BAO5535 Issues in Contemporary Accounting: Standards Harmonization

This report provides a critical analysis of the literature on accounting standards harmonization. It argues for a single set of accounting standards for worldwide use to enhance global market efficiency, addressing challenges like differing legal environments, nationalism, and competition among standard setters. The report also examines the feasibility of the IASB's goal of a single set of standards through the lens of institutional theory, considering normative, mimetic, and coercive processes. It highlights the importance of harmonization in avoiding financial statement diversity, reducing business costs, and increasing investor confidence, ultimately contributing to increased business performance and foreign direct investments.

Accounting 1.
ACCOUNTING: LITERATURE REVIEW REPORT ON ACCOUNTING STANDARDS
HARMONIZATION
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Accounting 2.
Introduction
The modern corporate world has been characterized by rapid growth of international business or
trade as well as capital cash flow which has led to an increase in global economic integration.
The growth of international trade has created the need for the establishment of harmonized
international accounting standards. Such demand has been created due to the homogeneity effect
caused by international trade and affects different business customs, practice as well as various
international business institutions. The difference in business customs, traditions and institutions
has created a desire to harmonize accounting standards among many countries (Albu 2014, p.
494). Lack of harmonization of accounting standards has had negative implications for the
growth of international trade and has affected the efforts of achieving economic integration in
many countries. The International Accounting Standards Board (IASB) with the help of other
institutions have developed initiatives to tackle this challenging issue in the growth of the
international business by developing strategies to harmonize international accounting standards.
This report, therefore, provides critical analysis of literature review of harmonization of
accounting standards and practice.
Question one:
Report arguing for a single set of Accounting Standards for Worldwide use
The growth of international business or trade has called for development and implementation of
a unique set of accounting standards to enhance the efficiency of the global market. The
development of a single set of accounting standards will require the harmonization of
international accounting standards. This is a process through which international accounting
standards used in different countries are brought into some agreement or similarity in accounting
terms and practices with the aim of achieving a standard set of accounting principles (Wang,
2014, P. 976). Companies that have developed international business face not only accounting
problems or issues but also the existence of new business culture, unique and challenging
business international laws as well as different political systems which pose great impact of the
success of international businesses. However, for foreign companies to achieve success and
sustainability in the global markets there is a great need for the companies to deal with the
different accounting standards in different countries.

Accounting 3.
Different countries or economic regions have been found to use different international
accounting standards. Such difference has become an obstacle to the growth of international
businesses as well as frustrating business efforts to achieve economic integration. For instance,
for any b=international business to thrive in its operations in Germany, the business must comply
to the Germany accounting standards which are different from the international accounting
standards adopted by over 100 counties globally (Campbell & Yeung, 2017, p. 485). On the
other hand, any international business carried out in American has to conform to the US
Generally Accepted Accounting Standards (GAAP). Such differences or lack of similar
accounting have led to increased business challenges including the comparison of financial
statements for different companies trading internationally. Such a challenge acts as a great
obstacle to free movement of capital resources required for business development. This is
because in most cases shareholders shy away from investing in foreign countries with different
accounting standards ((Stent et al. 2017, p. 268). Most of the international business has been
listed in different stock exchange markets which provide them with an opportunity to enhance
their business development strategies through trading with other companies as well as a great
platform to engage different potential investors. It is important to note that, not all financial
statements are accepted in all stock exchanges. For instance, for an international company that
seeks to trade in the New York Stock Exchange must prepare a reconciliation statement for its
financial statements. Therefore such challenges have interfered with the growth and success of
international businesses.
The international accounting standards board (IASB) is involved in the development of
international accounting standards and has played a significant role in advocating for
international harmonization of accounting standards. The board has been able to incorporate
other boards such as the Australian Accounting Standards Board and the Financial Accounting
Standards Board responsible setting American accounting standards in integrating their efforts
together to harmonize accounting standards worldwide (Yu & Wahid, 2014, p. 1919). This will
imply that all international accounting standards will be made compatible with the rules of
international setting bodies in a manner that will facilitate the development of high-quality
accounting standards. Such efforts by these bodies aim to develop a single set of accounting
standards for worldwide business and economic use. Accounting is a very integral business
practice, and its primary function is to provide financial information about different commercial

Accounting 4.
entities that are important for various economic decisions. The development of a single set of
accounting information will therefore contribute avoidance of financial statement diversity which
has become a significant obstacle in business development, reduce the extra business costs which
accrue from drafting different financial statements as well as assist in winning back the
confidence of foreign investors (Oulasvirta, L., 2014, p. 276). This will contribute to increased
business performance through comparative analysis of the financial statements highlighting the
best performing business internationally. It will increase competition in the international market
and create a platform where business performance can be analyzed by various experts to provide
an accurate and fair view of the companies. It will also contribute to increased foreign direct
investments and growth of multinational businesses.
Question 2: Challenges facing having a single set of accounting standards
Despite the efforts made by different accounting bodies to harmonize accounting standards, these
efforts have faced great challenges in the implementation of a single set of accounting standards.
The existence of different legal business environments has challenged the harmonization of
international accountants because both legal and statutory environments play a vital role in
accounting systems and standards in different countries. The legal and statutory systems of any
country exercise a strong influence on the accounting and reporting practices in that country
(Brusca & Martínez, 2016, p. 734). This means that countries are required to harmonize their
legal systems before harmonizing the accounting practices. It will be difficult to achieve the goal
of harmonization which is to develop a single set of accounting standards to be used worldwide
without the uniformity in the countries business laws. Spirit of nationalism amongst different
nations has also challenged the implementation and efforts to develop a single set of accounting
standards. The spirit is found among different accounting professionals who are rigid and
unwilling in accepting the need to change their accounting practices (Tschopp 2014, p. 154).
They are usually guided by national pride which acts as an obstacle to the acceptance that some
country accounting principles are inferior to those of other countries and therefore the need for a
review. It is the accountants who should be in the forefront of advocating for a single set of
accounting standards since they play a critical role in harmonization process.
Competition among different international standard setters has been one of the critical challenges
of successful implementation of a single set of accounting standards for use worldwide (Hope et

Accounting 5.
al., 2017, p. 10). These bodies are engaged in developing international accounting standards and
therefore are critical to the success of any implementation plan for harmonization. Such
competition amongst these bodies is unwanted, and therefore international accounting bodies
such as ISAB, FASB, and IFAC among others have reviewed their efforts in a bid to reduce
diversities in accounting practices. Such competition arose from the fact that everybody wants
their accounting principles to be considered to be superior to the others. Other than the
competition among the international standard setters implementation also faces a significant
challenge of varying objectives of financial reporting (Ray, 2017, p. 21). This is because the
purposes for financial reporting differ from one country and in most cases to different target
audiences. Therefore in some nations financial reporting is targeted at different investors or
stakeholders in various businesses and therefore implementing accounting standards which will
compromise with their financial reporting goals is challenging.
Lack of strong professional accounting institutions has also challenged the development and
implementation of a single set of accounting standards. The professional accounting institutions
are mandated with the responsibility of developing and advocating for development t of
accounting standards which will conform to the international accounting standards (Berger,
2018, p. 9). Therefore the countries where the professional accounting bodies are not strong
enough to champion for implementation of harmonized accounting standards; they will always
encounter significant challenges in aligning their accounting practices. The existing economic
gap between the developing nations and the developed nations has also become a substantial
obstacle to harmonization efforts. Accounting systems in a country play an essential role in the
development of such economy, and therefore there is a need to establish the interaction between
the economic and accounting systems. This can be achieved by reconciling the existing
accounting diversities amongst different professional such as the accountants, educationists,
economists as well as the politicians (Lahmar & Ali, 2017, p. 22). There is, therefore, a great
need for collective efforts by international accounting sectors and other relevant entities affected
by the accounting standards to achieve increased harmonization and deliver its objective of
developing a single set of global accounting standards.

Accounting 6.
Question 3:
Report on Whether IASB goal of having a single set of accounting standards for worldwide
use according to institutional theory is feasible
An institutional method as developed by theorists such as Meyer and Rowan, as well as
DiMaggio and Powel, provides a deeper understanding of the more resilient aspects of social
structures. The theory is therefore crucial in helping us understand the phenomenon of
harmonization of accounting standards into a single set of international accounting standards for
worldwide use. The theory, therefore, considers the processes through which organizational
structures are established as official guidelines for social behavior (Campbell & Yeung, 2017, p.
485). The feasibility of IASB goal of having a single set of accounting standards for worldwide
use can be analyzed by application of the concepts of institutional theory. This is because the
institutional theorists provide that different institutional environments can strongly influence the
development or establishment of formal structures in an organization.
According to institutional theory, organizational or institutional changes that allow the
implementation of regulatory changes can occur through normative pressure, mimetic process as
well as through a coercive process. Normative influence happens when organizations or
institutions adopt change that is related to its professional environment with the aim of becoming
consistent with the norms or practices of larger institutions (Carneiro et al. 2017, p. 180). This
implies that is possible for different accounting institutions to adopt changes resulting from the
international accounting standards board to conform to the international accounting standard for
establishing a single set of accounting standards for worldwide use. Secondly, the theory depicts
that institutional changes can be implemented through a mimetic process where the different
organizations adopt other organizational practices with the aim of dealing with its internal
uncertainty about their strategies (Chen, 2017, p. 12). This implies that despite the differences in
accounting principles in different countries, the various accounting standards bodies can adopt
the new accounting practices to help them solve their internal concerns over the future of
accounting practices. The IASB goal of developing a single set of international accounting
standards will help the organizations or companies involved in international businesses to
achieve their strategic business goals (Stent et al. 2017, p. 266). Lastly, the theory also advocates
the fact that, institutional change in environment and practices can be achieved through the

Accounting 7.
coercive process. This implies that most organizations and institutions, as well as professional
bodies, adopt change that which is consistent with the larger institution just because of the
pressure they receive from other organizations upon which they might be regulated.
In our case, this is very necessary since different countries or companies or even institutions can
adopt the changes proposed by IASB since the body is involved in setting or developing
international accounting standards and therefore can act as the regulatory body in this case. It is
possible for the different countries to implement the single set of accounting standards policy and
have the international accounting standards board regulates the system through a set of
regulatory policies. The institutional theory, therefore, supports the IASB goal of developing and
implementing a single set of accounting standards to be a very feasible goal (Brouwer &
Hoogendoorn, 2017, p. 142). All that is required is the commitment towards the implementation
of the standards, harmonization of the different laws and statutory, regulatory policies
concerning accounting practices, developing strong professional accounting institutions,
reducing competition among the international standards setters as well as reviewing the and
harmonizing the different objectives of financial reporting.
Conclusion
Harmonization of international accounting standards from the above report can be said to be very
vital in international business development as well as in creating or improving economic
integration. IASB plays a crucial role in the harmonization of accounting practices, and its goal
of developing a single set of accounting standards is very feasible. However, there is a need to
strengthen collective efforts towards the realization of this goal from different stakeholders in the
accounting field. There is a great need to develop a similar business legal framework that will
support the implementation of the harmonization process. The application of a single set of
accounting standards for worldwide use will, therefore, contribute to increased growth of
international business, enhanced comparability of international trade for useful analysis that can
be used to spur competition by different countries. It will also contribute to improved
performance or interpretation of the stock exchange market since it will facilitate increased
acceptance of different companies’ financial statements.

Accounting 8.
List of references
Albu, D., 2014. When global accounting standards meet the local context—Insights from an
emerging economy. Critical Perspectives on Accounting, 25(6), pp.489-510.
Berger, T.M.M., 2018. Ipsas Explained: A Summary of Standards and Principles of International
Public Sector Accounting Standards. John Wiley & Sons.pp. 6-12.
Brouwer, A. and Hoogendoorn, M., 2017. The role and current status of IFRS in the completion
of national accounting rules–Evidence from the Netherlands. Accounting in Europe, 14(1-2),
pp.137-149.
Brusca, I. and Martínez, J.C., 2016. Adopting International Public Sector Accounting Standards:
a challenge for modernizing and harmonizing public sector accounting. International Review of
Administrative Sciences, 82(4), pp.724-744.
Campbell, J.L. and Yeung, P.E., 2017. Earnings comparability, accounting similarities, and stock
returns: Evidence from peer firms’ earnings restatements. Journal of Accounting, Auditing &
Finance, 32(4), pp.480-509.
Carneiro, J., Rodrigues, L.L. and Craig, R., 2017, September. Assessing international accounting
harmonization in Latin America. In Accounting Forum (Vol. 41, No. 3, pp. 172-184). Elsevier.
Chen, F., 2017. Harmonization Of Chinese Accounting Standards With International Accounting
Standards: Necessity,... Progress and Effectiveness. OPEN DISSERTATION PRESS. pp 12.
Hope, O.K., Thomas, W.B. and Vyas, D., 2017. Stakeholder demand for accounting quality and
economic usefulness of accounting in US private firms. Journal of Accounting and Public
Policy, 36(1), pp.1-13.

Accounting 9.
Lahmar, A.T. and Ali, A., 2017. Factors influence Adoption of International Financial Reporting
Standards (IFRS) Adoption in Libya. Global Journal of Accounting and Finance, 1, pp.18-32.
Oulasvirta, L., 2014. The reluctance of a developed country to choose International Public Sector
Accounting Standards of the IFAC. A critical case study. Critical Perspectives on Accounting,
25(3), pp.272-285.
Ray, K., 2017. One size fits all? Costs and benefits of uniform accounting standards. Journal of
International Accounting Research.pp. 21.
Stent, W., Bradbury, M.E. and Hooks, J., 2017. Insights into accounting choice from the
adoption timing of International Financial Reporting Standards. Accounting & Finance, 57(S1),
pp.255-276.
Tschopp, D. and Nastanski, M., 2014. The harmonization and convergence of corporate social
responsibility reporting standards. Journal of Business Ethics, 125(1), pp.147-162.
Wang, C., 2014. Accounting standards harmonization and financial statement comparability:
Evidence from transnational information transfer. Journal of Accounting Research, 52(4),
pp.955-992.
Yu, G. and Wahid, A.S., 2014. Accounting standards and international portfolio holdings. The
Accounting Review, 89(5), pp.1895-1930.

Accounting 10.