| The world economy and international accounting | | | | Harmonization must first start out with |
| would greatly benefit from having harmonized | | | | standardizing the reporting requirements for |
| accounting standards that can be used by all | | | | financial statements by national securities |
| countries. Historically there have been four main | | | | regulators. The International Organization of |
| accounting standards models in the industrialized | | | | Securities Commissions (IOSCO), which the United |
| world. They are the United States, The United | | | | States' SEC is a member of, is leading the |
| Kingdom, Continental Europe, and Latin American | | | | development of an accounting policy for securities |
| standards. The International Accounting | | | | regulator's reporting requirements. IOSCO has |
| Standards Committee (IASC) started to achieve | | | | built in a policy which limits the amount of |
| convergence in 1973 with the United States, | | | | reporting alternatives a company can use when |
| Canada, and the United Kingdom. Recently, the | | | | reporting its results of operating expenses and |
| International Accounting Standards Board (IASB) | | | | net worth. In 2002 the Norwalk Agreement |
| has taken strides in achieving even more | | | | formalized the IASB and FASB's commitment to |
| harmonization and convergence of accounting | | | | start converging accounting standards. Significant |
| standards. All E.U companies have been required | | | | steps have been taken since the agreement; |
| to base their financial reports according to the | | | | FASB and IASB meet on a regular basis. They |
| International Financial Reporting Standards (IFRS). | | | | are working jointly on trying to develop common |
| Many other countries not in the E.U such as New | | | | standards in areas of business such as applying |
| Zealand, Hong Kong, Australia, and Israel have also | | | | the acquisition method, revenue recognition, liability |
| taken steps to start harmonizing their accounting | | | | extinguishment, and leasing. A long term project |
| standards to that of the IRFS. | | | | has also been put in place to make conceptual |
| By harmonizing accounting standards it will help | | | | framework for accounting standards with |
| facilitate international transactions and minimize | | | | significant improvements in it. Under the |
| exchange costs; standardize information to | | | | framework there are two underlying assumptions, |
| world-wide economic policy-makers; improve | | | | they are accrual basis accounting and the "going |
| financial markets information; and help to improve | | | | concern" principle. Governments' accounting |
| government accountability. By having | | | | financial reporting standards also need to be |
| harmonized standards it makes international | | | | harmonized throughout the world to assist with |
| investment decisions less risky, as well as for | | | | harmonizing all companies. |
| managers making international based financial | | | | Lesser developed countries are also trying to |
| decisions. It can be very tricky when | | | | promote accounting standards harmonization by |
| non-domestic companies are listed in U.S stock | | | | establishing regional accounting associations as well |
| exchanges because they are not using the same | | | | as teaching accounting education programs. The |
| practices as the United States is most of the | | | | International Monetary Fund has assisted in this |
| time. If all countries followed the same | | | | effort by giving aid to governments. By having |
| accounting policies it would create a global | | | | developing countries adopt international accounting |
| "fairness". Auditors and regulators would be | | | | standards as well it will help reduce the expense |
| receiving and looking at the same information | | | | of creating domestic accounting standards. By |
| when evaluating companies. It is hard to | | | | harmonizing standards with the rest of the world |
| compare the financial information of companies | | | | developing countries with high inflation rates may |
| from different countries if they are not required | | | | be able to cut down on poor accounting practices. |
| to follow the same set of standards and rules in | | | | For the entire world to have harmonized |
| their accounting practices. In some cases | | | | accounting standards the U.S must recognize |
| companies are required to prepare financial | | | | international standards and start to abide by |
| statements under several different accounting | | | | them. The U.S model is not the ideal model and |
| practices; this takes up both time and financial | | | | it has been argued that the Internal Revenue |
| resources of the company. Between countries | | | | Service's standards are very complicated. Many |
| where free trade is not present harmonized | | | | authors argue that the U.S does not have a |
| standards will allow nation's tariffs and quotas to | | | | strong enough standards system to attract |
| be more accurate as well as less risky for those | | | | foreign firms and countries to its framework |
| involved in the trading. | | | | without adopting some international standards first. |