International Federation

of accountants (IFAC)
Other Non-Accounting
Bodies

AISG, G4+1 and The

National StandardsSetter

OTHER INTERNATIONAL
BODIES

European Union

Other regional Bodies

IOSCO

Federation Des Experts

Comptables Europeens
(FEE) and EFRAG

DIRECTIVES AND REGULATIONS

THE FOURTH DIRECTIVE

. The EU attempted to harmonize through two

main instruments which are

. First draft was published in 1971, before the UK,

Ireland and Denmark had ented the EU in 1973.

REASONS FOR EU HARMONIZATION

. EU was established 1 jan 1958 following the Treaty of Rome

of 1957.

. EU was dominated France and West Germany

. The entry of other countries has not had so much effect
on the content of harmonizing Directives and
Regulations, but has presented several member states
with difficulties of implimentation.
. The drive of harmonization of accounting and financial
reporting derived initially from Treaty of Rome.
. More specifically, the common industrial Policy of
1970 called for the creation of a unified business
environment, including harmonization of company law
and taxation, and a creation of a common capital market.
. In the end this objective led to the Regulations of
2002 that imposed IFRS for the consolidated statements
of listed companies

Directives, must be incorporated into the

laws of member states.
Regulations, become law throughout the
EU without the need to pass through
natioanal legislatures.

. The procedure
Regulations:

to

setting

directives

and

European Commission decides on a

project and ask an expert to prepared
report.
Avant project or discussion document is
prepared.
Sent to European Parliament
and
commented on by economic and social
committee.
Revised proposal submitted to Working
party of Council of Ministers.
Parliment will decide.
Final approval
Member states are required to introduce
a national law within a specific period.

. Initial draft was heavily infuenced by German

company law, consequently format were
prescribed in rigid detail, and disclosure by notes
was very limited.
. The introducing the concept of the true & fair
view that was established as a prominent
principles in the preparation of FS.
. In addition, 4 principles (accruals, prudence,
consistency, and going concern) were made
clear than in the 1974 draft.
. Contact Committee of EU and national civil
servants is provided for.
. This was intended to answer the critism the
directives gives rise to laws that are not flexible
to changing circumstances and attitudes.
. The committee look at practical problems
arising from the implementation of the Directive
and make suggestion for amendments.
. For UK, Ireland and Netherland, changes include
compulsory format and details valuation
requirement.

OBSTACLES TO EU HARMONIZATION
. fundamental differences between the context and
purposes of the various national accounting systems in
the EU.
. Difference between creditors/secrecy in the traditional
Franco-German systems and investor/disclosure in the
Anglo-Dutch systems and between law/tax based rules
and private sector standards .
. The smaller and weaker professional bodies in FrancoGerman countries were an obstacle to movements
towards accounting and auditing of an anglo-dutch type.

HARMONIZATION AND
TRANSITION IN EUROPE

. It is clear that neither asset valuation, nor

format,
nor
disclosure,
were
completely
standardize.
However
harmonization
was
noticeable.
. In 2001, first substantial amendment to the
Fourth Directives of IAS 39.
. In 2009, there are two developments:
-

As part of trying to reduce burdens on

companies
Commission issued a consultation
documents proposing to rearrange the
Directives.

DEVELOPING COUNTRIES
-

Many countries (e.g Msia & Spore) adopted IASs with few amendment as their
national standards.
Adoption of IASs was a cheaper route than preparing their own standards.
The use of IASs is of great value to these many countries by avoiding the creation of
different rules.
Most likely countries to adopt international standards are those with capital markets
and Anglo- American culture.

OBSTACLES TO HARMONIZATION
. Size of the present differences between the
accounting
practice of different countries.
these
. The predominant purpose of financial reporting
vary by country.

EXAMPLE OF HARMONIZATION
REASON FOR HARMONIZATION
. Pressure comes from those who use, regulate and
prepare financial statement.

. Cost (FIFO, LIFO, or weighted average)

. The lower of FIFO and net realizable value.

. The lower of LIFO and current replacement cost

. Investors and financial analyst need to understand
FS of foreign companies which must realiable and
comparable.
. Nationalism
EMERGING NATIONS
.
Pressure
to
companies
that
do
not
operate
. The effect of economic consequences.
MEASUREMENT OF HARMONIZATION
multinational.
Nations that moved from communist to capitalist economics (eg. China,Russia)
Needed quick fix to their accounting practices.
. Van der Tas (1968,1992)
.
Benefit
performance
- harmonizationInstitutions from west
(German bank, UK accountancy bodies) competed to influence
evaluation,decision making and cost of capital
Develop
statistical
method:
these
countries.
decrease
by
reduce
the
risk
of
investors.
Was the IASC Successful?
measurement of de facto harmony and
- However.IASC as a worldwide standard-setter had advantages
that enabled it to be a
harmonization.
INTRODUCTION
.
International
accountancy
support
key influence. firm
Suggested H index of national harmony,
Basic objective, To publish and promote harmonization.
I index of international harmony and C
the acceptance
standards on a
. Major differences
in financialof reporting
for comparability index
. Tax authorities facing complicated work assessing
basis. for companies
practices make worldwide
it complicated
Thein greatest
Standardization foreign country.
CONTINENTAL WESTERN EUROPE & JAPAN
around the - world
preparing, benefit,
consolidating,
. Canibano and Mora (2000)
auditing and interpreting
published where
financialthere are
among companies
Study de facto harmonization in Europe
. If FS is uniformity,
easier
to
understand
and
control
The greatest ambivalence towards IASC.
statements.
companies that publish FS and that have multinationals. 1991 and 1996
In
1973,
the
stndard
setting
philosophy
&
the
dominant
idea of serving capital
foreign investors, auditors, parents or
apply significant test to the C index and
markets was largely alien to continental Europe or Japan.
. To counter thissubsidies.
matter, number of companies
find the harmonization in the period
Among factor that helped was : a desire to avoid US dominance of accounting, IASC
around the -world
attempting
IASC
became in
anharmonization
important influence on
Attribute ro large companies to compete
seemed
the
less
bad
alternative.
and standardization of the financial statements.
for capital in the international markets
Russia and China when their communist
Indirect effect can be seen in the gradual acceptance of many IASC ideas.
economic
systems
were
dismantled.
As well as the direct effect in some cases rule making authorities approved the use of
. Harmonization- world that is associated with
. Asbitt (2003)
IASC
can beoriginating
judge against
IASs in certain ares & some companies chose IASs in part or whole for their main
the transnational
legislation
from the
INTERNATIONAL
Usefulness of C index and uses
i)
Issuing
Standard
suplementary FS.
EU.
harmonization in Nordic region.
ii)
Promotion & Observance of
- HARMONIZATION
Government also responded to the desire by large European groups to use IAS or US
Standards
accounting
practice.
.Standardization- associated with the IASB
. Pierce and Weetman (2001)
Success in this area will now be examined
- E.g, German law was passed allowing listed company
use (1995)
internationally
Build onto
Archer
for four types of country : developing
. Type of Harmonization
recognized rules for consolidated statements with few
conditions.

Morris and parker (1998)

countries,
emerging
nations,

Develop a generalized formula

Harmonization
of rules (de
jure)
continental
Western
Europe
and
for the between country C index
japan, and
capital( market
- Harmonization
of practices
de facto)countries.

Non-disclosure is split into

. Lack of an international regulatory agency.

cases where disclosire would be

applicable and those whose not
be.
HISTORY AND PURPOSE OF IASC

Apply harmonization of deffered

Includes US, Canada, UK, Australia, South Africa & Netherlands tax accounting in Denmark and
The most successful bodies involved in the harmonization is ISAC and its successor IASB.
Publication of frequent, fair, consolidated, audited information
irelandstc is an idea
Founded in 1973 by accountancy bodies consist of nine countries such Australia, Canada, France, Japan,
associated with these countries.

Taplin
(2003)
Mexico, Netherlands, UK including Ireland, US and West Germany -(Benson,1979)
The influenced IASC and indeed until the late 1990s,
or UK standard-setters
did not
- USPrevious
reserches do
not provide
IASC can be seen as a countervaling force for the proffession in the make
UK and
the efforts
US thattoconcerned
about
major
change their
rules.
calculation of standard error.
the draft fourth Directive which consist on unactractive rules of accounting for the UK companies
- At the level of companies these countries, li ttle - direct
effect that
of the
IASC could
be previous
Suggest
formula,
examine
IASC was operate until 2001, Until when the succeeded by the IASCF, whose its operating arm is the IASB.
discerned until 2005, mainly because companies were required
to use
domestic
rules.
indices and
choose
the appropriate
one.
IASC was independent before it established with the Federation of Accountants ( IFAC) in 1983.
IASC concerned only with the international accounting standards.
. Baker and Barbu (2007)
- IASC in 1992 was to formulate and publish in the public interest accounting standards to be observed in the
presentation of FS and to promote their worldwide acceptance and observance.
Review the literature on the
measurement harmonization
CAPITAL MARKET COUNTRIES