practices either regionally or internationally. The most important players in this efforts ware European Union (regionally) and the International Accounting Standards Committee (IASC) (now IASB) (Internationally). He International Organization of Security of Commissions (IOSCO) and the International Federation of Accountants (IFAC) contributed significantly to the harmonization efforts at the international level” (Doupnik and Perera, 2009, page 72)
According to Wolk et al., 2001, development of international trade and capital flows has increased a rising economic integration. However, that each country has different customs, different practices while the lack of similar Accounting Standards led among other things to problems in comparing financial data (Hill, 1999). Hence, international companies, financial analysts, several international organizations as well as other actors effort to achieve a harmonization of Accounting Standards. Doupnik and Perera in their book “The most important players in this efforts ware European Union (regionally) and the International Accounting Standards Committee (IASC) (now IASB) (Internationally). The International Organization of Security of Commissions (IOSCO) and the International Federation of Accountants (IFAC) contributed significantly to the harmonization efforts at the international level” (Doupnik and Perera, 2009, page 72)
In the study of Susanne Fritz and Christina Lammle about The International Harmonization Process of Accounting Standards, based on secondary data from textbooks articles and homepages, they have clarified what is the international harmonization process of Accounting Standards and how important are some organizations with their efforts to achieve the harmonization in it. Susanne Fritz and Christina Lammle also quoted many relevant arguments from relevant academic literatures to illustrate their purpose of this literature. And as concerned by Doupnik and Perera, 2009, page 72, the most important players in this efforts ware European Union (regionally) and the International Accounting Standards Committee (IASC) (now IASB) (Internationally).
Firstly, before clarifying their importance of harmonization, we will argue about history and objectives of organizations (EU and IASC).
In the section 4.3 of Susanne Fritz and Christina Lammle literature, they introduced some information about IASC. IASC (The International Accounting Standards Committee) is an independent private body with the objectives as the uniformity in accounting principles between enterprises and other organizations to be observed in the presentation financial statements and to promote their world acceptance and observance. Furthermore, the other purpose is to work generally for the improvement and harmonization of regulations, accounting standards, and procedures relating to the presentation of financial statements.
In 1966, the professional bodies of some countries such as Canada, UK and US examines their differences in accounting practices at the Accountants’ International Study Group (AISG).
In Sydney in 1972, the discussions towards setting to the IASC were held at meetings arranged in the margins of the Congress in Sydney.
One year later, UK joined the Common Market (later EU). But there is draft Fourth Directive that had unsatisfied rules for both UK and European subsidiaries (Olson, 1982 page 226). Hence, The ISAC was founded in 1973 including accountancy bodies of nine countries: Australia, Canada, France, Japan, Mexico, the Netherlands, the United Kingdom with Ireland, US and West Germany.
Until 1983, IASC includes all members of the International Federation of Accountants (IFAC) which concentrates on matters as auditing, management accounting, and the International Congress of Accountants. The membership of IASC was with over 122 accountancy bodies from 91 countries BY January 1998. As operation system, IASC is controlled and operated the Board including international congress of accountants of all members appointed by IFAC. This Board comprises 13 countries as Australia, Canada, France, Germany, India, Japan, Malaysia, Mexico, The Netherland, South Africa, UK, US and Scandinavia. By 1998, IASC launched 34 International Accounting Standards (IAS)
The ISAC operated successfully by the International Accounting Standards Committee Foundation (IASCF) whose operating arm is the IASB until 2001.
Based on another literature, Susanne Fritz and Christina Lammle also quoted the IASB is the driving force actor in the International Harmonization of Accounting Standards (Choi et al., 2002). The IASC Foundation develops, in public interest, world-wide Accounting Standards for financial statements. (IASB, 2002 a) The compliance with the standards of the IASB is voluntary, since it has no power to enforce them (Mueller etal., 1991). The work of IASB is funded by contributions from Accounting firms, private financial institutions, companies, banks and other organizations (IASC, 2002 a) (Susanne Fritz and Christina Lammle, 2003, page 36). We can understand that the main objectives of IASB is to develop an International Accounting Standards set with a high quality and the uniformity of global accounting standards and requiring transparent and comparable information in the financial statements. To achieve these objectives, IASB must coordinate with local accounting Standard Organizations for the convergence of International Accounting Standard. IASB has totally 14 members with operation expenses paid by International Accounting Committee Foundation (IASC Foundation)
Concerning about European Union, Susanne Fritz and Christina Lammle stated Article 1 of The Treaty of Rome in 1957, the establishment of the European Union began as called European Economic Community (EEC). The Article 2 of this Treaty also concerned about EU’s objectives as establishing a common market and progressively approximating the economic policies of Member States, to promote throughout the Community a harmonious development of economic activities, a continuous and balanced expansion, an increase in stability, an accelerated raising of the standard of living and closer relations between the States belonging to it (Article 2, The Treaty of Rome 1957, page 4). Initially, EU was formed from 6 European countries as Belgium, Luxembourg, Italy, Germany, France and the Netherlands. By 1995, there are 9 additional countries joining the European Union Austria, Denmark, Finland, Greece, Ireland, Portugal, Sweden, Spain, and the United Kingdom with the similar characters such as economics traits, living standards and wealthy industries.
After this literature, based on Susanne Fritz and Christina Lammle’s arguments, we can summarize the region and scope where each organization operates as followed table
Another concern of this literature of Susanne Fritz and Christina Lammle is the motives of harmonization Accounting Standards of EU and IASC. In the introduction section of this literature, Susanne Fritz and Christina Lammle raise their question “Does Accounting have an international Dimension?” “Which language does Accounting speak?” They answered by themselves by quoting some literature result of definition, function, language of Accounting. They point out that Accounting is as “the tool to aid in measuring economic activity” (Eprtein and Mirza, 2001, page 1). Also the function of Accounting was clarified as the tool “To provide information about economic entities that are important for economic decisions” (Kam, 1990). Continually concerning about the language of Accounting, they conclude that “it must be an international speak”. Their explanation for this argument is by analyzing the background and reality of international business which no longer ends at domestic borders with the growth in international trade and capital flows all over the world. With the changes of international business, they also gave their points as International enterprises are confronted with the problem that Accounting rules differ around the world, the variety of Accounting rules is that not all financial statements or Accounting Standards are accepted at all stock exchange (Susanne Fritz and Christina Lammle, 2003, page 2)
As the summary of harmonization motives of EU and IASC, Susanne Fritz and Christina Lammle state that “In the last year’s international companies, financial analysts, and several international organizations as for example the International Accounting Standard Board (UASB) and other actors have put efforts in order to achieve a harmonization of Accounting Standards. The aim of those was to avoid diversity of financial statements, to reduce extra costs, arising from drawing up different statements, and to win foreign investors (Epstein and Mira, 2001) (Susanne Fritz and Christina Lammle, 2003, page 2)
From the view of this we can summarize important agreements related to EU and IASB as below
The third point which Susanne Fritz and Christina Lammle have concerned in their literature is the challenges of EU and IASC when working towards harmonizing accounting practices.
Susanne Fritz and Christina Lammle’s argument is so interesting and challenging when concerning about the first challenge which the IASB has to overcome is the differences between countries about Accounting Philosophies. According to Naciri and Hoarau 2001, the result of harmonization could neither be a copy of Anglo-American nor one of the Continental European Model because Anglo-American is very difficult to comply in most countries while Continental European countries, Accounting Professionals haven’t had any responsibility on setting any Accounting Standard. But in reality, Anglo-American is much more influential in the standard-setting process because of the close relationship of IASC to philosophies of the Anglo – America Model. As I concerned in the history of IASC, it was formed in 1973 from Canada, the US and UK to prevent the Accounting Philosophies of Continental – European Model gain too much power (Dörner and Wollmert, 1995). For further aspect, IASC also gave its efforts in considering the members of IASB (Board) and the Trustees in order that both Americans and other countries influence the IASC Foundation. A fair presentation of the Anglo – America and Continental – European Trustees with the ratio is 13:06. About Board Members, there are totally 14 members including 4 members from US, all other countries are only represented with one member, except from US which is represented with 4 members. That means only 4 of 14 members come from European. In summary, 13 Trustees and 10 Board Members from Anglo – America compared with 6 Trustees and 4 Board members from European is not fair presentation. Hence, the best way of resolving this problem is to combine the different philosophies as well as to develop an International Accounting Standards (Naciri and Hoarau, 2001). And learning from Kleekämper et al., one of the future tasks of the IASC is to minimize differences between Accounting Standards (between IAS A and U.S – GAAP). But to achieve this task and to have a harmonized global set of Accounting Standards, all participants in IASC must accept changes to their old system (Susanne Fritz and Christina Lammle, 2003, page 53 – 54)
Another major challenge is the interpretation and supervision of IAS/IFAS is also thing to write an Accounting Standard (Susanne Fritz and Christina Lammle, 2003, page 56 – 57). “It is one thing to write an Accounting Standard. It is quite another thing to have to interpret it and apply the guidance in the standards to the billions of actual transactions that occur in the business world. This is especially true if the standards provide broad general principles (Turner, 2001, page 13). As the interpretation process, first, the standards would be interpreted by IFRIC, then by SEC. This process must guarantee and assure investors protection and effective functioning of the capital market. From here, we can see another challenge for the IASC which way or how they can make IAS interpreted effectively and globally uniform. Learning from the idea of Turner 2001, the IASC has invested into supportive infrastructure with high quality accounting and auditing standard – setters, active regulatory oversight and quality controls in audit firms.
The third argument of challenges of IASC is on the aims of IASC (Susanne Fritz and Christina Lammle, 2003, page 57 – 58). It means The IASC aims to develop the single – set of global Accounting Standard with the application of IAS. But in reality, there are some premature terms of this standard set such as:
- Some countries using IAS at the moment cannot access to American market
- Even though, IAS is permitted by many countries after Australia and Canada accepted to use this standard set and is considered a big step further to achieve its goal, there are some Asian countries (Korea, Japan, Malaysia, Singapore or Indonesia) and South American countries (Argentina, Brazil, Chile, Columbia or Mexico) not accepted IAS and they are also accepted in African nations (Burkina Faso or Ghana). Furthermore, IASC’s goal is to converge national Accounting Standard with International Accounting Standards, but until now, this goal is very challenge to bring all opinions into one standard setter.
IASC seems to be the most important players in International Accounting Standard Harmonization Process, but EU is the organization supporting for this process (Susanne Fritz and Christina Lammle, 2003, page 59). Hence, in the harmonization process, EU also faced to many challenges such as the fundamental differences between the creditor/secrecy in the traditional Franco-German systems and the investor/disclosure in the Anglo-Dutch systems; and between the law/tax based rules and professionally set standard.
IASC’s facing to challenges and getting some successes are supported by 2 organizations such as IOSCO and IFAC. In the late 1980s, IOSCO and the IASC reached an agreement in improving IASC’s standards. Then, IOSCO would consider recommending them to all their exchanges. Since 1990s, IOSCO can join in the meeting Board as official observers. Until 2000, IOSCO has endorsed IASC’s standards (Susanne Fritz and Christina Lammle, 2003, page 51). The relationship between IASC and IFAC is concerned in the final achievement of IASC of part 4 as bellowed.
The final shortcoming of literature concerned by Susanne Fritz and Christina Lammle is the achievements of EU and IASC in the harmonization process of Accounting Standards.
Always keep its goal and always overcome challenges, IASC has got some achievements as detailed
Susanne Fritz and Christina Lammle concerned the first and the largest achivement is that IASC has so far developed 33 Accounting Standards which is used in many countries on the rather broad level (Susanne Fritz and Christina Lammle, 2003, page 50). We can easily find out its benefits such as encouraging countries without Accounting Standards to use IAS and to eliminate differences to IAS; the use of some countries in preparing their financial statements (Even though there are a few countries not having accepted this IAS, with the regulation of EU, it will be accepted in 15 countries and all countries using IAS will come to reality.
Secondly, as IASB 2002 concerns that The IASB Constitution envisages a “partnership” between IASB and national bodies as they work together to achieve the convergence of Accounting Standards world-wide. Truthfully, the IASC has some approaches to work close together with national standard-setters (NSS) such as having 8 NSS represented in the Board of IASC Foundation and actively taking part in the announcing and revising of International Standards; having SAC with the capacity of inviting another partners to join in the process (Susanne Fritz and Christina Lammle, 2003, page 51)
Thirdly, IASC also received IOSCO endorsement. As explained, IASC has the character of recommendations. Then IASC always needs the supports of another organization. And this was done by IOSCO Endorsement in 2000 in allowing MNCs to use IAS (Susanne Fritz and Christina Lammle, 2003, page 51)
Fourthly, IASC’s success is that The EU has required all listed European companies to prepare their financial statement in accordance with IAS since 2005. It means The U.S.-GAAP have been accepted without reconciliation in Europe. European companies in contrary could only be listed on American stock exchanges with a full preparation of financial statements according to U.S.-GAAP, or according to IAS with reconciliation to U.S.-GAAP (Susanne Fritz and Christina Lammle, 2003, page 52)
Finally, the cooperation of IASB and FASB is the breakthrough of the acceptance of IAS as setting the single set of global accounting rules since 2002 (Susanne Fritz and Christina Lammle, 2003, page 53)
Concerning about the achievements of EU in the process of International Accounting Standard harmonization, EU has got the harmonization through two instruments which are directives and regulations. All listed European companies must incorporate directives (fourth and seventh directives) into their laws while towards EU regulations, they don’t need to pass them through national legislatures.
In summary, while Susanne Fritz and Christina Lammle’s literature is an interesting and useful at least the extract I read, it does offer many points related to International Harmonization Process of Accounting Standards, especially the motives, the challenges of EU and IASC as well as other organizations like IOSCO and IFAC, the valuable achievements for harmonizing Accounting Standards. Moreover, this literature also involved personal ideas and further suggestions of international harmonization of Accounting Practices. Hence, exactly when saying that this literature is the exciting summary full of information which is necessary for International Accounting Practices Researchers.
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