All Companies Involved In International Flows Of Capital Must Harmonization: Is It a Global or an International Thing?

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Harmonization: Is It a Global or an International Thing?

Accounting in today’s world requires harmony. Harmony falls under the concept of international convergence. As noted on the Financial Accounting Standards Board’s website, convergence first emerged in the late 1950s in response to post-WWII economic integration and the associated increase in cross-border capital flows. According to fasb.org harmonization is defined as the reduction of differences in accounting principles used in major capital markets around the world. By the 1990s the definition of harmony was replaced by the concept of convergence; which is at least the development of a unified set of high-quality, international accounting standards used in all major capital markets. Harmonization is related to globalization because globalization has a direct impact on harmony. As published in The International Journal of Accounting, Emmanuel N. of Sacred Heart University and University of Warwick. Emenionu and Sidney J. According to Gray, the International Accounting Standards Committee (IASC) was established in recognition of the problems caused by international accounting diversity. . The leading professional accountancy bodies in Australia, Canada, France, Germany, Japan, Mexico, the Netherlands, the UK and the US came together to form this national committee in 1973. It was an attempt to promote the harmonization of international accounting practices. In 2001 the IASC was reorganized and became an independent international standard setter known as the International Accounting Standards Board (IASB). More recently more than 100 countries and the European Union have either required the use of International Financial Reporting Standards, also known as IFRS, issued by the IASB, or their local version.

Since 2002 the FASB and IASB have been working to innovate and converge US Generally Accepted Accounting Principles (GAAP) and IFRS. As of 2013, Japan and China were working towards integrating their standards with IFRS. The Securities and Exchange Commission (SEC) also supports the convergence of global accounting standards. The final step is to incorporate IFRS into the US financial reporting system. As difficult as different nations may find trying to follow the same accounting procedures, the IASC does not work alone. The United Nations and the European Union are two of the few agencies involved in this process. The IASC is the only body that assumes major responsibility for promoting international accounting harmonization at the global level. Emanuel and Sidney also note that France, Germany, Japan, the UK and the US have become more harmonized since the 1970s, reducing differences in accounting policies and practices internationally.

Harmonization also affects small local businesses across the country. In an article titled “How Accounting Practices Can Support the Globalization of Small Business” by Paul Thompson, Director of Global Accountancy Profession Support, he cites a survey of US accounting firms. The survey, conducted by the American Institute of CPAs Private Companies Practice Section, stated that 79% of respondents indicated they expect international growth in the next five years. With international growth you must follow international guidelines. Small businesses are a key aspect of the global economy. According to the Organization for Economic Co-operation and Development, small businesses account for the majority of private sector employment and GDP, as well as new jobs.

Basically small businesses provide a large number of jobs for the working class and are a great source of entrepreneurship. Many small businesses today manufacture products and provide services in multiple countries; It also sells products to customers worldwide. Small businesses are starting to mirror what big businesses have been doing for years. A report by the Edinburgh Group entitled “Growing the Global Economy through SMEs” revealed a large scale of international activity from small businesses. About 75% of small businesses surveyed have clients that add some sort of international aspect to their business. This includes buying goods or services abroad. Another 64% of small businesses reported selling goods or services to customers outside the US in 2013. This is a 12% increase over 2010, according to the National Small Business Association “Small Business Exporting Survey.”

Obviously, harmonization has played an important role in the evolution of accounting. This is very important when dealing with globalization or international accounting and its impact on how businesses work together. Businesses and large corporations around the world are gradually harmonizing, operating under common guidelines based on IFRS and GAAP. It’s interesting to see how fast the business world is moving and the direction it’s headed. It is safe to say that soon the majority of the world’s companies will all be united and working to improve the economies of their home countries.

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