Globalisation of accounting standards : an international and local perspective

Abstract

The development of the world into a global village has produced the effect of widening the perspective of human beings across borders with few restrictions. Such a development has also reflected itself or indeed has been spurred by economic development. The falling of barriers in the development of industry and investment has emphasized the need for investors, regulators as well as the general public to have tools that enable them to evaluate and compare the performance of the components of economic activity. Accounting is the basis used by entities to report on their governance practices and the results of their efforts. Methods for the recognition and disclosure of an entity's performance have been based in the past on national benchmarks. In the current environment of globalization identifying a set of accounting standards, which could be used as widely as possible, has become essential to facilitate comparability of performance and governance. This in tum could make the allocation of resources on an international basis much more efficient. The two most widely recognized frameworks of accounting standards that have, for different reasons, international recognition, are US GAAP and IAS. The two frameworks have one fundamental distinction; the former is rule-based and the latter is principle-based. The study concludes that particularly as a result of recent major corporate collapses in the USA, the rule-based approach is showing its shortcomings. Accordingly, the pressure exerted by the needs of users for an international framework, is helping in converging the above mentioned two frameworks into one set of principle-based standards with detailed rules in the more complicated areas such as accounting for derivatives that will not, however, override the principal tenet of truth and fairness which always requires the exercise of judgment in its final assessment. The study also concludes, that the size of business entities in Malta may be more of an obstacle to a beneficial application of such a framework should it be finally accomplished, and therefore complementary research by bodies such as the UN were emerging countries are more numerous may reach conclusions in respect of accounting standards that are fundamentally based on such a global framework but cater for the needs of small entities.