Question

what are the main obstacles to global accounting harmonization? in your opinion are they likely to be overcome in the near future?

Answer 1

The main obstacles to global accounting harminization are as follows:

a. First, there is a wide divergence in the accounting practices followed in different parts of the world.

b. The legal and regulatory framework differs from country to country. The legal environment of each country has a strong bearing on the accounting and reporting practices. Therefore, unless there is complete harminization in the legal systems ( both statute and common law) across the world, global accounting harmonization would remain only partial. The taxation laws of each country also need to be aligned with IFRS,which, practically is very difficult, as these laws would depend to a large extent on the respective economic and social backgrounds.

c. The purpose of financial reporting also varies among geographies. While the target audience for financial reporting in the US are the investors, reporting in the European countries has mainly the creditors and the regulatory authorities in mind .

d. Another hurdle is the economic disparity between developed and developing nations, as adoption or convergence necessary for global harminization is a costly process.

e. Lack of skilled professionals to implement harmonization is also a cause of disruption in the convergence process.

f. Too many international bodies involved in the process also leads to its own share of difficulties, i.e the IASB, OECD and the UN.

g. The corporate sector is reluctant to comply because of an innate resistance to change, cumbersome transitional provisions, and the high cost involved.

In my opinion, it is very difficult to acheive complete harmonization in the near foreseeable future, as the major obstacles of economic and social disparity between developed and underdeveloped nations are not likely to go away in a hurry, and accordingly, differing tax laws will continue to prevail. The ground reality is that, in such a situation, the given task might take much longer than originally anticipated.