Consistency between Firms in Various Countries in Keeping Standard Accounting Practices - Essay Example

Explain the Importance of Consistency between Firms in Various Countries in Keeping Standard Accounting Practices Table of Contents Table of Contents2 Introduction 2 Discussion 3 Role of Standard Accounting Practices in Keeping Consistency between Firms 4 Importance of Consistency between Firms in Various Countries in Keeping Standard Accounting Practices 5 Barriers or Challenges 6 Conclusion 6 References 8 Introduction The ‘International Accounting Standards’ (IAS) were mainly issued during the year 1973. These standards have the aim of ensuring the understanding persistent between the global countries for keeping consistency in terms of business affairs. Later, during the year 2001, the ‘International Accounting Standards Board’ (IASB) and ‘International Financial Reporting Standards’ (IFRSs) were introduced as a common platform based on which the global firms can follow and maintain the basic principles of standard accounting process in relation to cross-border business affairs (Sawani, n.d.). Most importantly, it can be affirmed that the significance of consistency between firms in varied nations in the context of keeping standard accounting practices lay in raising transparency of financial reporting procedure (Securities and Exchange Commission, 2008). With this concern, the prime intent of this essay intends to analyze and discuss the importance of consistency between firms in terms of standard accounting process relating to cross-border transactions. Moreover, appropriate examples will also be provided while elaborating the above stated aspect. Discussion Standard accounting practices are regarded as structured accounting processes that aid in measuring the financial position and status of an entity. The prime objective of preparing financial statements for any business organization is to make economic decisions more accurately. Based on the viewpoints of Holloway (2011), standard accounting practices assist business entities in keeping proper record of their respective assets, liabilities, income as well as expenses along with equity and cash flow among others (Holloway, 2011). According to the report published by Governance across Borders (2013), it can be ascertained that fair presentation is highly essential for ensuring rising transparency by keeping and following varied standard accounting practices. At the same time, it can be affirmed that faithful representation of transactions can also ensure greater consistency between firms in case of cross border business operations (Governance across Borders, 2013). Role of Standard Accounting Practices in Keeping Consistency between Firms According to the viewpoints of Ramanna & Sletten (2009), varied standard accounting practices such as IFRSs assist global nations as well as organizations to maintain fairness in the accounting transactions. At the same time, these practices ensure keeping consistency between firms by representing realistic figures of assets, liabilities, income and expenses of a firm during the conduct of business global operations. Moreover, it can be claimed that through the assistance of IFRSs, it is possible to prepare comparative information regarding the financial statement of a business as compared to earlier years. In this regard, Ramanna & Sletten (2009) asserted that the comparative information may assist business organizations to make effective decisions according to the needs of the situation. Moreover, standard accounting practices also assist business organizations to make use of their resources efficiently towards the accomplishment of their predetermined targets. In this regard, Holloway (2011) argued that standard accounting practices contribute in maintaining reliability of financial information and also ensure the validity of the accounting processes by varied ways. These ways can be apparently observed as depicting real market value as well as additional costs in the financial statements and making appropriate financial estimations among others (Holloway, 2011; Ramanna & Sletten, 2009). Importance of Consistency between Firms in Various Countries in Keeping Standard Accounting Practices In order to highlight the importance of consistency between firms in various countries in keeping standard accounting practices, it can be claimed that the global business organizations can understand varied international barriers in case of global trade operations by keeping aligned the accounting practices like IFRSs. For example, according to Garg (2012), adoption of IFRSs assists global organizations to prepare and represent financial statements in alignment with varied accounting policies. At the same time, incorporation of IFRSs also aids in determining the cost of inventories and closing stocks in an effective manner (Garg, 2012). This can be justified with reference to an example that the organizations of varied EU nations have incorporated IFRSs with the aim of enhancing the efficiency of their business operations in the global marketplace (The World Bank, 2004). According to Sawani (n.d.), financial regulatory systems of various nations throughout the globe are agreed on the incorporation of international standards with the aim of ensuring the benefits relating to international trade operations. In this regard, several countries have established an international regulatory framework with the aim of enhancing the validity of the standard accounting practices. In this regard, Garg (2012) claimed that in this contemporary era, several countries are following the standard accounting principles with the aim of creating an impact on the investors and stock market among others. At the same time, through the assistance of standard accounting principles, organizations are trying to ensure consistency as well as comparability in relation to global business affairs (Garg, 2012; Sawani, n.d). Barriers or Challenges In relation to the above discussed context, it can be apparently observed that standard accounting principles have created certain significant barriers in financial reporting process that eventually hinder the organizations to maintain reliability of their respective financial statements. Moreover, it can also be found that adoption of divergent standards often create difficulties in case of cross-border business operations. For example, a German automobile manufacturing company named Daimler-Benz faced such issue during the year 2013 in terms of having imbalances between operational costs, which further hindered the company to maintain reliability of its financial statements, resulting in hampering its consistency with varied operational procedures (Sawani, n.d). Accounting to Garg (2012) accounting policies norms are maintained and practiced by the organizations in several countries for ensuring better corporate governance. In this regard, it can be affirmed that due to the factors like political compulsion and high social expectation among others of the modern era have brought new challenges in the global marketplace (Garg, 2012). Conclusion Based on the above discussion, it can be asserted that the adoption and the execution of varied standard accounting practices like IFRSs have certainly raised the global character of business environment in terms of financial regulatory aspect. Moreover, these practices also increased the reliability and validity of the accounting processes in case of global business operations. Thus, in conclusion, it is to be affirmed that the above discussed accounting practices may aid the business organizations to keep greater level of consistency in case of conducting varied operational functions, resulting in attaining their respective predetermined targets at large. References Garg, R., 2012. Issues & Importance of Accounting Standards in Accounting Practices. Asian Journal of Multidimensional Research, Vol.1, Iss. 5, pp. 117-127. Governance across Borders, 2013. Measuring the “Adoption” of International Financial Reporting Standards (IFRSs). Home. [Online] Available at: http://governancexborders.com/2013/03/03/measuring-the-adoption-of-international-financial-reporting-standards-ifrss/#more-3404 [Accessed November 12, 2014]. Holloway, R., 2011. International Variations in IFRS Adoption and Practice. Certified Accountants Educational Trust (London), pp. 1-38. Ramanna, K. & Sletten, E., 2009. Why do countries adopt International Financial Reporting Standards? Working Paper, pp. 1-46. Sawani, A., No Date. The Changing Accounting Environment: International Accounting Standards and US implementation. Journal of Finance and Accountancy, pp. 1-9. Securities and Exchange Commission, 2008. Roadmap for the Potential Use of Financial Statements Prepared In Accordance With International Financial Reporting Standards by U.S. Issuers. Proposed Rule, pp. 1-165. The World Bank, 2004. Reports on the Observance of Standards and Codes (ROSC). Overview of the ROSC Accounting and Auditing Program, pp. 1-6. Read More