International Accounting Standards Harmonization

International Accounting Standards Harmonization

Due to the high level of globalization, it is expected that there should exist a single uniform accounting system globally. However, this is yet to occur. This is because countries have adopted different sets of accounting standards and the diversity in legal, political, economic and financial factors have influenced the system (Agami & Alkafajim, 2005). Firstly, the political system has been considered a key factor that has influenced accounting and reporting systems. Its impact is evident throughout different events in history. Invading countries have imposed their political as well as their systems of accounting in the countries they have colonized and conquered and colonies. It is also true that a number of countries after gaining independence have continued to adopt the same political and accounting system though it does not suit their current economic situation and needs. Whereas, some have resorted to use  a different  accounting and political systems due to the setting up of businesses by international companies and the common law that is applied by businesses in enforcing contracts (Agami & Alkafajim, 2005)

Countries that tend to practice code laws have their government regulate and control the accounting and auditing processes while the countries that tend to practice common law prefer to delegate the processes of standard setting and enforcements to be done by the private professional organizations (Choi & Meek, 2011). For example, the kind of economic system for socialist, capitalist or a mixture and the economic development level are just some of the factors determine the form of a system of accounting in a given country (Alkafaji, 2005). Hofstede defines culture using four basic indices: The power distance index that explains on the power distribution between the more and the less powerful organizational members, the higher the PDI the higher the level of inequality between them. Individualism Index which can be described in terms of individualism vs. collectivism. An individualistic society can be defined as a society where individuals concentrate on their own affairs or their own family. On the other hand, collectivism refers when the societies have strong and solid ties that go beyond the individual and their family. A high IDV rate shows a society that is more individualistic. The Uncertainty Avoidance Index (UAI) defines the society’s approach in dealing with ambiguity and uncertainty and culture plays a big role in this. The higher the Uncertainty Avoidance Index the more the level of uncertainty and the lesser the comfort among members of a community. All the factors culturally affect the willingness of people to adopt a certain accounting system and norms.

“Arguments for and against” The convergence of standards is a way to decrease the cost of capital.

IASB Framework