Should Accounting Rules be Global - Essay Example

The multinational companies have been required following the systems and accounting standards followed in the various economies of their operation for the preparation and reporting of financial statements. The companies have also faced difficulties in explaining their financial position to the investors due to the difference in the accounting systems in different countries that reflects various financial situations of the business (Basu, 1997). A globalized accounting system requires the establishment of harmonious accounting standards such as International Financial Reporting Standards (IFRS) that can help the users of accounting information to apply the same rule during preparation and interpretation of the accounting information.

Various companies have gradually engaged in the establishment of "accounting standards that can be applied in more than one country" (Heidhues & Patel, 2012, p. 39). Some of the factors that influence the accounting system of the economy could be broadly categorized under the country’s historical origin, socio-economic demands, culture, institutional environment and many non-accounting factors such as values and beliefs (Gaffikin, 2007). These factors are different for every country. Also, the accounting systems of the countries vary from one another.

The recent cause of suggestion for establishment of uniform accounting standards has been the expansion of businesses into the international economies (Gaffikin, 2007, p. 3). Having uniform global accounting standards will help businesses to compete effectively and compare the performances of affiliate businesses across the globe using standard information. The variation of accounting standards has affected number of sectors of the economy that require harmonization of accounting standards to make them operate smoothly (Zimmerman & Werner, 2013, p. 117). The operation of capital markets is affected by accounting principles since