In acknowledge the acceptance of IASC as a global

In pure accounting terms, convergence refers to the process of standardizing accounting standards being issued by various regulatory bodies. Simplest of example would be modifying US GAAP in line with the International Accounting Standards. The underline purpose is to elevate validity and effectiveness of financial statements and essentially making them easy to understand by the investors (CIMA, 2008).Broader convergence process could be whittled down to two step:a)      International convergence: the method in which International Accounting Standard Board (IASB) and National policy makers are making an effort to come up with globally acknowledged accounting policiesb)      National GAAP convergence: to adopt international standards the way they are as national GAAP (CIMA, 2008).A well conceptualized accounting standard applicable worldwide would have many advantages.

First of all, results of the financial statements could easily be compared without having to consider the origin of the company which could really help in attracting investors. When borrowing money will be made easy, it would significantly reduce the cost of capital of the company (Li, 2010). Access to accounting professionals would then be easy as they would all be familiar with one set of standards with no compulsion of having familiarity with their respective national accounting principles (Li, 2010).Timeline of the process of the convergenceThe international accounting standards committee IASC has evolved greatly since the time it was created in 1973. It has been able to emerge through many crisis or events and it would be appropriate to highlight some of them:- IASC in 1995 struck a deal with International organization on securities commission IOSCO to finalize the fundamental set of standards which could be implemented across the globe in various countries. This was done in the wake of growing need to standardize the accounting standard in the business world.

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– To avoid any hassle in the interpretation of the standards, Standards Interpretation Committee was set up in 1997.- Structure of the committee was modified with a view to make convergence process easier in 1999.- The effort to standardize accounting process was bolstered greatly in 2000 when IOSCO adopted thirty fundamental accounting standards. This was deemed as a step to acknowledge the acceptance of IASC as a global body. It was also renamed to the international financial reporting standards IFRS in the year 2001 and was hailed as a regulatory body for the accounting world. In the same year US Securities and Exchange Commission allowed it to be used by the Trans national listings without having to reconcile the result to the US GAAP (Shil, Das, & Pramanik, 2009). Convergence within EUThe most prominent step towards harmonizing accounting standards was taken in 2002 when European parliament voted in the favor of the EU Commission’s proposal that listed companies would have to follow International Accounting Standards while making consolidated financial statements from 2005 onwards. Canada, Australia and other countries around the world followed suit (Shil, Das, & Pramanik, 2009).

The EU’s decision to adopt IFRS proved to be a game changer as it pushed other countries to think about it too. Experts believe that Enron and MCI Worldcom scandals in 2001-02 compelled them to change the existing reporting standard which was US GAAP. The Sarbanes Oxley Act of 2002 which emerged as a direct consequence of the scandals, acknowledged the existence of IFRS as core accounting standard even in US. Also the fact that majority of the European companies were raising money in the United States and EU Securities and Exchange Commission was acknowledging the fact they are using US GAAP raised red flags all across the continent. Essentially the fear was that US standard would become the default choice for companies around the world (EUCE, 2013).Scenario within USSince the time IASB was conceived, idea to implement IFRS all across US for local companies gained popularity.

However, the period from 2001-2008 was of increased interest and sparked furious debate in the accounting world (Pacter, 2015):2000- Security and exchange commission issued a conceptual framework to adopt the standard.2002- SEC board members came in public to support the adoption of IFRS for US public companies.2002- Financial Accounting Standard Board (US) and IASB initiated many convergence projects.2007- SEC developed the presumptive path to convergence.

2007- SEC erased the legal requirement for foreign entities to reconcile the accounts with US-GAAP.2008- FASB recommending to SEC that it would be in the favor of investors to make financial statements according to IFRS.Period from 2008 onwards is the time during which businesses moved away from the idea of implementing one globally recognized standard:2009- The new chairman of the SEC expressed his concern.2011-2014- Various drawbacks were highlighted and business became less eager to implement it (Pacter, 2015).Biggest hurdleThe most worth mentioning aspect which has prevented the convergence thus far in US is the concern about the source through which money is funneling to IASB. Contributions received willingly from world’s capital markets formed the basis to run the organization, which raised many eye brows in the US.

Critics of the model were of the view that organizations providing the money could try to control the way IASB functions which would hinder its ability to remain neutral (Tysiac, 2012).The negotiation has not been fruitful so far between two regulatory bodies as major disagreements exist in implementing mainly four standards; financial instruments, insurance, leases, and revenue recognition. Though all these issues are still on table, they have been able to find a common ground on recognizing revenue under both method of reporting ( (Bramwell, 2014).Legal environmentUS is a highly regulated economy where if something happens, accountants and auditors have been generally deemed as root cause of the problem without any further investigation. They are often the first one sued before highlighting management fraudulent practices. Thus, this isn’t a surprise that accountants need to the point definition of every standard rather than few laws proposed being applicable generally. This is where major point of difference lies.

FASB keeping in mind their legal system keeps on defining narrowest of issues to which IFRS hasn’t had any answer yet (Bogopolsky, 2015).Convergence has been the hot topic in US about which concerned stakeholders have expressed doubts over its long term implication, particularly those associated with the capital markets. Without reaching the long term sustainable solution mandatory incorporation for the public companies wouldn’t be possible. Up until now, FASB hasn’t recommended SEC to make companies fully comply with it and as they are waiting for the conclusive result arising from the dialogues of the two standard setting bodies. SEC Chief Accountant James Schnurr has been cited as saying that investors, auditors and regulators are still not convinced about the future as they always insisted that discrepancies should be removed which could only be possible with detailed discussion (LLP & Halter, 2015). Australian convergence processAustralia embarked on path to adopt IFRS in 2005 as instructed by financial reporting council in its 2002 directive given to Australian accounting standard board (AASB, 2014). The most significant aspects highlighted as being the reason of convergence are:-The main reason was to eliminate the barriers that exist in flow of international capital while doing business in international markets and to attract wide array of foreign investors. – To reduce the reporting cost for the foreign entities operating in the Australia and encourage those who want to invest in the country.

– To have a useful data while making comparison of data of local and foreign entity’s financial statements.- To raise the reporting standard being followed in Australia to the international standard as to align it the best of international practices.Australian Prudential Regulation Authority (APRA) issued a paper in 2004 stating implications of going with the decision to adopt IFRS quantifying its impact. There are certain industries which would mostly be more affected than others, particularly those which accepts deposits ADIs (APRA, 2005). The two areas purportedly would be more adversely affected for which either Australia didn’t have an accounting standard back then or their existed no equivalency with the international standard.

Intangibles and financial instrument measurements were deemed as areas which lacked policy guidelines. Whereas, some standards were formulated by AASB to regulate the public sector of Australia like AAS 27, 29 and 31 which couldn’t be acknowledged internationally as virtually no details regarding those could be found in the IFRS (Bowrey, 2007).Australian method of implementing IFRS could very well be regarded as fully convergence. Series of steps were taken before the international accounting guidelines were fully incorporated in the way reporting was done like standards with overlapping details were merged into one, authentic references were included and the whole matter was comprehensively discussed in the parliament. After the amendments the resulted document was deemed as fully equivalent to the IFRS (Zeff & Nobes, 2010).

Since the time of conception of IASB in 1973, Australia has energetically participated in the harmonization of standards. Having established accounting bodies to regulate, monitor and enforce the standard, it was well poised to carry out the burdensome task. It was estimated that implementing IFRS was likely to erase $40 billion of intangible assets from balance sheet of companies (Gerhardy, A Review of the Costs and Benefits of Australian Adoption of IFRS, 2015). The strongest proponent of adopting IFRS was the federal government as it incurred $3 million per annum in formulating locally conceived accounting standard. Much of the savings would come from downsizing the board tasked with the formulation process. But it would be offset with the cost that they would incur in adopting new internationally recognized reporting process. The convergence also would give government an ability to set aside notorious corporate collapses which generally exposes deficiencies in the accounting procedure being followed. Corporate debacle as happened in US in case of Enron and Worldcom and Australian corporate fraud involving Harris Scarfe, One.

Tel and HIH proved the importance of having verifiable system of reporting (Gerhardy, A Review of the Costs and Benefits of Australian Adoption of IFRS, 2015).Canada’s approachCanada Accounting Standard Board (AcSB) issued a policy paper on March 31st, 2005 outlining the course it would take from 2005 till 2011 in an effort to converge its accounting standard in line with IFRS (Spector, 2005). Canada has been following IFRS since 2011. Though companies that come under the rate regulated and investment categories weren’t required to follow it straightaway from 2011 onwards. Investment companies took advantage of the deferral till 1st January 2014, while rate regulated entities enjoyed the relief till 1st January 2015.

However Canadian Securities Administrators (CSA) gave an option to these companies registered with SEC to follow US GAAP or Canadian GAAP (Deloitte, 2016). The broader application of IFRS was deemed as more thorough and in depth as compared to its application in Europe as it applied to more type of entities. Canada applied the concept of Publicly Accountable Entities (PAE) identical to one that was being used in IFRS for SME’s. Much expanded group of companies was made to follow the international reporting standard.

Similarly brokerages firm not even listed are being made to prepare their financial statements according to IFRS (Deloitte, 2016). Canadian companies has been able to raise capital at much lower rates as compared to what they were borrowing at prior to the adoption of IFRS since investors now were able to make a match of their performance with similar entities doing business internationally. Influx of capital was the most significant consequence of IFRS adoption in Canada as happened in case of many other companies that converged (Deloitte, 2016). Germany’s stance on adopting IFRSLike any other EU member state, German public companies listed in any regulated market of Germany were mandated to adopt IFRS for preparation of consolidated financial statements from 2005 onwards.

Other companies were given the option to choose it if they want to. Subsidiary’s choice to implement IFRS while making its financial statements was voluntary but could only be done for presentation purposes (Pricewaterhousecoopers, 2010). But despite the enforcement of IFRS as per EU’s directive, German commercial law still calls for application of German GAPP for profit settlement, tax purposes and to follow disclosure requirement. German GAAP is regulated and monitored by Deutsches Rechnungslegungs Standards Committee (DRSC) Accounting Standards Committee of Germany (IFRS, 2015).

Chinese and UK’s policy on harmonizing standardsOn February 15th, 2006, Chinese ministry of finance issued an official accounting policy guidelines for business entities. IASB acknowledged it to be very closely linked with IFRS as almost all the standards were included in it. From the year, all the companies listed at Shanghai and Shenzhen stock exchanges were mandated to report under these newly formulated accounting principles. China was the first country among the emerging economies group called BRICs (Brazil, Russia, India and China) which harmonize its accounting policies to that of international standard (Chen, Lee, Lobo, & Zhao, 2016).Listed entities in UK make their consolidated financial statements according to the IFRS. All other companies like other countries in Europe are allowed to follow it but very few have actually chosen to go this route.

They have used FRS or SSAPS (older accounting standard) that existed before 2005 when IFRS was implemented through EU policy verdict. Companies that come under small and medium category mainly defined by Companies Act as having met any of the two criteria out of the three ( less than 6.5 trillion turnover, 3.2 million assets, 50 employees) follow financial reporting standard for smaller Entities which is fundamentally a refined form of UK standards with some exemptions (ACCA, 2011).ConclusionSwitzerland is still indecisive to IFRS and applied it to only those listed firms which were following US GAAP. Japan has also taken interest and encouraging companies to start following the international standard. A-IFRS generally called Australian Equivalents to IFRS typically includes all the standards from IFRS and added some disclosure and local law which is solely on country’s discretion to incorporate. Nonetheless this addition is working perfectly for them and is perfectly in compliance with international standard.

As we travel to South Asia towards Pakistan, they still haven’t implemented IAS 39-fianncial instruments: Recognition and measurement, IAS40-Investment Property and IFRS 7-Fiannacial Instrument disclosures in their financial institutions. China has to take its old model to garage as it needs some overhauling. Moving towards Atlantic, Canada has mandated IFRS for rate regulated and SEC registered companies otherwise US GAAP is to be followed. And now moving to the strongest economy in the world US where SEC is still confused whether to adopt it or not. While work on standardizing IFRS 15- Revenue from contracts with customers was encouraging, harmonizing IFRS 16 Leases is still an uphill task as more work is needed in this direction (Siddique, 2016).

Increased global cooperation in trade has pushed authorities to come up with single set of standards. By the end of 2010-11, 120 countries would make it mandatory for local companies to apply IFRS while preparing consolidated financial statements (AICPA, 2016).