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The expansion of the global interactions especially in terms of the global market is what led to the need for the enactment of international standards. Therefore, the international standards are normally developed by global or international organizations in order to regulate the operations of various processes that are carried out internationally. International standards aim at bringing the global organizations at par in terms of their system operations.
This way, they help most of the nations to overcome the technical barriers that could hinder them from operating globally (Levitt, 1998, p.80). Among the various international standards that have been developed are the International Accounting Standards. These have come in handy to help most of the accountants and accounting firms overcome the transaction barriers that were there before the development of these standards.
This paper will therefore explore the development of the International Accounting Standards and look at their implementation in most of the countries. A list of the International Accounting Standards will also be provided in the paper as well as the role they play in the accounting world.
International Accounting Standards (IASs)
In 1973, the International Accounting Standards Committee promulgated the International Accounting Standards, which gave details and explanations of how various business transactions and other particulars were to be reflected in the financial statements prepared by enterprises.
Most of the business enterprises operating globally were required to comply with all the specifications of the IAS. Nevertheless, in 2001 the International Accounting Standards Board changed the International Accounting Standards to International Financial Reporting Standards (IFRS). Despite the change of name, they served the same function, which is to guide in the way companies and other business enterprise report various particulars in the financial statements.
The Functions of the International Financial Reporting Standards
Before a company from any country considers doing business outside its scope, which is in the global market, it has to put into consideration the restrictions that have imposed by the governments of their target countries. Most often than not, there are barriers that could hinder any business transactions between different countries.
It is because of this reason that the International Financial Reporting Standards were developed in order to harmonize the business operations within countries all over the globe (International Accounting Standards Board, 2007). As such, they ensure that there is increased transparency in reported financial standards since the reporting methods are similar as stipulated by in the IFRS. The development of these standards can be said to have created level grounds for the global businesses.
Examples of the International Accounting Standards
The list of the international accounting standards is almost endless since new standards keep on being created almost each day given the developments in the global business.
It is therefore the obligation of the business enterprises and companies to be on the lookout for any new standards in order to provide updated financial statements. Below is a list of the nine accounting standards that have to be strictly followed by any company that seeks to comply with the International Financial Reporting Standards in its accounting function. They include:
“IAS 1 – Presentation of financial statements
IAS 2 – Inventories
IAS 3 – Cash flow statements
IAS 8 – Accounting policies
IAS 10 – Events after the reporting period
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IAS 16 – Property, plant, and equipment
IAS 18 – Revenue
IAS 37 – Provisions and contingent liabilities
IAS 38 – Intangible assets” (Finch, 2008, p.3)
The aforementioned accounting standards form the baseline to be used by those enterprises wishing to be compliant to the International Accounting Standards in reporting their financial statements. However, it should be noted that even the accounting standards that have not been listed are equally important in reporting of financial statements.
Implementation of the Accounting Standards
To the surprise of many, the implementation of the IFRS was not as difficult as many thought since it was easily and quickly adopted by most nations. About 110 nations throughout the globe have incorporated the IFRS into their accounting systems either as a permitted accounting method or as an accounting requirement. Out of these, 85 countries now require that for any company to be listed domestically, it has to comply with the IFRS.
Despite the fact that most of the nations including Europe, India, Russia and Australia just to mention a few, have easily adopted the IFRS, the United States of America is on the compromise as it continually pushes for the US GAAP (Generally Accepted Accounting Practices) to becoming a universal standard. This has in turn led to debates to compare the US GAAP with the IFRS among other international accounting standards.
The reason behind this is that for a long time the United States of America has always wanted to control the international accounting standards or rather has a strong influence in the same. Nevertheless, the United States of America has in the recent past, showed signs of adopting the IFRS, which will act as a secondary system of accounting for those companies in the US that will prefer it.
All the same, the adoption of the IFRS by the United States of America is expected to bring about further debate on which of the two accounting systems (GAAP and IFRS) will be favorable to harmonize the global accounting practices (Harris, 1995).
With most of the countries not agreeing to the idea of the harmonization of the accounting standards, it is agreeable that the issue of harmonization would significantly affect the international standards. One such country is Vietnam, which has for a long time insisted that those wishing to do business with it have to comply with the Vietnam Accounting System (VAS).
However, in spite of being required to prepare the financial statements in Vietnamese language, most countries have complied with this requirement in order to do business with Vietnam. Nevertheless, it should be noted that there are several benefits that would come about as a result of the harmonization of the accounting standards (McGregor, 1999, p.162).
First, the information in the financial statements prepared using the harmonized accounting standards will be able to be understood by each person around the globe. Secondly, this will increase the level of transparency in the business transactions hence ensuring the success of the global market.
From the above discussion it can be clearly concluded that the International Accounting Standards among other international standards of great significance in the global operations. This is because in addition to making people understand the reported financial statements, they also ensure a high level of transparency in the global business transactions.
One such important international accounting standard discussed above is the International Financial Reporting Standards, which have been adopted by most of the countries around the globe because of the major role they play in enhancing cross-border business transactions.
Finch, C. (2008). A student’s guide to International Financial Reporting Standards. Wokingham: Kaplan Publishing.
Harris, T. (1995). International Accounting Standards versus US-GAAP reporting: Empirical Evidence based on Case Studies. Cincinnati (OH): International Thomson Press.
International Accounting Standards Board. (2007). International Financial Reporting Standards 2007 (including International Accounting Standards (IAS(tm)) and Interpretations as at 1 January 2007). Dayton: LexisNexis.
Levitt, A. (1998). The Importance of High Quality Accounting Standards. Accounting Horizons, 12(1), 79-82.
McGregor, W. (1999). An Insider’s View of the Current State and Future Direction of International Accounting Standard Setting. Accounting Horizons 13(2), 159-168.