Financial Reporting:

Harmonization and Convergence of Financial Reporting and Auditing Standards

 

Will investors and the companies that rely upon investors’ capital benefit from the harmonization and convergence of the various national and supra-national standards regimes for financial reporting and auditing?

Position: It is in the best interests of investors and for global financial markets generally for the differing standards to be harmonized and complete convergence to be achieved at the earliest possible time.

Rationale:

• The costs investors incur to harmonize the various standards so that cross-border comparisons of companies may be made are large

• Such costs are ultimately impounded in the costs of capital that investors demand for cross-border investments

• The magnitude of the costs are sufficiently large in some cases as to serve as an effective barrier to cross-border movements of capital

• Investors, companies, and markets will benefit from the complete harmonization on a global basis of the differing national and supra-national standards

• Harmonization should converge to the best possible standard, that is, the method that best reflects the underlying economics of transactions, rather than to any particular national standard

• Only one method should be permitted for reporting similar transactions. The reporting method should not differ depending on country, industry, size of company, or any other consideration, and managers should not be permitted choices of reporting methods for similar transactions

• Auditing is the examination of a company’s financial statements by outside experts. Auditors report to financial statement users on the accuracy and fairness of the statements

• High-quality audits are essential if the financial statements are to be regarded as reliable by investors and other users

• The quality of both audit standards and the resulting audits differs substantially worldwide

• It is essential that auditing standards be harmonized to the highest quality worldwide due to the critical importance of audits to the usefulness of financial statements

 Where stated: SEC CIFiR 08 (PDF); GFRAC ED 5 - Insurance Contracts (PDF); Real Estate Time-Sharing 03; Acqns Certain Finl Insts 02; Guarantor's Acctg & Discl Rqmts 02; Comprehensive Business Reporting Model