The system of accounting has projected and reinforced the economic ambiance that has been served. The system of international accounting is a result of the financial market globalization and integration of international economic. The aim is maintained by the FASB and it provides data that is comparable in nature. Hence, it aims at providing the maximum benefits and ultimately leads to a better set of accounts. As globalization trends in businesses have become significant, several issues arise through global business practices for investors, government and corporations. Because of various conflicting practices and codes which prevail between IAS, international businesses have become difficult to evaluate as information cannot easily be compared between competitive industries. As there is no international code for financial reporting, MNC’s are forced to reconcile their financial information in order to conform to several standards for financial reporting (Brown, 2011). This can make the information misleading and expensive and therefore several initiatives have been taken for the harmonization of international accounting standards. This study will identify and evaluate the arguments for and against such harmonization.

Firstly, it has been argued that international harmonization of accounting standards assists in achieving comparability in financial statements. The presence of harmonization of accounting leads to uniformity and hence comparison can be done in a better fashion. Because of various sets of standards of financial reporting, the procedure of preparation and presentation of financial statements are distinct from each other which make comparison between them more difficult (Brown, 2011).  Due to such variation in global accounting standards, there has been an increased demand for comparability in financial statements and that is why after the incorporation of IAS regulations in 2002, around 8000 listed companies in the European Union have adopted the IFRS method of financial reporting. If there is an increase in international harmonization, international comparability level also increases which makes it easier for companies to prepare financial statements under one particular rule and due to the nature of IFRS, stakeholders can understand financial statements in a better way (Horngren, 2013). For instance, in Korea and Japan, Chaebol and Keiretsu is a company network having interconnected relationships but there is no standard that can specify which company is the holding to another (Bushman & Piotroski, 2007). Hence, it becomes doubtful whether such standards in these countries can produce comparability with countries pursuing hierarchical connections between the holding and subsidiary company. Different countries have different standards and therefore the comparison cannot be done in a uniform manner. This will even tend to lessen the differences in accounting and information projection can be done in a better fashion.

Secondly, the quality level of accounting and auditing practices can be internationally enhanced through harmonization. After the Second World War, every country had its own accounting practice or Generally Accepted Accounting Principles. Differences in such accounting practices between countries created various problems (Whittington, 2008). For example, Companies of New Zealand, Australia and UK could revalue their investment properties and PPE while companies of Canada and US complied with the historical cost method because of the conservative persuasion of SEC (Securities and Exchange Commission). Similarly, in North America, LIFO method was used for US inventories while Canada could only apply this method in some industries. Some studies also state that auditors and companies did not draw attention towards non-applicability of IAS while providing assurance regarding compliance with IAS. Due to these variations, companies feel necessary to depart from such interpretations and standards in particular countries than others.

Lastly, there is also an argument that harmonization of international accounting standards helps in minimizing financial reporting costs associated with the MNC’s. This is due to the fact that cross-section analysis can be done and it enhances the efficiency level. Due to this, the resource utilization can be done in a better fashion. When diversified accounting practices are eliminated; unnecessary spending on reporting costs by company shall be decreased. It leads to better comparison, consistency and uniformity (Hegarty et. al, 2004). According to studies, harmonization of accounting standards minimizes business costs, more specifically across national borders. The presence of a single method altogether eliminates the complex system and increases the usefulness of the system. Countries with scarce resources can be benefitted from such IAS because investment in regulating and controlling agencies of national accounting-standards will be automatically through such harmonization (Zeff, 2007). For example, in Canada and US, when companies like Exxon and FMC Corporation complied as per the IAS which was the most compatible in comparison with Canadian and US GAAP, it was observed that such compliance produced very minimal costs on the company. Furthermore, many US-based MNC’s having overseas subsidiaries complying with IFRS also decided to comply with such standards as cost of issuance of consolidated financial statements was observed to be very less. The process of consistency and comparability helps to keep the policies, as well as procedures unchanged in nature. It helps in making proper predictions and the economic activities are done with ease and flexibility. The events are properly accounted and identified and hence stress on the main objective of comparability.

However, there are arguments that go against the harmonization of international accounting standards. Firstly, taking into consideration the differences in the socio-economic-political systems of countries, a specific set of accounting standards cannot satisfy every party involved. According to critics of international accounting standards, differences in political approaches, business and law practices, tax implications and economic and social institution between countries diminishes the usefulness of accounting standards (Pacter, 2005). This can be linked to the fact that different countries have different accounting practice and there are variations in their own practice. Therefore, having a uniform method will not serve the purpose as there might be differences. One policy cannot be linked to another because of the variation in the economic scenario. Considering this fact, it can be aptly remarked that there harmonization might not serve the purpose in all the cases. In other words, a single set of IFRS becomes hard to achieve and if achieved, it will be less effective than anticipated (Meeks & Swann, 2009). Moreover, there are many hurdles in the way and achievement of this goal is not possible and feasible. National accounting standards can be adapted according to change in situations and policies can be implemented without a prior consent of other countries but such cannot prevail in an international accounting standard as researchers argue that an IAS cannot be flexible enough to deal with every dilemma in different countries. There are different arguments and that differs from one country to another thereby a uniform policy will not serve the purpose in settling the differences (Meeks & Swann, 2009). The differences can be settled when there is a policy tailor made according to a specific country. For instance, how can a standard on financial statements framed to portray substantive connections in Korea’s Chaebol and Japan’s Keiretsu, a company network with interconnected relationships which might not pursue a parent company?

Secondly, the argument is regarding the interpretation of IAS because interpretations are vital for their effective implementation and achievement of comparability. One country might interpret in a different manner considering the economic scenario while another one might do it differently.  IFRIC (International Financial Reporting Interpretations Committee) has been established by the IASB that proposes official interpretations. But regulators issue new and fresh interpretations according to the requirements that make IFRS implementation distinct within countries. The interpretation can be better suited if tailored according to the country (Gordon et al 2012). Furthermore, the governing standards of IFRS as provided by IASB confuses users as to what extent is the financial reporting framework corresponding to IFRS. For instance, in the European Union, auditors and companies are required to comply with IFRS ‘as adopted by EU’ but readers from varied areas are unclear whether ‘adopted by EU’ is similar to ‘provided by IASB’ (Brigham & Daves, 2012). Hence, it can be seen that there occurs a potential difference while interpretation of the standards and must be done according to the country. The uniformity procedure might not lead to better projection because economic scenario varies and when the scenario is different there is a difference in the conceptual level too.

There are various arguments for and against harmonization of international accounting standards but with due passage of time, IASB has achieved a huge deal. Comparability of financial reporting is being given due importance in the current scenario than it was in the past (Needles & Power, 2013). But still there are many criticisms regarding such harmonization and that what necessitates more work by the IASB. Major standards must be delivered by the IASB so that the extent of its standards can be improved, expanded and refined (Brealey et. al, 2011). It can be stated that the harmonization of international accounting standard is not an easy task. Different countries have different policies and each has its own importance. Therefore, it is still a big debate whether the harmonization of accounts will help or end in vain. It has also been observed that a considerable time is dedicated by IASB for revising the conceptual framework so that countries that are reluctant in such harmonization, also becomes accustomed to such idea.

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