Challenges for International Harmonization of Accounting Standards

The article discusses the challenges faced in the process of International Harmonization of Accounting Standards. It covers topics such as conflict of interest, economic obstacles, and more. The article is relevant for students studying accounting and finance.

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A critical evaluation of challenges for International Harmonization of Accounting
Standards

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Table of Contents
Reflective Cover Sheet...............................................................................................................3
International Harmonization: An overview...............................................................................5
Conflict of Interest.....................................................................................................................5
Management...........................................................................................................................5
Multinational Enterprises (MNEs).........................................................................................5
Accountants............................................................................................................................6
Government............................................................................................................................6
Trade Unions and Employees................................................................................................6
Political......................................................................................................................................6
Regulators..................................................................................................................................6
Investors.................................................................................................................................7
Bankers and Lenders..............................................................................................................7
International Accounting Firms.............................................................................................7
Complex requirements of Accounting.......................................................................................7
Economic Obstacle.....................................................................................................................8
Operating cost escalation...........................................................................................................8
System enhancement..................................................................................................................8
Expertise for smooth transactions..............................................................................................8
Consequences.............................................................................................................................9
Reference List..........................................................................................................................10

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Reflective Cover Sheet
Why did I choose this particular topic?
I chose the topic of challenges in International Harmonisation of accounting standards
because it is a topic of great debate at the moment since the harmonisation of accounting is
crucial.
What did I learn from producing the coursework?
With the production of the coursework, I discovered about my research skills. I was able to
understand the importance of accounting standards harmonization and also studied about the
hindrances that are caused in its process.
What (if any) feedback have I received at University before or during completion of this
assignment that I was able to use to improve the standard of my assignment?
I received a positive feedback from the University regarding my knowledge and
understanding, research and intellectual skills as well. However, I have received some critical
feedback regarding my communication and personal skills which I’m currently working
upon.
What problems did I encounter when completing the assignment (if any)?
There were no specific problems encountered by me during the period of completion of the
assignment.
What do I feel are the key strengths and weaknesses of this assignment?
The key strengths of the assignment are the research quality, the originality of the work, and
the complex ideas have been presented by me in a significant manner. The key weaknesses
would include some shortfall of creativity.
What would I do differently next time and what would have enabled me to do a better
job?
From the next time I would use more creative techniques of research and present my
assignment in a better way.
I would particularly like feedback on these areas of my work…
Knowledge and understanding and presentation skills.

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Do I honestly believe that I have performed to the best of my ability and using the
assessment criteria what grade do I anticipate?
I believe that I have given my best and have used the best of my potential towards the
completion of this assignment. On the basis of the assessment criteria, I anticipate of
receiving grades somewhat between Comprehensive and Excellent.

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International Harmonization: An overview
The international approach initiated by various countries for the achievement of mutual
understanding and help regarding financial reporting is known as International
Harmonization of accounting standards. It allows many countries to follow similar rules and
regulations while preparing financial statements and reports. Such approaches help
professional accountant companies in understanding the financial reports of innumerable
companies either internationally or locally. There are many international as well as national
organizations that are involved in the process of international harmonization of the
accounting standards, such as the Accounting Standards Codification (ASC), International
Accounting Standards Board (IASB), European Commission (EC) and Financial Accounting
Standards Board (FASB). The raising of foreign capital is also facilitated by international
harmonization. Foreign lenders, investors and financial analysts have been able to understand
the foreign companies’ financial reports and are able to compare the opportunities of
investment that would assist them towards making the appropriate investment decisions.
However, there are various challenges that pose in the process of international harmonization
of the accounting standards. These are explained below:
Conflict of Interest
There are various users who wish to accomplish harmonization in the accounting standards.
As such, multinational corporations are pressurized for offering financial statements and
reports in a more synergized way. The users here are referred to parties such as general
public, trade unions, accountants, auditors, management, government, trade unions,
employees and multinational corporations.
Management
The Multinational companies are managed by these parties because of which, their concerns
about the accounting standards are very high since they have to implement necessary
decisions which involve international mergers and acquisitions.
Multinational Enterprises (MNEs)
Multinational enterprises operate across counties which becomes their area of concern with
regards to the accounting standards. These enterprises have to deal with the accounting
standards of the countries they are in.

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Accountants
Accountants are the people responsible for the preparation of the accounting standards by
making use of the relevant information and updating them internationally. The international
accounting and reporting behavior are influenced by these accountants as they are involved in
setting up of the standards processes also.
Government
Government wishes to be compatible at both national and international levels. In order to
stabilize the economy by way of formulating policies, government is in constant need from
the multinational enterprises for the purpose of monitoring their activities.
Trade Unions and Employees
The national policies and certain activities of the business are influence by the trade unions
and the employees. Information regarding future prospects and the performances including
the benefits provided to the employees are also required by these parties.
Political
Political obstacle is revealed by Nationalism with regards to harmonization. Countries have a
constant fear of renouncing the control of their accounting regulations to outside countries,
especially when other nations replace their accounting standards and regulations. As a result
of nationalism, it accounting standards that are developed by other countries may not be
accepted (Nobes and Parker, 2004). Individuals and companies wish to preserve their
ineptitudes and deficiencies which arise due to changes in accounting standards for
benefitting from the same. There are countries which are still on the verge of development
and countries holding imperial powers are more sensitive to such infringements (Ali, 2005).
Regulators
According to Brown and Tarca (2005), enforcing the rules is very different from making the
rules. IASB is considered to set the standards and not enforce the standards. IASB has
specifically shown interest in allowing the companies that are generally weak at adopting
(Ball, 2006). IASB’S mission stands unsuccessful if the enforcement is not acquired at the
global level. In order to ensure compliance and righteousness of accounting standards, IASB
relies mostly on goodwill its regulators, auditors, stock exchanges, government departments
and its agencies and not rely on any national government (Saw, 2011). Even if the
implementation is achieved for such standards at a global level, a lack of international
regulator is still lacking.

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Investors
The disclosures of the financial prospects, performances and positions of the multinational
companies are needed by them on an overseas level where the comparability is also
demanded.
Bankers and Lenders
Capital is provided by this group, hence comparable financial position, information and
future prospects are required by them.
International Accounting Firms
Auditing firm is included by these parties; hence they require identical practices of
accounting for providing better outcomes while also improving their relationships with the
tax authorities and their clients as well.
As mentioned above, the motives of these groups are distinct towards the harmonization of
accounting standards, due to which indirect impact in caused on the economy for following
particular routes. In ASEAN, usually there is an enormous harmonization degree in the
economies on the basis of the capital markets. The main reason of this is that, disclosure is
required by the investors and bankers towards the investment and lending. Subsequently, this
becomes a hindrance, because the economy would want to implement the harmonization for
their own aspects, while ignoring the other factors of harmonization like social or
environmental regarding ASEAN.
Complex requirements of Accounting
Even though there is a need of harmonization by all stakeholders, the expectations of
stakeholders are different that makes it antithetical and divergent. There is a need by
harmonization for several financial reporting requirements which is not possible within a
specific standard. It is bounded by application standard’s flexibility and limited alternatives
(Chairas and Radianto, 2001). In the Vietnam case, the rigid link between the financial
control rules for state-owned companies, the accounting and regulations of taxation have
generated several hindrances in the development. The reformers seek for a solution for
maintaining such particularity in the accounting system’s development process (Phuong and
Richard, 2011). Additions and alternations were only made in the financial regulations and
taxation reporting that was prescribed for the state sector. The maintenance of the such
regulations could potentially harm the quality of accounting information and operational
management.

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Economic Obstacle
One of the serious obstacles in the harmonization process is the lack of an accounting
profession that is unified and competent personnel for the implementation of new accounting
system (Narayan, 2000). Many accountants till this date prefer to maintain the classic style of
book-keeping and do not welcome accounting practice changes and alterations. Such
accountants can be considered as untrained as they do not have a good hold over the changes
in the market. They fail in changing themselves with the ever changing and complex
environment of today’s business world. Such issues were mainly escalated in Vietnam.
Consequently, business had to go through adverse complications and difficulties for
converging with rules of the International Accounting Standards (IAS), there was no
allowance for adoption by the exclusive professional bodies (Phuong & Richard, 2011).
Operating cost escalation
The overall cost of the users is diminished by the process of harmonization; however, these
costs have a possibility of increasing at places of capital assets investment, especially for the
MNCs. For example, with the adoption of the IFRS, it will be required by the accounting
profession to be educated and aware of the new accounting standards. In the same way, the
universities and colleges that deal with the profession of accounting would have a need of
curriculum revision (Fosbre, Kraft and Fosbre, 2009). Hence, this indicates clearly that in
order to bring changes with processes such as harmonization, more and more time and cost
would be needed.
System enhancement
For undertaking new regulations and principles, every company across the globe would need
to make certain system enhancements for the presentation of their financial reports. Here, the
employment of specific software for the financial statements’ production with the IAS
standards would raise the costs. According to a report of Johnson (2009), in Europe, the
companies that had revenue of 500 million to 5 billion, spent 0.05% of their revenue for the
adoption of IFRS.
Expertise for smooth transactions
As mentioned in the above points, changes and system enhancements would be essential for
the process of harmonization. These two aspects can be provided by the accounting experts.
However, the employment of such expertise, while also avoiding technical difficulties, the
organizational costs might escalate and rise quickly.

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Consequences
Compliance with international standards would require additional cost, since, the new costs
of accounting software and staff training might cause a drain on the resources and finance of
new, small and emerging companies (Urif, 2015). The large accounting companies are more
resource rich, hence would become crucial and their monopoly would grow further in
providing the services that is needed by the markets and international institutions of finance.
The smaller companies would be adversely affected due to such oligopoly (Brüggemann,
Hitz and Sellhorn, 2013).

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Reference List
Ali, M.J., 2005. A synthesis of empirical research on international accounting harmonization
and compliance with international financial reporting standards. Journal of Accounting
Literature, 24, p.1.
Ball, R., 2006. International Financial Reporting Standards (IFRS): pros and cons for
investors. Accounting and business research, 36(sup1), pp.5-27.
Brown, P. and Tarca, A., 2005. A commentary on issues relating to the enforcement of
International Financial Reporting Standards in the EU. European accounting review, 14(1),
pp.181-212.
Brüggemann, U., Hitz, J.M. and Sellhorn, T., 2013. Intended and unintended consequences of
mandatory IFRS adoption: A review of extant evidence and suggestions for future
research. European Accounting Review, 22(1), pp.1-37.
CHAIRAS, I. and RADIANTO, W., 2001. Accounting Harmonization in ASEAN: the
process, benefits and obstacles. 2001. 140 f (Doctoral dissertation, Master Thesis,
International Accounting and Finance, Göteborg University).
Fosbre, A.B., Kraft, E.M. and Fosbre, P.B., 2009. The Globalization of Accounting
Standards: IFRS vs. US GAAP.
Johnson, S., 2009. Guessing the costs of IFRS conversion. CFO Magazine.
Narayan, F., 2000. Financial Management and Governance Issues in Viet Nam: Volume 1.
Asian Development Bank.
Nobes, C. & Parker, R., 2004. Comparative International Accounting, 8th edition, Prentice
Hall-Financial Times, London, pp.53-95.
Phuong, N.C. and Richard, J., 2011. Economic transition and accounting system reform in
Vietnam. European Accounting Review, 20(4), pp.693-725.
Saw, P., 2011. A Global Accounting Standard: The Holy Grail? In Theory and Practice of
Corporate Social Responsibility (pp. 193-207). New York: Springer, Berlin, Heidelberg.
Urif, F., 2015. The Progress of Harmonization Accounting Standards in ASEAN Countries
(Malaysia, Singapore, and Thailand): A Review of the Research Literature.

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