Essay on Benefits of Having International Accounting Standards

Essay on Benefits of Having International Accounting Standards

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The purpose of this essay is to discuss the benefits of having international standards, reasons for national differences and difficulties in gaining agreement for standards. There are many benefits of having international standards. Firstly, this essay will only look at 4 benefits, which are comparability, credibility, principles and discipline. Secondly, this essay will state three national differences and evaluate their difficulties in gaining agreement. Finally a conclusion.

Comparability is an accounting principle. The fundamental accounting reports need to be reliable; if they are not reliable it is not comparable. If the company cannot make a comparison then the accounts come impaired. For example, the Financial Accounting Standards Board requires that expenses associated to research and development (R&D) should be expensed when incurred, but some companies expensed R&D when gained. While some other companies deferred it to the balance sheet and expensed them at a later date. Furthermore, the accounts have to be reliable and standardised so the investment decision makers can make valid inter-company comparison. To make this comparison meaningful accounts are prepared with guidelines laid down by the Financial Reporting Standards.

Credibility is linked with similar events, which produce similar results. If companies were doing a similar event in order to produce financial reports, which disclosed totally different results the company could lose their credibility, this is because companies can choose different accounting policies. It is important if financial statements disclose a true and fair view.

Discipline helps the protection of investors this is linked in with the monitoring board. The mandatory standard...


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...ve different meanings for words.

The tax system in France and Germany is different from the tax system in the UK and USA. In France and Germany their taxes are charged on the profit in the accounts, so the tax becomes accounting rules, whereas UK and USA tax rules and accounting rules are separate as this helps the user. For example, depreciation in France and Germany would be charged on the profit, this means whatever the tax rules say has to be shown in the accounts. A UK accountant will say that this does not show a true and fair view, even if it is legal to do so. However, depreciation in the UK will be charged separately from the profit. As depreciation can be deferred to the balance sheet and expensed at a later date.

The tax system makes it difficult to obtain international agreement because there can be a misinterpretation of different tax rules used.

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