What are the benefits of having uniform accounting standards among countries?
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‘Uniform accounting standards produce uniform financial reporting.’ Show
Issued by the International Accounting Standards Board (IASB) and its predecessor the International Accounting Standards Committee (IASC), the International Financial Reporting Standards (IFRS) are accounting rules that apply equally to financial reporting by public companies worldwide (Deegan, 2009). The system has developed a comprehensive set of ‘high quality’ standards, which have been implemented in about one hundred different countries (Ball, 2006). The ultimate aim of the IFRS is to produce uniform financial reporting, in order to make financial reporting accurate, …show more content…We will continue by discussing some of the IFRSs disadvantages and how they won’t always be able to produce uniform financial reporting and the arguments for why some of the advantages given above can be contradicted. Firstly, an important reason as to why the accounting standards applied in each different country won’t be equal despite adopting IFRS, is because of the difference in taxation systems between different countries. (Deegan, 2009) Secondly, uniform accounting standards can’t always be relied on in order to produce uniform financial reporting, because it ignores deeply rooted political and economic factors that influence the incentives of the ones preparing the financial statements (Ball, 2006). Which brings us to the impact of human judgments and decisions made throughout the accounting process, about for example future cash flows, which are involved in accounting accruals. These factors cause for much leeway in implementing accounting rules, which leads to an environment where powerful economic and political forces will determine how managers, courts etc. will influence the implementation of rules. Although, it can be said that this would also be the case in a society that doesn’t apply IFRS. Achieving uniformity in actual reporting behaviour is more …show more content…A clear argument as to why accounting cannot be seen as a precise and accurate science is because this would imply for an asset, claim, revenue or expense to have a precise value, which is, in most cases, not true. Another example is depreciation, which again would not fit under the category of accurate. Judgments about the future concerning the expected useful life and residual value of an asset, will be what depreciation expense is based upon. Therefore a uniquely correct figure for depreciation for a period cannot be achieved (Atrill and McLaney, 2013). Lastly, no two businesses will ever be identical, which means that their accounting policies will vary and not be comparable (Atrill and McLaney, 2013). This essay has explored and discussed both sides to the statement whether uniform accounting standards will produce uniform accounting reporting, and concludes that even though applying IFRS is almost crucial, mainly with the aim of comparing different financial statements, the use of uniform accounting rules can be unfavorable. As seen in this essay, this is primarily the result of subjectivity and differences in taxation or functions of a I build a model of neoclassical production to examine the capital market and welfare effects of a uniform accounting standard (like IFRS). Firms vary in their cost of compliance to the standard, and investors vary in their cost of learning diverse standards for capital allocation. A uniform accounting standard increases the quantity of capital in the economy and lowers the cost of capital. However, uniform standards force diverse firms onto the same standard, which reduces welfare. A regulator selects the optimal number and type of standards to balance these competing effects. Uniform accounting standards are better than diverse accounting standards when firm productivity and variation between investors is large, but worse when the cost of investment and variation between firms is large. I draw implications for IFRS/GAAP convergence and the incentives versus standards debate. Learning about the specific benefits of a single set of global accounting standards can help small businesses understand how they could affect the financial reporting and evaluation of potential investments. Let us see together what some of these benefits are. The biggest benefit of a single set of global accounting standards is the enhancement in comparability
between companies in different countries. Accounting standards in one country can be very different from the accounting standards in another country. Before an investor can compare two potential investments, they must reconcile the two companies to the same basis of accounting. The problem is similar for creditors in the way that two companies that are in similar economic shape can appear very different. Enacting a set of global accounting standards would
put comparisons to equal footing, making it easier for small-business owners to evaluate international options for investment and cash management. Moving to a single set of global financial standards would also ease barriers to expansion for companies. If companies wish to expand overseas today, they need to consider international costs of compliance, which would mean adopting a completely new set of accounting records to
meet statutory requirements in the new country. Central authoritative bodyFrom a policy-making standpoint, moving to a single set of global standards puts rule making into the hands of one body. Accounting standards are set within each country by each standard-setting body. One set of standards would reduce disagreement between countries and international regulators. In some countries, businesses are required to pay reporting fees that fund these standard-setting bodies which can have a big impact on a small business. Moving to a central authoritative body could reduce these costs drastically. Thanks for taking the time to read our blog post on the benefits of global accounting standards. If you are thinking about studying in Germany, PFH offers a Master’s Degree in General Management in which you can take the cross-cutting topic of corporate management with different variants, including accounting. While if you are interested in being even more international, we also offer dual degree programmes, where you study part of your time in London, Bordeaux or even Australia and receive two degrees. At PFH we make sure you receive a high-quality education while making the most out of your study abroad experience! What are the benefits of having uniform standards in the accountancy profession among countries?Their main aim is to ensure transparency, reliability, consistency, and comparability of the financial statements. They do so by standardizing accounting policies and principles of a nation/economy. So the transactions of all companies will be recorded in a similar manner if they follow these accounting standards.
Why is it important to have a uniform set of accounting standards?Accounting standards ensure the financial statements from multiple companies are comparable. Because all entities follow the same rules, accounting standards make the financial statements credible and allow for more economic decisions based on accurate and consistent information.
What are the benefits of accounting standards?Accounting Standards Benefits. Uniformity in Accounting is Ensured. ... . Financial Statements Can be Relied on. ... . Frauds and Manipulations of Accounting are Prevented. ... . Assist the Auditors. ... . Comparability. ... . Determining Managerial Accountability.. What is the benefit to have a single accounting standard in countries across the world?Globally comparable accounting standards promote transparency, accountability, and efficiency in financial markets around the world. This enables investors and other market participants to make informed economic decisions about investment opportunities and risks and improves capital allocation.
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