Accounting and international standards

Accounting science

Before I start talking about international accounting standards. I should define the accounting science, at least in a simple and fast way, so we understand what is accounting science? how it grew up, and what its objectives, then it’s easier to explain international accounting standards and its objectives.

The accounting restrictions arose almost six centuries ago, and were in their simplified form (simple limitation). They were intended to identify debts or expenses resulting from existing business at that time and other financial matters.

The accounting science has development to have many branches, and specialties including accounting costs, standard costs, banks accounting, administrative accounting and government accounting, which deals with taxes, duties, and the calculation of employee’s salaries according to the implemented laws and regulations in each country.

Accounting custom

Since its inception, accounting hasn’t fixed principles and rules. The accountants practiced it as a profession. They were registering financial events in different ways. Differences began to emerge, for example, commercial transactions between two dealers. Accounting records seemed unmatched. First merchant records show that the other trader owes the amount of 10,000$ over a specific period of time. While the second merchant records show that he owes only the amount 8,000$, and so on…

Hence the necessity and need to search for the principles and rules of the accounting profession, which developed into a stand-alone science with a principles and a different disciplines and branches as I mentioned earlier.

Accounting has many different definitions, but from my point of view, accounting is a science for recording and verifying various financial events correctly, as well as preparing financial reports at the end of the financial cycle, which are time-bound in a way that shows the true financial position of the project owners and assists the project owners in the decision-making process.

The development of accounting, and the emergence of principles, and rules in specific places contributed to reducing, and solve the problems of dealers in a specific place as a specific city, because it became an “accounting custom” as some like to call it. Differences between dealers began to show in different cities within the same country, because this principle or custom is not applied by them or is unknown in this country. From here the need for one uniformed accounting standards began. Countries start trying to unify the laws and regulations of accounting, but at local level rather than international one.

Multinational companies

The great development and huge growth of capitalist led to the emergence of multinational companies, that started to open branches in different countries, on different continents. These branches operate in countries governed by local accounting rules for the country in which they operate. This has created problems for multinational companies that have investments in different countries. How to coordinate between the branches that operate according to different accounting standards and the main center that also has the standards in which it operates in another country? How the real financial position of these companies will be known?

On the other hand, large economic blocs, such as the European Union, and the bloc of most powerful 20 economies in the world, The BRICS and other international economic blocs, began to sign economic agreements and cooperate with each other. However, with different accounting standards and rules, Economic cooperation among them as well as the process of evaluating the financial centers of multinational companies has become difficult, and complex in light of the different accounting standards among the different countries of the world.

International standards

After this rapid historical narrative of these economic, political and financial developments, financial and accounting institutions have begun to feel the need to unify local and regional accounting standards, and to turn them into international standards that all countries of the world will use to reduce the differences between them.

The top ten accounting firms in ten countries called IASC, (International Accounting Standards Committee). These countries are: the United States, Canada, Britain, France, Australia, Netherlands, Ireland, Germany, Japan and Mexico. Currently, the Committee comprises more than one hundred professional accounting institutions from more than 80 countries. The committee meets periodically, with its members meeting almost every four years, discussing international accounting standards for development, and issuing their recommendations in this regard.

It should be noted that as there are international accounting standards, there are also international standards, for auditing, It is important to emphasize that international accounting standards are not bound by the rule of law, but bounded by the financial and tax laws in each country. International companies and even countries boast much commitment, and that their laws conform with International standards.