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INTERNATIONAL ACCOUNTING STANDARD The overall objective of an International Accounting Standard is to contribute to the understanding of international standardization of financial accounting. This standardization would result in an increased cross border comparability of financial accounting information. More specifically, the objective is to investigate the processes of international accounting standard setting in order to learn more about the existence and nature of factors and forces promoting and impeding these processes. The primary reason for having accounting standards is to promote comparability and consistency. Information about a particular enterprise gains greatly in usefulness if it can be compared with similar information about other enterprises and with similar information about the same enterprise for some other period or point in time. Existing organizations, whether national or international, are challenged to continually assess the relevance of their objectives, structures, and processes in the context of the international system of the future. Two competing entities govern the accounting standard. In the United States there is GAAP, and the rest of the world uses the IASB (International Accounting Standards Board). Both are very dissimilar in their primary focus, the IASB is very focused globally, whereas GAAP is more nationalistic. The charters of both state their position very clearly. The objectives of the IASB are to develop a single set of high quality, understandable and enforceable global accounting standards. These standards require high quality, transparent and comparable information in financial statements. They need to promote the use and rigorous application of those standards. Lastly, it is to bring about a convergence of national accounting standards and international accounting standards to high quality solutions. GAAP's charter is more focused on U.S. interests. Their charter states that they are the uniform minimum standards and guidelines for financial accounting and reporting as promulgated by authoritative national standard setting bodies; primarily, the National Council on Governmental Accounting (NCGA), its successor, the Governmental Accounting Standards Board (GASB), and the American Institute of Certified Public Accountants (AICPA). If there is such a monumental difference, we need to understand just what the differences between the IASC and GAAP are. Very little in the view of Paul Pacter, as stated in the Accountancy International Magazine, June 1999. He states, only two accounting standard setters have adopted comprehensive standards for recognizing and measuring financial instruments, the US Financial Accounting Standards Board and the International Accounting Standards Committee. How similar are the two sets of standards? In my judgment, quite similar, particularly with respect to which financial instruments are recognized, how they are measured on the balance sheet, when they are removed (derecognized), when impairment is recognized, and the circumstances in which hedge accounting is (and is not) appropriate. Financial reporting and accounting standard setters must identify these subtle differences and make changes to minimize the impact of these differences. We are beginning to see the emergence of international level organizations and cooperative ventures among national organizations in the areas of accounting standard setting and financial statement preparation, auditing, regulation, and analysis. The evolution of a global society brings many implications for what, in the past, have been considered areas of strictly national authority or responsibility. It is increasingly difficult to think of an aspect of business that remains untouched by some level of international influence. In a SEC report, some foreign companies cite, among other reasons, a reluctance to adopt U.S. accounting practices as a reason for not listing in the United States. These companies have indicated that they have forgone listing in the United States rather than follow accounting standards that they have not helped formulate. Therefore, accepting financial statements prepared using IASC standards without requiring reconciliation to GAAP could be an inducement to cross border offerings and listings in the United States. The concept of cross border trading is a concept that has just recently manifested and is going through some growing pains. Everyone is kind of sitting back and waiting to see just what the direction will be. The SEC has included three exceptions to GAAP to help. They have allowed the use of International Accounting Standard (IAS) 7, Cash Flow Statements (as amended in 1992) for the preparation of a statement of cash flows; acceptance of portions of IAS 22, Business Combinations (as amended in 1993), regarding the method of accounting for a usiness combination and the determination of the amortization period for goodwill and negative goodwill; and acceptance of portions of IAS 21, The Effects of Change in Foreign Exchange Rates (as amended in 1993), regarding translation of amounts stated in a currency of an entity in a hyperinflationary economy. It appears that the SEC has taken the first step in integrating the IASC standards and GAAP. In a clear sign of the SEC s interest in IAS, Arthur Levitt, SEC chairman, asked Paul Volcker, former chairman of the US Federal Reserve Board, to oversee the IASC s restructuring. I was talking with Arthur Levitt, recalls Volcker, and I said, Isn t it arrogant that we believe that everyone should report in GAAP? Levitt was bemused, but asked Volcker to chair the committee. Once confined by national borders, transactions in today s capital markets often are driven by a demand for and supply of capital that transcends national boundaries. High quality accounting standards are a necessary and important element of a sound capital market system. With the increase in cross border capital raising and investment transactions comes an increasing demand for a set of high quality international accounting standards that could be used as a basis for financial reporting worldwide. What does this mean for investors? Investors need to prepare themselves adequately to understand the differences between IASC standards and GAAP. Until now, U.S. investors in U.S. markets have been provided with either GAAP financial statements or reconciliation's from foreign financial statements to GAAP. Using IASC, standards without reconciliation to GAAP will shift the burden to U.S. investors attempting to compare investment opportunities among foreign and domestic companies competing for capital on the same market. Because the world is still in transition to a fully international accounting system, there is a unique opportunity to influence the establishment of an international accounting standard setting organization. As such, it is important to have some guidelines for moving toward that goal. Some functions and characteristics are essential to any future international accounting standard setter if it is to attain the goal of developing a high quality international accounting standards. Some of these functions and characteristics that should be exhibited are leadership, innovation, relevance, responsiveness, objectivity, acceptability and credibility, understandability, and accountability. The challenge is in finding an appropriate balance within a structure and process that provides the opportunity for each function to be reasonably present. That is, the structure and process must be conducive to fostering an environment in which each of those interrelated functions is adequately exhibited at any given point in time. However the international accounting standard is organized, it should facilitate structure and process to be capable of success in a highly developed world. Establishing a quality international accounting standard is an indispensable part of the goal of an accounting standard and increased international convergence. Although a great deal of progress has been made toward increasing international comparability and the quality of accounting for the future to be successful and efficient, a quality international standard is still needed. Establishment of such a standard may occur in any number of ways. For example, a structurally changed International Accounting Standards Committee (IASC) might succeed or maybe a succes

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