A Single Set of Accounting Standards

The business world is becoming more global as we look to decrease costs and increase profits. As businesses begin to move production to other countries, as well as trade in other countries, a push for a single international accounting body has increased. Investors, multinational companies, regulators, the securities industry and developing countries all look to harmonize accounting (Saudagaran, 2001). The diversity in the world has brought troubles to global accounting, while many groups have pushed for harmonization in accounting principles.

Many groups have urged for accounting harmonization. Intelligent investors are looking to take their money to other markets and want to make successful decisions. Reliability and comparability are the main issues that investors face when looking to invest in countries other than their own (Saudagaran, 2001). They are at the risk of converting another countries' financials to financials they understand, and simply do not have the time or money in which to invest globally. While investors look to harmonize accounting standards, so do the companies in which they invest. Multinational companies are looking to expand their capital, product and labor globally in order to successfully compete in their market (Saudagaran, 2001). While taking sales, labor and capital to other countries, companies are forced to invest more resources and time into preparing the financials to the standards of the different countries' regulations.

With investors and companies expanding their efforts into diverse countries, regulators are forced to monitor companies with differing financials. Regulators want to comply with foreign businesses without having to drive them away. With the monitoring of firms with different financials in their authority, regulating can become quite costly. More costs are brought onto a company when they look to exchange stock globally. These costs pose a problem because stock exchanges are looking for listings growth and transactions from foreign companies. As the world becomes more dependent upon diversity in the business world, companies are not only looking to list their stock in other countries, but trying to look attractive as well (Saudagaran, 2001).

One of the bigger problems arising from so many different accounting standards across the globe is the start-up of an advancing country. Developing countries are looking to adopt international accounting standards. Without the time or money to construct accounting standards from scratch, these countries are obligated to apply an accounting system from a country that they feel will give investors assurance in their companies (Saudagaran, 2001). Minimizing differences in accounting standards will not only help cut costs and time, but will also make the global market more efficient and smooth. Investors will have the confidence to invest in foreign countries; companies will have the ability to compete in a global perspective; regulators can monitor with ease; security transactions can take place in any country; and growing countries will have the ability to grow economically (Saudagaran, 2001).

While these groups push for the harmonization of accounting standards, we must understand why there is diversity in accounting. According to Ahmed Riahi-Belkaoui (2002), the differences in accounting standards come from the diverse "economic development, business complexity, political persuasion, and system of law" of countries.

Where a country is located economically affects its accounting standards. From developed to developing, a country has different needs and therefore has different standards. The business complexity, or the technological and industrial knowledge, also accounts for the different standards across the globe. Whether the government or the market has more control over the economy is a third reason for diversity in accounting standards. Finally, political persuasion, such as common-law or code-law, explains some of the diversity in accounting. Many other factors can explain the reason behind diverse accounting standards, such as education level, but the main reason for different accounting standards is the diversity of the globe. No two countries run the same way, politically or economically.

As we expand our business globally and incorporate foreign businesses into our domestic economies, we are experiencing more costs and time in the efforts of reporting financials. Not only does the difference in accounting bring about the increased costs and time, but it also brings in the rationality of trust. According to Sten Jonsson (1996), "The game situation is defined precisely by the mutual expectations of players to abide by the rules and there usually is a clear definition of what constitutes a winning situation which gives the game its goal direction. Cheating ruins ‘everything', that is the sense of the game" (p. 12). Diversity controls the differences in accounting standards, but the need for a single accounting standard is increasing as the market becomes more globally dependent.

References: Jonsson, Sten. (1996). Accounting for Improvement. Tarrytown, NY: Pergamon.

Riahi-Belkaoui, Ahmed (2002). International Accounting and Economic Development: The Interaction of Accounting, Economic, and Social Indicators. Westport, CT: Quorum Books.

Saudagaran, Shahrokh M. (2001). International Accounting: A User Perspective. Cincinnati, OH: South-Western Pub.

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