2.2 HARMONIZATION OF INTERNATIONAL
ACCOUNTING STANDARDS
2.2.1
What Is Accounting Harmonization
Different authors have defined accounting harmonization in
different ways. It is presumably not an easy word to define, as neither the
European Commission nor other organs of the commission have explicitly defined
the concept of accounting harmonization (Christopher Nobes, 1992). Some have
even complicated the whole concept, by attempting to substitute harmonization
with standardization, implying making the process the same, rather than making
it more compatible. In practice, harmonization of accounting tends to mean the
process of increasing the compatibility of accounting practices by setting
bounds for the degree of variations (Nobes, 1992). This, in our opinion, is
presumed to be the most appropriate definition of the concept.
2.2.2
Accounting Areas With Differing Accounting Policies
Though analysts sometimes argue that it is necessary to
provide disaggregated information in all financial reporting, some are been of
the view that it is necessary to concentrate on such accounting areas where
users need such disaggregated information. Companies are exposed to different
accounting policies in the preparation of their financial statements. In this
section, we try to highlight some accounting areas where different accounting
policies used may have an impact on the financial results.
According to the Statement of Accounting Standards (SAS1)
published by the institute of chartered accountants of India, the following are
accounting areas where differing accounting policies can be applied by
different enterprises leading to different results.
· Methods of depreciation, depletion and amortization.
· Treatment of expenditure during construction.
· Conversion or translation of foreign currency.
· Valuation of inventories.
· Treatment of goodwill.
· Valuation of investments
· Treatment of retirement benefits
· Recognition of profits on long-term contracts.
· Valuation of fixed assets
· Treatment of contingent liabilities.
Another significant area that has been left out is the
treatment of cash flow. Cash flow statements have been one of the areas of
accounting with significant differences in reporting practices. It is becoming
recognized as an important and integral part of the consolidated financial
statement (Radebaugh and gray-1997). It shows the inflow and outflow of funds
from various items. Analysts have argued that the statement merely provides an
insight into the financial position stability and the liquidity prospects of
multinationals, but other schools have argued that for a risk analyst
perspective, it is necessary to know the geographical location of the sources
and uses of funds. Standards proposed by certain bodies have shown significant
differences and variations in regulatory postures on almost every aspect of
cash flow. Wallace, et al (1997) argue that the quest for international
harmonization of reporting practices cannot be as easy as looking at a cash
flow statement, where you identify different ways of categorizing cash flows,
alternative formats of presenting cash flows from operating activities and just
many other differences. In addition, several issues Such as: the bad debts
provision; valuing marketable securities; and the treatment of long-term
contracts, can be considered spicific and given particular treatment.
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