The worldwide financial reporting standards are critical to an organization’s accounting, reporting, and maintenance. They also explain the many types of accounts and other operations that affect an organization’s finances (Amissah et al., 2020). The worldwide financial statements have been created to preserve credibility and openness in the financial world. They support all financial professionals, company owners, and investors in making judgments about their finances without any doubt. The topic of this essay is the harmonization and standardization of international financial reporting standards.
Harmonization aims to reduce regional discrepancies in financial reporting techniques. When creating and presenting financial statements, the goal is to create some level of comparability (Andiola et al., 2020). The difficulties that organizations and individuals encounter while presenting financial accounts and their interpretations are considerably eased when there is worldwide uniformity. Numerous organizations have been working to minimize gaps and harmonize financial reporting standards globally. If global harmonization were to be effective, it would benefit many countries since it would give access to international financial markets, raise investor understanding and trust, and potentially even increase future investments.
Even after harmonization, there will still be differences in the preparation and presentation of financial statements because every country’s accounting rules are influenced by different cultural, political, and taxation considerations. In contrast to standardization, harmonization places restrictions on how much a set of procedures can vary internationally. The process of harmonizing reporting standards so they are all the same is called standardization (Arora, 2022). Nevertheless, it is essentially impossible to achieve this. Harmonization has been carried out, despite the fact that it will only partially eliminate global discrepancies in reporting requirements.
One of the key reasons pushing the need to harmonize and remove distinctions is globalization. This has become increasingly relevant in the case of multinational corporations operating in different countries and utilizing multiple sets of reporting standards, making it more difficult to compare financial statements (Drobyazko, 2020). Due to the investor-oriented strategy’s benefits to investors, there has been an increasing emphasis on investors, which has been essential for harmonization. Accounting and auditing procedures were developed by governments and regulatory bodies around the world based on the particular needs of their respective countries (Haslam, 2017). There is an even larger demand for a single set of international reporting standards as a result of the growth of cross-border funding and the globalization of business. Greater international and national harmonization of accounting standards would be advantageous in this setting.
To accomplish harmonization, business analysts, corporations, organizations, and political bodies should all collaborate. The global harmonization of IFRS is backed by numerous organizations. Here are just a few of them: International Monetary Fund (IMF), World Bank, International Federation of Accountants (iFA), International Organization of Securities Commissions (IOSC), and Union of Europe Gains from Harmonization The first and most important advantage of harmonizing reporting standards is the achievement of comparability in financial statements. Due to the different sets of financial reporting standards, financial statements are created and presented in different ways, which makes them challenging to be compared.
Internationally active multinational firms will be considerably more aware of this. When international harmonization is achieved, the level of comparability between countries increases, making it easier for businesses to prepare financial statements in accordance with a single set of rules. This enables investors to understand the financial statements due to the nature of IFRS and make well-informed investment decisions (Joyce, 2017). Utilizing a single set of reporting criteria will save businesses money and improve the effectiveness of audits. As a result, trade barriers between countries can be lowered and more people can access international finance markets. One of the objectives of IFRS as a single reporting standard is another advantage that merits emphasizing is the consistency gained under IFRS.
Consistency also enhances communication between investors, lenders, and other businesses because there will be a sense of predictability in place. Additionally, due to the consistency of the reporting standards, businesses who operate in several countries can use their expertise and system in each of those countries. Consistency also shortens the time required for implementation in other nations because there will be little to no need to familiarize oneself with and adhere to local laws.
The development of international accounting standards has been a challenging subject in the accounting community for a long time. The advantages and disadvantages of the widespread adoption of international financial reporting standards are not well-described in academic studies. Within the industry, there has been conjecture over the best course of action to pursue in relation to this issue (Lin & Wang, 2017). However, IFRS has been successfully implemented throughout Europe; how businesses and investors view, these regulations will depend on a number of factors, including the regional political environment and economic policies.
References
Amissah, E., Hammond, P., & Djimatey, R. (2020). The effects of international financial reporting standards on reporting quality of financial institutions in Ghana. International Journal of Accounting and Financial Reporting, 10(2), 94. Web.
Andiola, L. M., Masters, E., & Norman, C. (2020). Integrating technology and data analytic skills into the accounting curriculum: Accounting department leaders’ experiences and insights. Journal of Accounting Education, 50, 100655. Web.
Arora, J. (2022). How has Covid-19 impacted mobility preferences? International Journal for Research in Applied Science and Engineering Technology, 10(7), 1539–1548. Web.
Drobyazko, S. (2020). Improvement of the company’s own capital accounting methodology. Agrosvit, 1, 3. Web.
Haslam, C. (2017). International financial reporting standards (IFRS): Stress testing in financialized reporting entities. Accounting, Economics, and Law: A Convivium, 7(2), 105–108. Web.
Joyce, T. (2017). Has the “no child left behind” policy positively impacted student performance? Journal of Policy Analysis and Management, 36(2), 460–460. Web.
Lin, S. W. J., & Wang, C. (2017). Relative effects of IFRS adoption and IFRS convergence on financial statement comparability. SSRN Electronic Journal. Web.