What Does the Harmonization of Accounting Standards Mean for Your Business?

Corporate international accounting standards have long been a way for companies to simplify how they do their accounting procedures. These procedures are in place to make sure a company can easily and effectively have their accounting reports and plans in one method, ensuring accuracy across the organization. What’s gaining steam in recent years is for companies to begin a harmonization of accounting standards with other international companies set by a third party.

Who Sets the Rules for the Harmonization of Accounting Standards

The recognized group that sets the standards is the International Accounting Standards Board (IASB), composed of 16 financial professionals from across the globe. They determine what best practices exist that all companies can use for the harmonization of accounting standards, though these standards are not binding.

The IASB is funded mostly from banks and other financial institutions that want these standards recognized. Companies who have already standardized also are common contributors. Due to the recent global financial crisis, the funding has gone down, but that doesn’t mean the harmonization of accounting standards is still not a goal of many companies.

Harmonization of Accounting Standards: Who Wants Them?

As the world gets smaller, it will allow everyone to be on the same page globally. It will make it harder to hide declining performance and it will provide global accountability to all companies. This is a goal for both government and financial institutions as they oversee and regulate industry.

What’s the Impact of the Harmonization of Accounting Standards

If you want to begin the harmonization of accounting standards within your company, there may be some significant concerns to deal with. In the US, if you have been using Generally Accepted Accounting Principles (GAAP), there are some differences between those and the International Accounting Standards (IAS) set forth by the IASB. Most of these differences are minor, but some are not. Hedge accounting and consolidation of financial statements are two places that are significantly different between GAAP and IAS. It may also impact how accounting software vendors develop their products.

Different countries have different GAAP procedures, but the IAS is global. Generally, what is adopted by the IASB impacts GAAP in all countries, but obviously it’s not a legal framework. Essentially they’re just suggestions. However, if you have decided to join the harmonization of accounting standards plan, you will comply with their suggestions. This could make the transition a long and difficult process.

The Benefits of the Harmonization of Accounting Standards

Since the harmonization is a relatively difficult process, why go through it? There are significant benefits to the harmonization of accounting standards. Once that work is done, you have far more precise information from a global standpoint. This helps improve financial markets, it helps investors make global decisions, and it helps you benefit from the increased information standardization.

A company and an industry that is performing well should consider the vote for the harmonization of accounting standards to the global IAS. The increased visibility and accountability ensure governing bodies all get consistent types of information and allow them to help plan fiscal decisions based on this data. This helps those companies work better with regulators and improve their performance even more. In other words, it is worth the effort for a global company.

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