S. or British accounting regulations, which strongly convey the constructs of equity and substance over signifier ( Diaconu 6 ) .

Saudagaran points out that patriotism is besides another major menace to harmonisation. He argues that states are wont to be wary of yielding control of their accounting ordinance to foreigners at the slightest perceptual experience that it will be replacing its ain accounting ordinances with those of another state ( 1-7 ) .

Another disadvantage of holding a consonant IAS is that all the authoritiess of these different states will hold to keenly organize their accounting policies with criterions and processs predominating in other states. This is an excess load in the sense that authoritiess may be required to put up organisations to make these coordination activities. Diaconu besides tells us that while convergence may be taking topographic point, authoritiess must happen ways to cut down negative influences from abroad from pervading their criterions while seeking ways to maximise on absorbing the positive influences coming from abroad ( 5 ) .

States in the universe have different users who have different demands. For illustration a state that largely lends to other states has dissimilar demands to a state that borrows or owes. This implies that the consonant IAS that could be proposed could be excessively complex for one state or excessively simple for another, depending on the alone demands of their industries, authoritiess and investors. A perfect illustration for such a quandary state of affairs could be the magnitude of divergency between the demands of smaller concern entities and the demands of big multinationals in developing states.

A factor that the consonant international accounting criterion will necessitate to see is the different degrees of edification, human resource and influence among different national accounting professionals. The IAS could stop up being excessively sophisticated for certain states particularly in the underdeveloped universe.

Recommendations

International organic structures must make more to advance international convergence of accounting criterions. International organisations such as the World Trade Organization, the IMF, G7 and the World Bank are progressively playing bigger functions with the increasing volume of planetary trade. They are besides holding more influence over their rank which they could utilize to advance harmonisation of IAS.

Multinational corporations need to show leading. The rapid addition in economic globalisation has led to mushrooming of multinationals. These transnational corporations due to their monolithic turnovers and net incomes are able to act upon determination shapers and policy shapers. By showing leading through recommending for usage of and practically utilizing harmonized accounting criterions would better the thrust towards credence of convergence of international accounting criterions.

Leading concern schools that produce the bulk of the universe ‘s concern leaders besides have an of import function to play. They should be encouraged to offer classs that are biased towards usage of accounting criterions geared towards convergence. If the immature MBAs are encouraged to follow the consonant international accounting criterion ( IAS ) way so we would anticipate minimum opposition towards this enterprise in the hereafter.

Communication may be good therefore far but we still need to set more accent on communicating and interaction between different states, between states and professional umbrella accounting organic structures and between states and the International Accounting Standards Board ( IASB ) .

Irvine and Lucas recommend that for developing states and emerging economic systems appropriate regulative systems will necessitate to be developed so as to get the better of some of their cultural issues. They argue that the proposed harmonized IAS is brooding of western-oriented accounting criterions, regulative substructure and civilization ( 2 ) . Therefore other than merely proclaiming the benefits to be accrued with the acceptance of IFRS the development states and emerging economic systems will necessitate to be convinced to purchase into the thought.

Decision

Harmonized international accounting criterions ( IAS ) are an indispensable constituent of the quickly globalized economic system. This matching of accounting criterions will add additions to the universe economic system through the proviso of more ‘perfect ‘ information, facilitation of international minutess and minimising exchange costs. Through a consonant IAS the universe ‘s economic policy think armored combat vehicles and policy shapers would be availed with standardised information that would be good in determination devising. Furthermore, a harmonisation of international accounting policy would assist make a flat playing field in the universe, for case regulators would be having the same information and therefore doing the rating procedure closer to the ideal state of affairs. In fact, we could boldly asseverate that with international accounting criterions ( IAS ) harmonized, the universe ‘s resources will be better utilised.

However we can non minimize the unfavorable judgments and disadvantages that we have mentioned in this paper. Information communicating engineering and telecommunications convergence has quickly provided us with the tools necessary to do international accounting criterions convergence a possibility to be aimed at. All said, the benefits for holding a standardised IAS do outweigh the demerits.