The International Convergence Project Assignment

The International Convergence Project - Assignment Example Globalization has undoubtedly contributed to the economic growth in developed as well a developing countries through the principle of comparative advantage and increased specialization. With the benefits of globalization, the policy makers have also recognized the need for uniform disclosures by firms engaged in multinational businesses. As accounting is a universal language for business, it becomes all the more important to have sound and comparable accounting principles to enable the capital providers, analysts and regulators to understand the health of business and make relevant decisions. Understanding this need the standard setters have come up with the international convergence project for uniform accounting standards. This project includes the discussion on need for uniform accounting standards in modern financial world. The benefits that accrue on behalf of adoption of single accounting standard framework by majority of the countries have also been provided. Furthermore the e mpirical evidence post-IFRS adoption by European firms has been included. Lastly the current state of convergence project has been provided. ... Accounting standards play important role in regulation of global financial markets. This has made it important to establish a single set of high quality financial accounting standards. The function of financial accounting standards is to define the rules for national regulators and participants of capital markets such as banks and borrowing firms. A common accounting language can provide the investors greater confidence in transparency and comparability of financial statements. The global standards are seen as a key to safety of global financial arena. These standards are purported to be means of mitigating the volatility of capital flows across markets, reduction in probability of bankruptcies and reduce systemic risks. The foundation of convergence process was laid in early 2000s when in 2002 the two major standard setting bodies IASB and FASB formalized their commitment in a Memorandum of Understanding (MoU) to the convergence of IFRS and US GAAP under the Norwalk Agreement (Kieso , Weygandt & Warfield, 2010). The objectives of the convergence of standards were to achieve completeness and improve consistency, as historically both the accounting standards by IASB and FASB have been incomplete. As a result the two boards identified short-term and long-term projects that would eventually lead to convergence. Some short-term projects were borrowing costs and fair value accounting for financial instruments, issued in 2007 and since then uniformly followed by both the standard setters. Long-term projects included issues like the conceptual framework, leases and revenue recognition. Additionally European and US regulators have agreed to the recognition of each other’s accounting standards for firms listed on various world securities exchanges. The international