International Accounting Undergraduate Degree Accounting & Finance Essay

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International Accounting Undergraduate degree Accounting & Finance 1. The Assignment "Several organisations involved efforts harmonise accounting practices rregionally internationally. The important players effort European Union (regionally) International Accounting Standards Committee (IASC) ( IASB) (internationally).

There have been a series of efforts during recent years with the aim of developing a common agenda of accounting standards. The fact that there are several alternatives of accounting practices, for example, contributes to making it difficult for influential bodies to reach common ground concerning the matter. Institutions such as the European Union and the International Accounting Standards Committee (IASC) (currently called the International Accounting Standards Boards -- IASB) have played significant roles with the purpose of emphasizing the importance of international accounting standards.

With society being composed out of distinct national economies, there has been little need for common accounting practices in the past. However, as the global economy has come to dominate international affairs people have become more and more demanding of a standard language they can use in accounting. Contemporary corporations have headquarters in many parts of the globe and thus need governments to implement policies that can harmonize accounting practices. It is widely believed that harmonization is the most effective solution to the problem.


Accounting diversity is largely perceived as existing as a consequence of the accounting practices of the country in which a company is located, usually the factor that decides the respective firm's accounting practices. Even with this, matters are more complex in particular situations. Regulations and location are certainly important, but one must also consider the circumstances in which a business process takes place. Alternative accounting practices are the only solution to companies that need to effectively close deals in circumstances that demand such actions.

Depending on the body that addresses the issue of common accounting laws, the process can be perceived differently by the general public. Some regard the term 'standardization' as being more aggressive in comparison to 'harmonization' and thus prefer to use the latter. "Harmonization is a word that tends to be associated with the supranational legislation promulgated in the European Union, while standardization is a word often associated with the International Accounting Standards Board." (Alexander & Nobes 2007, p. 80)

EU involvement in harmonizing accounting practices

The European Union has seen a slow process in its efforts to make accounting harmonization possible. "The EU Directives have highlighted European accounting diversity, which is rooted in different legal systems (code vs. common law), different capital market structures (debt vs. equity orientation), and different roles of accounting (macro- versus micro-user)." (Saudagaran 2009, p. 57) The EU had to adopt directives from member countries and this further complicated matters, as political compromise has been the only means for the union to prevent serious problems.

Harmonizing objectives are being addressed within the EU through directives that are being introduced into the legislation of the community's member states. The EU has directed its attention toward harmonizing accounting practices throughout the second half of the twentieth century. The 1970s and 1980s have been filled with a variety of actions undertaken with the intention of harmonizing accounting practices. Directives were generally accepted throughout the UE as an effective method of reaching standardization.

One example in this sense is the EU's fourth, adopted in 1978, which addressed formats and rules of accounting. Directives were generally designed with the purpose of working alongside of laws passed by local legislatures. The fourth directive directly relates to this matter by emphasizing that member states are in charge of requiring or permitting companies to perform particular actions. By looking at how the Fourth Directive's draft evolved during the 1970s one can gain a more complex understanding of how members of the EU influence accounting practices. The initial draft was published in 1971, at a time when the UK, Ireland, and Denmark had not joined the union. As a consequence, the document was heavily influenced by German thinking, with many of its provisions being conservative. Conditions changed as the three previously mentioned countries joined the EU and brought Anglo-Saxon thinking strategies that came to reflect on how the Fourth Directive's draft developed. "This introduced the concept of the 'true and fair view'." (Alexander & Nobes 2007, p. 81)

The EU has attempted to address a series of problems with diversity present in accounting during the 1990s. The 1991/1992, 1994/1995, and 1998/1999 are periods during which the union has initiated significant harmonization strategies. While experiencing limited effectiveness, these initiatives have emphasized the fact that practices that are characteristic to particular companies and situations need to be taken into account before devising a common set of accounting strategies (McLeay & Jaafar 2003, p. 23). "During the 1990s, the EU began to take more notice of international standards, leading to a Regulation of 2002 requiring IFRSs for the consolidated statements of listed companies." (Alexander & Nobes 2007, p. 80)

The idea of a 'true and fair view' came to be an integral part of the EU's struggle to reach common ground with regard to the relationship between a generalized system of accounting and national laws. The EU financial system largely promotes the idea that financial statements need to be in agreement with the facts and that they must not be misleading (Alexander & Nobes 2007, p. 83). There is much controversy concerning the 'true and fair view' as a result of how members of the EU appear to have different perspectives concerning the topic.

The fact that the EU contains both common law and code-law nations means that these respective communities are likely to express different opinions with regard to harmonizing accounting practices. On the one hand, the UK is a common law country and it thus has a legal environment that is directed toward taking care of public investors. On the other hand, countries like France and Germany have designed legal environments that are more supportive toward institutions such as banks and labor unions. "insiders rather than outsiders due in part to the closely held ownership of companies found in those countries." (Wilkins 2010, p. 4)

Common law countries have the tendency to be more conservative with regard to accounting in comparison to code law countries. Insider investors in code law countries have access to more information concerning gains and losses they are likely to experience, taking into account how insiders control firm ownership in these communities. As a consequence, code law communities are more probable to express hesitation about employing conservative strategies while common law nations are likely to be conservative in accounting practices (Wilkins 2010, p. 4).

Even though a great deal of progress was made across the second half of the twentieth century in the field of harmonizing accounting practices, many expressed lack of enthusiasm with regard to how some of these actions had a limited influence.

At a Conference which the Commission organised in 1990 on the future of harmonisation of accounting standards in the EU, a clear preference was expressed for not reducing the number of options in the Directives, for not adopting new legislation in the near future and for the need to take into account the harmonisation efforts at a broader international level. (ACCOUNTING HARMONISATION: A NEW STRATEGY VIS-A-VIS INTERNATIONAL HARMONISATION, p. 3)

In a response to accounting issues within the European Union, the European Commission created the Accounting Advisory Forum. National standard operatives and European organizations of accountants work together in this forum to devise solutions to problems that have not been addressed in the past through Directives or through diverse means used in an attempt to address the matter of harmonizing accounting practices. Although it has had a problematic start, the Forum has had some success in that it has assisted the European community in acknowledging several general ideas concerning accounting. The fact that there is no clear mandate to support this progress is however very influential and means that the data produced is not enough to influence the evolution of accounting in the union (ACCOUNTING HARMONISATION: A NEW STRATEGY VIS-A-VIS INTERNATIONAL HARMONISATION, p. 3).

One of the most urgent problems regarding harmonization involves European companies experiencing trouble on an international level as a result of their tendency to focus on more local accounting ideas. As these companies concentrate on acting in accordance with national legislations while also acting in agreement with Accounting Directives they often fail to devise strategies that can be considered acceptable from an international capital market point-of-view. "These companies are therefore obliged to prepare two sets of accounts, one set which is in conformity with the Accounting Directives and another set which is required by the international capital markets." (ACCOUNTING HARMONISATION: A NEW STRATEGY VIS-A-VIS INTERNATIONAL HARMONISATION, p. 3)

IASB involvement in harmonizing accounting practices

The post World War II era made it possible for the international public to acknowledge the need of international accounting standards. The IASB regards harmonization as an outdated process -- one that only addresses the idea of removing some of the differences in accounting practices in significant capital markets. The institution…

Sources Used in Document:

Works cited:

1. Alexander, D., & EBERHARTINGER, E. 2009. 'The True and Fair View in the European Union'. European Accounting Review Vol. 18, No. 3, 571 -- 594

2. Alexander, D. & Nobes, C. 2007. Financial Accounting: An International Introduction. Pearson Education.

3. Cool, K., & Goddard, G.J. 2006. International Business: Theory and Practice. M.E. Sharpe.

4. Fischer, P., Tayler, W., & Cheng, R. 2011. Advanced Accounting. Cengage Learning.

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