1) What are some advantages and disadvantages of single worldwide accounting standard?
While moving from a diverse accounting standard culture to a global converged, single accounting standard offers plenty of benefits; it also has its cons as well. Whatever type of standard is chosen, if not all, some of the companies would have to adopt it by making adjustments are their company reporting system. These businesses will need to incur additional costs to change to the new system. With all the accounting standards regularized by a single standard, it is not a given that the regulations and laws across the countries would be similar as well hampering the way of comparability which is one of the main benefits of the standardization of the accounting standards. It has more impact for the small business holders as the comparability will not be adequate for small businesses even with the use of similar standards.
The main advantage of the use of a single set of global standards of accounting is that comparability among the businesses in various countries is possible; it also eases the barriers to expansion for many companies. It provides a central body for authority and regulation of all companies irrespective of the countries.
2) What are some issues arising from diversity in accounting standards?
Accounting practices, diversity across all countries can become problematic for some parties at least. A study has found that the companies who are operating foreign operations can face gruesome problems. They can face problems in the preparation of the financial statements. The study considers the example of General Motors, who has many subsidiaries in over 50 countries around the world. Each one of the subsidiaries of the company resides under the rules and regulations of the local authority. These local regulations need the company to operate and report its operations as per the local accounting regulations. It means that the General Motors of Mexico has to prepare the reports as per Mexican regulations and General Motors Japan has to make the regulations as per the Japanese accounting standards. It means that for consolidation of the financial statements of the parent company it needs to convert both stated statements from Mexican Peso and Japanese Yen to USD and also translate the financial reports into US GAAP. It incurs not only more time and effort, but also more costs (Beke, 2013).
3) What are some issues arising from not having a universal accounting standard?
With the rise of globalization, the need for a standard set of regulations for accounting and financial reports has risen. The users of financial reports around the world are working for the establishment of a common standard. However, currently, diversity exists between the countries reporting systems. The no-usage of a single accounting standard not only provides non comparability issues it also makes the process of multiple implementations of systems more complex and time-consuming. Lack of comparability leads to lack of understanding and adequate information lacking, causing the investors to lose millions of investments. The quality of standards is also not adequate because of the multiple systems. The sovereignty of the countries provides the basic barrier to the universalization of standards. Having different systems of accounting also creates inconsistency in financial reporting (Raza, 2017).
4) What are the differences between harmonization and convergence?
Businesses prepare their financial statements as per the accordance of US GAAP or IFRS. There have been many efforts in the regard for harmonization or convergence of these different standards. The difference between these two terms lies in the extent to which the alignment of this unification is pursued. Harmonization refers to the minimization or reduction of the difference means the accounting standards. It provides the opportunity for the use of US GAAP in US and IFRS in more than 100 other countries. IT also enables disagreement to exist in these two standards. Convergence means bringing together the two standards to form one single set of standards. There would not be any distinction between the two under convergence (Merritt, 2018).
References
Beke, J. (2013). Problems Caused by Accounting Diversity. In International Accounting Harmonization (pp. 79-83). New York: Palgrave Macmillan.
Merritt, C. (2018). The Differences Between Harmonization & Convergence of GAAP. Retrieved July 2, 2018, from https://yourbusiness.azcentral.com/differences-between-harmonization-convergence-gaap-24069.html
Raza, S. (2017, October 28). Convergence of Accounting Standards. Retrieved July 2, 2018, from https://www.valuewalk.com/2017/10/different-accounting-standards/
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