Universal Accounting Standards
Issue
The internationalization of business activities has increased exponentially over the past 3 decades. Because the accounting standards and practices of different countries have developed in response to diverse environments, accounting has developed with strong national accents . As a result, multinationals with branches and investments in a wide array of countries find it difficult to achieve a consolidated financial report. Further, investors in these multinationals have trouble evaluating financial statements formed from a multitude of unusual (to the investor) accounting standards, forcing them to make less informed decisions. The benefits of a set of uniform accounting standards include greater comparability of financial information for investors, greater willingness on the part of investors to invest across borders, lower cost of capital, more efficient allocation of resources, and higher economic growth .
Drivers for Uniform Standards
1. The International Accounting Standards Board (IASB)
In 2001, the IASB was created, replacing the International Accounting Standards Committee (IASC). The mission of the IASB is to develop a set of high quality, enforceable, and global accounting standards that require transparent and comparable information . The IASB sets accounting standards called the International Financial Reporting Standards (IFRS) and through the creation of these national standards, the IASB hopes it can create uniform accounting standards for all countries. International Financial Reporting Standards are now the world's dominant regime, used in more than 90 countries across the globe .
2. The Formation of the European Union
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