The need for International Accounting Standards

There are several forces that are driving the need for international accounting standards. These forces include the ever increasing number of multinational corporations, as well as, the internationalization of the accounting discipline and profession. The financial market is multinational. World markets have grown dramatically over the past ten years. The commercial unification of European countries, the emergence of Japan as the country having the largest value of securities traded and the fall of communism in portions of Europe and Asia are causes and symptoms of increased globalization of the capital market place. There has been an explosive growth of cross border transactions and a rapid increase in companies trying to obtain capital in international markets, making international accounting issues a daily fact of life for people in business around the world.

Multinational Corporations have played a significant part in the transfer of accounting technology from one country to another. Currently, a great deal of world trade takes place within firms, as well as, between countries. A multinational firm raises capital where it is cheapest and usually produces goods where the costs are the lowest. Firms wishing to reduce their risk exposure and widen their choices of funding sources are taking advantage of opportunities provided in the global market place. It is not unusual to see statements of financial position reporting short term to intermediate term loans from several different countries. Firms competing for international resources such as debt funding, include domestic corporations, multinational corporations, foreign corporations and joint ventures. This poses many problems for lenders in attempting to evaluate alternatives across international boundaries. Multinational Corporations are obliged to satisfy many different requirements simultaneously in each country in which they operate. Accounting measurement rules and standards are currently not in sync with the needs and desires of worldwide Corporations. The accounting profession has recognized a need for harmonization , by trying to increase the compatibility of accounting practices around the world. Harmonization focuses upon limiting the degree of variation in accounting standards. This is particularly true due to the ever increasing role that specialization plays in accounting. The International Accounting Standards Committee is trying to harmonize accounting among all countries and all companies.