Another problems faced by IASB to achieve convergence accounting standard globally is that the measurement and recognition problems where there is debate surrounding whether to use fair value instead of historic cost to measure balance sheet items like assets and liabilities. The problems has arise due to the different method can be used such as historic cost, fair value, replacement cost as they reflect different view of financial statement. The fair value accounting requires assets and liabilities to measure at their current market price to reflect current market condition and benefits decision usefulness for investors; whereas historic cost requires items to be measured based on their original cost which serves benefits to the stewardship for making future decisions. The fair value and historic cost is criticised by many people but fair value seen as preferred method by IASB as the basis for measurement and which has been widely accepted by many corporations.
Although fair value is reliable to financial assets and meets the objective of decision usefulness for financial statement user but it has been criticised by some people as Ryan 2008, suggested that the fair value is less reliable and relevant in terms of measuring non-financial assets as it uses discount cash flow which is more based on judgement and estimates, so it can lead to manipulation. This is reflected by the Ronen 2008, that during inflation many financial institutions found it difficult to use fair value to estimate asset and therefore it proves unreliable.
The historic cost accounting also been criticised by many people as historic cost serves the benefits to the stewardship and therefore it does not meet the objective of financial reporting that financial statement should meets needs of all external users. Although historic cost more reliable than fair value as it uses actual cost but it is not relevant as Whittington 2008 suggested as historic cost uses original cost when measuring assets and liabilities which may be out of date and only relevant in assessing decision usefulness for stewardship in predicting future cash flows. This is supported by fair value view that historic cost only has interest in past transactions and ignores the current market conditions in which assets value may higher and lower than it suggest. CFA institute has stated the fair value is the most relevant information for financial decision making (CFA, 2007); this is further supported by Bradbury 2008, that fair value is most relevant and reliable measurement objective for traded financial instruments.
Another problem that have impact on achieving global converged accounting standard is non involvement of certain powerful countries that are more developed and have more influential economic power as their actions influence others. For e.g. likes of US adopting international accounting standard will influence those of others to adopt international accounting standard. If these powerful nations adopt international standard; everyone in globally would like to accept it and then it would be much easy to achieve converged accounting standard.
After Enron scandal everyone thought that US FASB will move towards convergence and will adopt IAS but this did not happen as they instead tried to improve GAAP
The convergence of accounting standard is very important in global but there should be appropriate action should be in place to make sure the implementation of the standard. It is not just setting a common accounting standard and then there is no actions taken whether it is followed by everyone. To ensure that convergence accounting standard are effective and used by organisations there should be adequate governance practice and disciplinary procedures in place to make sure there is appropriate implementation and effective controls of these accounting standard. There should also be requirement for effective and efficient audit to provide external reliability for the information prepared by the companies. Also there should be supervision and quality control to make sure companies prepares financial information accordance with the standard and finally it is important that everyone who involves in preparing financial information must act ethically and independently in the best interest of investors.
Achieving of International convergence of accounting standard is also restricted by some of the barriers. Main barrier is the translation of the standard to the different language is an issue that may have an impact on achieving converged accounting standard. As convergence of conceptual framework requires create an common language for standard which financial reporting should be based on, as different country prepares their standard on their own language and there might be some problem of translating the standard which may lead to complexity and will not show the true and fair view of the accounting report.
Political factor of different countries can be barriers in achieving conceptual framework as decisions of nations can lead to situation whether to apply convergence accounting standard
However, they are continuing working towards achieving international convergence of accounting standard although it is not easy due to all these problems and barriers the changing environment. However the progress of achieving convergence accounting standard is high but the objective has not yet been achieved and there is still a long way to go.
Over the past few years IASBs work towards convergence of international accounting standard has been successful as a result today we have a comprehensive, consistent and high quality set of standard but it can be improved further if all these problems and barriers are eliminated its not long before we will have convergence of conceptual framework which will provide common framework and guidelines for all capital nations accounting standard and this will have positive impact on our global economy.
There is many barriers that IASB faced in achieving convergence of accounting standard. The barriers that there is big difference in practices of accounting among different countries. If there sone thing that makes accounting standard difference among various countries, then it would be quite simple to intereprete and understood the report of different countries (Mednick, 1991). But the fact is that the differences in both economic and cultural are so big that it is not making interpretation simple at all even if they comply with the same accounting principles. Accounting standards in various countries specify different needs according to the countries themselves. “Nationalism also generate a threat to harmonization as countries are wary of ceding control of their accounting regulation to outsiders, especially if it is perceived as replacing their own accounting regulations with those of other countries” (Saudagaran, 2001).Â In addition, the barriers also appear in the situation when the governments of different countries deal with coordinate their own accounting policy to foreign countries’ polices, so as to reduce the negative effect from foreign and enlarge the positiveÂ externalities. Finally, there also big amount cost involves to adjust the international accounting standard, so some countries are against the convergences due to all these barriers.