International Accounting - Assignment Solutions
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Added on 2019-12-03
International Accounting - Assignment Solutions
Added on 2019-12-03
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Internationalaccounting
Convergence of accounting standardsInternational Accounting Standards Board (IASB) and Financial Accounting StandardsBoard (FASB) had agreed to work together in order to develop high quality accounting standardsin 2002. With this arrangement, uniformity in accounting standards can be assured in domesticand cross cultural accounting (Weil, 2012). These bodies are committed to attain their target ofconvergence. The convergence of accounting standard can be defines as establishment ofcommon standards for accounting that can be used at the international level. Main objective ofconvergence is to make reduction in difference between provisions of accounting standards. Conceptual framework of convergence is driven by various factors such as comparability,reliability, understanding and relevancy. This approach will enhance the comparability offinancial statements of the company by which stakeholders will be able to make better decisions.In present era, convergence is implemented in more than 100 countries (Birnberg and Sisaye,2010). Efforts regarding this provision is inclusive of projects that have objective of makingimprovement in respective accounting standards and to reduce differences among them.However, there are certain criticisms to the concept of convergence due to cost and pace factors. In July 2002, European parliament had passed the regulation for the companies registeredin London Stock Exchange to prepare their consolidated financial statements in accordance withthe norms of IFRS from the effective date of 2005 (Silva and et.al. 2015). Further, companiesoperating in the EU market segment were allowed to adapt to these provisions along with theseveral exemptions. In 2008, report by PwC had demonstrated that convergence of accountingstandards will contribute the flow of international investment and benefit of this will be availedby the stakeholders of the capital markets. It is because; accounting information of internationalinvestment will be more comparable to the investors (Chen, Ding and Xu, 2014). Further, it willmake reduction in the cost of complying with the accounting requirements for global businesses.This approach will also establish more transparent accounting systems for greater accountability.It will make reduction in the operational challenges for accounting firms and will provideopportunity for making improvement in the reporting model.Reconstitution of IASC into the IASB was accomplished in 2001. Further, from thebeginning of 2002, IASE and FASB started to work together towards the approach of2
convergence. They had expressed their commitments towards the convergence in the Norwalkagreement. In this agreement, accounting bodies had pledged to make their respective standardscompatible as soon it is practicable (Christensen and et.al. 2015). In 2006, FASB and IASBsigned memorandum of understanding which had laid guidelines on the projects of convergence.In addition to this, short term goals were set by the accounting bodies for the issuance ofconverged standards for the business combination. Further, in 2009 these bodies agreed tointensify their efforts for working towards the objectives of memorandum and along with thisthey had set target for the future plans (Baudot, 2014). By the end of 2013, over 100 jurisdictionsrequired to use of IFRS for all public entities dealing in the capital market. In addition to this,115 jurisdictions had made public commitments for the support of accounting standards linked toapproach of convergence. In this aspect, main priority of the FASB is to make improvement in the financialreporting of for the benefit of users. This objective had been achieved by setting high qualitystandards (European Financial Reporting Advisory Group (EFRAG), 2009). These standards arecollectively known as Generally Accepted Accounting Principles (GAAP). By the applicabilityof this standard, accounting information of business entities can be recorded in more relevantmanner. In addition to this, financial statements for the user will be in position to the avail theinformation in accordance with their needs. In accordance with the viewpoint of FASB, more comparable global accountingstandards are required to be developed for the promoting consistency in global accountingframework. This aspect was consistent with their core mission. Companies, Investors, auditors,and other participants in the EU will have better system for the financial reporting. This willbenefit them in providing increased comparability that can result from the closer alignment ofstandards used at international level (he Conceptual Framework for Financial Reporting, 2015).In addition to this comparable standards have potential to make reduction of cost for both usersand preparing parties of the financial statements. Further, it will make capital market moreeffective and efficient. It is because; there will be common standards for accounting andinterpretation. In this The Securities and Exchange Commission (SEC) had expectation fromFASB to consider the limit up to which comparability in international standards is required (by3
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