Harmonization is aimed at reducing differences in financial reporting processes around the

world. The goal is to achieve some level of comparability in the way financial statements are
prepared and presented. When international harmonization occurs, the difficulties for companies
and individuals considerably decrease in presenting the financial statements and their
interpretations. There are several organizations that have been trying to eliminate the differences
between financial reporting standards and achieve international harmonization. If international
harmonization is achieved, many countries would benefit from it as it would improve the access
to the international financial markets and improve the confidence and knowledge of investors
which may even trigger an increase in future investments.
As mentioned by Wiley (2000) even if the harmonization is achieved, this will not be fully as
there still will be differences in preparation and presentation of financial statements due to
reasons such as taxation, culture and the political factors that shape up the accounting standards
in any country.
Harmonization, as being different from standardization, is the process of creating a similar set of
procedures by establishing boundaries as to how much they can differ globally. However,
standardization is the process of unifying the reporting standards to make them the same.
However, this is almost impossible to achieve. Therefore, harmonization has been implemented
considering the facts that even the harmonization cannot eliminate the international differences
in reporting standards. Garrido, Len, and Zorio, 2002 stated that the globalisation has been one
of the main drivers of moving towards harmonization by eliminating differences. This has been
increasingly important in the case of multinational companies when operating internationally and
using different sets of reporting standards which made it less efficient to compare the financial
statements. Another importance for harmonization has been an increasing focus on investors as
they benefit from new IFRS due to investor oriented approach.
The accounting and auditing processes were developed by governments and regulatory bodies all
over the world according to the specific needs of those countries. However, as mentioned by
Roussey (1994) the need for one set of international reporting standards have increased even
more as the businesses are going global and growth in cross-border financing are creating an
environment that would benefit from greater harmonization of accounting standards at both
international and national levels. To achieve harmonization, the parties such as investors,
business analysts, corporations, organizations, government bodies should work in cooperation.
There are several organizations that promote the harmonization of IFRS globally. These are just
a few of them:

European Union

International Organization of Securities Commissions

International Federation of Accountants

World Trade Organization

International Monetary Fund

World Bank

Advantages of Harmonization
The first and most important advantage of harmonization of reporting standards is to achieve
comparability in financial statements. Due to different sets of financial reporting standards, the
way financial statements prepared and presented are different from each other which make it
complicated to compare them. This is even more noticeable in multinational companies when
they operate in more than just one country. If international harmonization is achieved, the level
of international comparability also increases making it easier for companies to prepare the
financial statements under one set of rules; investors who understand the financial statements due
to the nature of IFRS and make well thought investment decisions.
There will be increased auditing efficiency and money saving as companies has to use only one
set of reporting standards. This also serves to reduce trade barriers among countries allowing
more access to international capital markets.
Another advantage worth noting is the consistency to be achieved under IFRS as it was one of
the objectives of IFRS as a single reporting standard. The consistency also contributes to better
understanding between investors, lenders and other businesses as there will be the nature of
predictability in place. Moreover, companies operating in different countries also can use their
expertise and systems in all countries they are operating due to consistency of the reporting
standards. Another benefit that derives from consistency is the time scale needed to implement in
new countries as there will be no need to learn and adapt to new county specific rules except
minor adjustments.

Disadvantages of Harmonization
As mentioned by Ketz (2004), information will be difficult to obtain from domestic accounting
standards. He further states that according to critics of international accounting systems, with
different social and economic institutions, political approaches, tax implications, laws and
business practices, a single set of rule which is IFRS is hard to be achieved and even if achieved,
it will be less useful than it has been expected. This indicates that even if international
harmonization is achieved it will be impossible to eliminate every single difference in
international reporting standards.
Another disadvantage of harmonization is when there exists different economic environment as
harmonization could be considered useless. If a particular country has its own practice in place,

and even though they adapt to use one of the international reporting standards, it could be more
harmful to the country rather than make anything good. This is because the irrelevant element of
the new reporting standard may be of no use and therefore may even introduce ambiguity and
complication to that countrys reporting standards.
The differences make it difficult to distinguish changes in the performance from the effects
arising from the use of different accounting requirements. The aim of accounting harmonisation
is to make the financial statements of companies comparable with the financial statements of
companies in other countries. On the simplest level, harmonisation is the process of bringing
international accounting standards into some sort of agreement so that the financial statement
from different countries are prepared according to a common set of principles of measurement
and disclosure.
The desirability of uniform accounting has been apparent throughout the lifetimes of many
people, however only in the last twenty years or so has the ease for it become irresistible. One
factor mentioned by Alexander and Nobes (2008), has been the increasing globalisation of
businesses. Because the globalisation pushing large companies go multinational, those
companies are operating internationally and following different accounting standards depending
on the requirements of the local government.
The successful completion of Uruguay Round of GATT, leading to the establishment of the
World Trade Organization and expansion of European Union further creates multinationals that
require a uniform accounting reporting standards.
As claimed by Alexander and Nobles (2008), the increasingly global nature of capital markets
also triggered a demand for a uniform accounting standards. They claim that if businesses are
multinational in scope, it is likely that they will wish and need to raise their capital in many
different countries. And they are assisted in this by increasing competition among the capital
markets, each anxious to increase its share of world business. Indeed, competition among the
capital markets may the strongest factor in encouraging a change of attitude by national
regulators towards International Accounting Standards. And the strongest capital markets see the
ability to accept International Accounting Standards as enabling them to compete more
effectively: the need to prepare extra accounts to have a cross-border about the desirability of
allowing domestic companies to use international standards for domestic companies may be
content with the stock exchange quotations in other countries and see no need for a quotation on
the domestic exchange.
Moreover, Kirk (2005) also states that the trends towards greater globalisation, the motivation of
companies for seeking a uniform accounting system are strong.
If companies have to prepare their accounts according to several different sets of rules, in order
to communicate with investors in the various capital markets in which they operate, or for other
national purposes, they incur a considerable cost penalty.
The importance of international accounting harmonization is now widely accepted for several
reasons (Alexander and Nobes 2008).

First, the rapid development of international capital markets is strengthening their

dominant role as economic resource distributor. How information disclosed to the market
is a central issue in ensuring market efficiency.

Second, the increasing frequent cross-listing of multinationals generate an urgent need

for a single universal set of accounting standards for these firms in order to reduce
information production costs and send out a unified, reliable message to the market.

Third, the activities of institutional investors are becoming increasingly

internationalized. Their presence in foreign markets is forcing domestic listed firms to
play the accounting game by global rules.