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Question 5IFRS

Expert-verified
Intermediate Accounting (Kieso)
Found in: Page 35

Short Answer

The following comments were made at an Annual Conference of the Financial Executives Institutes (FEI). There is an irreversible movement toward the harmonization of financial reporting throughout the world. The international capital markets require an end to:

  1. The confusion caused by international companies announcing different results depending on the set of accounting standards applied.
  2. Companies in some countries obtaining unfair commercial advantages from the use of particular national accounting standards.
  3. The complications in negotiating commercial arrangements for international joint ventures caused by different accounting requirements.
  4. The inefficiency of international companies having to understand and use a myriad of different accounting standards depending on the countries in which they operate and the countries in which they raise capital and debt. Executive talent is wasted on keeping up to date with numerous sets of accounting standards and the never-ending changes to them.
  5. The inefficiency of investment managers, bankers, and financial analysts as they seek to compare financial reporting drawn up in accordance with different sets of accounting standards.

Instructions

  1. What is the International Accounting Standards Board?
  2. What stakeholders might benefit from the use of International Accounting Standards?
  3. What do you believe are some of the major obstacles to convergence?

  1. The International Accounting Standards Board is an accounting standard settler dedicated to developing a single set of high-quality, comprehensible, and enforceable international accounting standards that aim to achieve clear and comparable information in general purpose financial statements.
  2. The groups that might benefit from the use of International Accounting Standards include: stockbrokers, investment analysts, investors, credit grantors, multinational companies, and governments.
  3. A major obstacle to convergence is due to the fact that global differences in accounting practices are caused by the economic, legal, social, and other environmental factors. This may mean that harmonization of the accounting standards may not be in the best interest of the users of the accounting information.
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Step by Step Solution

Meaning of International Accounting Standards Board

The International Accounting Standards Board is an accounting standard settler that is self-reliant and privately funded. The Board is dedicated to developing, in the general interest, a single set of high-quality, comprehensible, and enforceable international accounting standards that aim to achieve clear and comparable information in general purpose financial statements.

Benefit from the use of International Accounting Standards 

The following categories of stakeholders might benefit from the use of International Accounting Standards:

  • Bankers, investment analysts, and investors: Facilitates global comparisons for investment decisions.
  • Multinational companies: These companies benefit as investors, makers, examiners of products or staff, global finance raisers, and also as movers of staff around the world.
  • Governments: They benefit as hosts of internationals and as tax collectors. Furthermore, parties like governmental and nongovernmental rule makers and securities market regulators may also benefit.

Some of the major obstacles to convergence

The basic argument against convergence is that global differences in accounting practices are caused by the economic, legal, social, and other environmental factors. This may mean that harmonization of the accounting standards may not be in the best interest of the users of the accounting information.

Various accounting practices have emerged to serve the purpose of different users; this might suggest that the existing accounting practice is right for a particular nation and should not be altered only to ease the work of international companies or auditors.

The most important obstacle to harmonization is the absolute size and deep rootedness of the differences in accounting. These differences have emerged over the earlier years due to the variations in legal systems and users.

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