As the international locations of the world proceed to grow to be extra interconnected every day, rising globalization is inevitable. Their economies are tied collectively in an internet that can not be undone. Despite this connection most international locations have their very own particular person set of accounting requirements. Currently, it’s tough to match the monetary statements of an organization from one nation to these of one other. As globalization accelerates, the thought of harmonization between totally different international locations’ accounting techniques turns into extra mandatory. Though it’s a complicated problem to assemble and implement a worldwide set of accounting requirements, there can be many benefits. A uniform accounting system would result in extra comparable monetary info, encourage worldwide funding and commerce, and decrease future financial crises.
The harmonization of accounting requirements would enable for the monetary statements of all firms 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 would even be attainable to match the monetary statements of a agency in a single nation to these of a agency throughout the globe. There can be no confusion for any of the assorted monetary statements customers as a result of they might all be ready utilizing the identical requirements. The enactment of a harmonized set of accounting requirements would make the monetary statements of totally different international locations across the globe extra comparable.
Easily comparable monetary statements would assist to facilitate worldwide funding. Most people are solely accustomed to the monetary statements of their nation of residence. Foreign monetary statements most frequently aren’t created following the identical accounting insurance policies. Though the data they convey might seem comparable, one can not make a correct comparability as a result of the numbers weren’t calculated the identical approach. This could make worldwide funding a bit extra dangerous, and subsequently much less possible that the typical particular person will take part. If a common set of accounting requirements is into place, the circulation of capital throughout worldwide borders would improve. Everyone, from multinational companies to people, would simply be capable of evaluate the monetary statements of any companies in any nation. Investors could possibly be extra sure in regards to the monetary well being of a overseas firm and would then be extra prone to make investments.
In addition to rising worldwide funding, harmonization would additionally impact worldwide commerce. Today, companies usually select to purchase merchandise and pure sources from different international locations as a result of of larger abundance or higher costs. Yet generally the worldwide marketplace for items and sources can result in disputes and rigidity. There are sometimes disagreements over pricing brought on by the utilization of totally different accounting practices to calculate prices. For instance, the lumber producers within the US have been submitting formal complaints in opposition to Canadian lumber producers for a few years. They consider that the Canadian’s price of softwood timber is just 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 price offers Canada an unfair benefit within the worldwide market. If a common accounting methodology for price was in place, each the US and Canada would calculate their prices the identical approach. There can be no motive to disagree, and all of the 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. In the previous, the lack to totally comprehend the data on overseas monetary statements has aided the event of monetary crises. One such disaster occurred in Southeast Asia on the finish of the 1990’s. This disaster started when buyers believed the nation may not keep 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 supposing their monetary info indicated well being. If a common set of accounting requirements had been in place, there might by no means have been any unsustainable valuations in Thailand. Additionally, overseas buyers would have had extra confidence of their investments understanding the monetary info was correct. They may have made higher selections relating to their investments. In the long run, harmonization may assist to stop this kind of prevalence
Globalization makes it mandatory for buyers and companies to have entry to monetary info from firms all over the world. It can be useful to create and implement a set of common accounting requirements for each nation. Financial info can be extra clear and simpler to grasp. Additionally, monetary statements of companies in any nation can be straightforward to match. Harmonization would result in a rise in worldwide funding since buyers would have extra confidence in overseas monetary info. International commerce would even be affected, as common accounting procedures would restrict disputes. Finally, future financial crises because of misinformation and confusion could possibly be prevented. Though the duty of harmonization are daunting, it’s evident {that a} common set of accounting requirements would have a number of advantages.