The role of accounting systems in the shaping of business cannot be underemphasized. Given the critical role that accounting systems play in the business world, the evolution of business activities to extend to global regions demands a change in the accounting systems. Saudagaran (2009) believes that the increased internationalization of business and numerous financial activities has reinforced the need of a harmonized system of accounting. Throughout the world, difference countries have different accounting standards in place making their harmonization a challenge as presented in the case (Hill, 2011). Despite these differences in accounting system, a move towards adopting international standards of accounting present both benefits and risks that must be evaluated.
Benefits of adopting international systems of accounting
There are several benefits that can be realized of a country adopts an international standard of accounting. These benefit received by investors and business vary from one another through they both represent the reasons that motivates the adoptions of international accounting standards.
Investors benefits when an international accounting standard is implemented between different countries. With financial transaction being reported in a uniform format, investors can be able to make informed decision on how they need to allocate the capital easier (Robinson et al., 2008). In addition, investors can benefit from understanding the cause of swings or fluctuations if the transactions are reported in a standard way (Hill, 2011). The benefit presented above clearly demonstrates that investors will be better placed to make timely decisions that are based on a consistent platform. Therefore, a uniform presentation of financial transactions that is achieved through the use of international standard of accounting strengthens the work of investors as they eye investment opportunities across the global market place.
Business enterprises are also set to benefit from an international standard of accounting. One benefit of using an international accounting standard will be the listing of business enterprise in some of the world stock exchanges (Gibson, 2008). Some stock exchange requires that business enterprise adopt international accounting standards before they are listed. Some lending institutions require that business enterprises adopt international standards of accounting as a condition for borrowing. Whichever the case, business enterprises will benefit if they adopt the international standard of accounting.
Risks of moving into internationals standards of accounting standards
There are several risks that a country can face if it decides to adopt an international standard of accounting according to Saudagaran (2009), some countries can find the adopting an international standard of accountant is in appropriate for their internal use which can complicate reporting efforts of business and financial transactions. Moreover, the choice of the internal standard of accounting can influence the success of a country. If the chosen international accounting standard becomes non-competitive, a country may not able to attract investors as required. As a result, investment opportunities may decrease the economic growth of that county.
China's road to IASB
In the case provided, Hill (2011) highlights the difference in the accounting standards between China and the United States. While China has experienced a surging economic growth, it has been regarded as having a non-conducive investor environment. Since China has not adopted the IASB accounting standards as compared to the United States, it moves towards the adoption of the IASB will call for the revision of financial transactions reported earlier. This will cost China but it will boost investor's confidence in venturing into China. Despite the challenge of international standards of accounting, countries are increasingly seeking compliance to them.