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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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2.2.4 The Role Of Different Pressure Groups On Accounting Harmonization Among EC States

Several pressure groups have had great influence on the entire process of accounting harmonization, both directly and indirectly. Though the various groups have diverse intentions, it has, however, been assumed that their main intention is to get information that will help them formulate policy towards large corporations, such as the multinational firms. It is important to mention that in identifying the various pressure groups, one sees the benefits the assumed pressure groups will get from accounting harmonization.

The institutional environment has had a meaningful influence on the financial environment. The extent of government involvement has been very high in countries with a tradition of detailed prescriptive legislation. According to Saudagaran and Diga (2000), legislation plays two important roles in shaping the institutional environment. Firstly, laws often specify the main criteria for preparing financial reports, to enhance the true and fair view. Secondly, legislation delegates responsibility to a government agency empowered to devise rules it considers appropriate for achieving the objectives of such legislation. Depending on the regulatory intent, different governmental agencies may take charge of the formulation of specific financial reporting requirements; for instance, company registrars for corporate governance aims; securities regulators for capital market; and taxation authorities for tax objectives. The information governments require of corporations varies and is influenced by, among other things, the extent of government planning and regulation. Governments assume taxation requirements have a significant impact on accounting and, as such, need to get involved in accounting harmonization in order to fulfill such requirements. Revenue authorities, for example, have their work complicated when dealing with companies that have foreign branches or subsidiaries.

2.2.5 International Quasi-Governmental Bodies

Not only the European Commission has been actively involved in accounting harmonization; the UN, the OECD and many other international quasi-governmental bodies have taken part in the quest for uniform reporting. The history of these inter-quasi-governmental bodies is so long. The UN history can be traced as far back as 1976 when a group of experts were appointed through the activities of the commission on transnational basis. Following consultations with business and trade unions, the OECD issued a set of «guidelines for multinational enterprises» in 1996. The European union has been involved in the issue of accounting harmonization since the middle of the sixties. The first and second directives were concerned with basic issues such as the publication of accounts, and minimum capital, while the fourth and seventh directives have been drawn to lay down rules on preparation and publication of accounts in detail.

2.2.6 Investors, Analyst And The Stock Markets

Investors have access to corporate reports and other public available information and use them to make investments and other decisions. Sample decisions may range from buying, selling or holdind investments. Besides, additional information disclosure (especially information about the future prospects of multinationals) on a worldwide basis. Investors and analysts are concerned with the lack of comparability of much of the information that is currently provided (Radebaugh and Gray, 1992). Individual private investors may be of the opinion that if differences in reporting are so large and ill-defined, and reliability of reports is doubtful, direct investments in foreign shares need to be avoided. Some stock exchanges often go further and employ accountants to explain differences or certify certain ambiguous balances before taking a decision.

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