Technology has revolutionized business undertakings worldwide. Most importantly, development in transport infrastructure and legal frameworks that encourage business undertakings beyond geographical boundaries have favored the thriving of businesses worldwide. There has also been an increase need for transparency in financial undertakings. The significant development in international markets exemplifies the extent to which convergence in financial reporting standards is necessary.
One of the reasons that make the convergence of accounting standards desirable is the alleviation of confusion and complexity inherent in the different accounting and reporting standards. Lack of streamlined accounting standards results in a lack of harmonization of financial reporting, hence, increased probability of errors being witnessed ( Moussa, 2010). This is mainly because when institutions that use different accounting standards, for example, IASB and IFSR, engage in business undertakings, there will be a need for conversion or adoption of standards that are agreeable to both parties. Besides the above, convergence will ensure better clarity and comparability of accounting reporting approaches. Uniformity encourages international investment, reduction of interest rates, and economic growth. This is because the processes that stakeholders will need to assume will be smooth and less time-consuming ( Moussa, 2010). In addition to the above, the convergence of financial standards could increase transparency in reporting and reduce the cost incurred in consolidating financial statements, especially for multinational companies ( Das et al., 2009) . Transparency positively affects the credibility of financial statements and, therefore, positively influence investor’s risk taking behavior. Due to the above, thriving economies are likely to be witnessed.
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It is not appropriate to only use IFRS-based statements because there are financial dynamics that are likely to negatively influence the company’s financial outlook if these standards are solely used. It is worth noting that the International Accounting Standards Board recommends a mixed approach. This allows the stakeholders in question to choose the most appropriate measurement approach, other than using static IFRS statements that might not best suit the situation at hand. Although IFRS adopted a mixed approach due to the realization that a single measurement approach might not result in the presentation of the most relevant information to users, the approach has inherent disadvantages, for example, the use of fair value. This does not provide the most accurate information in all situations. Inconsistencies are, for example, evidenced by IFRS 9 and IFRS 15. In some instances, IFRS calls for the use of cost, and in others, it required the use of fair value. On the other hand, IFRS 15 is only concerned with cost allocation.
IFRS-based statements should not be used solely because their provisions might not be fully relevant in the determination of the degree of measurement of uncertainty. Depending on IFRS alone might influence the presence of measurement uncertainty to a level that assets or liabilities cannot be realized. Besides the above, adopting diverse measurement approaches present an opportunity for fully meeting the objectives of reporting. Most importantly, various approaches ensure information is verifiable, timely, and easy to understand. Besides, business environments are influenced by political, legal, economic, and cultural factors. Differential statements that can be adopted based on economic conditions and legal factors are more suitable because they can be used when the situation at hand calls for their use. Using IFRS-based statements only could result in rigidity.
Based on my responses above, I believe convergence should be pursued. Divergent reporting standards could hinder transparency and integrity in reporting (Das et al., 2009) . Creating an environment in which financial reporting is smooth and does not result in high reporting costs ensures organizations thrive. It also eliminates significant liabilities that result from problems complying with variable reporting standards. Most importantly, it ensures harmony in trading, hence, eliminating ambiguity encountered when organizations need to adhere to different standards.
References
Das, B., Shil, N. C., & Pramanik, A. K. (2009). Convergence of accounting standards: internationalization of accounting. International Journal of Business and Management , 4 (1), 78-90.
Moussa, B. (2010). On the international convergence of accounting standards. International Journal of Business and Management , 5 (4), 89.
