Accounting standards is often a matter which companies have to encounter in the course of handling their accounts all the time. However, the operations of companies are rarely confined today to the borders of their nations. The age of globalization has started years ago; new markets are being open for companies to deal in; expansion and the opening of new branches, franchises and other forms of international business are witnessed every day.


The consequences of globalization and the international growth of companies are many. Companies are now forced to go through accounting transactions under different regulations. For example, a company such as IBM will have to disclose accounts in its various branches and offices to the American, Saudi, Turkish, Italian, French, and Egyptian governments. Each of these countries has different accounting standards, and therefore, which means that IBM has to disclose its accounts in different forms and ways. At the same time, the branches have to disclose their accounts to the mother company and to the American governmental agency in a different manner which goes in conformity with the American standards. This can turn into a real mess for the financial and accounting departments of IBM. The problem is that IBM is not the only company stuck in this situation, but also hundreds if not thousands of other companies all over the world.

Another more serious problem pertains to the standards applied in accounting for capital related transactions. For example, whereas treasury stock is treated as a reduction in shareholders’ equity in the US, it is often classified as an asset in Italy, Korea and Portugal. And, whereas the time frame distinguishing a current and non-current liability is typically a year in the US, the cutoff point is commonly four years in Germany.

Problems in this case will not only distort the financial statements and disclosures of companies, but they may also put them in big legal trouble at home with their official tax agencies.

The only solution for problems of this kind is to standardize accounting systems all over the world so that companies operating on the international level will be able to disclose their accounting statements in the same way.

A step of this kind, if applied, would first of all reduce the costs in terms of losses that companies have to incur as a result of differences in their disclosure procedures. Secondly, this would enable companies to avoid the possibilities of having legal problems as a result of failing to conform with any financial or accounting standards in any of the countries in which they operate. Set in simpler terms, international standards of accounting will enable all companies and specialized state agencies to speak the same financial language.

Transparent financial reporting makes business sense not only by providing access to cheaper funds, but in opening new opportunities as well. Less than five years ago, Daimler Benz became the first major German company to list in the U.S. As an example, Daimler’s listing is a turning point for the principle of shareholder value.  That listing was part of a transformation to an equity culture that delivers value to investors through the marketplace.

A lot of progress has recently been achieved on the level of disclosure and measurement. However, major problems still persist. Major corporations, investors, and financial corporations wish to see more developments related to segmental information, methods of asset valuation, foreign operations disclosures, frequency and completeness of interim information, description of capital expenditures, hidden reserves, and off-balance sheet items.

Some investors engage in active stock selection when information disclosures are satisfactory. When such is not the case, a passive investment strategy is adopted involving a mutual fund approach to foreign investing. Here emphasis is placed on industry and macro considerations as opposed to firm specific information.

Any attempts to standardize accounting and disclosure principles should take into consideration the effect on accounting for capital-related operations. Today, corporations all over the world are operating in a number of countries depending on opportunities for investment. At the same time, investors are seeking new opportunities in these emerging markets. The problem is not only legal. It is also operational and procedural. There are at least three major fields which standardization of international accounting systems should take into consideration.

First of all, these standards should take into consideration a global context in which they can be applied. This means that an extensive study of the needs and relations of regions, corporations and markets should be considered before standards are finally declared.

Secondly, problems related to auditing should be considered. What is considered an acceptable statement that reflects stability and security in the dealings of a company may be seen as insufficient, flawed and ineffective by other auditors following other systems in other parts of the world. What is needed is the developing of an international standard for auditing such that statements are disclosed in the same manner everywhere.

Thirdly, there remains the problem of language and parity of exchange rates. Audits are read by international investors and managers. These come from various nationalities and need to be able to compare and contrast the values of the currencies in which the statements are made. It is suggested that reports complying with international standards be issued in several languages and the figures be disclosed in relation to several currencies, while bearing in mind the difference in parity values.


The major difficulty in apply international accounting standards so far is convincing world governments to apply these standards. First of all, this will not only require an updating of the accounting standards in these countries, but it may also involve major changes and amendments to their official standards if they are incompatible with the IAS. Amendments of this type will have drastic impact on the financials and tax revenues of these countries. In some cases this will be for the better but in most cases, it will be for the worse. What will convince many countries in the world to amend their systems such that they confirm with the IAS?

One point is the benefit that these countries will benefit on the long run. By amending and adjusting their accounting standards to conform with international accounting standards, these states will actually harmonize the accounting procedure in their agencies and corporations such that accounting becomes very easy, flexible and efficient. Costs will be eventually cut down (especially in the cases where corporations of these countries are operating in other countries).

More importantly, however, investors all over the world will be attracted to invest in these countries for two reasons. First of all, they will not have to worry about complications, difficulties and impediments that may arise when the time for disclosing accounting statements comes.

Secondly, investors will be able to evaluate the financial situation of corporations and companies operating in these countries without necessarily having to worry about the differences that may exist between the country where the investment is made and the international accounting systems. For example, two years ago, the loose accounting standards in Thailand gave many investors distorted images about the financial power of Thai and other companies operating in Thailand. These realities did not become obvious until the financial collapse took place in Thailand. Thus, investors were severely influenced but they were not to blame, nor was the Thai accounting system. To avoid such situations in the future would be achieved only through having every country in the world conform with international standards. This way, investors will be able to make realistic evaluations upon which they can base their decisions. Once this happens, investment and flow of funds will become much easier and much safer.


Therefore, what the IASA can do at this level is to introduce a global program of education. This program will target decision makers in world nations. The objectives of this program include the interpretation of international accounting standards. Another objective is to make these decision makers of the benefits that will be earned by their countries and economies once their accounting standards are standardized in conformity with IASA standards.

A global program at this level would not only be remarkable, but also necessary and important, offering benefit to individual nations and economies, and at the same time, to global individual and corporate investors.

What comes next is providing these countries with professional expertise that would enable them to enhance policies and standards that will lead to effective and accurate adjustment of their accounting systems. Implementation will require different efforts and conditions in each individual country, but in the end, this is the only practical way in which standardization can be implied with the least costs.

The costs that will develop as a result of such a program can be born by states, the IASA, international auditing firms, and more importantly by organizations that foster development programs, such as the IMF and the World Bank. This is because such a program is by definition a step forwards toward development.


The century is over, and the IASA has not stopped since the early 1970s working on the standardization of auditing and accounting systems and practices all over the world. The challenge has grown extensively too, especially as the trend of globalization has taken over the world. The necessity of standardization is more pressing today than ever. What is needed is a global program that enjoys international support from funding organization so that world nations, especially emerging markets and developing countries, can afford the price of change. The IASA should certainly play a central role in these changes that are taking place.


“Notable quotations about IASA”.

“Global accounting standards.”