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It is a fact that in any enterprise, its various and numerous corporate governance policies must function within a system that makes sure that all its accounting polices are carried out only after the preparation of the financial reports of the enterprise. The same system must also be able to make sure that the reports prepared are not only fair, but are also unbiased, and are representative. The basic management of any enterprise would need more information than what is generally contained within its financial statements. This would in turn be utilized for planning, decision making, and fro control within the organization. If the financial statement were to include, for example, accounting information as well, then it would become a fundamental source of data, which could be well used for the running of the enterprise. The problem in the creation and the development of an international accounting standard is that fact that the adoption of a sort of 'dual reporting' system, wherein both financial reporting and accounting were to be harmonized, is whether or not the system would be applicable and useful to both the standards, that is, of both financial and accounting, in individual countries, and also to the several existing international guidelines created for the purpose. (Reaching International Accounting Standards)
What is harmonization of financial accounting and reporting?
According to the findings from a joint study entitled 'Financial Reporting in North America', undertaken by the Financial Accounting Standards Board of the United States or FASB, Instituto Mexicano de Contadores Públicos A.C. or IMCP, Canadian Institute of Chartered Accountants or CICA, which was published in 1995, it was extremely important to study and to analyze the various similarities and differences in accounting standards, to identify the several different areas where there can be progress in the study of accounting standards, and in harmonizing those standards, and to provide the users of financial statements with the pertinent and relevant information that would increase their awareness and their capability of comparing business enterprises. (Significant differences in GAAP in Canada, Chile, Mexico and the United States, executive summary)
The study was able to come up with certain expected results, and the recommendations that came about were as follows: each of the three standard setting bodies for the harmonization of financial accounting and reporting must consent to a common liaison and to a mutual involvement in any standard setting activity that the group may get involved in. Secondly, the recommendation stated, the establishment of a standing committee must take precedence over other activities, so that the committee would be able to both initiate and also to maintain standard setting efforts. The AFTA Committee, therefore, set forth its resolutions, which were: to promote and to encourage the comparability of accounting standards, which would in effect be concurrent with the improvement and the enhancement of the very quality of financial reporting, to analyze and to study any areas where there may be differences in accounting standards, and reduce those areas through cooperative efforts, and also to augment the comprehension that there will naturally be significant differences in accounting standards, according to the economic environment that was prevalent at that time. The AFTA Committee also resolved to create and develop specific recommendations that must be taken in order to effectively reduce the presently existent standards in accounting, and the specific efforts that may be needed to implement these changes. (Significant differences in GAAP in Canada, Chile, Mexico and the United States, executive summary)
When there is better harmonization, therefore, between financial accounting and reporting, then there will undoubtedly be a vast numbers of benefits, especially in large multinational corporations, in large accounting firms, and in national standard setters, in stock exchanges and in national governments. In the case of a multinational corporation, for example, if there was a wish to reduce the costs of multiple listings in a foreign stock exchange, one must remember that economic inter dependence among various countries, including capital market integration, would mean that there must exist a sort of 'derived demand' for an already agreed upon set of accounting standards that would stretch across and apply over national borders and boundaries, in a harmonization, therefore, this would in turn mean that the primary beneficiaries of the harmonization would be multinationals across the globe, and since it is a fact that harmonization would result in increasing dramatically the comparability and the understanding of the numerous financial statements that are being made by a multinational corporation, and by their trading partners, several international lenders and investors would al
Organizations mentioned in this term paper
International Accounting Standards, Financial Accounting Standards Board, Australian Accounting Standards Committee, European Union, International Standards Accounting Committee, National Accounting Standards, Australian Accounting Research Foundation,
Locations mentioned in this term paper
Future Directions, United States of America, Australia.,
Keywords referenced in this term paper
accounting, standards, financial, financial reporting, financial accounting, international accounting standards, financial statements, conceptual framework, Accounting Standards Board, European Union, the financial, the accounting, Financial Accounting Standards Board, Generally Accepted Accounting Practices, the european union, public accounting, capital market, financial reports, United States, accounting profession, National Accounting, governmental accounting, accounting systems, corporations, European Commission, consolidated financial statements, financial regulation, global financial, various, International Standards, national governments, multinational corporation, the european commission, stock exchanges, comparability, basic, European Economic Community, information, decision making, corporate governance, global market, executive summary, numerous, investors, Canada, Australia, publicly traded companies, standing committee, GAAP, Ontario Securities Commission,