Harmonisation of accounting standards: disclosure policies and practices of european commercial banks
par Michael Forzeh Fossung
Gothenburg University - Master of Science (MSc) Accounting 2002
Different authors have defined accounting harmonization in different ways. It is presumably not an easy word to define, as neither the European Commission nor other organs of the commission have explicitly defined the concept of accounting harmonization (Christopher Nobes, 1992). Some have even complicated the whole concept, by attempting to substitute harmonization with standardization, implying making the process the same, rather than making it more compatible. In practice, harmonization of accounting tends to mean the process of increasing the compatibility of accounting practices by setting bounds for the degree of variations (Nobes, 1992). This, in our opinion, is presumed to be the most appropriate definition of the concept.
Though analysts sometimes argue that it is necessary to provide disaggregated information in all financial reporting, some are been of the view that it is necessary to concentrate on such accounting areas where users need such disaggregated information. Companies are exposed to different accounting policies in the preparation of their financial statements. In this section, we try to highlight some accounting areas where different accounting policies used may have an impact on the financial results.
According to the Statement of Accounting Standards (SAS1) published by the institute of chartered accountants of India, the following are accounting areas where differing accounting policies can be applied by different enterprises leading to different results.
· Methods of depreciation, depletion and amortization.
· Treatment of expenditure during construction.
· Conversion or translation of foreign currency.
· Valuation of inventories.
· Treatment of goodwill.
· Valuation of investments
· Treatment of retirement benefits
· Recognition of profits on long-term contracts.
· Valuation of fixed assets
· Treatment of contingent liabilities.
Another significant area that has been left out is the treatment of cash flow. Cash flow statements have been one of the areas of accounting with significant differences in reporting practices. It is becoming recognized as an important and integral part of the consolidated financial statement (Radebaugh and gray-1997). It shows the inflow and outflow of funds from various items. Analysts have argued that the statement merely provides an insight into the financial position stability and the liquidity prospects of multinationals, but other schools have argued that for a risk analyst perspective, it is necessary to know the geographical location of the sources and uses of funds. Standards proposed by certain bodies have shown significant differences and variations in regulatory postures on almost every aspect of cash flow. Wallace, et al (1997) argue that the quest for international harmonization of reporting practices cannot be as easy as looking at a cash flow statement, where you identify different ways of categorizing cash flows, alternative formats of presenting cash flows from operating activities and just many other differences. In addition, several issues Such as: the bad debts provision; valuing marketable securities; and the treatment of long-term contracts, can be considered spicific and given particular treatment.
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