Financial Accounting Research - Practice - and Financial Accountability

Question: Describe about the Financial Accounting Research, Practice, and Financial Accountability. Answer: Introduction The main purpose of the assignment is to differentiate between harmonization of accounting standards and convergence of accounting standards. Harmonization mainly focuses on increased comparability in various related accounting policies (Macve 2015). It helps in providing spectacular growth in various sizes of multinational companies like foreign investment as well as cross border listings especially in the stock exchanges. Convergence of accounting standards involves IASB and FASB rules and regulation that brings uniformity of financial information. In the next section, adopting of IFRS in European Union explains the endorsement process in detailed way (Harrison et al. 2014). It faces various drawbacks in final implementation in most of the multinational corporations. In the last section, qualitative characteristics of accounting explains ways that will help in gaining sound information and relevancy of data collected in the financial statements. Harmonization against Convergence Harmonization of International Accounting Standards Meaning of Accounting Harmonization Harmonization is the process that substitutes standardization and implies making the same policies for future analysis. This particular accounting standard helps in increasing the level of compatibility of various accounting policies (Edwards 2013). Accounting Areas with different accounting policies Most of the analysts argue that it requires disaggregated information in areas of financial reporting systems. It helps in concentrating in some key accounting areas consisting of users availing such disaggregated information. Most of the companies exposes towards using various accounting policies for preparing financial statements in an overall manner. It mainly highlights the accounting areas where various accounting policies use financial results in the most appropriate way (Hoskin, Fizzell and Cherry 2014). In accordance with Statement of Accounting Standards, it publishes Institute of chartered accountants of India. These accounting areas involve various accounting policies by business enterprise for desired results. Valuation of stock Valuation of investments Various methods of amortization, depletion and depreciation Valuation of fixed assets Goodwill treatment Conversion into foreign currency Contingent liabilities treatment Retirement benefits Convergence of International Accounting Standards Background Financial Accounting Standards Board is working with IASB (International Accounting Standards Board. In the year 2002, FASB and IASB issued Norwalk Agreement that acknowledges the level of commitment in developing high quality and compatible accounting standards (Lee and Parker 2014). It helps in solving the issues of domestic as well as cross-border financial reporting. In the meeting, FASB and IASB pledges for using: Existing financial reporting standards for practicability Coordinating future work programs for achieving future accounting sets of rules in an overall manner It reaffirms level of commitment with convergence of US General Accepted Accounting Principles (DRURY 2013). A global standard remain for maintaining long-term strategic priority for FASB as well as IASB. Current Scenario FASB and IASB engage in short-term international convergence projects. The main objective of this project is to improve in GAAP and IFRS. It concentrates in eliminating certain individual differences between IFRS and US GAAP (Weygandt, Kimmel and Kieso 2015). Addition to that, projects under short-term convergence remains limited in areas and address difference behind the scope of the projects. Convergence allows high-quality solution for achieving in the short-run between existing IFRS and GAPP. In the current phase, it is noticed that FASB addresses five key areas: Inventory Costs Asset Exchanges Earnings per share Balance sheet classification Accounting changes FASB and IASB announces long-term international convergence project for covering topics on: Revenue Recognition Leases Fair value measurements Pros and Cons of Harmonization Pros of Harmonization Comparability Harmonization helps in advocating ways in bringing comparing reasons between domestic as well as international peers. It mainly strives for enhancing comparability between various financial statements by restricting alternative accounting treatments in and around countries (Ryan 2012). Investors and analysts believe in comparing with enhanced comparability in the financial statements in the near future. Reduced Reporting Costs Most of the multinationals operates in countries with various accounting standards. It incurs huge costs in preparation of financial statements in accordance with accounting principles. Harmonization of accounting standards benefits especially multinational corporations and preparation of financial statement in and around countries (Bevis 2013). Addition to that, it helps in enabling systematic review for evaluating level of performance for foreign subsidiaries as well as associates. Level Playing Field Harmonization of accounting standards prepares accounting principles in relation with General Accepted Accountability Principles. It idealizes ways in the global markets based upon the accounting principles in an overall manner. International Credibility Financial Statements enhances ways in assessing the level of financial performance for the potential investors in the most appropriate way (Macve 2015). Addition to that, it involves basic concepts for increased level of confidence and performance in an effective way. Cons of Harmonization Harmonization of accounting standards fails to address domestic accounting standards. This accounting standard was criticized that it fails in addressing the issues like social and economic institutions, tax implications, laws as well as political approaches and business practices (Picker 2016). Harmonization exists in different economic environment and it is useless in nature. For instance, country has own practices and adapting towards usage of international reporting standards (Barth 2015). This involves irrelevant information on new reporting standard for introduction of ambiguity and complication for the same. Harmonization of accounting standards fails to distinguish in the level of performance as per accounting requirements. The main aim of harmonization is to make use of financial statements in and around countries. It should make effort in bringing the process of international accounting standards in different countries (Cortesi et al. 2015). It faces difficulty in bringing same sets of principles for measurement as well as disclosure in an overall manner. Harmonization of accounting standards fails in maintaining uniform accounting policies and irresistible in nature (Weygandt, Kimmel and Kieso 2015). It faces globalization issues and international operations depending upon the accounting standards in the near future. Adoption of IFRS in Europe Background This particular section examines the European Stock Market reactions in association with adoption of IFRS in Europe. Adoption of IFRS represents milestones especially in financial reporting convergence at highest levels of government (Martnezà ¢Ã¢â€š ¬Ã‚ Ferrero, Garciaà ¢Ã¢â€š ¬Ã‚ Sanchez and Cuadradoà ¢Ã¢â€š ¬Ã‚ Ballesteros 2015). It involves positive reaction from firms with low quality of pre-adopted measures as well as information symmetry for the same. IFRS adoption faced negative reaction for firms in law countries. It consist investor enforcements of IFRS in and around countries. Positive reaction from IFRS adoption involves pre-adoption and expecting net convergence benefits in an overall manner (Macve 2015). European Union Adoption Process European Union Accounting Regime adopts IFRS accounting standards individually and referred as endorsement. It mainly focuses on European Union adoption for IFRS especially in European countries (Harrison et al. 2014). In the year 2002, European Parliament passes a resolution involving lists on stock exchanges especially for the European member states. It applies IFRS in preparation of financial statements for fiscal years. Adoption of IFRS standards represents substantial shifts in the financial reporting for European firms. The main goal for achieving capital market integration involves convergence the financial reporting in and around Europe (Edwards 2013). Resolution requires firms for using IFRS and issuing IASB in the private-sector standard setter. It mainly endorses standards in accordance with EU. The main objective of EU is to retain the power for rejecting any standard and believes in meeting criteria for endorsement (Hoskin, Fizzell and Cherry 2014). Main criteria involve : Understandability Reliability Comparability Relevance European endorsement process plays an important role in adopting IFRS in Europe. IASB develops IFRS in the procedures especially in its governing constitution. This particular process indulges in public meetings as well as extensive inputs from the parties in and around the world (Hunton, Libby and Mazza 2015). European Financial Reporting Advisory Group is one of the private-sector organizations that comprise experienced accounting experts from European Union. It helps in providing advice on matters relating to technical accounting. IFRS Adoption Events Adopting IFRS involves process for identifying events from 2002 to 2005. It identifies events by using terms in harmonization of accounting standards. It helps in providing initial release listing directional effective on IFRS adoption (Lee and Parker 2014). It mainly indicates carve-outs technical controversies in relation with fair value consideration. It eliminates and endorses ways closer for assessing events in increasing the likelihood of IFRS adoption. European Financial Reporting Advisory Group EFRAG is an organization that establishes broad group of organization for representing the European accounting profession. It mainly aims at preparing national standard setters goals like: It helps in providing technical expertise to the European Commission that mainly concerns usage of IAS especially in European Nation (Scott 2014). It mainly believes in participating IASB standard setting process (Deegan 2013). It helps in coordinating ways for development of European nation in response with International Accounting Standards (Weygandt, Kimmel and Kieso 2015). Qualitative characteristics of Accounting Information Financial accounting helps in rendering useful information for creditors, investors as well as other decision-makers in and outside the business entity. In order to gather relevant financial information, decision-making process should be understandable in nature (Weygandt, Kimmel and Kieso 2015). FASB created qualitative characteristics for gathering relevant financial information. This particular characteristic describes useful information in the final decision-making process. Accounting Relevance This particular qualitative characteristic helps in providing financial information to users in the decision-making process. This financial information is not related to users decisions as well as useful to creditors as well as investors (Ryan 2012). FASB commits in making financial reporting relevance to the end users. Accounting Reliability This particular qualitative characteristic helps in rendering financial information and verifies from the investors as well as creditors. Reliability includes trustworthiness on different types of financial statements (Bevis 2013). FASB shows high concern with reliability characteristics in case of financial statement information. Predictive value mainly provides quality financial information by the financial analyst as well as investors for the same. It mainly states the chart performance trends and makes the necessary predictions based upon future performance and profitability (Macve 2015). Timeliness is another factor that helps investors and creditors in final decision-making process. Quality information involves feedback values for confirming correct expectations. It mainly examines financial information and confirming from previous performance trends in an overall manner (Cortesi et al. 2015). Accounting Comparability This particular qualitative characteristic renders quality accounting information in addressing the measurement issues. It uses several measurement techniques in reporting similar kind of issues (Picker 2016). It is important to consider the fact that comparability provides extreme usefulness especially to the end users of financial statements. Accounting Consistency This concept of accounting refers mainly to the principles whereby companies use same accounting methods for recording similar transactions. Companies should not be involves in bouncing between accounting rules as well as treatments (Barth 2015). These actions are directly related in manipulating profits in the financial statements. Accounting consistency mainly helps in improving the quality of accounting information that allows end users in understanding and comparing financial statements. Conclusion It is concluded that harmonization and convergence of accounting standards provides certain sets of rules and regulations. Harmonization of financial statements helps in financial reporting system based upon the international accounting standards in and across the globe. International business community helps in recognizing ways in conducting uniform accounting standards. Initial focus on harmonization accounting standards involves reducing related differences on various accounting principles in and around the world. In the year 1990, it replaces the concept of convergence and providing high set of quality especially in the capital markets. It helps in converging accounting standards into set of rules in meeting the needs of preparing as well as users especially in global constituencies. Understandable financial information offers quality information whereby investors as well as creditors use ways for investment and credit decisions. It will be a waste of time if no one actually unde rstands the financial information. On the contrary, GAAP requires financial information that is understandable to concerned person. Addition to that, it is noticed that average uniformed person fails in understanding complicated set of financial statements. Reference List Barth, M.E., 2015. Financial Accounting Research, Practice, and Financial Accountability.Abacus,51(4), pp.499-510. Bevis, H.W., 2013.Corporate Financial Accounting in a Competitive Economy (RLE Accounting). Routledge. Cortesi, A., Tettamanzi, P., Scaccabarozzi, U., Spertini, I. and Castoldi, S., 2015.Advanced Financial Accounting: Financial Statement AnalysisAccounting IssuesGroup Accounts. EGEA spa. Deegan, C., 2013.Financial accounting theory. McGraw-Hill Education Australia. 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