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Adoption of International Accounting Standards

The concept of accounting is universally applicable. Be it any type of business, the transactions needs to be registered and homogenized towards preparing a final report that will determine the result of the business activities. Accounting has come a long way and has played a major role in the shaping up of organized businesses. Financial statements and balance sheets owe their genesis to the concept of accounting. Without accounting, the very purpose of an organization is lost. To summarize the importance, finance is backed by a single factor - accounting.

The age of globalization has transcended many barriers and merged international trade laws. Accounting is no exception. The idea of international accounting has been brought about to match trade in the modern economic world. The need for sophisticated financial statements and consolidated reports has perhaps pushed this need to the apex.

The very first steps towards international accounting standards date back to 1959, when a founding partner of a major European firm of independent accountants urged that work should begin on this subject (Choi, Frost, & Meek, 1999). Since then, the work of accounting and non-accounting organizations has resulted in the formation of the International Accounting Standards Committee (IASC) in 1973. In 1997 the IASC changed its structure to bring about convergence between national accounting standards and practices and high quality global accounting standards. In July 2000, the IASC was renamed the International Accounting Standards Board (IASB). In April of the following year, the IASB assumed the responsibility for promulgating international accounting standards.

The need for international accounting standards has been raised from a series of questions that have been asked on a regular basis. Against the backdrop of globalization, these questions are justified and perhaps pave the way to a real need for international accounting standards.

  1. How does accounting differ in various countries?
  2. Does this diversity create problems?
  3. What are the causes of such diversity?
  4. What efforts are being made to meet the problems of that diversity, and with what success or failure are they being met?
  5. What are the emerging issues with which the accounting profession will have to deal?
  6. What will be the future of international accounting?

The Asian crises of 1997-1998 marked an opportunity for resorting to international accounting standards. From then on, accounting adoption steps have been taken by Australia, Canada, and Russia, as well as in several countries in the Middle East and North Africa.

Different financial statements are a reflection of diversity in the adoption of accounting standards across the globe. Investors and people involved in international trade need to understand a common and universal accounting structure. Otherwise, there will be a drop in the number of international investors. To avoid this, it is crucial that financial reports be prepared in a universally accepted format. In addition, globalization of business and foreign currency exchanges are exerting tremendous pressure on the internationalization of accounting standards.

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