International harmonisation

Notes

Convergence

Norwalk agreement

In the US the FASB issues their accounting standards and recently they also recognised the need to follow a 'principles-based' approach to standard-setting (as the IASB has always done)

Common conceptual framework

In 2004 the IASB and FASB agreed to develop a common conceptual framework

The IASB maintains a policy of dialogue with other key standard setters around the world, in the interest of harmonising standards across the globe. 

Partner standard setters are often involved in the development of Discussion Papers and Exposure Drafts on new areas. 

However, many fundamental disagreements exist between countries and organisations about the way forward. 

A particular problem is the different reporting needs in developed (and non-developed) countries

Barriers to harmonisation

  • Different purposes of financial reporting - For tax assessment or investor decision-making?

  • Different legal systems

  • Different user groups - In the USA investor and creditor groups are given prominence, while in Europe employees enjoy a higher profile.

  • Developing countries - these are lagging behind and need time to get the principles in place first

  • Nationalism - ‘ours is better than yours’

  • Circumstances - such as hyperinflation, civil war, currency restriction

  • The lack of strong accountancy bodies - so lacking a will and drive for harmonisation

Advantages of global harmonisation

  1. Investors can easily compare international companies and investment across borders is growing

  2. Multinational companies would be easier to control and get investment, especially the consolidation of foreign subsidiaries

  3. A reduction in audit costs 
    Governments of developing countries would save time and money if they could adopt international standards

  4. Tax authorities - It will be easier to calculate the tax liability of investors, including multinationals who receive income from overseas sources.

Notes