Advantages and Disadvantages of Harmonization of Accounting Standards

May 23, 2018 | By admin4u | Filed in: Uncategorized.

As the world economy is increasingly widespread in today's society, there is an increasing demand for universal standards for all businesses and companies. This is particularly true in accounting. One of the feasible options is the harmonization of the involvement of accounting practices worldwide. The purpose of this report is to explain the concept of harmonization and to highlight the benefits and disadvantages of the corporate world.

Samir Mogul, as defined in the harmonization of accounting standards, is the "continuous insurance process to formulate, coordinate and update the GAAP for international best practices" (Mogul, 684). At present, harmonization is directly linked to the convergence of GAAP and IFRS, which is the International Financial Reporting Standard. GAAP is generally considered to be rule-based, while IFRSs are considered to be more basic. Differences between these two standards include differences in the measurement of the profit and loss account, inventory reporting and earnings per share. While many global economies have already adopted IFRS through a more dynamic approach to globalization, the US continues to pursue GAAP. As the economic pressure of globalization continues to grow, the US transition to IFRS is getting closer and closer.

Universal accounting standards have many benefits for the global economy. As emphasized by Nicolas Pologeorgis, "Effect of the US GAAP and the combination of IFRS", the Securities and Exchange Commission's objective is to "consistently follow the achievement of fair, liquid and efficient capital markets, thereby providing investors with accurate, comparable and reliable" ( Pologeorgis). First, it ensures consistency in international markets. This allows accountants to analyze companies worldwide regardless of which country they operate. In addition, investors can easily compare the financial statements of international corporations, as each company has the same standards. This leads to international investment growth and general economic growth

Although there are many benefits to harmonizing accounting standards, there are some disadvantages to the process. These include the time needed to implement new standards and process-related costs. Accountants, management staff, and investors need to educate themselves on new accounting information, which will cost many companies costly. Companies should also plan new internal controls as existing controls are outdated. Another obstacle to the harmonization of accounting standards is that countries are unwilling to have a unified code since many have different political, economic and ethical systems. The other negative effect of Grant Houston's disadvantages in harmonizing Accounting Standards is that the United States (Houston) will have an impact on small businesses. Expenditure on compliance with the transition to new accounting standards hampers the expansion and growth of many small businesses in America

Harmonization is a concept that is still to be discussed with the current growth in the global economy. The idea of ​​a US transition to IFRS is still very popular in the accounting sector. Whether the advantages of harmonization really exceed the costs will be the ultimate factor in the decision.

References:

Houston, Grant. "Disadvantages of aligning Accounting Standards". Small business. Chron, September 2011. Web. November 17, 2013

Mogul, Samir S. "Harmonization of Accounting Standards". Editorial. Authorized Accountant January 2003: 681+. Web. November 17, 2013

Pologeorgis, Nicolas. "Effect of US GAAP and IFRS Combinations". Investopedia. N.P., 21 January 2013 Web. November 17, 2013

Source by Mark Fala


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