Harmonization of financial reporting standards has become quite popular in the recent years because of its reliable and dependable nature. Harmonization fixes the limits of variation that occurs during the time of accounting. In recent time the process has been widely accepted by various companies because it has helped in increasing the compatibility of accounting practices that has been followed by the firms around the globe. Harmonization is famous in international accounting standard and has provided standardization in accounting and is thus accepted by various firms. In other words harmonization can be understood as just more than uniformity as it has reduced the alternative ways that has been used while accounting. It is a blend of all the accounting practices and thus provides a combination way to carry on the process (Beke, 2013).
One of the popular methods that have been adopted by firms is IFRS, which is quite famous and is a process to achieve harmonization in accounting. Due to the rapidly changing scenario and increasing globalization, the issue of adopting a universally accepted way of accounting has become the need of the day. In such a time, IFRS fulfills the requirements of the organizations (Efobi and Uchenna, 2016). The report critically analyses the success of harmonization and also discuss its other aspects as well. Apart from this, the country which has adopted the IFRS method to bring harmonization in accounting is also analyzed.
Critical Evaluation of Harmonization and Its Success
The dynamic environment and globalization has become the major push behind the adoption of a universally accepted accounting method. In today’s scenario, when cross border transaction has increased dramatically, the introduction of a homogenous and single way of accounting has become the need of the hour. Earlier also various methods has been accepted for the standard accounting, but due to the dynamically changing environment, the requirements kept on changing. The need for harmonization has arisen so as to provide a compatible way of accounting because it was becoming extremely difficult for companies to maintain their accounts who were indulged in cross border transactions. In the wake of adopting a universally recognized method, IFRS has been introduced in the accounting methods. The biggest ever change came when European Union approved this method to be accepted as standard way of accounting. It was for the very first time that a method has been made a standard to be followed in international accounting (Mirza, Holt and Knorr, 2011).
IFRS was trusted to bring out high quality and homogenous data to the financial markets so that accounting can become comfortable without the problem of differences that has occurred earlier. Due to this specialty the numbers of companies that has adopted IFRS as a universally accepted method was increased dramatically. A furious increment in the number of companies has been recorded during that time. IFRS has made it quite simple for the organization to carry on accounting because it provides consolidated data of the financial market which also helps the organization in planning out their future financial strategies. In addition to this it also provides list of the companies that has been listed in the stock exchange. The consolidated accounts of private as well as publicly traded companies were also provided by IFRS (Alkafaji et al., 2010).
IFRS has been implemented for various concerns; the most important issue behind its implementation was the lack of a standard method that can be used widely by different organizations. In addition to this, it provides data which can be easily used by investors. The listing of public and private companies, their share prices and the market trends, all were provided in a consolidated way which enables the investor to plan its future strategies. IFRS was not a different method that has been adopted by firms rather it was the modified version of certain standard accounting methods that were prevalent in the earlier times. One of the very famous methods that was widely accepted and followed by different firms around the globe was GAAP. The method become obsolete as the business world was changing rapidly. The adoption of IFRS shows that it is not a certainly innovative method of accounting, the rate at which it was adopted by various firms confirms that it has more or similar to GAAP or rather an enhanced version of the same. All of its data dealing with different subjects is available at once so it is quite easy for firms to calculate and forecast the market trends (Nurunnabi, 2016).
IFRS has proved to be a milestone in achieving the harmonization in accounting standards. It is able to provide group and individual data of companies that been listed in the stock exchange. Due to the increased integration of financial markets, it has become quite important for firms to accept a common and homogenous method in accounting to avoid extra costs. In this way, IFRS has provided the ray of hope for organization that is engaged in oversees trade. IFRS is a quite simple method with fewer complexities that is the reason it has become popular and is being widely accepted by the firms internationally. The adoption of IFRS is a starting point towards achieving harmonization in accounting standards, however there is a lot more scope is present so that organizations can achieve maximum benefit (Mirza, Holt and Knorr, 2011).
One of the significant reasons behind the adoption of a method that is universally accepted is to reduce market complexities. The major objective of introducing a high quality and internationally accepted accounting method is to make financial market work more efficiently. In addition to this, it is believed that a method which is universally recognized is able to reduce the cost of capital and will also increases the access to financial resources for originations. The adoption of IFRS by various countries across the globe represents that IFRS is being capable of predicting the market trends which certainly helps the organization to plan their future prospects efficiently. The need for harmonization increased due to differences that were arising while accounting. Organizations that were engaged in overseas trade were the once badly hit by the same. In such a time, when industrialization in various parts of the world were taking a different route, it was become significant for organization to adopt a method that is common and is widely accepted. The world was reducing its geographical distances through the medium of trading and globalization was reaching its peak, at that time several accounting methods were invented to reduce the disparities that arises while marinating accounts (Nurunnabi, 2016).
Several methods were followed within the limits of certain trading regions around the globe. As and when the bulk of trade increased, new ways were introduced to achieve harmonization in accounting standards. IFRS was the method that was seemed to be quite simple and that matches the international methods of accounting quite well. IFRS is still followed by various countries as it provides consolidated data that were required by firms to plan their future operations. IFRS has certainly reduced the amount of costing and has also aided in reducing financial market fluctuations. The adoption of IFRS has accelerated the pace of harmonization of accounting standards in several countries. However, in EU and other countries IFRS exist with their local methods of accounting. The scope of IFRS is quite wide which has not yet discovered completely, proper research is required in this area so that organizations can achieve harmonization in their accounting standards which in turn will make them more efficient in their market performance (Mulyadi et al., 2012).
Adoption of IFRS by Singapore
Harmonization has become the need of the time; several countries are following methods that can be proved beneficial in achieving harmonization in their accounting standards. IFRS is one such method which has been widely accepted by various countries in order to bring out homogeneity in their accounting methods. The principle of harmonization provides compatible ways of accounting which allows the firms to follow a certain universal method in order to gain more profits. IFRS has become a quite popular method of accounting and various countries have also adopted the same. One such country which has adopted the method is Singapore. The Accounting Standards Council (ASC) holds the responsibility of developing and publishing the Singapore Financial Reporting Standards (SFRS) has worked towards complete implementation of IFRS in their accounting standards (IFRS Implementation Services, n.d.).
The method has been adopted in the year 2010 making it mandatory for all the firms that are engaged in profit making to make their financial statements in accordance with IFRS adopted by the ASC for their financial year. The adoption of IFRS is the result of changing accounting ways of financial reporting in Singapore business firms for adopting financial reporting method that is widely accepted and universally recognized. However IFRS has been adopted in conformity set out by the ASC. The new method hence adopted affects the majority of Singapore firms and this also results in the introduction of many new standards. ASC is quite aware of the possibilities and scope of IFRS and therefore adopted the same in order to remain competitive in the international market (International Financial Reporting Standards Regional Policy Forum, 2010).
ASC and Singapore Ministry of Finance (MOF) strongly encourages their firms to adopt IFRS and understand its implications, in addition to this they also promotes changes which are quite important for the proper implementation of the IFRS in their accounting standards (International Convergence and Harmonisation Policy, 2002). They have launched a forum known as Regional Policy Forum in Singapore on 2010 followed by participation from 100 countries for seeking harmonization with IFRS standards. The business entities listed on Singapore Exchange (SGX) are requested to implement a financial reporting framework as per the IFRS that would be included in their annual reports as SG-IFRS from the year 2018 onwards. The companies are now requested to think about their investors and plan their future strategies accordingly. Moreover they are also detailed about the implementation of strategies that can manage their timely transactions. Audit companies in Singapore are also participating in proper integration and incorporation of IFRS. Therefore, firms are preparing their financial reports and financial statements in accordance with the new method (International Convergence and Harmonization Policy, 2002). The new method that is IFRS is being implemented in the country to resolve the issue of harmonization of accounting standards. IFRS is one such method which has made international accounting quite compatible through providing all the required data in consolidated form. The Singapore firms are now experiencing a difference in the way of accounting they were doing earlier. The incorporation of IFRS has certainly made the differences, as international accounting has become quite easier and it has also reduced their extra costing. IFRS has surely reduced the discrepancies that were quite a barrier in accounting earlier (Mulyadi et al., 2012).
ASC, in this context, have been given the responsibility of providing assistance to firms for adoption of IFRS method of accounting in their business. This has been to promote comparability amongst the financial reports and to enhance the competitiveness of country firms in the international markets. ASC is quite particular while providing assistance of firms; who have adopted IFRS as the means of doing accounting. It requires that every firm should declare its assets in the financial statements properly without hiding anything. ASC has already issued guidelines that every firm should recognize their assets and liabilities in the same way that the new method demands (Horton et al., 2008).
In Singapore, Sembcorp Industries Ltd is one such organization which is currently placing large emphasis on implementing IFRS in their accounting procedures. It has mentioned in its annual reports that the company will integrate the SG-IFRS financial reporting framework from the end of 31 December, 2018 onwards in compliance with the new standards. The company has carried out a primarily analysis of the impact of SG-IFRS on its business operations for effectively complying with the new reporting framework (Annual Financial Statements, 2016). The financial statements of the firms and its other associates is prepared in accordance with IFRS which shows that the organization is emphasizing largely on implementing the IFRS accounting standard in order to gain harmonization in the accounting procedures (IFRS Implementation Services, n.d.). Basically, the financial statements is prepared on historical cost basis which is one of the critical part of ASC; however the business organization are now required to prepare the assets and liabilities on the basis of IFRS (Notes to the annual financial statements). The company in this context have presented in its annual report the summary of new reporting standards it is going to comply with from the end of year 2018. The group has maintained that the adoption of SG-IFRS 15 revenue from contracts with customers and SG-IFRS 9 financial instruments would be similar as FRS 115 and FRS 109. It is quite clear that in Singapore, the firms have adopted IFRS as a means to achieve harmonization in accounting standards; however it is quite significant to note that they are not required to completely leave their old methods of preparing accounts. Both the methods that are IFRS and ways suggested by SFRS are going hand in hand, thus providing wider scope of accounting (Sembcorp Industries Annual Report 2016, 2016).
The rapid changes in the international markets and the quick emergence of globalization were the one of the most significant cause of harmonization. Harmonization provides compatibility to firms to prepare accounts. Harmonization has thus become a quite reliable way of doing accounting. The principle of harmonization is quite famous in international accounting. Harmonization provides a homogenous way of accounting which can ease out doing business. Different methods have been adopted in order to gain homogeneity in accounting, due to globalization; there exist no such thing as distance because people have covered the distance through international trading. The major problem that has been encountered by firms was the issue of accounting. Several countries followed their ways o accounting which built up a problem in conducting industrial accounting. After proper research the method of IFRS was introduced in accounting. The report portrays the importance of harmonization for accounting and its benefits. IFRS was easy for firms to adopt because it was more or less same as GAAP which was a quite popular standard of accounting.
Today several countries have adopted IFRS as the means of achieving harmonization their accounting procedures. Most of the business organization around the world is engaged in overseas trading, in such a scenario, IFRS will proved a boon for the Singapore firms because it provides data about the changing market trends from time to time. In order to remain competitive, Singapore organizations should plan their future prospects according to the changing market trends. ASC has also made it mandatory for firms to adopt IFRS. Sembcorp Industries Ltd is one of such organization of Singapore that is placing large importance on adopting IFRS in its business process. However it is important to conduct a proper research in this way, in order to gain competitive strength and efficiency in market proceedings.
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