THE INTERNATIONAL HARMONISATION PROCESS OF ACCOUNTING STANDARDS
Does Accounting have an international dimension? Epstein and Mirza consider Accounting “as a tool to aid in measuring economic activity” (Epstein and Mirza, 2001:1). The function of Accounting is to provide information about economic entities that are important for economic decisions (Kam, 1990). Accounting is referred to as the language of business (Mueller et al., 1991). But which language does Accounting speak? When talking about the language of Accounting one can conclude that it must speak an international language. We must therefore ask, how much has Accounting succeeded in establishing itself as an international language?
The technical advancements and the transmission of information, people, goods and services have brought the world closer together. Growth in international trade and capital flows have triggered a rising economic integration. Because of these developments there has been an international homogenising effect upon many customs, practices and institutions. In business life it has led, among other things, to a desire to harmonise Accounting Standards (see glossary) among countries. (Wolk et al., 2001)
International businesses are no longer confronted only with Accounting problems, which end at domestic borders. When companies cross borders they are confronted with new cultures, challenging new laws and different political systems. Besides that international companies must deal with different Accounting Standards abroad. For example in Germany companies use the German standards (Handelsgesetzbuch). In America, companies have to use the U.S.Generally Accepted Accounting Standards (U.S.-GAAP).
When Daimler-Benz and Chrysler announced their merger in 1998 that did not only mean that two companies from two different countries merged, also two different Accounting Philosophies were confronted with each other (Radebaugh and Daniels, 2001). However, there are not even two countries, which have the same Accounting Standards. A lack of similar Accounting Standards led among other things to problems in comparing financial data (Hill, 1999). This lack of comparability means an obstacle for the free movement of capital as shareholders might hesitate to invest in foreign companies, which prepare their financial statement in accordance with different Accounting Standards.
International enterprises are confronted with the problem that Accounting rules differ around the world. As a consequence of this they have often to do their financial statements twice: once in the home country in accordance with the home-country rules and once abroad in accordance with foreign rules. This practice includes the risk that the same problems are treated differently around the world.
Another problem concerning the variety of Accounting rules is that not all financial statements or Accounting Standards are accepted at all stock exchanges. Companies, which would like to be listed for example at the New York Stock Exchange (NYSE), have to prepare in addition to their national financial statement a financial statement in accordance with the U.S.-GAAP. In addition to their national financial statement they can as well prepare a reconciliation. This means that main positions like, for example, net income has to be computed in accordance with the rules of U.S.-GAAP. Such practices mean for companies extra costs, which influence the competition for capital. For investors this implies confusion about which Accounting Standards are the rights and which result is more credible. (Kleekämper et al., 2002)
We consider the international harmonisation process of Accounting Standards as the main development in the International Accounting (see glossary) field. Because of the importance of this process we have decided to dedicate our thesis to describe and analyse it. Our main purpose of the thesis is to describe the harmonisation process. We would like to give the reader a full picture of it. Therefore, our aim is to answer the question: What is the international harmonisation process of Accounting Standards, what is his status quo, which role plays the IASB in it?
Hence, we contribute to the field of
International Accounting with describing the harmonisation process from the
starting point until the status quo. With other words, the meaning of our
thesis is to give the reader an insight in the past, the present and as well an
insight in some future developments. He will get an idea of actors, involved in
the harmonisation process.