Question

Some accountants are trying to harmonize international accounting standards. What does the term harmonize mean? The one in obtaining better results in the financial reports in the parent companies in the United States, U.S. parent company, which has many foreign investments?

Answer 1

Harmonisation is a process of increasing the compatibility of accounting practices by fixing the limits to their degree of variation. Harmonisation carries a wider meaning than standardization although it is sometimes being used inter changeably.

In a simplest way harmonisation means not only bringing out uniformity by reducing alternatives and differences in procedures by setting specific bounds, but embraces a blending and combining the elements of accounting practices of various countries into an orderly structure.

International flow of capital has given rise to the concept of global investors. On the other hand listing of foreign companies in domestic stock exchanges has given birth to the global integration of capital market. Global investors are interested in cross border financial reporting. Informational needs of global investors have compelled accounting professionals and institutes to work for harmonisation.

It has therefore, been a long felt need that companies world over communicate using a common accounting language. Country specific principles are so varied that the aspiration for a globally integrated capital market can be fulfilled only through a uniform financial reporting code.

For instance, the US, the U.K., Japan. Australia and the European Union should accept the same set of accounting standards, audit rules, disclosures and capital market regulations.