FAR730_asgmt 1_slides_sarahsha - SEMINAR IN ISLAMIC...

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SEMINAR IN ISLAMIC ACCOUNTING & REPORTING FAR730 INDIVIDUAL ASSIGNMENT 1 PREPARED BY: SARAH SHAHIDA BT AWANG 2014126049
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Question 1: a) Discuss Four Rationales Of Harmonization Of Accounting Standards In Order To Maintain The High Quality Of International Accounting Standards
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Introduction Definition of Global Accounting Harmonization: “a process of increasing the comparability of accounting practices by setting bands to their degree of variation” – Nobles and Parker (1981) Harmonization: Is perceived as a process whereby all countries adhere to uniform accounting standards for financial reporting purposes.
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1) Free culture theory IFRS are conceived as a desirable mechanism for achieving isomorphic targets (convergence needed in financial reporting) in a globalized world and as the best way to prepare financial reports . Measurement and reporting problems faced by accountants are the same throughout the world (Aitken and Islam, 1984) and that the responsibility is on accountants to provide useful and comparable information across international borders. Bring the accounting into line with globalization initiatives of the World Trade Organizations (WTO), Organization for Economic Co-operation and Development (OECD), International Monetary Fund (IMF) and the World Bank (WB) (Graham and Ney, 2003).
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2) Lower costs and improved economic rationality Harmonization of international accounting standards have multiple benefits for Multinational companies (MNCs). MNCs will achieve cost savings through avoiding having to prepare different sets of financial reports when listing on foreign capital markets, and that they will make it easier for them to prepare consolidated financial statements. The adoption of the IFRS would increase the attractiveness of EU countries as the location of choice for multinational companies Lower the cost and improved economic rationality. European Commission (EU) argued that it was costly for global companies to prepare two sets of accounts and that the provision of different figures in different environment is focusing to investors and to the public at large (EC, 1995, para 3.3)
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3) Enhanced comprehensiveness, credibility and comparability Accounting standards are used to generate comparable and reliable accounting information to help investors creditors and other users to make investment decisions . Global accounting standards or harmonized accounting principles are alleged to narrow differences in accounting standards and to facilitate more meaningful cross-national comparisons of the financial performance of globally active entities. By enhancing the comparability of financial reports of companies operating in different countries, it is argued that investor protection will be increased, barriers to international capital flows reduced, and the allocation of resources in global financial markets improved (Choi and Lehich, 1991,p.11; Needles et al., 2002; Zrazeski, 1996) The need for same standard by companies in their financial reporting to
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