Report arguing for a single set of Accounting Standards for Worldwide use
1.Write an investigative report arguing for a single set of accounting standards for world-wide use.
2.Prepare an investigative report critically outlining challenges facing having a single set of accounting standards for world-wide use.
3.Using the concept of the institutional theory you learnt in Week 2 topic, prepare a research report on whether IASB’s goal of having a single of set of accounting standards for world-wide use is feasible.
1.The modern corporate world has been characterized by rapid growth of international business or trade as well as capital cash flow which has led to an increase in global economic integration. The growth of international trade has created the need for the establishment of harmonized international accounting standards. Such demand has been created due to the homogeneity effect caused by international trade and affects different business customs, practice as well as various international business institutions. The difference in business customs, traditions and institutions has created a desire to harmonize accounting standards among many countries (Albu 2014, p. 494). Lack of harmonization of accounting standards has had negative implications for the growth of international trade and has affected the efforts of achieving economic integration in many countries. The International Accounting Standards Board (IASB) with the help of other institutions have developed initiatives to tackle this challenging issue in the growth of the international business by developing strategies to harmonize international accounting standards. This report, therefore, provides critical analysis of literature review of harmonization of accounting standards and practice.
The growth of international business or trade has called for development and implementation of a unique set of accounting standards to enhance the efficiency of the global market. The development of a single set of accounting standards will require the harmonization of international accounting standards. This is a process through which international accounting standards used in different countries are brought into some agreement or similarity in accounting terms and practices with the aim of achieving a standard set of accounting principles (Wang, 2014, P. 976). Companies that have developed international business face not only accounting problems or issues but also the existence of new business culture, unique and challenging business international laws as well as different political systems which pose great impact of the success of international businesses. However, for foreign companies to achieve success and sustainability in the global markets there is a great need for the companies to deal with the different accounting standards in different countries.
Challenges facing having a single set of Accounting Standards for Worldwide use
Different countries or economic regions have been found to use different international accounting standards. Such difference has become an obstacle to the growth of international businesses as well as frustrating business efforts to achieve economic integration. For instance, for any b=international business to thrive in its operations in Germany, the business must comply to the Germany accounting standards which are different from the international accounting standards adopted by over 100 counties globally (Campbell & Yeung, 2017, p. 485). On the other hand, any international business carried out in American has to conform to the US Generally Accepted Accounting Standards (GAAP). Such differences or lack of similar accounting have led to increased business challenges including the comparison of financial statements for different companies trading internationally. Such a challenge acts as a great obstacle to free movement of capital resources required for business development. This is because in most cases shareholders shy away from investing in foreign countries with different accounting standards ((Stent et al. 2017, p. 268). Most of the international business has been listed in different stock exchange markets which provide them with an opportunity to enhance their business development strategies through trading with other companies as well as a great platform to engage different potential investors. It is important to note that, not all financial statements are accepted in all stock exchanges. For instance, for an international company that seeks to trade in the New York Stock Exchange must prepare a reconciliation statement for its financial statements. Therefore such challenges have interfered with the growth and success of international businesses.
The international accounting standards board (IASB) is involved in the development of international accounting standards and has played a significant role in advocating for international harmonization of accounting standards. The board has been able to incorporate other boards such as the Australian Accounting Standards Board and the Financial Accounting Standards Board responsible setting American accounting standards in integrating their efforts together to harmonize accounting standards worldwide (Yu & Wahid, 2014, p. 1919). This will imply that all international accounting standards will be made compatible with the rules of international setting bodies in a manner that will facilitate the development of high-quality accounting standards. Such efforts by these bodies aim to develop a single set of accounting standards for worldwide business and economic use. Accounting is a very integral business practice, and its primary function is to provide financial information about different commercial entities that are important for various economic decisions. The development of a single set of accounting information will therefore contribute avoidance of financial statement diversity which has become a significant obstacle in business development, reduce the extra business costs which accrue from drafting different financial statements as well as assist in winning back the confidence of foreign investors (Oulasvirta, L., 2014, p. 276). This will contribute to increased business performance through comparative analysis of the financial statements highlighting the best performing business internationally. It will increase competition in the international market and create a platform where business performance can be analyzed by various experts to provide an accurate and fair view of the companies. It will also contribute to increased foreign direct investments and growth of multinational businesses.
Using the Institutional Theory to Examine the Feasibility of IASB’s Goal
2.Despite the efforts made by different accounting bodies to harmonize accounting standards, these efforts have faced great challenges in the implementation of a single set of accounting standards. The existence of different legal business environments has challenged the harmonization of international accountants because both legal and statutory environments play a vital role in accounting systems and standards in different countries. The legal and statutory systems of any country exercise a strong influence on the accounting and reporting practices in that country (Brusca & Martínez, 2016, p. 734). This means that countries are required to harmonize their legal systems before harmonizing the accounting practices. It will be difficult to achieve the goal of harmonization which is to develop a single set of accounting standards to be used worldwide without the uniformity in the countries business laws. Spirit of nationalism amongst different nations has also challenged the implementation and efforts to develop a single set of accounting standards. The spirit is found among different accounting professionals who are rigid and unwilling in accepting the need to change their accounting practices (Tschopp 2014, p. 154). They are usually guided by national pride which acts as an obstacle to the acceptance that some country accounting principles are inferior to those of other countries and therefore the need for a review. It is the accountants who should be in the forefront of advocating for a single set of accounting standards since they play a critical role in harmonization process.
Competition among different international standard setters has been one of the critical challenges of successful implementation of a single set of accounting standards for use worldwide (Hope et al., 2017, p. 10). These bodies are engaged in developing international accounting standards and therefore are critical to the success of any implementation plan for harmonization. Such competition amongst these bodies is unwanted, and therefore international accounting bodies such as ISAB, FASB, and IFAC among others have reviewed their efforts in a bid to reduce diversities in accounting practices. Such competition arose from the fact that everybody wants their accounting principles to be considered to be superior to the others. Other than the competition among the international standard setters implementation also faces a significant challenge of varying objectives of financial reporting (Ray, 2017, p. 21). This is because the purposes for financial reporting differ from one country and in most cases to different target audiences. Therefore in some nations financial reporting is targeted at different investors or stakeholders in various businesses and therefore implementing accounting standards which will compromise with their financial reporting goals is challenging.
Lack of strong professional accounting institutions has also challenged the development and implementation of a single set of accounting standards. The professional accounting institutions are mandated with the responsibility of developing and advocating for development t of accounting standards which will conform to the international accounting standards (Berger, 2018, p. 9). Therefore the countries where the professional accounting bodies are not strong enough to champion for implementation of harmonized accounting standards; they will always encounter significant challenges in aligning their accounting practices. The existing economic gap between the developing nations and the developed nations has also become a substantial obstacle to harmonization efforts. Accounting systems in a country play an essential role in the development of such economy, and therefore there is a need to establish the interaction between the economic and accounting systems. This can be achieved by reconciling the existing accounting diversities amongst different professional such as the accountants, educationists, economists as well as the politicians (Lahmar & Ali, 2017, p. 22). There is, therefore, a great need for collective efforts by international accounting sectors and other relevant entities affected by the accounting standards to achieve increased harmonization and deliver its objective of developing a single set of global accounting standards.
3.An institutional method as developed by theorists such as Meyer and Rowan, as well as DiMaggio and Powel, provides a deeper understanding of the more resilient aspects of social structures. The theory is therefore crucial in helping us understand the phenomenon of harmonization of accounting standards into a single set of international accounting standards for worldwide use. The theory, therefore, considers the processes through which organizational structures are established as official guidelines for social behavior (Campbell & Yeung, 2017, p. 485). The feasibility of IASB goal of having a single set of accounting standards for worldwide use can be analyzed by application of the concepts of institutional theory. This is because the institutional theorists provide that different institutional environments can strongly influence the development or establishment of formal structures in an organization.
According to institutional theory, organizational or institutional changes that allow the implementation of regulatory changes can occur through normative pressure, mimetic process as well as through a coercive process. Normative influence happens when organizations or institutions adopt change that is related to its professional environment with the aim of becoming consistent with the norms or practices of larger institutions (Carneiro et al. 2017, p. 180). This implies that is possible for different accounting institutions to adopt changes resulting from the international accounting standards board to conform to the international accounting standard for establishing a single set of accounting standards for worldwide use. Secondly, the theory depicts that institutional changes can be implemented through a mimetic process where the different organizations adopt other organizational practices with the aim of dealing with its internal uncertainty about their strategies (Chen, 2017, p. 12). This implies that despite the differences in accounting principles in different countries, the various accounting standards bodies can adopt the new accounting practices to help them solve their internal concerns over the future of accounting practices. The IASB goal of developing a single set of international accounting standards will help the organizations or companies involved in international businesses to achieve their strategic business goals (Stent et al. 2017, p. 266). Lastly, the theory also advocates the fact that, institutional change in environment and practices can be achieved through the coercive process. This implies that most organizations and institutions, as well as professional bodies, adopt change that which is consistent with the larger institution just because of the pressure they receive from other organizations upon which they might be regulated.
In our case, this is very necessary since different countries or companies or even institutions can adopt the changes proposed by IASB since the body is involved in setting or developing international accounting standards and therefore can act as the regulatory body in this case. It is possible for the different countries to implement the single set of accounting standards policy and have the international accounting standards board regulates the system through a set of regulatory policies. The institutional theory, therefore, supports the IASB goal of developing and implementing a single set of accounting standards to be a very feasible goal (Brouwer & Hoogendoorn, 2017, p. 142). All that is required is the commitment towards the implementation of the standards, harmonization of the different laws and statutory, regulatory policies concerning accounting practices, developing strong professional accounting institutions, reducing competition among the international standards setters as well as reviewing the and harmonizing the different objectives of financial reporting.
Conclusion
Harmonization of international accounting standards from the above report can be said to be very vital in international business development as well as in creating or improving economic integration. IASB plays a crucial role in the harmonization of accounting practices, and its goal of developing a single set of accounting standards is very feasible. However, there is a need to strengthen collective efforts towards the realization of this goal from different stakeholders in the accounting field. There is a great need to develop a similar business legal framework that will support the implementation of the harmonization process. The application of a single set of accounting standards for worldwide use will, therefore, contribute to increased growth of international business, enhanced comparability of international trade for useful analysis that can be used to spur competition by different countries. It will also contribute to improved performance or interpretation of the stock exchange market since it will facilitate increased acceptance of different companies’ financial statements.
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