Advantages of global harmonization of accounting practices

IASB is working with a project of developing internationally accepted financial reporting framework. Under the project it is trying to bring convergence between local and international practices. Though there are several major barriers to convergence between international and local reporting frameworks, it has successfully developed a framework which is accepted by may countries around the world. The main advantages that such a harmonization is aimed to deliver are numerous in number and targets major users of the financial statements. Some of the key advantages are described below:

To investors:

Both individual and corporate would like to be able to compare the financial results of different companies internationally as well as locally in making investment decisions. For example: it is not easy for UK investor to analyze and compare the financial statements of a Dutch or German company, where the financial statements differ materially due to the difference in reporting framework. Harmonization would therefore be of benefit to such investors.

To multinational companies:

Multinational companies would benefit from harmonization for many reasons. It will be easier to comply with the reporting requirement of overseas stock exchange. Consolidation of foreign subsidiaries and associates would be easier as the parent and the subsidiaries or associates have prepared their statements on consistent basis.

To the government of developing countries:

Government would be able to control the activities of foreign multinational companies in their own country, as those companies will not be able to hide transactions in the maze of difficult-to-understand foreign practices.

To tax authority:

It will be easier to calculate tax liability of a company, including multinational and foreign companies where the accounting practice is well understood.

Accountants:

Accounting and auditing would become much easier if similar accounting and auditing practices existed throughout the world. Harmonization will allow professionals trained in a country to serve in another country without translating their knowledge and skills.