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ACC 201 Globalization of Accounting Standards




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ACC 201 Globalization of Accounting Standards
Globalization of Accounting Standards
ACC 201
This year, the Securities and Exchange Committee is looking to make a
decision on international rules regarding accounting standards. The
United States has expressed support of accounting harmonization rather
than accounting convergence. Accounting harmonization is the goal to
adjust the consistencies among the different methods, procedures, or
systems of other countries in order to make them more compatible with
each other uniformly. Accounting convergence, on the other hand, has a
distinctly different definition; it is the goal to come to an agreement on
accounting standards to become a unified whole. Only a few years ago,
however, the United States strongly favored convergence over
harmonization. Regardless of the nitpicking of words and what the
United States supports and what it does not; the task at hand, which is
to create an infrastructure for global standards in accounting, is a very
challenging one.
The International Financial Reporting Standards is a set of accounting
standards developed by a self-regulating, nonprofit organization called
the International Accounting Standards Board. The IFRS is extremely
important for large companies because they usually have subsidiaries in
foreign countries but a major challenge for these companies, evidently,
are the differences in accounting procedures. Adopting a set of
international standards would allow companies to report finances to
investors or auditors in one “accounting language” and would also help
streamline accounting procedures. Presently, there are over 100
countries that require the use of IFRS for companies and many more
that are joining the movement. Arguments in favor of the transition are
that the costs involved with maintaining these global standards will be
offset by improved credit ratings.
In the years 2005-2006, European countries made giant strides in global
accounting convergence by re-conciliating their accounts into IFRS
(International Financial Reporting Standards) moving away from the
U.S. GAAP (Generally Accepted Accounting Principles). In addition to

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European countries, dozens of other countries like New Zealand,
Australia, and Hong Kong also made partial or full convergence into
IFRS. However, there have been high hurdles set in place in Europe by
the European Commission Regulation. The European Commission is not
mandating that all countries and their respective companies adopt the
IFRS and therefore there has been a two-standard system that has
emerged in Europe where the IFRS is used for listed companies and
their consolidated accounts while the original national standards are
required for individual accounts. Another speed bump that the EC has
set in place, is that there needs to be an elaborate endorsement of the
practices and procedures outlined in the IFRS and certain guidelines
need to be approved in order to be used for convergence, introducing a
new division called EU-Endorsed IFRS.
These “speed bumps” are what have made it extremely difficult and
nearly impossible to come to global accounting convergence. This is the
reason, I believe, the United States is now favoring a global accounting
harmonization as opposed to a global accounting convergence. In the
United States, the Financial Accounting Standards Board, is the
nonprofit organization that sets guidelines for accounting practices for
companies that operate in our homeland. The seven-member FASB also
works with IASB to insure their guidelines are met by international
standards as well but, in addition, convergence to IFRS has been a
failure in the U.S.
It seems that harmonization is the better and more attainable option at
this point, yet the United States was fixed on convergence for a long
time. The board of Financial Accounting Foundation has gingerly
supported the harmonization of global standards that has been
suggested by the Securities and Exchange Commission. The board
proposed some changes, however, in order for the modifications to get
accepted by the American people. The FAF has publicly stated that the
FASB is still the sovereign authority over accounting standards in the
USA but is removes their authority over international standards in order
to leave it to the more experienced and impartial IFRS.
I, for one, would support an international entity like the IFRS to be the
ultimate rule-maker of global accounting standards. The United States is
corrupted and infected by huge companies with greedy intents and I
cannot trust any organization with 7 board members that are susceptible
to any sort of bribes in order for them to modify certain regulations that

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favor them. I think that an organization like the IFRS is less vulnerable to
political pressure to rule a certain way on some issues. Large companies
all over the world and especially in the US are cautiously approaching
the globalization of standards because they are fearful of losing millions
of dollars to have to reconcile all of their accounts and drastically change
the way they take care of their accounting. I do not blame them for being
fearful but they need to see the bigger picture. In a few years the dollars
that they lose will probably offset because investors that were once shy
to invest in international businesses because of suspect accounting
standards in certain countries, will be more inclined to invest in
businesses internationally.
With the way that the countries with the bigger economies have been
handling the issue of global accounting standards, it is not hard to
believe that they are only trying to take care of the big companies in
each step of the way. The hypercritical choice of words like
harmonization and convergence and the “speed bumps” they have
encountered in European countries enforces the notion that the
standards are not being fairly adjusted. The article I read states that the
FASB is beginning to incorporate IFRS standards to US standards and is
aiming to figure out if the standards are in the best interest for investors
and capital sources and whether they were lobbied or biased by political
pressure. According to the article the FASB and the IASB are finally
working together to promote adjustments to be made to US standards in
order to be more in tune with international standards. Just last week,
both boards decided to opt out of a plan to make companies ease
reported sales to reflect risk of non-payment from customers. This
seems to be a step in the right direction and I am glad to see genuine
adjustments are being made to globalize the United States standards
more towards a common consensus and minimalizing the differences
among the many countries that want a fair shot at international investors.
Thomas, Helen. (November 15, 2011). US support for accounting
harmonisation. Retrieved Nov 16, 2011 from

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Really great stuff, couldn't ask for more.