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Harmonization is vital for accounting in today’s world. Harmonization falls under the concept of international convergence. As mentioned on the Financial Accounting Standards Board website, convergence first occurred in the late 1950s in response to post-World War II economic integration and related increases in capital flows. cross-border capital. According to fasb.org, harmonization is described as reducing differences between accounting principles used in major capital markets around the world. In the 1990s, the definition of harmonization was replaced by the concept of convergence; which is the development of a unified set of high-quality international accounting standards that would be used in at least all major capital markets. Harmonization is related to globalization because globalization has a direct effect on harmonization. According to Emmanuel N. Emenyonu and Sidney J. Gray of Sacred Heart University and the University of Warwick, as published in The International Journal of Accounting, the International Accounting Standards Committee (IASC) was established in recognition of the problems that raises international accounting diversity. . The major professional accounting bodies from Australia, Canada, France, Germany, Japan, Mexico, the Netherlands, the UK, and the US came together to form this national committee in 1973. This was an attempt to promote 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 require or allow the use of international financial reporting standards, also known as IFRS, issued by the IASB or a local variant thereof.
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 to converge their standards with IFRS. Even the Securities and Exchange Commission (SEC) supports the convergence of global accounting standards. The final step is to incorporate IFRS into the US financial information system. As difficult as trying to get different countries to follow the same accounting procedures may seem, the IASC is not working alone. The United Nations and the European Union are two of the few agencies that are also involved in this process. The IASC is the only organization that claims primary responsibility for promoting international accounting harmonization worldwide. Emmanuel and Sidney also mentioned that since 1970 France, Germany, Japan, the UK, and the US have become more harmonized, reducing differences in accounting policies and practices internationally.
Harmonization even affects the smallest local businesses across the country. In an article titled “How Accounting Practices Can Support Small Business Globalization” by Paul Thompson, director of Global Accountancy Profession Support, he mentions a survey of US accounting firms. This survey was conducted by the Private Business Practice Section of the American Institute of CPAs, which indicated that 79% of respondents indicated that they anticipated international growth in the next five years. With international growth, you must meet 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 an unusually large share of new jobs.
Basically, small businesses provide a lot of jobs for the working class and are a great source of entrepreneurship. Today, many small companies manufacture products and provide services in many countries; as well as sell products to customers around the world. Small businesses are starting to mirror what big companies have been doing for years. In a report by the Edinburgh group titled “Growing the global economy through SMEs,” the data revealed a large amount of international activity by small businesses. Around 75% of the small businesses surveyed have clients who add some kind of international aspect to their business. This includes the purchase of goods or services abroad. Another 64% of small businesses reported that they sold goods or services to customers outside the US in 2013. This is a 12% increase from 2010, according to the National Association of Small Business Export Survey. Small companies.
Obviously, Harmonization has played a key role in the evolution of accounting. It is very important when it comes to globalization or international accounting, and it influences how companies work together. Businesses and large corporations around the world have slowly started to harmonize, working under similar guidelines based on IFRS and GAAP. It is fascinating to see how fast the business world is moving and the direction in which it is headed. It is safe to say that very soon most of the world’s leading companies will be harmonized and working to improve the economy of their home countries.