The International Accounting Standards Committee (IASC) is an independent private-sector organization that in its own words is a "body working to achieve uniformity in the accounting principles that are used by businesses and other organizations for financial reporting around the world." As stated in its constitution the IASC's goals are to "formulate and publish in the public interest accounting standards to be observed in the presentation of financial statements and to promote their worldwide acceptance," and to "work for the improvement and harmonization of regulations, accounting standards and procedures relating to the presentation of financial statements." The IASC was founded in London in 1973 and by 1998 its membership included 143 accounting organizations representing 2 million accountants in 103 countries.
The IASC is not the first organization on either a national or international level to attempt the harmonization of accounting standards. The English Institute of Chartered Accountants in 1942 and the Committee on Accounting and Auditing Research of the Canadian Institute of Chartered Accountants in 1946 studied harmonization on the national level; the Accountants International Study Group—which was sponsored by British, American, and Canadian professional accountants—viewed standardization from a global perspective and compared the accounting practices and procedures of the three countries. In 1977 the International Federation of Accountants was established by IASC members, and is closely allied with the IASC.
Standardized accounting procedures are important in order to make financial reports comparable, especially from country to country. It is even possible, however, for accounting procedures to vary within a country. It often falls upon investment services or companies doing business in more than one country to harmonize different accounting procedures. This can prove to be an expensive and time-consuming task. Standardized accounting procedures are especially important for multinational companies which need a consistent accounting procedure for evaluating operations from different countries. External reports coming into a multinational's headquarters must also be harmonious with internal assessments of performance. International accounting standards can also be important to developing countries, since establishing national accounting standards can be an expensive and arduous process.
International accounting standards are becoming increasingly important in a financial world dominated by global traders. Between 1991 and 1997, for instance, non-U.S. equity holdings of American investors surged from $200 billion to more than $1 trillion. Of the approximately 13,000 companies registered with the U.S. Securities and Exchange Commission (SEC), nearly 1,000 are foreign companies.
Adoption of a harmonized accounting procedure has also been an objective of the European Union, which has closely associated itself with the IASC. Other groups and nations supporting the IASC include the Arab Society for Certified Accountants, which represents 22 Arab nations; Australia, which was working to harmonize its accounting standards with the IASC in the late 1990s; as well as Canada, the South African Accounting Practices Board, and the Malaysian Accounting Standards Board, all of which are pursuing similar policies. Notable holdouts to the adoption of IASC standards are the United Kingdom, which prefers procedures set by the United Kingdom Accounting Standards Board but still makes attempts at IASC harmonization; Japan, whose government sets accounting standards and often politicizes the process; and finally the United States.
In the United States, accounting standards, which are mostly set by the private sector, operate under the authority of the SEC and various state certified public accountant licensing laws. The SEC is considering allowing issuers of foreign securities to use IASC standards. Currently, these issuers must use either U.S. Generally Accepted Accounting Procedures (GAAP) or reconcile their financial statements to GAAP. Items that need to be reconciled include such things as pension cost measurement, employee benefits, and deferred income taxes.
The IASC is also attempting to develop standardized accounting procedures that will be recognized by the International Organization of Securities Commissions (IOSCO), a worldwide association of securities commissions including the SEC. Although the IOSCO and the IASC reached an agreement on core standards in 1993, a full endorsement of IASC standards has yet to be achieved. If the IOSCO were to fully adopt IASC standards, the SEC would probably do an independent evaluation. Both of these processes could last well into the 21st century.
[ Michael Knes ]
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Financial Accounting Standards Board. IASC-U.S. Comparison Project: A Report on the Similarities and Differences between IASC Standards and U.S. GAAP. Norwalk, CT: Financial Accounting Standards Board, 1996.
International Accounting Standards Committee. "International Accounting Standards Committee (IASC)." London: International Accounting Standards Committee, 1998. Available from www.iasc.org.uk .
Pacter, Paul. "International Accounting Standards: The World's Standards by 2002." CPA Journal 68, no. 7 (July 1998): 14 18 + .