1.3 FORCES AND PRESSURES FOR
ACCOUNTING HARMONIZATION
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.
1.4 PROBLEM STATEMENT
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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