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Harmonisation of accounting standards: disclosure policies and practices of european commercial banks

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par Michael Forzeh Fossung
Gothenburg University - Master of Science (MSc) Accounting 2002

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The subject matter «Harmonization of disclosure practices» has been discussed and will continue to be discussed by different scholars, accounting bodies, researchers, governments, and regulatory organizations as long as the needs of all parties with interests in financial statements are not fully met. In order to meet the needs of all, efforts have been applied to setting standards that will be internationally/continentally recognised and applied. The subject has a long history from when it was first handled, and has been an essentially political process with a variety of organizations, both public and private, all of them having varying objectives, scope, and powers of enforcement.

Different country groups practicing different accounting systems have distinctive and unique patterns, depending on the history and culture. If securities markets were to continue to operate in an international perspective, no matter where the parent company is based, then investors and other users would prefer accounting standards to be harmonized for easy understanding and comparability. Also, since most multinational firms are in the process of globalization, and because of the free movement of securities and other forms of investments, the integration of markets has brought about some convergence of accounting practices at the level of consolidated accounts of Multinational Enterprises (MNEs) listed on cross boarder stock exchange markets.

Uniform disclosure, therefore, should establish the possibility for financial information to be interpreted by any stakeholder, prospective stakeholders, government and all other interested parties irregardless of location, to make informed decision. A wide range of organizations and user groups have called for additional and more comparable information. Those who have been in active support of international standard setting are governments and international intergovernmental organizations, trade unions and employees, investors and financial analysts, bankers, lenders, creditors, accountants and auditors, and the general public. The forces range from EC directives in the European community, OECD and UN guides, to the IASC's recommendations. The activity of harmonization of accounting standards is complex and dynamic, considering the differences in countries history and culture.


The commission of the European Community has been involved in the harmonization or standardization of accounting and reporting standards as far back as the mid-1960s, in fulfillment of the company law harmonization undertaken following the Treaty of Rome in 1957. The Company Law Harmonization ensures that no country will be at a competitive disadvantage as a result of legal differences between countries in order to enhance European integration.

In contrast to the recommendations of UN and OECD, any agreement that takes the form of a «Directive» has the force of law through out the community's countries as each country has the obligation to incorporate such a «Directive» into its respective national law. A good initiative of this type is not observed, as varying reporting policies and practices exist among MNEs.

In spite the early beginning of the quest for international harmonization, the fourth Directive (Annual accounts, content, valuation, preparation rules) was only approved in 1978. The implementation process of harmonized standards took even longer, with Italy being the last to finally amend its company law in 1991(Radebough and Gray, 1997). The quest and effort for uniform reporting of banks is ongoing. In June 2000, the European Commission had a special session in Brussels recommending banks and similar financial institutions to provide enhanced disclosure of their activities in financial instruments and other similar instruments owing to the banks' significant role in the financial markets and in the overall monetary and economic system.

Although the EC recommendation does not make it obligatory to disclose confidential or proprietary information, the commission identified the need for banks and other financial institutions to provide the public with information that is sufficiently comparable for the smooth functioning of the internal European market (Commission of the European Communities, 2000). As per the Commission's specifications, each bank's disclosure statement should contain a wide range of financial and other information, in relation to the bank itself and its banking group. These laws were obviously made to be followed. They were made because the parties (standard setters) drawing them had some objectives to attain. We wonder whether the laws and recommendations are being implemented. Consequently, a survey on standards implementation degree is imperative.

The hypothesis: «Standards have brought about uniform reporting within the EU banking sector» will be verified or falsified in this research.

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