Harmonization of Accounting in Accounting Context

2153 Words Aug 25th, 2013 9 Pages
(a) Briefly explain what prompted some countries over the world to strongly advocate harmonization of accounting.
The important reasons which necessitate harmonization of accounting practices are well contained in the observation made by Saudagaran. “While the initial efforts at harmonization were mainly championed by political bodies and professional accounting organizations, current pressures to harmonize are driven by investor groups who use financial statements, multinational companies which prepare financial statements, regulators who monitor capital markets, the securities industry (including stock exchanges) which view itself as being significantly impacted by the global diversity in financial reporting requirement, and developing
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Another term, distinguished from harmonization, is standardization. It describes “a process by which all participants agree to follow the same or very similar Accounting practices. The end result is a state of uniformity” (Roberts et al., 1998) This state of uniformity is a condition in which everything is regular, homogenous or at least unvarying. (Samuels and Piper, 1985) Choi et al. claim that standardization implies that all Accounting principles and practices are the same. He describe standardization as “imposition of a rigid and narrow set of rules, and may even apply a single standard or rule to all situations” (Choi et al.,2002:291).
The terms, harmonization and standardization, are often used in the same meaning. However, Kleekämper et al. detect that there is a difference between these two terms (Kleekämper et al, 2002). Standardisation is a process in which all countries should adopt the method of one country. In contrary, harmonization is understood as a reconciliation of different points of view. (Wilson in Riahi-Belkaoui, 2000)

(c) Identify and explain the advantages of international harmonization.
There are various advantages to harmonization. First, for many countries, there are still no adequate codified standards of accounting and auditing. Internationally accepted standards not only would eliminate the set-up costs for those countries but
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