Question

a) Do you agree with a ‘one size fits all’ approach to financial reporting, that is, that all countries should adopt the same accounting standards and conceptual framework?
Required:
Explain your answer by discussing the arguments in favour of and against the harmonisation
of accounting standards.

Answer 1

I dont totally agree with one size fits all approach. There are some disadvantages also of this approach.

Advantages:

Comparability

The biggest advantage of a single set of global accounting standards is the enhancement in comparability between companies in different countries. Currently, accounting standards can differ greatly between countries. Before an investor can compare two potential investments, she must reconcile the two companies to the same basis of accounting. The problem is similar for creditors: When evaluating a company's creditworthiness, differences in accounting standards can make two companies that are in similar economic shape appear very different. Enacting a set of global accounting standards would put comparisons on equal footing, making it easier for small-business owners to evaluate international options for investment and cash management. Right now, many small-business owners do not have the resources to effectively compare international and domestic investment options. If financial statements were more comparable, owners would be able to complete more of these comparisons in house.

International Expansion

Moving to a single set of global financial standards would also ease barriers to expansion for companies. If companies wish to expand overseas today, they need to consider international costs of compliance, which could mean adopting a completely new set of accounting records to meet statutory requirements in the new country. In some cases, this would nearly double the company's accounting costs. For many small businesses, even the large rewards of moving overseas are dwarfed by these expansion costs.

Central Authoritative Body

From a policy-making standpoint, moving to a single set of global standards puts rule making into the hands of one body. Currently, accounting standards are set within each country by each standard-setting body, as well as by an international group. One set of standards would reduce disagreement between countries and international regulators, and it might also cut costs. In some countries, businesses are required to pay reporting fees that go to fund these standard-setting bodies. While the costs may not affect large companies, they can have a huge impact on a small business. Moving to a central authoritative body could reduce these costs drastically.

Disadvantages

Moving to a single standard has plenty of advantages but also some disadvantages. Whatever standard is chosen, some, if not all, companies will have to adjust to it. Some small businesses using a perfectly good accounting system will be forced to incur costs to change to the new system. And even though accounting standards would be standardized across countries, laws and other regulations would not, which could hamper the comparability of financial statements across countries even when the same accounting system is being used. To the extent that these laws and regulations differ, small-business owners comparing domestic and international investment opportunities might have a false sense of security about the actual similarity between investment options.