Question:

History and issues of the harmonization in accounting standards

Answer:

Title: History and issues of the harmonization in accounting standards

Abstract

This paper focuses on the history of international harmonization of accounting standards and issues relating to this topic. In the Chapter 1, the concept of harmonization is described and its advantages and disadvantages highlighted. Chapter 2 dwells on the history of IASB and US-GAAP, with particular focus being on the roles these two entities have played in systematizing the international harmonization process. Chapter 3 is about a comparison between project USA and other harmonization efforts of Japan and Malaysia. The paper concludes that the process of international harmonization of accounting standards is an ongoing one that is far from complete.

Introduction

This paper focuses on the topic: ‘History and issues about International Harmonization Process of Accounting Standards’. The International Harmonization Process of Accounting Standards is an ongoing process through which an agreement of sorts is sought with regard to international accounting standards with the underlying aim being creation of a unified set of principles of accounting. Many milestones have been achieved with regard to the process of harmonization. For example, beginning 2005, 7000 European companies were required to have started using the International Accounting Standards within the framework of the European Union. The International Accounting Standards (IAS) that started being applied in the EU were prepared using the framework provided by the International Accounting Standards Board (Tarca 2010, p. 65).

On the other hand, the US has been pursuing a slightly different set of IAS, which had for some time been facing rejection from the EU region. As progress started being made towards international harmonization, though, this trend started changing dramatically. These achievements may be credited to the efforts of both individual countries and international organizations that specialize on the setting of accounting standards.

The history of harmonization of accounting standards may be traced back to the days when international trade started growing at an alarming rate. This growth was accompanied by an increase in international capital flows, which triggered the need for economic integration. This integration ended up having a homogenizing effect on many realms, including practices, customs and institutions. In the world of business, it triggered the evolution of accounting standards, characterized by international harmonization efforts.

There are many issues relating to international harmonization that countries, organizations, and businesses have had to deal with. For instance, upon crossing national borders, companies have to face new cultures, varying political systems, and challenging unfamiliar laws, some of which relate to variations in accounting standards. A case in point is Germany, where German standards have to be applied to all the companies operating there. Similarly, in the US, companies are required to adhere to the United States’ Generally Accepted Accounting Standards (U.S.-GAAP).

Chapter 1: What is the harmonization?

The process of international harmonization of accounting standards traces its origin to the 1960s. This process has been going on till the present moment. In order to understand this process perfectly, it is imperative that the various stages, driving forces, and actors are discussed.  The process has been extensively described in literature, particularly during the 1980s (Hussey 2010, p. 83). In recent times, the definitions have been expounded on extensively, both in scholarly articles and in online articles.

During the harmonization process, one of the important bodies involved is the International Accounting Standards Board (IASB). The IASB, together with other international institutions, has been playing a very critical role towards the systemization of the harmonization process since its establishment. In this systemization, three main questions are addressed: who is to carry out the harmonization process, how is this process to be undertaken, and what needs to be harmonized internationally.

On the ‘who’ question, the issue addressed is about which institutions are participating in the harmonization process. These organizations may range from the European Union and the IASB to OECD (Organization for Economic Co-operation and Development). On the question of ‘how-to’, focus is on differences in the way the standards are enforced and the sanction mechanisms put in place. These mechanisms may be in the form of recommendations, national rules, international laws, and market solutions. These rules are normally entrenched in financial statements and sometimes appended in the form of specific definitions. These rules and international laws specify how financial statements are to be presented both at the consolidated at stand-alone basis. They also specify the categories of businesses to which certain rules apply.

These issues are normally addressed in order to address both internal and external dynamics in the world of business. This undertaking seems plausible considering that on the internal dimension to accounting standardization, for instance, different companies are seen to offer varying or completely conflicting accounting standards. An excellent illustration of this problem manifested itself when Chrysler and Daimler-Benz, both of them US companies, announced a merger over a decade ago. This merger brought together two companies from different countries, using different accounting standards. Indeed, it is impossible to find two countries whose accounting standards are exactly similar. In such a scenario, it may be impossible to compare financial data with that of companies operating in the target country.

The problem of comparability is indeed a critical one since it impedes free flow of capital across countries. Moreover, shareholders may be unwilling to invest in foreign-based companies whose accounting standards they are not used to. Companies operating in different countries face a situation where they have to undertake their financial reporting twice, first in accordance with rules of the home country and secondly in accordance with the rules that apply abroad. Furthermore, there is always a risk of the same problems being addressed in different ways depending on the country of operation.

As times goes on and on, the underlying reasons for international harmonization of accounting standards has become increasingly self-evident. This understanding was perfectly appreciated when the International Financial Reporting Standards (IFRS) were introduced for the first time in the history of the accounting profession. As a consequence, more than 100 countries have recently adopted the IFRS regulations or put in place structures of ensuring that these standards will be insisted on in the near future. For instance, the United States Securities and Exchange Commission (SEC) has contemplated requiring all US firms to present their financial statements according to the provisions of the IFRS.

International harmonization makes it easy for financial statements to be compared. It also improves corporate transparency while increasing the quality of reporting among accountants. For this reason, it is viewed as being very beneficial to investors. However, it is worthwhile to mention that the benefits of international harmonization may not be obviously discernible, particularly from an economic perspective. Specifically, some economists argue that it is not enough to argue that harmonization can automatically make corporate reporting easier to use to derive information and make comparisons.

Indeed, some disadvantages relating to harmonization have been cited. These disadvantages normally relate to nationalism and political issues. Regarding nationalism, the main fear is that the standards tend to undermine the economic systems that have been nationally institutionalized over a long period of time. Regarding political issues, the main concern is the unsettling changes in social relations as a result of internationalization of accounting standards. Political commentators argue that these changes sometimes make politicians uncomfortable because of a change in the status quo. For this reason, harmonization may not always be what it seems; some politicians push for harmonization through the use of politically motivated changes. Such changes end up causing more harm to businesses and ultimately national economies. Whenever these politically motivate manipulations are singled out, the whole harmonization process becomes highly controversial. This makes business people and corporate entities lose faith in these international standards.

Chapter 2: History of IASB and US-GAAP

            Accounting principles are basic requirement, set and enforced by accounting standards boards, that firms must adhere to when producing their financial statements. Two crucial bodies that are normally considered to be synonymous with the setting up and enforcement of accounting standards include the IASB (International Accounting Standards Board) and US-GAAP (United States’ Generally Accepted Accounting Standards).

The IASB (International Accounting Standards Board)

The IASB came into existence in 2001 although it was not formed from scratch then. Rather, it was simply a reorganization of the International Standards Committee, which had been formed as far back as 1973. Through this reorganization, it became an independent international body tasked with the work of setting accounting standards. The Committee comprised of an agreement arrived at by professional accountancy bodies from Canada, France, Japan, Germany, Australia, the Netherlands, Mexico, Ireland, the United Kingdom, the US, and Ireland.

In subsequent years, new sponsoring members were brought on board, such that by 1982, the members of the IASC included all the professional accountancy agencies that belonged to the IFAC (International Federation of Accountants).  The IASC board was a volunteer section of the body. This board was represented by 13 member countries plus 3 more organizational members. Each member country was given a representation of two people plus a ‘technical adviser’.

The individuals making up the IASC were drawn from diverse backgrounds, notably business, accounting education and practice, financial analysis, and account standard-setting (Flower 1997, p. 291). In the board, there were also some observer members, key among them the European Commission, FASB, and IOSCO. In short the core components of the IASC in its original form included the IASC board, the Consultative Group, the Standing Interpretations, Committee, Advisory Council, and Steering Committees.

The consultative group was simply an advisory body comprising of a number of international organizations sharing an interest in accounting. The Standing Interpretations Committee, on the other hand, came up with and invited public commentaries on various interpretations of the standards of the IASC. These commentaries were subject to approval by the board of the IASC. The advisory council, on the other hand, was an oversight body that operated more in the fashion of the IASC Foundation’s Board of Trustees. On their part, the Steering Committees were made up of expert task forces established to address individual agenda projects. In other words, the IASC was more about structure as opposed to the traditional sense in which a committee is made up of a group of individuals.

However, the events leading up to the formation the IASC date as many years back as 1966. During this year, professional accountancy bodies agreed to proposals aimed at creating an Accountants’ International Study Group. These bodies mainly had their origin in the United Kingdom, Canada, and US. Indeed, the aim was to establish comparative studies of auditing and accounting practices across the three nations.

In 1968, a comparative study was done under the auspices of the AISG (Accountant International Study Group) to compare the accounting practices for the UK with those of Canada and US (Street 1998, p. 202). By 1977, the AISG had published some 20 studies, some of which were crucial in the formation early standards by the IASC. In 1972, proposals for the formation of the IASC were presented in Sydney during the World Congress of Accountants. These proposals were extensively discussed in relation to the provisions made in Canada, US, and UK under the auspices of the AISG.

In 1973, an agreement was finally reached for the establishment of the IASC. This agreement was signed by the representatives of the aforementioned professional accountancy bodies. The first office of this body was in London, and Paul Rosenfield was appointed as the first IASC’s first secretary (Tay 1990, p. 75). On this same year, Sir Henry Benson became the first IASC’s chairman after elections were held. With this leadership positions fully occupied, the IASC was able to embark on its maiden agenda, which dwelt on three main projects: inventories, accounting policies, and consolidated financial statements. For each of these three projects, a steering committee was appointed.

It is only a year later that the IASC admitted the firs associate members, namely New Zealand, Israel, Belgium, Pakistan, India, and Zimbabwe. It is also during this year that various exposure drafts were published. These drafts included Disclosure of Accounting Policies, Consolidated Financial Statements, and the Valuation and Presentation of accounting inventories. Ultimately, the final standards were published.

In 1975, proposals were made to form (IFAC) International Federation of Accountants. This federation was meant to be a replacement to the ICCAP (International Coordinating Committee for the Accounting Profession). The first Exposure Drafts were also published; one of them was titled Information for Disclosure in Financial Statements and the other was named Depreciation Accounting (Carmona 2008, p. 458).

More exposure drafts were published, including Statement of Source, Application of Funds, and Accounting Treatment for Changing Prices. Similarly, this is the same year for the publication of final standards. These standards include Depreciation Accounting, Consolidated Financial Statements, and information meant for disclosure in financial statements. In 1977, there were two main events in IASC: addition of two seats to those of 9 founder countries and the formation of the IFAC. For the next three years that followed, much of the focus was on publication of exposure drafts followed by that of the final standards.

All this time, consultative meetings were being held in the London headquarters, and the stage was being set for the formation of the IASC Consultative Group. The additional exposure drafts published in 1981 and 1982 included Revenue Recognition, Accounting for Business Combinations, Information on Changing Prices, and Segmental Reporting of Financial Information.

The IASC launched the landmark Comparability and Improvements Project in 1987. The objectives of this project was to reduce and eventually eliminate alternatives while making standards much more precise and prescriptive as opposed to the element of flexibility and descriptiveness used to define them in the contemporary practice.

It is also in 1987 that the Consultative Group joined hands with International Organization of Securities Commissions (IOSCO) to render support to the Comparability Project. Another milestone for IASC was the publication of the International Accounting Standards in the very first bound volume. In the course of this year, board meetings were being held in Edinburgh and Sydney.

The board membership of the IASB, erstwhile IASC, continued changing, with the latest members being the Korea, Jordan, and the Nordic Federation. The Nordic foundation comprised of accounting bodies in Sweden, Denmark, Norway, Iceland, and Finland. These entities acted as replacements for Nigeria, Mexico, and Taiwan. These dynamics took place at the same time when the financial instruments project was being launched. This project benefited from significant contributions from the Canadian Accounting Standards Board.

In 1989 the European Accounting Federation rendered its support to the international harmonization as well as a more proactive role of the EU in the activities of the IASC (Murphy 2000, p. 482). In the same year, the IFAC adopted a guideline for the public sector, which required government-related enterprises to adhere to the IAS. During this year, the IASC board meeting was held in New York and Brussels. During these meetings, the IASC published the Framework for the Preparing and Presenting Financial Statements.

A significant area of focus in 1990 was the issue of Comparability of Financial Statements. At this time, the European Union started taking a more proactive role in the international harmonization process by joining the Consultative Group while at the same time taking the position of an observer in the IASC board. One other key aspect entailed the launch of a program aimed at seeking external funding. The IASB constitution was revised in 1992.

From the ongoing analysis, it is clear that although the IASB was formally established in 2001, this milestone took many years to be achieved. Moreover, it is clear that although support for the IASC was substantial, many organizations were searching for a more robust perspective to the international harmonization of accounting. Dialogue on ways of improving IASC’s operations shifted towards proposals on ways of restructuring and changing the funding strategies of the IASC.

It is with this in mind that U.S., UK, and Canadian Standard-setting bodies held discussions on the core accounting-related problems that they faced (Stolowy 2001, p. 491). A major problem was on the poor manner in which provisions were being treated in the three countries, and this triggered a move towards the quest for a joint solution. This working group was later joined by Australia and New Zealand. This triggered the formation of the G4+1, with the +1 being used to refer to the IASC, which was requested to join the four countries. On the large part, this inclusion was politically motivated (Chen 2009, p. 253). This is because the English-speaking countries were concerned about being seen to be unilaterally pushing for an agenda on international accounting standards.

The G4+1 group focused on different problems inherent in the world of accounting with the aim being giving them a strong conceptual perspective (Street 2000, p. 29). The group also addressed the various ways in which the IASC could be made more effective. This focus made critics start predicting that in the long run the G4+1 would have the greatest control over international harmonization of accounting standards. This triggered a furious denial of these allegations by the leaders of the group. Nevertheless, looking back at the group’s impact, it is clear that it has had a far-reaching influence on the way harmonization of international accounting standards has been undertaken.

In 2001, the final break came when members of the G4+1 group decided that time had come for the body to be reorganized and changed into the IASB. In this undertaking G4+1 had to cancel all the proposals it had made for future projects. Moreover, all its current work was submitted to the newly constituted IASB. Henceforth, the IASB would take over on the current work of G4+1 to make proposals on future projects.

The projects that G4+1 initiated influenced the IASC to rethink its philosophy and mode of operation. This was inherent in discussion paper that the IASC issued through the newly-set-up Strategy Working Party. In this discussion paper, the prospect of a new structure was highlighted before finally being agreed to. It is against this backdrop that a new organization known as the IASC Foundation would be formed. This independent body would embark on its mandate of overseeing the activities of the IASB, the Trustees, the Standards Advisory Council, and the Standing Interpretations Committee.

IASB’s core objectives

Upon its formation, the IASB was tasked with certain clearly-outlined objectives. One of them is to nurture, in the interest of the public, a set of coherent, high-quality, decipherable, and implementable international accounting standards. It was also tasked with the work of helping participants in capital markets across the world make the right financial decisions through access to information that is modeled around transparency, high quality, and comparability. It was also tasked with the work of ensuring that the application of all those standards was vigorously promoted. Additionally, the body was designed in such a way as to nurture convergence of various national and international accounting standards so that the solutions achieved are of high quality. The body is still pursuing these objectives even in the present time (Hoaraua 1995, p. 223).

Of great importance in the achievement of these goals is the IASC Foundation. It is made up of 19 individuals, each of whom is an appointed trustee. These trustees have to act within the provisions of the Foundation’s constitution as well as remain committed to the goals of the IASB. To succeed in the work of setting high-quality global accounting standards, the individuals must have the necessary financial know-how as well as be able to follow through with all the pending proposals (Ashbaugh 2001, p. 421).

The trustees are the ones who appoint all the IASB, SAC, and SIC members. They also review external events that affect accounting standards, IASB’s strategy, and operational effectiveness. The foundation is also responsible for approving the IASB’s annual budget and determining which areas require funding. Indeed, the resourcing mechanism of the IASB, it turned out, would ultimately differ from that of the IASC. In this case, the Trustees were given the mandate of securing sufficient funding so that the IASB could operate in an effective manner. Today, the IASB’s annual budget is about US$ 18 million. Compared to that of its predecessor, this budget is much higher.

The other key difference is that the body has been working in collaboration with the International Organization of Securities Commissions (IOSCO) in resolving issues of accounting and financial reporting. With this collaboration in place, it becomes easy to identify areas where there is need for new standards to be set. Representatives from the IOSCO sit in the Standing Interpretations Committee (SIC), where they play the role of observers.

IASB Structure

Since its inception, the IASB had a clearly defined organizational structure, different from that of the IASC. Nevertheless, elements of the former IASC remained, and the main source of evidence for this is the retention of IASC Foundation. Other than the IASC Foundation, the other pillars of the organization is the Trustees, the SIC, and the SAC. The distribution of the 22 Trustees was made with geographical balance in mind, with North America, Europe, and Asia-Oceania getting 6 positions each. The other four slots were assigned to any other area, as long there was geographical balance.

The International Federation of Accountants plays a key role in the appointment of Trustees, by suggesting members for 5 of the positions (Whittington 2005, p. 135). Another group that participates is the International organizations for users, preparers, and accounting academics. These individuals suggest the name of one candidate for each of the various groups represented. For the rest of Trustee membership, the membership is ‘at large’, meaning that no constituency nomination process is required for their selection.

The 16 members who constitute the IASB perform the core task of setting accounting standards (Fontes 2005, p. 424). The IASB set the most critical qualification to be technical expertise. In the case of the Trustees, the core mandate was defined with regard to the exercise of the best judgment in ensuring that the board is not dominated by any regional interest or isolationist constituency. For this reason, it becomes imperative that the board members have professional background as auditors, with specific specializations being preparation and use of financial statements.

The mission of the SAC is primarily providing a forum through which additional experts with diverse backgrounds can be consulted by the board for advice on various issues. The SIC, which was later transformed into the IFRIC (International Financial Reporting Interpretations Committee), was established to offer reviews on accounting issues which risked being treated in divergent ways in the absence of authoritative direction. With the SIC in place, advocates of international harmonization of accounting standards were confident that it would be easy to always seek consensus on how different aspects of accounting would be treated. In the work of interpreting accounting-related issues, IFRIC operates in liaison with different national committees. Membership into this committee has to be decided by the Trustees, who always endeavor to ensure that geographical considerations are adhered to. The membership also targets professional accountants as well as people who make regular reference to financial statements.

A significant milestone was achieved in 2009 with the formation of the IASCF Monitoring Board. It was envisioned that this board would act as a bridge between the capital markets and the IASCF (Buchanan 2009, p. 69). This move was triggered by the massive economic recession that swept across the world. The underlying aim was to enable authorities in the world of capital markets get assistance relating to the use of the IFRS within their areas of jurisdiction. The main members of this monitoring board are the leaders of the US Securities and Exchange Commission, the European Commission, IOSCO’s Emerging Markets Committee, the Japanese Financial Services Agency, and the IOSCO’s Technical Committee.

It is envisaged that the Monitoring Board will be participating in the process of selecting Trustees as well as approving their appointment in accordance with the guidelines as stipulated in the constitution of the IASC Foundation. There are also plans to task the Board with the work of reviewing and offering advice to all the Trustees regarding how to their responsibilities as stipulated in the constitution of the IASC. In this case, the Trustees will be expected to be making annual written reports to this Board.

Funding the operations of the IASB

One of the main considerations in the establishment of the IASB was that this body would manage to have the resources needed to pursue all the aims that it had been set out to achieve (Hung 2000, p. 411). The work of securing funding was shouldered on the Trustees. During the inaugural year, the annual budget was estimated to be 12 million Sterling pounds (Schipper 2005, p. 129). At this time, the financial support came from some 188 corporations, institutions, and associations. Some of the contributors presented themselves as underwriters, and their pledges spanned five years, with the amount pledged ranging from US$100,000 to US$200,000 every year.

Over the years, the grounds for this sort of funding have remained pretty much the same. However, the level of expenditure has increased remarkably. Nevertheless, the IASCF has succeeded in building up a reserve fund totaling 11 million Sterling Pounds as per the indications of the Annual Reports and Accounts of 2003. However, when Arthur Anderson, a prestigious accounting firm based in Chicago collapsed, the Board lost as much as US$ 1 million. Indeed, this loss provided impetus for the Trustees to be very aggressive in looking for additional supporters.

The collapse of Arthur Anderson triggered a flurry of concerns regarding the possible threat of IASB’s reliance on certain organizations for financial resources. However, so far, these concerns have not presented any significant issue, and Trustees continue to look for sources of funding that would not make the public perceive the Board to be operating under the influence of certain providers of funds. A major preoccupation for the Trustees has been to ensure that the funding is always reliable and regularly available.

History of US-GAAP

The history of the US-GAAP (Generally Accepted Accounting Principles) can be traced back to 1939, when the American Institute of Accountants (AIA) was formed, followed by the Committee on Accounting Procedure. In the next two decades, this committee was involved in the publication of various Accounting Research Bulletins. The AIA was renamed into AICPA (American Institute of Certified Public Accountants) in 1957. Two years later, the AICPA formed the Accounting Principles Board.

Progress with regard to the US-GAAP was achieved in 1973 with the formation of FASB (Financial Accounting Standards Board) (Ampofo 2005, p. 225). In the course of time, this board managed to issue some 167 SFASs (Statements of Financial Accounting Standards). With effect from July 1, 2009, the ASC (Accounting Standards Codification) was pinpointed as the sole authority for specifying issues to be regarded as U.S GAAP.

Chapter 3: Compare project USA and rest of the world (word: 800)

In the US, regulation of the public capital markets is primarily the responsibility of the US Securities and Exchange Commission (SEC). This is an agency of the country’s federal government. The SEC has been given the authority by the law to determine the form and content of all financial statements that are filed by businesses with the Commission. From a historical perspective, the Commission has been relying upon the private sector in its efforts to develop standards for financial reporting. The farthest that the Commission has been going is to prescribe the disclosures and presentation formats for financial statements. At other times, the Commission has been seeking the assistance of the private sector in determining accounting principles as well as measurement principles.

The SEC is responsible for overseeing the operations of more than 30,000 registrants. This includes some 12,000 public companies, 11,300 investment advisers, 5,500 broker dealers, 4,600 mutual funds, and 600 transfer agencies. However, quite a sizeable section of the companies that are registered with the SEC are of non-US origin. Foreign registrants are allowed to submit financial statements that conform to the financial statements of the US GAAP and the IFRS by the IASB without any need to bring about adherence to the US GAAP. The main alternative is that foreign registrants are allowed to submit financial statements that have been presented using either the national GAAP or the IFRS’s jurisdictional adaption. Indeed, the IFRS has already been adopted by the EU. However, this would make it necessary for net assets and earnings to be reconciled to the US GAAP figures.

The practice in the US should be accorded a lot of attention because it gives a lot of impetus regarding the future of international harmonization of accounting standards. In 2007, the US SEC introduced a new page to its website, which it dedicated to the issue of a roadmap to the establishment of international financial reporting standards. In this page, focus was on materials relating to roundtable negotiations regarding the 2007 IFRS roadmap, all the seven releases that had to do with the IFRS, discussions on the roadmap towards convergence of accounting standards, and all the speeches made by the SEC commissioners with regard to the IFRS.

It is interesting to make a comparison between the US and the EU region. As early as 2003, Europe had already set the stage for the launch for its own currency. Moreover, international competitiveness of this region was intensifying, sometimes at the expense of that of the US (Barth 2008, p. 472). However, this competitive pressure was affected remarkably by the global dominance of the dollar as well as the US stock markets. Other areas of influence included efforts to bring in investors from around the world and asserting authority over the deployment of capital resources.

In the midst of all these efforts, a stumbling block has been the existence of numerous accounting standards, which make it difficult for the financial reports of different countries to be compared (Leng 2010, p. 137). This problem has triggered acute sentiments relating to the need for clarity in accounting both in the US and in the EU. Although the IASB has been working towards achieving harmony in accounting standards for more than 10 years, the US has continued to operate under the so-called GAAP (Generally Accepted Accounting Principles). One of the conditions for international companies interested in listing on the US stock exchange is that they have to re-configure their financial report so that they are in line with the provisions of the US GAAP. Without this reconfiguration, these companies can never access the world’s largest capital markets.

In other regions of the world, this paper focuses on the situations in Japan and Malaysia. In Japan, local business stakeholders have in recent years acknowledged that there is an inevitable trend towards the internalization of accounting standards. Upon this realization, a trend has emerged towards harmonization and convergence towards the provisions of the IFRS. However, a persistent question has remained regarding whether Japan ought to adopt the provisions of the IFRS or not.

Moreover, it is not clear which direction the Japanese accounting standards are going to take in the near future and in the long run. To answer this question, one ought to assess the practical context in which the country has been adopting the IFRSs. Owing to the nature of the Japanese accounting situation, there is need for the country to assertively determine how the effects of various economic circumstances will be referred to in determining the country’s destiny in terms of accounting standards.  At the moment, there is no doubt that IFRSs are going to have a far-reaching impact on Japanese companies and accounting standards.

In Malaysia, a significant milestone towards harmonization was the decision by the Malaysian Institute of Accountants to form the Malaysian Accountancy Research and Education Foundation. This body was formed with the aim of promoting, encouraging, and advancing research and education on accountancy in Malaysia. This body contributed greatly to the success of the 2006 directive that all public listed companies ought to adopt IFRSs when reporting on their financial positions. This transition was poised to influence entire organizations, such that staff training sessions were deemed necessary.

Conclusion

In summary, significant efforts have been made in the move towards the international harmonization of accounting standards. This paper has focused on how this process has been undertaken, through a historical analysis of various developments relating to harmonization. Indeed, this process is an ongoing one that is far from complete. In the long run, advocates of harmonization hope that a unified set of principles of accounting will be established.

The history of harmonization of accounting standards may be traced back to the days when international trade started growing at an alarming rate. With the resulting economic integration, international trade took a contiguous shape, mainly with regard to practices, customs and institutions. These changes necessitated the establishment of harmony in terms of internationally accepted accounting standards.

The paper has also focused a great deal on the definition of harmonization. Plenty of literature was accessed that attempted to provide a definition. Most of these definitions are seen to have been conceptualized during the 1980s. In subsequent definitions, focus has been on expounding on the concept of harmonization.

In systematizing the harmonization process, the main bodies that are mentioned extensively include the IASC, IASB, and the GAAP. The IASC has been in existence since 1973, but in 2001, it was reorganized and changed into IASB. Most of the ongoing efforts towards harmonization are modeled around the efforts that the IASB and its predecessor have undertaken over the years. During this time, issues of harmonization have been focusing on three core questions: who is to carry out the harmonization process, how is this process to be undertaken, and what needs to be harmonized internationally.

Indeed, the history of the IASB has been observed to be a long one. The events that led to the establishment of the body were triggered as far back as 1966. This is the year when professional accountancy bodies agreed to proposals aimed at creating an Accountants’ International Study Group. These bodies mainly had their origin in the United Kingdom, Canada, and US. The shared goal of these bodies was the establishment of comparative studies of auditing and accounting practices across the three nations.

Various consultative meeting have been held by the IASC, most of them in the London headquarters. During these meetings, issues relating to harmonization were discussed and proposals made before the publication of the final documents. The IASC also had to contend with the issues of admitting associate members, creation of exposure drafts on a wide range of issues, the formation of the IFAC to act as a replacement to the ICCAP. This paper has wound up by providing a comparison between project USA and harmonization efforts of other countries. In this case, examples are provided on the nature of harmonization efforts in Japan and Malaysia.

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