Question

What is the impact of international harmonization of accounting standards on those who prepare financial statements?

What is the impact on financial statement users?

Answer 1

IFRS began as an attempt to harmonize accounting across the European Union but the value of harmonization quickly made the concept attractive around the world. However, it has been debated whether or not de facto harmonization has occurred. Standards that were issued by IASC (the predecessor of IASB) are still within use today and go by the name International Accounting Standards(IAS), while standards issued by IASB are called IFRS. IAS were issued between 1973 and 2001 by the Board of the International Accounting Standards Committee (IASC).

Over the past few decades numerous organizations have been actively participating in the efforts to improve the comparability of financial reporting. Many studies have discussed the benefits and drawbacks of comparability. This study investigated the affect on the harmonization, or comparability, of accounting practices when a sample of companies choose to use international accounting standards (IASs) when preparing financial reports.

This study analyzed trends in the I index, a measure of concentration for the use of a particular accounting practice introduced by van der Tas, to determine if the choice of accounting methods by a sample of Swiss companies became more aligned with a sample of companies from three other countries. The study included a control sample of Swiss companies that did not switch from reporting using local Swiss standards during the same time period, 1988 through 1995. Four accounting practices were included; depreciation, inventory, financial statement cost basis, and consolidation practices. The practices used were compared with a sample of companies from three countries; Japan, the UK, and the US.

The results indicated that across the 8-year period, the majority of the I indices comparisons were positive and statistically significant. However, the results did not support that these increases were due primarily to the adoption of IASs.