Because the international locations of the world proceed to turn out to be extra interconnected every day, rising globalization is inevitable. Their economies are tied collectively in an internet that can’t be undone. Regardless of this connection most international locations have their very own particular person set of accounting requirements. At the moment, it’s troublesome to match the monetary statements of an organization from one nation to these of one other. As globalization accelerates, the concept of harmonization between completely different international locations’ accounting methods turns into extra needed. Although it’s a advanced problem to assemble and implement a worldwide set of accounting requirements, there could be many benefits. A uniform accounting system would result in extra comparable monetary info, encourage worldwide funding and commerce, and reduce future financial crises.
The harmonization of accounting requirements would enable for the monetary statements of all corporations to be comparable. If each monetary assertion was calculated following the identical requirements, it could be simpler to match one company’s efficiency to any others. It might even be doable to match the monetary statements of a agency in a single nation to these of a agency throughout the globe. There could be no confusion for any of the assorted monetary statements customers as a result of they’d all be ready utilizing the identical requirements. The enactment of a harmonized set of accounting requirements would make the monetary statements of various international locations across the globe extra comparable.
Simply comparable monetary statements would assist to facilitate worldwide funding. Most people are solely acquainted with the monetary statements of their nation of residence. International monetary statements most frequently aren’t created following the identical accounting insurance policies. Although the knowledge they convey could seem comparable, one can not make a correct comparability as a result of the numbers weren’t calculated the identical approach. This will make worldwide funding a bit extra dangerous, and subsequently much less seemingly that the typical particular person will take part. If a common set of accounting requirements is into place, the move of capital throughout worldwide borders would enhance. Everybody, from multinational corporations to people, would simply be capable of evaluate the monetary statements of any corporations in any nation. Buyers could possibly be extra sure concerning the monetary well being of a overseas firm and would then be extra more likely to make investments.
Along with rising worldwide funding, harmonization would additionally impact worldwide commerce. At present, corporations usually select to purchase merchandise and pure assets from different international locations due to higher abundance or higher costs. But generally the worldwide marketplace for items and assets can result in disputes and rigidity. There are sometimes disagreements over pricing attributable to the utilization of various accounting practices to calculate prices. For instance, the lumber producers within the US have been submitting formal complaints towards Canadian lumber producers for a few years. They consider that the Canadian’s value of softwood timber is simply too low. This permits the Canadian lumber producers to supply their items at a extra aggressive worth, whereas nonetheless sustaining a worthwhile margin. A decrease value provides Canada an unfair benefit within the worldwide market. If a common accounting methodology for value was in place, each the US and Canada would calculate their prices the identical approach. There could be no cause to disagree, and the entire costs available on the market could possibly be extra precisely and pretty in contrast.
A common set of accounting requirements may assist to keep away from some potential future financial crises. Up to now, the shortcoming to totally comprehend the knowledge on overseas monetary statements has aided the event of monetary crises. One such disaster happened in Southeast Asia on the finish of the 1990’s. This disaster started when buyers believed the nation may not preserve its ranges of overseas funding and withdrew their cash. The flight of capital invested in Thailand facilitated an financial disaster. A contagion impact influenced buyers to take away their cash from different Southeast Asian international locations with comparable financial traits, together with Indonesia. Indonesia in addition to different Southeast Asian international locations fell into an financial disaster even though their monetary info indicated well being. If a common set of accounting requirements had been in place, there could by no means have been any unsustainable valuations in Thailand. Moreover, overseas buyers would have had extra confidence of their investments understanding the monetary info was correct. They may have made higher choices relating to their investments. Sooner or later, harmonization may assist to stop the sort of incidence
Globalization makes it needed for buyers and corporations to have entry to monetary info from corporations world wide. It might be useful to create and implement a set of common accounting requirements for each nation. Monetary info could be extra clear and simpler to know. Moreover, monetary statements of corporations in any nation could be simple to match. Harmonization would result in a rise in worldwide funding since buyers would have extra confidence in overseas monetary info. Worldwide commerce would even be affected, as common accounting procedures would restrict disputes. Lastly, future financial crises attributable to misinformation and confusion could possibly be prevented. Although the duty of harmonization are daunting, it’s evident {that a} common set of accounting requirements would have a number of advantages.
