Convergence of Accounting Standards Essay Example | Topics and Well Written Essays - 1750 words

Convergence of Accounting Standards - Essay ExampleThe man markets are more and more converging due to globalization, and there is a constant flow of investments from one part of the world to another. The subprogram of different history standards in a highly globalized world has hampered the flow of investment across borders, which drags the world economic growth and security valuations in its turn. As a result there has been a hold up among the regulatory bodies to converge the accounting standards globally, and steps have been taken towards this aim.Sir David Tweedie, The Chairman of IASB, says that research shows that if companies are well-known(prenominal) with a countrys accounting standards, then they would invest more there than if they are unfamiliar with it. Any party entering another countrys market has to learn its accounting principles and even then they remain concerned that they whitethorn have overlooked at some points. This increases the risk premium and cost o f capital, as well as the interest charged on it. This might lead to a company cut of meat its investment, thus cutting employment and hence cutting its growth. Hence, a common set of international accounting standards becomes very important. (Heffes, Apr 2006)A global set of principles based accounting standards is the final goal of this international convergence in accounting standards. ... Of these, the most important is the Financial Accounting Standards Board (FASB) of the United States. There has been a marked passing in the accounting standards of FASB and that proposed by IASB. The latter is propagating a principles-based accounting standard, while the former has been following a rule-based accounting standard. A lot of effort has gone into bringing the FASB to the IASBs line of thinking. And a lot of gird is being made. The UK accounting standards have traditionally been principles based and so have not had much variation with the efforts to converge with an internation al accounting standard, which is based on principles. In this paper we analyze the convergence projects undertaken mingled with the IASB and the FASB, and the UK accounting standards and the foreign Accounting standards. HistoryThe FASB is the private sector standard-setting body in the USA. It was established in the year 1972. The standards that FASB sets put recognition, measurement and disclosure principles to be at the heart of preparing the financial statements. The IASB was created when the erstwhile IASC was restructured. The IASB was delegated the function of producing a single set of high quality, understandable and enforceable IFRSs and to encourage convergence on these standards. The freshman step taken towards convergence between FASB and IASB accounting principles was the Norwalk Agreement, which discussed how the two bodies could work together to get rid of the reconciliation between US GAAP and International standards. The second step has been the European Union adopting International Financial Reporting Standards (IFRS), which has meant a 100 or more countries adopting it. (Heffes, Apr 2006)In 2002, the EU approved a regulation,