The Achievements Or Successes Of Both Eu And Iasc Iasb Accounting Essay

The Achievements Or Successes Of two Eu And Iasc Iasb news report system of rules EssayIntroductionGrowth in foreign trade has been on the increase everywhere the years necessitating several organisations to be involved in the efforts to harmonise explanation system coiffures either region everyy or unwrapside(a)ly. Among those, leading in this effort were the atomic number 63an coalescency (EU) and world(prenominal) Accounting Standards Board (IASB) (formerly International Accounting Standards Committee, IASC).This essay will look at background and harmonisation subr kayoedine of the two organisations and evaluate their compassments to date. It is considered that harmonisation perhaps defined as a means by which differences are decreased hence harmonisation of financial practices will be regarded as the cognitive process by which the differences in story practices across countries are reduced at long last resulting in a set that is comparable (Nobes and Parker, 2010).Background and ObjectivesThe atomic number 63an Union (EU) is an economic and political union of 27 member countries located in Europe. The EU was established on 1 January 1958 following the Treaty of expectant of Italy 1957 (Nobes and Parker, 2010). The design of Treaty had established rules to encourage free movement of persons, products and services, and crown. This plaque drives the needs of harmonization of report and financial reporting.Thus, the most all-important(a) objective of EU is to create a leafy vegetable market for the member countries. supply bill standards are required regionally in all move of EU to encourage the flow of capital, enhance the protection of the shareholders and other stakeholders, and increase the reliability and comparability of companies financial instruction. The EU shows a component part to regionally harmonizing chronicle practices by established Directives and Regulations which are the two main instruments to check com pany law and accounting standards (Nobes and Parker, 2010).As as an economic and political union, the EU have issued and established many directives to harmonize accounting practice in regional term. However, in foreign scope, the IASC is one of bodies are effecting on harmonization of accounting rules and disclosure and it reported a number of outside(a) standards (Nobes and Parker 2010).IASC was machinateed in June 1973, and the Board of IASC was constituted simultaneously by main accountancy bodies in nine different countries much(prenominal) as Canada, France, Germany, UK, and USA and so forth The IASC was established to harmonize supranational accounting standards. IASC has received board arena of prevail for its effort to harmonize international accounting, which has been considered as leading major power to harmonization (Larson, 1999). The harmonization of accounting is also documentationed by IOSCO (International nerve of Securities Commissions), large everyday accounting firms, trading unions and most national public accountancy bodies. The basic objective of IASC is considered as publishing accounting standards to be observed in the financial statement preparation and encourage their credenza and observance orbiculately (Nobes and Parker, 2010). In 2001, the IASC restructured and renamed to the IASB. The new cheek has shown new to a greater extent(prenominal) comprehensive objectives canvasd to the IASC. To be able to understand the objectives of IASB, the abstract frameworks should be explained. The IASCs conceptual framework embroild the objectives and the qualitative characteristics. The following table 1 shows the minute objectives of IASB under the IFRS Foundation temper.Table IASBs objectivesIASBs ObjectivesTo develop high timberland and perceivable international accounting standards to guide high quality, transparent and comparable knowledge in financial reporting. Thus accounting standards will help the world(preno minal) capital market participants and other users decision making.To encourage the use and fuddled application of standardsTo fulfill the (a) and (b), and take account the gratify of small, medium size entities and appear economic account appropriately.Give high quality solutions round convergence of national and International accounting standards.Source IFRS Foundation Constitution (ias.com, 2010).The qualitative characteristics of financial statements do by IASC followed the FASB. In stray to picture the risk, the accounting information must include all these three characteristics relevance, reliability and comparability.The motives of harmonizing accounting practices by these organizationsOne is tempted to consider harmonisation objective as having shifted from reducing differences to advance out with a standard or lay for uniformity. The motives of the two most influential international bodies involved in the process of harmonisation of the different national accounti ng systems, thitherfore (as stated on their web sites), seems to suggest that they aim to develop or create a single set of high quality, understandable and enforceable world(prenominal) accounting standards, (Elliott and Elliott, 2009). It is more of standardization than harmonization as it is less flexible. This therefore raises scruple as to the true purpose of their efforts especially when we consider their respective menses compositions, history, their headquarters and the majority of stakeholders who are likely to benefit. Perera (1989) as quoted in Deegan and Unerman (2006) argued that the accounting standards themselves tend to reflect the circumstances and patterns of thinking of the representatives that makes the committees. Already, IASB seems to have noted standardized criticism and Nobes and Parker (2010) states that the trustees will gradually increase the Board membership to include members from Europe, North America, Asia/Oceania, Africa and South America by 2012 .Similar concerns were once echoed by Gray, et al (1981) while commenting on the proposal to introduce standards specifically for MNCs and the interrogative sentence seems to be still valid. He submitted that the term standard could be utilize broadly to mean a set of statements which may include commendation to disclosure or measurement issues for the benefit of Multinational Companies. He found such statements to have a different meaning from that intended to achieve strict uniformity to those capable of more flexible interpretation from those derived from statutory authority, to those which are effectively advisory. However, he relented that the fact that they exist as guideposts or criteria against which MNCs accountability is assessed, qualified such statements to be described as standards.Whittington (2005) stated that the motivation for the creation of the IASC was due to the need for a common international language of accounting to serve capital markets. He highlighted t hat a common set of accounting standards increased the comparability of companies in different countries and facilitated the thriving consolidation of free radical of companies based in different countries. Although IASB sets standards after windup scrutiny from different national standard setters, it is evident that it is involved more with convergence than harmonisation. This may in a way also support the sentiments expressed by UK finance directors during a survey that IFRSs undermined UK (and obviously of all other countries) reporting integrity, (Elliott and Elliott, 2009). Countries still need to maintain their national rob as they exhibit substantial economic and cultural differences.On other hand, it is important to note that we now have more of a global economy hence the development of international standards makes it easier to raise cross-b nightclub finance and to compare performance of companies by users who include prospective investors, (Elliott and Elliott, 2009) . To summary, Epstein and Mirza (2001) and Choi et al.(2002) gave reasons for the harmonization process of accounting practices in the preparers and user perspectives, they stated that harmonization created huge advantages as listed in the following tablesTable Advantages of harmonizationPreparersUsersBetter comparison between group company and subsidiaries in preparing consolidation of financial statementHigher quality and comparable information among companies to decision making andBetter communications in internal reporting systemReduce the risk for financial institutionsMNCs do not have to change their statements to conform to each countrys rules when listing on exchange memoryLead to a well-developed and good functioning capital market, and its a pre-condition for a good economy and developmentProcess of harmonization on IASC/IASB and EUThe IASC and its successor are considered to be the most favored body that evolved in harmonization of accounting practices (Nobes and Parke r, 2010). The harmonization efforts of IASC can be classified in three mannikins. Simultaneously, the IOSCO and IFAC have supported to the IASC/IASB and EU.First phase 1973 to 1988This period of time is called the first stage of development of IASC. During this period, the IASC set up most of its standards which covered major accounting topics like accounting for stemma (Epstein and Mirza, 2001). IASC focused on achieving compatibility between the existing standards and IAS and giving a lowest-common denominator cash advance cross the countries. At the same time, the strategy of IASC allowed multiple methods that used in various countries. IOSCO accepted that IASs for financial statement of foreign companies that listed in their stock exchange market (Larson, 2011). Additionally, the IFAC was founded in 1983 to develop the areas which were uncovered by the IASC, such as auditing and management accounting (Nobes and Parker, 2010). The following table shows the detail information o f processTable Harmonization Process from 1973 to 1988Harmonization Process 1973-1988 scope1973The IASC was founded.1976The Economic Cooperation and Development published an announcement on investment in MNCs to develop guidelines on disclosure of information (Choi et al., 2002)1977A Report to the highest degree IASs for transitional corporations was issued by an expert group of United Nations (Choi et al., 2002).1981In order to set IAS widely, the IASC had forums with other organizations.1983Foundation of IFAC helped IASC to get a closer kinship with other bodies (Nobes and Parker, 2010).1984The London Stock Exchange issued a number of corporate companies to follow IAS in the UK or Ireland (Choi et al., 2002).Second phase 1989 to 1993During this period IASC started to join with IOSCO, and made placement with IFRS for cross-border securities offerings (Nobes and Parker, 2010). However, the IASC was decreasing the choices under the IAS and the IASC needed more capital market so that the IOSCO would accept it in the period between 1989 and 1993 (Fritz and Lmmle, 2003). IASC published a framework to prepare financial statement in 1989 and Comparability/Improvement Project was carried out to narrow the alternative accounting treatment in this period. Furthermore, 10 standards was revised in 1993 (Nobes and Parker, 2010). Table 4 shows the processes in this period.Table Harmonization Process from 1989 to 1993Harmonisation Process 1989-1993 mount1989Exposure Draft 32 was issued by IASCThird phase 1993-2001IASC started agreement with IOSCO and IOSCO supported 30 core standards that were developed or revised by IASC. From 2001, IASB started to remedy existing International Accounting Standards, deal with the problem that IASC havent intercommunicate and enhance quality of financial report. IASB also involves in reducing the international differences in standards with FASB (USA) (Nobes and Parker, 2010).Table Harmonization Process from 1993 to 2001Harmonizati on Process 1993-2001 stage setting1995The European Commission planned to support the IASC to make IAS link with EU accounting requirements.1996The SEC manifested that it supports the IASCs objective to develop, as expeditiously as possible, Accounting Standards that could be used for preparing financial statements that could be used in cross-border offerings. (Choi et al., 2002296)1998The IOSCO published an announcement International Disclosure Standards for Cross Border Offerings and sign Listings by Foreign Issuers (Choi et al., 2002296) the IASC began to explore a new strategy and organization structure.2000The IOSCO accepted the IAS, especially for foreign registers (Nobes and Parker, 2010).2001IASB was set up by encouraging from the IOSCO and SEC (Nobes and Parker, 2010).The fundamental of EU accounting harmonization is a harmonization of company law which is aim to create a uniform chore environment (Mueller, 1997). Harmonization of company law taken by EU is directives, wh ich have publicized 12 directives. Moreover, the forth and the seventh directives made the contribution to the accounting harmonization process in the Europe (Hulle, 2001). In details, the fourth part directive in 1978 combines Member States provision and provide a guideline of the presentation and content of annual accounts, valuation methods and the publication. The Directive also pointed out that the annual report must include a fair examine of firms financial position and the true and fair view brought from UK was firstly mentioned in mandatory term. Also, the seventh Company Law Directive in 1983 combines field of study laws on consolidation accounting and the fourth directive together, and sets out the methods of preparing consolidated accounts.Choi (2002) suggested that IASs as the new accounting standards are the preferred choice for EU countries by European Union. In terms of international harmonization of accounting standards, the policy stated by European Commission in 1995 pointed out that it was more efficient to associate EU with IASC and IOSCO than amend existing directives (Epstein and Mirza, 2001). In 2000, a further step in harmonization process was made by EU, which required enterprises on a regulated market to prepare their consolidated accounts under IAS (Fritz and Lmmle, 2003).The important obstacles faced by EU and IASC are differing accounting practice, which caused by different countries, nationalism, as well as wishing of strong professional bodies and international enforcement agency. Also, the difference in regulative sources is the challenge for EU and IASC (Houssain,nd).IASC is broadly focused on removing unnecessary differences in accounting principles and practice around the whole world (McComb, 1982). That A lack of synchronization between release of standards in different countries and the formulation of standards by IASC will be an obstacle for harmonization (Rivera, 1989). Furthermore, lack of the professional bodies ta kes a challenge to implement IASs. It is said that IASC can only implement its accounting standards by its member bodies, not through the own authority. Taking France and Germany as examples, the professional accounting bodies in these two countries have rarely submit setting of accounting rules than setting by the government and governmental bodies, so that IASs can only promoted by persuasion (Nobes, 1995).In terms of nationalism, there is an unwillingness to change accounting practice by accepting compromises. patriotism may be brought out when attempting to maintain independence of sovereignty. It can be observed that nigh countries did not make a reaction to attempts of harmonization by IASC (Nobes and Parker, 2002).Another challenge is the economic consequences of a particular country. mixed in economic consequences of standards could result in de-harmonization unless considered by those who set the standards (Nobes and Parker, 2002). The international accounting firms are a lso worried about the increasing interest of outsiders in the profession and the wish the standard setting process to be kept outside of the hands of the government (Samuels and Piper,1985).The achievements or successes of both EU and IASC/IASB in harmonising accounting practicesIn order to decide whether EU and the IASC were successful, it is important to review the objectives of these 2 organizations.First of all, the achievements of EU would be evaluated. In the past, countries in European used control of bookkeeping system instead of the financial statements which were lack of law and format. The EU set two main directives to improve financial reporting practices and brought about some harmonisation. These directives lifted rapidly throughout Europe and nowadays most countries in the continental Europe followed the EUs accounting system rather than Anglo-American type. The Table 6 describes the extent of harmonization that has been achieved in fall order.Table Extent of harmo nisation achieved between 8 EU countries in descending orderThe balance sheet variantDifferences in translation treatmentValue of inventoryThe income statement translationThe way to approach depreciationExamination and improvementValue of Fixed Asset graceApproach for cost of inventorySource Herrmann Thomas, 1995, p264Besides those successes, EU had some failures. Montagna (1986) stated that weak regulations, general and vague disclosure made European accounts be the same. In addition, Blake and Amat (1994) concluded that because of no direction for foreign property translation, deferred taxation and accounting for lease commitments, the EUs directives was failed itself. Some countries have explained the directives paralleling with the national accounting tradition. Some individual companies might refuse to agree to the rules given by EU. For example, 90% of German companies failed to publish their accounts. The EU harmonization also failed at the material level of actual account ing practices. The Table 6 shown to a higher place have presented 9 material harmonisation completed by 8 European countries. Some of these areas are not concealed by the EU legislation.Secondly, we will determine whether IASC succeeded. The term issuing standards is clearly successful. IASC released forty-one standards coming along with conceptual framework. However, because of that the standards were criticized for allowing many options. Another objective which should be considered is progression and observance of standards. We have to study four types of country developing countries, emerging nations, continental Western Europe and Japan, and capital market countries in order to decide IASCs success. In developing countries type, Saudagaran and Diga (2003) achieved that the harmonization in ASEAN countries would go on and be based on IASBs standard. In addition, IASC had advantages as a global standard-setter to be a major impact in some emerging nations which moved from commu nist to capitalist economics. In the continental Western Europe and Japan type, IASC has achieved limited success. Some countries considered IASC as a Trojan sawbuck trying to inflict the accounting standard in EU. Some companies in Switzerland chose IASs for their financial statements, and until 1994 IASs were used by several large companies all over Europe. The last type of countries including United States, Canada, the United Kingdom, Australia, South Africa and Netherlands seems influence the IASC. Furthermore, IASC could be considered as a successful organization as it had a support from IOSCO and EU commission in 2000. Nevertheless, IASC has accomplished their objectives.CONCLUSIONReferencesIASB (2011) History of International Accounting Standards Board http//archive.iasb.org.uk/about/history.asp IAS.COM (2010) What is IASB? The objectives of IASB, http//www.iasplus.com/restruct/whatis.htm Larson, Robert K, Kenny, Sara York (1999) Harmonization of International Accounting Sta ndards hop on in the 1990s, Multinational Business Review, spring 1999.Nobes, C. and Parker, R. (2000) Comparative international accounting, sixth edition, Harlow Pearson Education.