Is the harmonisation of International Accounting Standards achievable and desirable?
This essay will begin by defining accounting standards, looking at both their purpose and their overall international goal. A discussion will then be formed surrounding the differences between Generally Accepted Accounting Practices (GAAP) and International Financial Reporting Standards (IFRS), as well as how comparability in global standards would help to maintain convergence (harmonisation). Following on from this, advantages and disadvantages of a move from the multiple GAAP’s to International Accounting Standards will be explored as well as whether it is achievable and desirable. The essay will then conclude its findings.
Accounting standards lay down the detailed rules governing the accounting treatment of transactions (Melville, 2009). This definition implies that International Financial Reporting Standards (IFRS) are rules which companies and countries must abide by. However, a report written by Ernst and Young (2008) on the ‘Comparison of US GAAP and IFRS’ states that the IFRS is a ‘more principles based approach as opposed to the rules based approach of US GAAP’. Following on from this, the same report states that ‘the IASB is firmly committed to issuing standards with broad principles’. By having broad principles however, ‘auditors will need to use more judgements to determine how to apply the general principles in IFRS to a particular transaction’ (Erickson et al, 2009). Reporting standards are put in-place to encourage faithful representation and comparability, thus the purpose of introducing International Accounting Standards would be to ‘reduce or eliminate variations in accounting practice and to introduce a degree of uniformity into financial reporting’ (Melville, 2009). However, in order to establish whether or not the harmonisation of international accounting standards is achievable or desirable it is necessary to first look at the influence of the multiple...