The Outlook as Financial Convergence Falters

• Author: Timothy L. Baker,James B. Edwards
• DOI: http://doi.org/10.1002/jcaf.21983
• Date: 01 September 2014
• Published date: 01 September 2014

13

© 2014 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI 10.1002/jcaf.21983

f

e

a

t

u

r

e

a

r

t

i

c

l

e

James B. Edwards and Timothy L. Baker

Converging countries’ different views on account-

ing standards and audit regulations was an admi-

rable goal. But if anything, the differences have

been increasing—building a growing wall that

blocks compromise and impairs progress. This

divergence may lead to more costly financial

reporting and additional independent audit costs

for many international companies. The authors

take a detailed look at the current situation and

what is ahead. © 2014 Wiley Periodicals, Inc.

T he Outlook as Financial Convergence

Falters

Local differences

in viewpoints and

resistance to com-

promise are impairing

progress in the pur-

suit of international

harmony in financial

reporting and statutory

audit regulations. The

cost in terms of money,

time, and the surrender

of preferences is grow-

ing. Unfortunately, pol-

itics may be taking over

the scene. There appears to be

some opposition to government

outsourcing of standard setting

to what some say is, in effect, a

private-sector body funded by

public money, particularly in

Europe.

Recent developments in the

United States, the European

Union (EU), and other coun-

tries concerning the convergence

of International Financial

Accounting Standards (IFRS)

and the global congruence of

independent auditor regulations

appear to be moving in divergent

directions.

This divergence may lead

to more costly financial report-

ing and additional independent

audit costs for many interna-

tional companies. International

companies may be faced with

multiple varying jurisdictional

reporting requirements and

separate independent audit

certification requirements as

they operate across borders and

seek funds in worldwide capital

markets.

The complexities of recon-

ciling varying reporting require-

ments while preparing consoli-

dated financial statements for

a global company renders the

preparation tasks and under-

standing of the resulting repre-

sentations across many capital

markets very difficult. Keeping

track of the various financial

transactions and events under

multiple disclosure

requirements will

add to the cost of

preparation and the

statutory indepen-

dent audit certifica-

tion costs. This is not

what global investors

want in support of

their financial data

analysis needs. Many

believe that IFRS is

best positioned to

become the single

set of standards that would cre-

ate worldwide comparability of

financial reports. The world’s

capital markets know no borders

and the participants in these

markets need uniform, high-

quality, transparent, and com-

parable financial information

to enable them to make sound

investment decisions.

1

While representatives from

participating countries endeavor

to seek out uniform standards,

they continue to encounter

intolerable impasses on some

of the most critical issues. “One

size does not always fit all.”

Partial adoption could create

more confusion for some inves-

tors and confound the role of