Approach to Research Project

The journey of having the mutual set of accounting standard commenced long before to give a professional shape and essence. All the accounts across the world feel the necessity of shortening the gap among different accounting practices streams through harmonization. However, there are some of the strong variants of accounting practices namely the UK and US across the world. These variants are working as the threats of impeding the harmonization of accounting process (Yu and Wahid 2014). The profession additionally witnessed improvements in the recent years under the procedure of global convergence that bought some ray of hope.

Harmonizing the accounting standard of late has grabbed much attention for discussion and debate in the profession of accounting across the world. The accounting standards is regarded as the commanding proclamation for best practices of accounting issued by the well-known accounting bodies that relates to the measurement aspects, treatment and disclosure of accounting transactions and events under the codification of GAAP (Rossi et al. 2016). The procedure of harmonizing the accounting procedure provides the community with the single entity. Stakeholders diversity hardly matters in the present day if the accounting concepts can generate the general purpose financial statement in the actual intelligence.

The purpose of present essay is straight forward and the basic issue is to provide an explanation for the essential harmonization of accounting practices. The study focuses on the linguistic, political and cultural ambiguity that are inherent in the translation of accounting standard. The essay also provides the success factors in the procedure of harmonizing along with the challenges ahead. Harmonization of accounting standards makes sure that higher quality financial reporting and disclosure is maintained. Harmonization, of accounting standards helps in adding the global credibility of the corporate unit. Furthermore, harmonization helps in making comparison of the corporate firms against the domestic and international peers more easily. Secondary method of Qualitative data collection has been collected through published journals articles. The qualitative research is conducted by surveying the chairmen of 145 UK firms and it has been found that with more than half of the chairmen of companies that are having US listings would consider de-listing due to the difficulties in taking the shares off the US exchange.

To obtain benefit from the international economy an argument of standardizing the accounting policy must be harmonized among the countries (Olesen and Cheng 2017). The harmonization of accounting standards would help US and UK by facilitating the international transaction and reducing the cost of exchange by offering increasingly perfect information. Harmonizing the accounting information would help in offering the policy makers with improved financial markets information. Christensen et al. (2015) explains that harmonization of accounting standard refers to the procedure of bringing international accounting standards under some form of agreement so that the financial statements from different nations are prepared in accordance with the common accounting set of principles and disclosure.

Analysis

Harmonizing the accounting policy would assist both UK and US in offering level field of playing internationally. The auditors and the regulators would be getting the identical information that would help in facilitating the process of evaluation (Pontoppidan and Brusca 2016). The international accounting standard would help UK and US tariffs, quotas and other restraints involved in mechanisms to be highly accurate and less risky for those that indulge in the trade. Investors and the managers would be able to take valuable decisions.

The current growth of international capital markets and availability of the instantaneous global communications have focussed on the accounting onus to offer more useful and comparable information throughout the global boundaries. On several stock exchanges, presently the foreign listings occupy the large percent of total listings. According to Tschopp and Huefner (2015) 20% of the total listings in New York Stock Exchange comprises of the foreign origin. While in London stock exchange the figures stand 16%. Based on political grounds the parliament of Europe voted overpoweringly by favouring the European Union commission proposal that all the European union listed companies should follow the standards that is issued by the IASB while preparing the consolidated financial commencing no later than 2005. Consequently, more than 7,000 European Union listed companies have been directly impacted by such proposal.

The rapid expansion of the international trade and internationalization of the companies, advancement in the new communication technologies and the growth of international competitive forces is distressing largely the financial environment (Upadhyay 2015). In the international commercial situation, business community residents badly require the common accounting language and should be spoken by all across the world. The financial reporting system of international standard is the prerequisite for attracting the overseas investors also the current and prospective investors at home. This can only be attained through the convergence of the accounting concepts and standards. According to the opinion of Crawford et al. (2014) investors that make investment in overseas nations generally wants to keep track of the financial health of the securities issues. Therefore, convergence of accounting standard is the only procedure through which linguistic approach can be addressed.

In the absence of harmonizing the accounting standard the added cost of financial reporting together with the difficulties of that multinational company faces represents the manner in which they deal with transactions that becomes critical. It may be probable for a transaction to result in profit in one accounting standard while it might need a deferral in another accounting standard (Albu et al. 2014). Therefore, multinationals that are working in the UK and US faces a good amount of trouble in preparing the consolidated financial statement. When the multinational company has to prepare report under the accounting standards of both the nations then it may result in some extremely abnormal result.

According to Endenich et al. (2016) US GAAP reconciliation statement explains that the company has occurred a loss of DM 949m. Correspondingly, British Telecom reported the net profit of £1767 under the UK GAAP however under the US GAAP the net profit declined to £1476. Harmonization of accounting standard cannot be considered as the end but it is a means of end. Adopting the different financial accounting standard results in difficulties at the time of making relative assessment of performance of organizations. Such practices not only hinder the process of valuation but also effects the decision making procedure (Chen and Khurana 2017). There are several instances across world where poor accounting practices have resulted in corporate failures. Another vital benefit that is anticipated to accrue from the international convergence of accounting standard is associated to the cross-border mergers and acquisition facilitation. It also improves the financial reporting quality across the world.

There are number of overseas companies that are working in the direction of reducing the differences in the accounting standards among the nations and trying to remove the essential variances. According to Chiu et al. (2016) mutual recognition refers that the national financial statements are accepted in a foreign country, even though they are not prepared according to the principles of overseas nations. The possibility of mutual recognition prevails in some of the nation such as US and UK. This represents that the American firms financial statement based on the US GAAP would be accepted through the London stock exchange (El-Gazzar and Finn 2017). However, the disadvantages of the mutual identification represent that the users of financial statement should be familiar with the two different accounting standards.

As opinion by Ricketts et al. (2018) it is argued that mutual recognition is can be only attained in nations that have identical core of accounting principles. Abdul-Baki et al. (2014) claims it is not probable that mutual recognition can be applied between the US and UK. Even though the London stock markets accepts the financial report based on the US GAAP while the SEC precludes the identification of UK firms in the US.

Arguably reconciliation enables the international companies to prepare the financial report based on the accounting standards of their home nation. Mestelman et al. (2015) states that it should offer the reconciliation among the critical accounting measures of one nation and the nation where the financial statements is being filed. The purpose of reconciliation is to provide major divergences among the accounting practices. For example, it is possible for the companies that are using the international accounting standard to enter into the American capital markets but it is only possible if they prepare reconciliation under the US GAAP.

For investors reconciliation makes easy comparison. There are other benefits of reconciliation which includes cost effectiveness instead of preparing the full set of financial statements according to the overseas principles of accounting (Liu et al. 2014). However, reconciliation only provides the summary and cannot provide the full picture of the company. another disadvantage of the approach is that it is yet combined with the costs that would not exist given that there are one set of the internationally accepted accounting standards.

Barring some nations, there are some of the countries in the world that are interested in following the IAS as the accounting standards. USA is only the country that is reluctant to adopt it (DeGennaro 2016). The qualitative research is conducted by surveying the chairmen of 145 UK firms and it has been found that with more than half of the chairmen of companies that are having US listings would consider de-listing due to the difficulties in taking the shares off the US exchange.

A relatively tight regulation in US, there are numerous large companies that are understood to be assessing other capital markets that accepts the IFSR. Therefore, such situations offer the opportunity for the IFRS to flourish it may yet be considered as they are considered as incorrect to stay limited in that perspective (Bohušová 2014). The reason for this is that IFRS provides a fair chance with the acceptability by European Union and given the fact there are several nations in the world that have traditionally followed the IFRS.

As stated by Jategaonkar et al. (2014) attaining the global convergence in the accounting standard cannot be regarded as the easy task. There are number of argument against the adoption. It appears that the US international accounting standard committee are reluctant to adopt it. USA is regarded as the largest market and it is vital to harmonize the accounting standard for the IASC with those that are prevailing. The US segments have formed the G4 nations with the UK being its other members. Heterogeneous principles of accounting philosophies between the nations is regarded as the major challenge.

There is a challenging environment within the international harmonisation procedure that IASB should overcome and the differences between the nations. The accounting standards have been developed under the different nations in different legal, economic, social and cultural environment. As a result of this there are prevails a diversity in the accounting standard among the nations throughout the globe (Albu et al. 2014). If the principles of convergence are to be attained, then it is necessary to arrive at the agreement towards the central objective of financial reporting. The standards of the IASB is directed to meet the requirements of the investors and capital markets. Therefore, countries such as US and UK have the different accounting standard and may find it would difficult in harmonizing their domestic standard with the IFRS.   

The financial reporting quality is dependent on the accounting standard quality along with the effectiveness of the procedure through which those standards are applied. Sufficient regulatory and other supports is necessary to make sure that the proper application of the standard is performed. An argument has bought forward by Endenich et al. (2016) that applying the standards of accounting is not an easy task. Despite the convergence, there is no guarantee that the standards would be implemented with the identical sum of vigour in each jurisdiction.

The convergence in the accounting standard with the international financial reporting standard approach would unavoidably bring forward the question of rules against the principles. The standards of IASB is principle based standards therefore nations have the rule based standard of accounting are anticipated to experience considerable amount of difficulty in harmonizing the standards with the IFRS (Crawford et al. 2014). There are challenges in adopting IASB and nations that implement the IFRS is required to address in the coming days. One big challenges for US and UK adopting the IFRS is the manpower shortage and more likely IFRS trained manpower.

The IFRS that is issued by the IASB is currently being considered as the premier international reporting standard of accounting information. Because of the higher quality of the financial information it ensures that the security market regulators are particularly interested in the current accounting information (Pontoppidan and Brusca 2016). They can accept or refuse the organizations access to the market. Arguably it can be stated that IAS is not completely accepted in US capital markets. The SEC accepts the IAS with the reconciliation to US GAAP. However, SEC has placed its opinion that US capital markets is very efficient due to the higher quality of financial reporting. So it is not possible to accept the standards of lower quality.

Both the standardisation and harmonization endeavours numerous institutions that are geared in the direction of providing comparability of the corporate financial statements. As stated by Christensen et al. (2015) standardisation results in application of constant accounting practices on companies from the different environments. The fundamental lawful, economic and cultural conditions in which the different companies operate may in actuality result in uniformity of standards.

According to Olesen and Cheng (2017) economic and business environment is not similar in both the US and UK. This is because close relation is existent between the economic and business environments. Therefore, a single set of GAAP cannot be considered as the useful and meaningful in all the situations. For instance, the generally accepted accounting policies in UK and US is enforced in all the nations of the free world. This may create the international uniformity that would have some intellectual appeal and may ease several problems in the international accounting practice and international financial reporting. However, such kind of uniformity would lack meaning.

To consider the harmonization to be useful, some nations should give up the traditional method of accounting practice for new accounting process. This signifies the ready circumstances for some nations to use the harmonisation as the tool for applying the accounting practices of other nations. According to Rossi et al. (2016) it is observed that the accounting practices that is adopted in US seems to influence significantly the direction that is taken by the IASC.

A memorandum of understanding was formed between the US financial accounting standard board and the IASB for converging the US GAAP and the IFRS. Arguably, changes that is made in the US GAAP can be anticipated to influence the international environment. According to the argument put forward by Chen and Khurana (2017) convergence between the FASB and IASB have already led to change in the US and UK GAAP with more effects is anticipated since efforts has been placed in narrowing the differences between the IFRS and US GAAP continue.

Harmonization can be defined as the procedure through which differences in the accounting practices among the nations can be reduced. The instance of harmonizing accounting practices and principles at the international level is regarded as the stronger presently than it had ever been. Overwhelmingly, the process of harmonization of the accounting practices suffers from the lack of synchronization among the issuance of standards at the national level in different nations along with the formulations of standards by IASC. However, both the success and failures is existent in the procedure of harmonization. Several initial hurdles in the procedure of harmonization has been achieved and much of the progress is made in the direction of convergence of accounting principles and procedure among the nations has already been attained. The initiatives of convergence are presently working more effectively than before. It is anticipated that the process would set down the benchmark for attaining the harmonization in both the international and domestic level.

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