Question

Discuss the role of International Accounting Standards Board(IASB) in bringing harmonization of accounting standards and the convergence of accounting standards.

Answer 1

Harmonization is the process of increasing the level of agreement in accounting standards and practices between countries. The purpose of this study is to boost and enhance the researchers' understanding on the International harmonization of financial reporting.

Harmonization, as being different from standardization, is the process of creating a similar set of procedures by establishing boundaries as to how much they can differ globally. However, standardization is the process of unifying the reporting standards to make them the same. However, this is almost impossible to achieve. Therefore, harmonization has been implemented considering the facts that even the harmonization can not eliminate the international differences in reporting standards. Garrido, León, and Zorio, 2002 stated that the globalisation has been one of the main drivers of moving towards harmonization by eliminating differences. This has been increasingly important in the case of multinational companies when operating internationally and using different sets of reporting standards which made it less efficient to compare the financial statements. Another importance for harmonization has been an increasing focus on investors as they benefit from new IFRS due to investor oriented approach.The accounting and auditing processes were developed by governments and regulatory bodies all over the world according to the specific needs of those countries. However, as mentioned by Roussey (1994) the need for one set of international reporting standards have increased even more as the businesses are going global and growth in cross-border financing are creating an environment that would benefit from greater harmonization of accounting standards at both international and national levels. To achieve harmonization, the parties such as investors, business analysts, corporations, organizations, government bodies should work in cooperation.

There are several organizations that promote the harmonization of IFRS globally. These are just a few of them:

· European Union

· International Organization of Securities Commissions

· International Federation of Accountants

· World Trade Organization

· International Monetary Fund

.World Bank

The convergence of accounting standards refers to the goal of establishing a single set of accounting standards that will be used internationally, and in particular the effort to reduce the differences between the US Generally Accepted Accounting Principles (US GAAP), and the International Financial Reporting Standards (IFRS) (Financial Accounting Standard Board (FASB), 2012). Convergence in some form has been taking place for several decades, and efforts today include projects that aim to reduce the differences between accounting standards (American Institute of Certified Public Accountants (AICPA), 2008). In other words convergence is all about making global accounting standards as similar as possible.Additionally, International convergence of accounting standards refers to the goal of establishing a single set of high-quality accounting standards to be used internationally, and the efforts of standard-setters, particularly the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB), towards achieving that goal. The essence of convergence is to avoid conflict and confusion, promote simplicity, streamlining, consistency and transparency, and avoid any future financial crises or meltdowns Convergence is also already taking place in other countries, with "all major economies" planning to either adopt the IFRS or converge towards it, "in the near future".

The phrase international convergence of accounting standards refers to both a goal and the path taken to reach it. These include:  

The FASB believes that, over time, the ultimate goal of convergence is the development of a unified set of high-quality, international accounting standards that companies worldwide would use for both domestic and cross-border financial reporting.

Until that ultimate goal is achieved, the FASB is committed to working with other standard setting bodies to develop accounting standards that are as converged as possible without forgoing the quality demanded by U.S. investors and other users of financial statements.

Historically, the path toward convergence has been the collaborative efforts of the FASB and the

International Accounting Standards Board (IASB) to both improve U.S. Generally Accepted Accounting Principles (U. S. GAAP) and International Financial Reporting Standards (IFRS) and eliminate or minimize the differences between them.

As the FASB and the IASB complete their work on the last of their joint standard-setting projects iKi kunitially undertaken under the 2006 Memorandum of Understanding (MoU), that process will evolve to include cooperation and collaboration among a wider range of standard-setters around the world.

Moving forward, the FASB will continue to work on global accounting issues with the IASB through its membership in the Accounting Standards Advisory Forum (ASAF), a newly established advisory body comprising twelve standard setters from across the globe. For issues of primary interest to stakeholders in U. S. capital markets, the FASB will set its own agenda. As the FASB initiates its own new projects based on feedback from its stakeholders, it will reach out to all who have an interest in improving financial reporting for companies and investors that participate in U.S. capital markets, including U.S. capital market stakeholders who live and work outside the United States. Issues and prospects of the International Financial Reporting Standards (IFRS) in Nigeria however call for a background knowledge of IFRS, the theoretical foundation or basis on which it is based, empirical studies on financial reporting, definitions and components of IFRS Financial Statements, Nigeria‘s adoption and implication of IFRS together with the benefits and challenges of IFRS. According to Essien-Akpan (2011), as a result of increasing globalization and therefore competition, it becomes imperative that countries and companies alike address issues that will make them become more attractive of investors capital which is like the proverbial beautiful bride. Capital market trades (cross border listing) have gone global and a company can raise funds on several stock exchanges around the world. Information which is what IFRS is all about per say, provide a key to this. The goal of financial reporting is to make information available for decision-making. Diversity in financial reporting in different countries arises because of the differences in legal systems, tax systems and business structures. The IFRS is intended to harmonize this diversity by making information more comparable and easier for analysis, promoting efficient collaboration of resource and reduction in capital cost. Convergence from one system to another is always associated with some hitches; however, with the harmonization process that IFRS is carrying out, these hitches seem to be fizzling out gradually. We shall look out how, to some extent, they are been overcome. In doing this however, this paper is divided in sections – sections one to six. Section one: introduction – looking at the meaning of convergence as well as its evolutionary process, and general overview. Section two is the theoretical underpinning as well as literature reviews – highlighting some of the works done by several scholars. Section three deals with the prospects and challenges associated with convergence of standards to IFRS whilst section four specifically looks at the prospects and challenges peculiar to Nigeria in implementing and adopting the IFRS framework. Section five looks at some projects of convergence whilst section six concludes by highlighting some of the ways convergence and proper adoption of IFRS can add to economic development of a nation especially Nigeria.