THE NEED FOR INTERNATIONAL ACCOUNTING STANDARDS
Accounting standards are needed so that financial statements will fairly and consistently describe financial performance. Without standards, users of financial statements would need to learn the accounting rules of each company, and comparisons between companies would be difficult.
As we start the new millennium, international economic activity along with other international activities has been increasing at a very rapid rate. International trade, capital movements between countries, international investment, number of multinational firms, and international bond and equity offerings exhibited a huge growth over the last decade. Most of the multinational companies which engage in equity offerings are headquartered in more developed countries. These companies are continuously seeking higher returns and growth and less costly financing. In their quest for higher returns and cheaper financing, they have to consider international alternatives. In order to evaluate these alternatives intelligently they need reliable and comparable information. Dealing with accounting diversity and the requirements of different national accounting standards was a major and costly problem for these companies. If all countries of the world employ the same accounting standards, such as international accounting standards, multinational companies stand to gain tremendously.
Another interest group, who could benefit from the global harmonization of accounting principles, is the international investor. With the arrival of high-tech computers and information age massive amounts of international financial information is available on the Internet. More and more institutional and individual investors are interested in making international investments.
Other groups, which may be interested in universal harmonization of accounting principles, include international filer companies, international accounting firms, international intergovernmental organizations, governments and regulating bodies, and financial markets. These groups are:
A. Some companies listed in the large stock exchanges are not multinationals but they are interested in raising additional funds and trading securities with favorable terms. However, the regulating bodies of stock exchanges, such as the Securities Exchange Commission (SEC) in the USA, place restrictive filing requirements. Usually they require financial statements to be prepared according to the domestic financial reporting standards. Adoption of the IASs would remove such restrictions.
B. International accounting firms constitute another group. They provide auditing and consulting services in many countries. In order to perform these services, they must possess expertise in the area of domestic financial accounting principles and the related laws. Development of this expertise is very costly to these firms and global harmonization of accounting principles would likely to reduce these costs substantially.
C. International intergovernmental organizations, such as United Nations (UN), European Union (EU), and the Organization for Economic Cooperation and Development (OECD), are also interested in obtaining comparable financial information. These organizations need to evaluate projects, extend credits and make other decisions about the different nations of the world. Worldwide accounting principles would produce comparable financial information needed by these organizations.
D. Many developing countries as well as the Eastern European countries did not experience the problems of developed countries and their domestic accounting standards are not very comprehensive. If the governments and/or accounting regulating bodies of these countries adopt international accounting standards as their national standards they can not only have a comprehensive set of standards but also may have easier access to international financing sources.
E.International accounting standards can be very important for the development of global financial markets, especially for stock exchanges
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