'Challenges of Harmonization of Accounting System\r'

' wonder: Discuss the argufys of harmonisation of be system. be Standards atomic number 18 the logical arguments of computer code of practice of the regulatory recents report bodies that atomic number 18 to be observed in the set and innovation of m integritytary statements. The slackly pass judgment write up Principles is comprised of a large group of individual chronicle standards. story Standards in other words washstand be stated as rules which g all overn the facility of fiscal statements. They argon the generally accr alter account statement principles (GAAP). Where by history practices argon the actual social functiond practices by comptrollers.They argon influenced by explanation Standards, which govern the grooming of fiscal reports. Harmonization of account standards” can be de delightfuld as the continuous process of ensuring that the usually Accepted news report Principles (GAAP) atomic number 18 explicated, aligned and updated to outs ide(a) best practices (GAAPs in other countries) with suitable modifications and fine tuning considering the domestic conditions. Harmonization is the process of increase compatibility of method of accounting practices by setting bounds on their degree of variation.Harmonization can be defined as â€Å"the process of transport orbicular write up Standards into to a greater extent or less sort of placement so that the fiscal statements from diametrical countries ar watchful according to a viridity set of principles of criterion and apocalypse” (Haskins et al. 1996:29). According to Wolk et al. describe harmonization of chronicle Standards as â€Å"the co-ordination or relation among the various sets of interior(a) accounting system Standards and methods and formats of financial account”. (Kleekamper et al. , 2002) Kleekamperet al. xplain, that the aim of the world-wide harmonization process of invoice Standards is to reduce or overcome take issue ences world-wide, in re craftve oneself to reach a offend international compare of financial statements. international accounting harmonization can be defined as â€Å"the process of bringing international write up Standards into some sort of agreement so that the financial statements from distinguishable countries are prepared according to a common set of principles of measurement and disclosure” (Haskins et al. 1996:29).This harmonization is pauperizationed due to the globalisation of line of origines and services and increase in cross-b roll investments and borrowings and academicians, regulators and governments apply been unceasingly striving to comply the local/domestic Accounting Standards(AS), withal referred to as Generally Accepted Accounting Principles (GAAP), with the world(prenominal) Accounting Standards (IAS) issued by the UK prove international Accounting Standards carte du jour (IASB) (formerly the International Accounting Standards Committ ee-IASC).The IASB has been act to harmonize international accounting principles since 1973. Further, the IASB and the International organisation of Securities Commissions (IOSCO) gravel been jointly working on harmonization since July 1995, and in May 2000 the IOSCO finished its surveil of the IAS and recommended engagement of certain IAS, supplemented with reconciliation, disclosure and interpretations. Some reachs of harmonization of accounting practices is as follows * It ensures reliable and high quality financial reporting and disclosures. In certain cuttings, it can recruit to be crucial to the scotch and financial development of a farming * It enables a systematic review and evaluation of the deed of a multinational corporation having subsidiaries and associates in various countries wherein each hoidenish has its feature set of GAAP * It bump offs the comparison of the performance of a gild against its domestic and international peers easier and more(prenom inal) all-important(a) * It is a precursor for accessing international capital letter markets which can, in turn, reduce the capital cost and consequently, improve the performance of a company * Multinational companies, the multinational companies benefit from closer harmonization for the following reasons a) Access to international finance is easier, the international financial markets understand the financial culture presented to them more slowly. If the information is leave aloned on a consistent basis between companies ir individual of their country of origin. b) remediated management examine, in a line operating in several countries management control is improved. Internal financial information is more easily prepared on consistent basis if outwardly wantd financial information is drived on a invariant basis. c) Consolidation of financial statement is easier ) A reduction of auditing cost due to gibe accounting practices and standards. e) A transfer of accounting rung across national borders would be easier f) It would be easier to come after with reporting requirements of abroad stock replaces. g) Appraisals of foreign entities for trade over and mergers would be more straightforward. * International economic groupings, international groupings wish EU (European Union) could work more effectively if on that point were international harmonization of accounting policies. Part of the function of international groupings is go make cross-border trade easier. Similar to accounting regulation would coiffure this process. Government of underdeveloped countries would save fourth dimension and capital if they would adopt international standards and, if these were used internally, governments of developing countries could hear to control the activities of foreign multinational companies in their take in country. These companies could not hide behind foreign accounting practices which are difficult to understand. * Tax authorities, it impa rt be easier to calculate the tax financial obligation of investors, including multinationals who receive income from overseas parentages. * Large accounting and auditing firms would benefit as accounting and auditing would be much easier if similar accounting practices existed passim the world.Despite the importance of harmonizing accounting standards, in that location s coin bank challenges confront harmonization of accounting standards between the member countries apply IFRS (international financial reporting standard) and also between joined States using US GAAP. These challenges are brought nigh different tax police forces, different culture, different ratified requirement, patriotism and different needs of financial statements. Speaking of harmonization we should put in consideration of International accounting standard board (IASB) ground in UK and financial accounting standard board (FASB) based in US. The International Accounting Standards Board (IASB) is t he nonsymbiotic, accounting standard-setting organic structure of the IFRS Foundation.The IASB was founded on April 1, 2001 as the successor to the International Accounting Standards Committee (IASC). It is responsible for developing International financial Reporting Standards (the new name for International Accounting Standards issued after 2001), and promoting the use and application of these standards. The Financial Accounting Standards Board (FASB) is a private, not-for- earnings organization whose primary solve is to develop generally accepted accounting principles (GAAP) at bottom the United States in the populaces use up. The Securities and Ex miscellanea Commission (SEC) channelised the FASB as the organization responsible for setting accounting standards for public companies in the U. S.It was created in 1973, replacing the Committee on Accounting Procedure (CAP) and the Accounting Principles Board (APB) of the American Institute of Certified Public Accountants (AIcertified public accountant). The FASBs mission is â€Å"to establish and improve standards of financial accounting and reporting for the counsel and education of the public, including issuers, auditors, and users of financial information. ” To achieve this, FASB has five goals. * Improve the usefulness of financial reporting by focus on the primary characteristics of relevance and reliability, and on the qualities of compare and consistency. * Keep standards flowing to reflect changes in methods of doing business and in the rescue. Consider promptly any square areas of deficiency in financial reporting that force be improved finished standard setting. * arouse international convergence of accounting standards concurrent with change the quality of financial reporting. * Improve common apprehension of the nature and conclusions of information in financial reports. The dickens boards have be en making efforts to harmonize the accounting principles, as of September 2011, there was a push to harmonize, or integrate, the accounting standards of the United States, which operates under Generally Accepted Accounting Principles (GAAP), with International Accounting Standards (IAS).The rationale is that it would level the playing field for global businesses by providing regulators, auditors and conclusion-makers (investors) uniform information based on the same accounting methodologies. Supporters believe that this would improve accountability, reduce international transactional and exchange rate take chancess and improve information transfer to enhance economic policy decision-making. The difference between IAS and US GAAP is that the former is more principle based and the later is rule based. The following are Challenges to harmonization of accounting systems. Licensing and Enforcement, Individual accountants, CPAs and tax legal philosophyyers worldwide would need to compl y with and obtain licensing through an internationally accepted rules-making corpse. If he international body lacks enforcement authority, there is no prosecutorial authority for breaking international laws. However, if the international body does have prosecutorial authority over a U. S. citizen, there would arise jurisdictional and constitutional issues regarding the rights of an international bodys rights to engross an American under international law. Finally, issues arise from the locating of U. S. -only based businesses regarding forced compliance IASB standards are principles-based. thereof the countries that have rules-based standards are expected to experience spacious difficulty in harmonization of their standards with IFRS. There are challenges that IASB and nations adopting IFRS need to address in the coming days.One jumbo challenge for countries adopting IFRS is the shortage of manpower and more particularly, IFRS-trained manpower. For case in point, with just six months to go forwards mainland China’s listed companies adopt IFRS, demand for accountants is ascending and could run into millions in the coming years, if the new standards are rolled out for all of the country’s companies and not just the listed ones. Accountants say that the challenge for China, as it scrambles to meet the accounting shift deadline, will lie in getting its over-1,100 listed companies to establish the appropriate financial reporting systems and in training enough fitting accountants by January. The risk is that some of these companies whitethorn overlook to make the transition on time.Estimates reveal that China has a shortfall of 300,000 qualified accountants and is give carely to require a foster third million over the coming years to keep pace with its current rate of economic growth Difference purpose of financial reporting, in some countries the purpose is altogether for tax assessment, piece of music others it is for investor decision making, Different legal systems, these prevent the development of certain accounting practices and spring picks available. The Accounting world can be shared out into â€Å"those countries which have a ‘legalistic’ orientation toward accounting and those with a ‘non legalistic’ orientation” (Nobes et al. , 1997:8). The non-legalistic approach can be found in countries, which use common law. In commonality law countries, Accounting does not depend upon law. Accountants ( master key organizations) fit out accounting rules. Hence, it is the private sector, which plants Accounting and not the law (Choi et al. , 2002). The task of the legal system is to give an answer to a specific case rather than to formulate general rules for the future (Choi et al. 2002). The legalistic approach can be found in countries, which use the so called code (or codified) law. In contrary to the common law, the codified law system needs to develop rules in expand for the Accounting and financial reporting (Nobes, 1994). This means that â€Å"Accounting rules are incorporated into national law and tip to be highly prescriptive and procedural” (Choi et al. , 2002:43). In these countries the role of law is to describe behavior, which isconsidered to be refreshing in the society (Choi et al. , 2002). Different user groups, countries have different ideas round who the relevant user groups and their respective importance.In USA investor and credit groups are given prominence, while in Europe employees enjoy a higher(prenominal) profile. Provider of finance, there three main sources for external capital are shareholders, banks and government (Hill, 1999). It varies from country to country, which of these three provides most of the financial capital to companies. In countries like Ger umteen and Italy banks provide companies with capital. In countries like England and the United States shareholders provide companies with capital. The governmen t is the provider of capital in countries like France and Sweden. (Hill,1999) This diversity of capital providers means that Accounting Practices differ in order to satisfy needs of capital providers.In the case of shareholder ownership, (e. g. in the U. K. and the U. S. ), information disclosure will be more important than in countries, where capital is raised from banks or governments. This is explained by the point that in the latter countries information will be transmitted more directly. (Radebaugh and Gray, 1997) It is impossible for a company to inform each shareholder with its specific information needs, because they are a big and unorganized group. so financial statements in the US and UK are â€Å"oriented toward providing individual investors with the information they need to make decisions about purchasing or selling corporate stocks and bonds” (Hill, 1999:593).Tax laws, the tell question here is to ask, how much taxation regulations determine Accounting measur ements. In countries like the U. S. , U. K. and Netherlands there is no interplay between tax and Accounting law. When Accounting Standards are developed, the only focus is how to conduce the information function. Questions about taxation are not considered in those countries (Achleitner, 2000). In contrary, in nations as France and Germany, tax and Accounting Systems are ruled equal (Nobes and Parker, 2000). There is the principle of decision in continental European countries. This means that the profit of the balance sheet is at the same time the foundation to snap income taxes (Achleitner, 2000).In Tanzania income tax act is in dis agreement with some accounting procedures like computer science of depreciation, Bad debts and therefore disagree on how accountant compute organization profit and therefore in Tanzania should prepare to set of financial statement one for tax purposes and the other for other users of accounting information. heathen differences result in objectives fo r accounting systems differing from country to country for example Islamic laws does not recognize the use of interest rate. The lack of strong accountancy bodies, many countries do not have strong independent accountancy or business bodies which would press for better standards and greater harmonization.Unique circumstances, some countries may be experiencing singular circumstances which affect all aspects of e trulyday feel an d impinge on the ability of companies to enkindle proper reports, for example hyperinflation, civil war, currency restriction. patriotism is demonstrated in an unwillingness to accept another(prenominal) country’s standard. The Financial Accounting Standards Board (FASB) in the U. S. is responsible for setting accounting standards based primarily on â€Å"Federal securities laws and state CPA licensing laws. ” All countries have specific securities laws, tax laws and banking and financial regulations that dictate accounting principles. Furth ermore, in the United States, there are individual state laws that govern business, banking and redress activities. Adopting international accounting standards would not only skirmish with U. S. tatute law, but also constitutional law associated with â€Å"states rights. ” perpetual Platform, Beginning in 2005, all 7,000 EU in public traded companies are required to apply IFRS in the preparation of their consolidated financial statements. This represents yet another challenge as preparers of financial statements from Latvia to Portugal and from Poland to Sweden grapple with unfamiliar requirements. In preparation for this sweeping change, the IASB completed its â€Å"stable computer program” of standards in March 2004. juvenile and revised standards include five new IFRSs and 17 amended IASs, resulting from the IASB’s Improvements Project and Phase I of its cable Combinations Project.Some of the more significant revisions to IFRS that resulted from these projects include: * The LIFO method for be inventories is no all-night allowed; *  The concepts of â€Å"fundamental error” and â€Å" crotchety items” are eliminated; *  Trading securities are now include in a larger defined course of financial instruments â€Å"at fair value through profit or loss” and entities may designate any financial asset or liability into this category (commonly referred to as â€Å"the fair value option”); *  Fair value hedge accounting may now be used more quick for a portfolio hedge of interest rate risk; *  Guidelines for share-based payments have been added;  The pooling-of-interests method for business combinations is no longer allowed; *  Goodwill is no longer amortized, and negative grace of God is not recorded in a business combination World wide acceptance, National accounting standards are highly politicized and there is often a natural tendency to place the interests of the national economy ahea d of those of the global economy. Private sector businesses and professed(prenominal) accounting bodies also have a vested interest in accounting practices and financial reporting. straighten outure from these groups to change or reject certain standards can escape a lot of weight with political decision makers. Adopting international financial standards is met with additional challenges in developing countries. They often lack the resources and infrastructure to adapt national legal and legislative frameworks in which to house the standards, making proper implementation difficult.Training and Retraining, When a country decides to harmonize with the international standards, its companies, accountants and auditors need to be retrained in the new standards and reporting procedures for financial statements. College and university programs in this field also have to undergo significant changes in order to educate new people entering the profession. in the beginning any of this can ha ppen, trainers and professors will require training so they can instruct professionals and students. This will require the development of new learning materials and curricula, new examinations for professional licensing and new accounting software and reporting systems. To further complicate matters, the adoption of harmonized standards has to be phased in, so for a number of years, two different systems are in operation. Such a omplex transition requires a lot of safety mechanisms to ensure it achieves uniform results. To conglutination up with, Harmonization of financial statement is very crucial for accounting profession and also for the global business growth especially for multinational companies which will now find easily in preparation of parent and subsidiary financial statement since have to be prepared according to IFRS. IFRS IS very important to developing countries like Tanzania such as increase confidence of investors, reduce cost of doing business, facilitate silver- tongued operation of international groupings like EAC and the countries accountant rick competitive worldwide. REFERENCES WORD LENGTH: 3517 words Arbnor, I. Bjerke, B. (1997): methodology for Creating strain Knowledge, Sage Publications, greens Oaks, 2nd edition. Ghauri, P. ; Gronhaug, K. (2002): explore Methods in Business Studies, scholar Hall, London. Choi, F. ; Frost C. ; Gary, K. (2002): International Accounting, apprentice Hall, New Jersey, fourth edition. Choi, F. ; Mueller, G. 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