identify benefits and cost associated with international harmonization of accounting standards in reference to various stakeholders (auditors, investors ect.)
As we all know preparing financial statements gets cumbersome process due to difference in the international financial reporting standards adopted in different regions and countries. International harmonization of accounting standards helps in better understanding of financial reporting standards for all the stakeholders including investors, auditors etc and helps in mitigating the communication gap between the nations as they adopt harmonization of accounting standards which increases the compatibility of financial statements and disclosures for their stakeholders.
Benefits of International harmonization of accounting standards are stated below.
Better Understanding and enhanced Comparability- Harmonization of accounting standards makes it easier for the domestic and international companies in terms of measuring the performance standards of the financial statements of organization operating in different regions. Its plays a significant role in simplified comparability especially in today's globalization business environment where integration is necessary among the domestic and international players by designing and implementing general financial accounting standards.
Reduction in the financial costs involved in preparing financial statements- Harmonization also helps in mitigating the overall costs involved while preparing the financial statements as most of the Multinational organization are operating from different regions and most of the regions have their own set of accounting standards for financial reporting. Hence international harmonization helps significantly for those organization having presence in more than one countries by reduction in overall cost involved in analysis performance for all the regions by following common international accounting standards.
Promote International credibility among the stakeholders - Organization who follow international accounting standards for financial reporting are recognized at the global level as it attracts the investors and other key stakeholders as their credibility has improved in the international markets as stakeholders will be able to assess and evaluate the growth and performance of the firm as per common international accounting standards and it will ultimately result in long term success of the company.
Costs associated with the harmonization of accounting standards are mentioned below:
Varied purpose of Financial reporting standards- Different countries have their own purpose of financial reporting standards. Most of countries have their own accounting reporting standards governed by the government and local authorities as per the rules and regulations in their home country which are understandable to the citizens. Harmonization will increase the complexity of local companies as they have to invest in more time and money in order to adapt to the international standards followed by the other countries
Difference in accounting standards of developed and developing countries- It is noticed that developing and developed countries have different accounting reporting standards due to difference in economic growth and development of organizations operating in both the developed and developing countries. There are several factors for which harmonization of accounting standards will be costly affair especially in the developing countries due to increased resistant for the change in accounting standards.
Difference in the political and legal business environment in different regions- Every region has their own sets of rules and regulations set by the government bodies and legal structure adopted in that particular region or countries. Although harmonization of accounting standards have several benefits but we can't ignore the time and costs involved in the entire process making it cumbersome for different regions to adopt common financial reporting standards. Financial accounting standards are governed by the local government and legal authorities to ensure the accountability and transparency. Legal environment and laws should approve the adoption of international accounting standards in order to get benefits of international harmonization for various stakeholders in the business environment.
identify benefits and cost associated with international harmonization of accounting standards in reference to various stakeholders...
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