The Harmonization of International Accounting Standards: Progress in the 1990s?

The International Accounting Standards Committee (IASC) was established in 1973 to harmonize international accounting standards. The IASC's standards (IASs) are now accepted in some form by numerous stock exchanges, including those in London, Germany, Hong Kong, Singapore, and Switzerland. The US SEC already accepts use of three IASs and has indicated that it may accept all IASs in late 1998. Though accepted by a growing number of stock exchanges, this may not represent individual country's accounting standards. This article investigates the recent progress of international accounting harmonization by examining whether countries' official standards are in compliance with the IASs in the 1990s. Overall, harmonization via IASs appears to increase from 1991 to 1993. However, when the results of the "Comparability of Financial Statements" program became effective in 1995, at least initially, the level of harmonization decreased. This drop is not unexpected given that the 1995 changes eliminated previously approved and practiced accounting methods. Is harmonization of international accounting standards occurring? The actions of various international stock exchanges are a positive indication. International Accounting Standards (IASs) are now accepted from foreign registrants on a large number of stock exchanges, including those in Australia, London, Germany, Hong Kong, Kuala Lumpur, Paris, Singapore, and Zurich (IASC 1998b). Several stock exchanges do not even require any additional disclosures reconciling IASs to their country's own domestic GAAP. The US Securities and Exchange Commission (SEC) now accepts IASC prescribed cash flow statements and two other IASs. Moreover, the US SEC may accept all lASs in late 1998. The International Accounting Standards Committee (IASC) receives widespread support for its efforts to harmonize international accounting. Indeed, the IASC is now regarded as the leading force in the international accounting harmonization effort, with the support of the International Organization of Securities Commissions (IOSCO), the largest international public accounting firms, various businesses and trade organizations, many international development organizations, and most national public accountancy bodies. Despite widespread public support for accounting harmonization and the work of the IASC, little empirical research has assessed the extent to which harmonization via IASs is actually occurring (Tay and Parker 1992, Rivera 1989). The study explores recent harmonization via IASs in regards to various countries' actual accounting standards in three parts. The first part briefly reviews compliance with lASs in the early 1990s before rather dramatic changes in IASs became effective on January 1, 1995. The second part examines changes in the early 1990s of countries' accounting standards to determine whether those changes are resulting in greater compliance with IASs. The third part examines compliance with IASs after January 1, 1995, when the results of the "Comparability of Financial Statements" program became effective. Those changes to lASs eliminated many previously allowable accounting methods for many types of transactions, even though many of those accounting techniques continue to be generally accepted accounting principles (GAAP) in various countries. Potentially, a country's GAAP could be in compliance with lASs on December 31, 1994, but not in compliance the next day. In the next section, we provide some background on harmonization, discuss relevant literature, and state our research questions. We then describe the research method before discussing the results and conclusions from the three parts of the analysis. BACKGROUND, LITERATURE REVIEW, AND RESEARCH QUESTIONS Background The international harmonization of accounting has been defined as "the attempt to bring together different systems. It is the process of blending and combining various practices into an orderly structure, which produces [a] 'synergistic result"' (Samuels and Piper (1985, 56-57). …