Harmonization in accounting standard refers to the practice of setting accounting standards which will be followed by different companies in different countries. It increases comparison between the companies by limiting the variation in the standards followed. To explain: The advantages and disadvantages of harmonizing accounting standards.

Question

Want to see more full solutions like this?

Answer 1

Question

Chapter 3, Problem 3.1C

To determine

Introduction:Harmonization in accounting standard refers to the practice of setting accounting standards which will be followed by different companies in different countries. It increases comparison between the companies by limiting the variation in the standards followed.

To explain: The advantages and disadvantages of harmonizing accounting standards.

Expert Solution & Answer

Explanation of Solution

The advantages of harmonization in accounting standard is as follows:

Comparability: With the harmonization, all the companies will follow the same standards. It will help in easy comparison between the financial statements of different companies.

Reduce reporting costs: With harmonization in accounting, the parent company can prepare a combined financial statement of all its subsidiary companies. The parent company need not prepare different books of according for different country’s laws. It will reduce the reporting costs of the parent company.

International credibility: With the harmonization in accounting standards, the investors of one country can easily interpret the financial performance of other country’s companies. They can invest in different countries. It will lead to international credibility.

The disadvantages of harmonization in accounting standard is as follows:

Integration problem: Many countries have different laws for taxation purpose reporting and different laws for regulatory reporting. It will create problem in the integration of standards.

Negative effect on small business: The small business will have to apply new standards. It will increase the cost of training of accountants and preparation of financial statements according to set standards which will increase their cost of reporting.

International sovereignty issue: The different countries have different authorities for setting accounting standards, banking laws and taxation laws. It will create a problem in harmonization of accounting standards.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Students have asked these similar questions

Assume that the FASB is considering revising an important accounting standard.Required:1. What constraint applies to the FASB’s consideration of whether to require companies to provide new information?2. In what Concepts Statement is that constraint discussed?3. What are some of the possible costs that could result from a revision of an accounting standard?4. What does the FASB do in order to assess possible benefits and costs of a proposed revision of an accounting standard?

3. What are the advantages of rules-based standards? 4. Do you think that future international accounting standards will need to be more principlesbased or more rules-based? Many outside the United States claim that a problem with U.S. GAAP is that there are too many rules. They argue for principles-based accounting standards in which the broad principles of accounting are emphasized and less emphasis is placed on detailed implementation rules. Americans counter that IFRS may lack quality and rigor. Additional rules are necessary to provide adequate guidance to users.

Which of the following is not about harmonization? Select one: a. Harmonization is a process of increasing the compatibility of accounting practices. b. Harmonization simply implies uniformity. A c. Harmonization is tailored towards breaking the barriers of national differences. d. Harmonization is a process of preparing financial statements.

Answer 2