Introduction
At the beginning of the 21st century, accounting requires changes and improvements in its standards and principles. The cost of applying standards for financial reporting has long been a concern of the corporate preparers of financial information, a concern that traditionally has been expressed in demands that those who promulgate standards pay closer attention to the “cost-benefit ratio.” More recently, spokespersons for the corporate community have extended those demands to include a plea that possible economic, or even social, consequences should be taken into account before standards are promulgated. Accountants have been able to agree on few eternal verities, or even general principles, in the half a millennium since. As they never tire of explaining, theirs is an art, not a science.
Globalization and Accounting
Globalization demands new standards and unified principles of accounting to improve financial reporting of multinational corporations. Under globalization, accounting implies the movement of people, capital and trade (Mcintyre, 2001). On the global scale, no matter that the normal ebb and flow of economic activity, if accurately represented in the financial statements, are more likely to reveal for most companies an upward slope over a long period–but one characterized by craggy upthrusts and downturns as business conditions changed from year to year. Movements of goods and capital require unified standards which help accountants to deliver financial reports and statements at the shortest period of time. Demands new methods and tools of accounting applied to international business and international market operations (Bragg, 2007).
Harmonization
Harmonization in accounting means leveling the differences between accounting practices of different countries. In such an environment, the concept of regulation, though eminently desirable to the private sector when a threat of formal government supervision of a business or profession exists, faces many formidable obstacles as we shall see–including the reluctance of private interests to submit to any kind of regulation at all. Elevation of the economic and social consequences argument from a mere debating ploy for use in specific circumstances to a full-fledged ideological position was perceived by only a few of the accounting world’s most astute observers. IASB’s standards should be accepted by EU corporations to improve the quality of financial reporting. These standards are accepted by stock exchanges around the globe (Roberts, 2005). This example proves that unified standards will help multinational corporations to simplify and improve reporting procedures. The corporate community responded, mainly through the IASC, not with multi-year pledges but with annual contributions that, in total, would surpass those of the public accounting profession in a few years (Zeff, 2002). The Rules of Procedure also specified, and continue to specify, an elaborate set of safeguards, generally referred to as “due process,” to ensure the thoroughness and objectivity of the Board’s research and deliberations and to provide appropriate opportunities for the public to consider and comment on the issues One very large corporation wrote that the IASB should be careful to ensure that financial reporting reflects favorably on the free enterprise system and is in no way harmful to it (Evans, 2002).
Conclusion
Crucial to the IASB ’hopes for success would be establishing and nurturing open lines of communication and a sound working relationship with the SEC and particularly with the Commission’s chief accountant and his staff. For many years, a defended prerogative of corporate management had been freedom to use various accounting devices to “smooth” earnings, to achieve a steady, year-by-year progression.
Bibliography
Bragg, S.M. 2007, Accounting Best Practices. Wiley; 5 edition.
Evans, Th. 2002, Accounting Theory: Contemporary Accounting Issues. South-Western College Pub; 1st edition.
Mcintyre, R. (2001). Globalization and the Role of the State: Lessons from Central and Eastern Europe. The Ecumenical Review, 53 (1), 447.
Roberts, Ch et al. 2005, International Financial Reporting – A Comparative Approach. Published by FT Prentice Hall.
Zeff, S. A. 2002, “Political” Lobbying on Proposed Standards: A Challenge to the IASB Accounting Horizons, 16 (1), 43.