International Journal of Contemporary Business StudiesVol: 2, No: 9.September, 2011 ISSN 2156-7506Available online at http://www.akpinsight.webs.comCopyright © 2011. Academy of Knowledge Process
and requirements held by company’s law. So for quality financial reporting company must abide by theserequirements and follow relevant reporting skeleton. At the end company must take a certificate from thecertified accountant that it has followed all the accounting policies, rules and fulfilled relatedrequirements. This certificate is known as the auditor’s report. It is considered as the evidence of goodfinancial reporting.
Globalization and Diverse Financial Reporting Practices
Globalization is very important factor to affect the financial reporting practices. It is the integration of world to solve the problem of scare resources. Like many others, firms (PLCs) too have the opportunitynow to get capital from international markets. They can sale their share to international investors for capital accumulation. No doubt globalization supplies many opportunities to the PLCs but it gives certainchallenges also. The leading advantage of that it provides bigger markets which result bigger profits andultimately leads to greater wealth for further investment, development and reducing poverty in manycountries.In order to ensure smooth functioning of capital markets, the availability of reliable, clear and comparablefinancial information is essential. After globalization, there is a dire need for comparable standards of financial reporting which has become dominant due to the development in number, reach and size of multinational companies, foreign investments, cross-border purchase and sale of securities. But due to thesocial, cultural, legal and economic variances among countries, International accounting standards andtheir practices differ extensively. This is the reason the integrity of financial reports becomes doubtful because the same transactions are accounted and recorded differently in different countries and if we wantto avail the opportunities created by globalization, there must be some common or integrated set of accounting rules which may be accepted worldwide.Increasing trend of investing and borrowings in foreign countries and globalization of businesses andservices required the harmonization of accounting standards. Further need can be clarified with following benefits of harmonization:
Harmonization make certain about high quality of financial information disclosed in financialstatements and trustworthiness of information.
It plays a vital role in economic and financial development of country in some cases.
Multinational companies having subsidiaries in different countries can be compared andevaluated in term of their performances.
Meaningful results of performance can be taken for decision making.
Harmonization creates international credibility of corporation.
Harmonization of accounting standards is a foundation for analyzing international capitalmarkets which may, in result, lessen the cost of capital and therefore the performance of company can be improved.
It gives a place where no country can get the advantage or disadvantage of its GAAP.
Emergence and Importance of IAS/IFRSs
After catering the problem of comparability and understandability, results were integrated accounting andfinancial reporting standards. These efforts started with the establishment of IASC (InternationalAccounting Standards Committee) in 1973. The broad objective of the IASC was harmonization of accounting practices through by the h the formulation of accounting standards and to promote their worldwide acceptance.The term IFRS abbreviated for International Financial Reporting Standards is used for the combination of International Accounting Standards and Financial Reporting Standards. These are the integrated set of accounting standards which are adopted all over the world the world. IFRSs are issued by the IASB.However former IASs were issued by the IASC the previous structure of IASB.