Article2007

Harmonization, Comparability, and Fair Value Accounting

74 citations0/0 files storedJournal of Accounting Auditing & Finance

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Accounting Theory and Financial Reporting Auditing, Earnings Management, Governance Financial Reporting and Valuation Research

Abstract

In this paper, we focus on the relationships between international accounting harmonization (IAH) and the paradigm of Fair Value Accounting (FVA). Accountants rely on the accounting concept of comparability in defining IAH and are in agreement that a set of internationally implemented Generally Accepted Accounting Principles (GAAP) is required for a “complete harmonization.” We argue, however, that a second requirement—a common denominator for measuring, recording, and reporting business transactions, assets, liabilities, and equities—is necessary to reach a state of a “complete IAH.” We explain the logic behind the requirement of a common denominator and assert that IAH is feasible under the paradigm of FVA, but not under that of Historical Cost Accounting (HCA). This is true because the concept of fair value, but not historical cost, provides the common denominator necessary for a meaningful comparison of accounting data. We then argue that the paradigm of FVA acts as a catalyst in a harmonization cycle: FVA propels IAH and IAH provides more relevant information that may foster the efficiency of global markets, which improves the quality of the FVA figures.

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References

1988Towards a Theory of Cultural Influence on the Development of Accounting Systems Internationally 2000Global Transformations 1981International Accounting and Multinational Enterprises 1988Measuring Harmonisation of Financial Reporting Practice 2012Forging Accounting Principles in Five Countries: A History and an Analysis of Trends 2021The qualitative characteristics of accounting information 2014Accounting for Derivative Instruments and Hedging Activities

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