Accounting Harmonization in UK-Free-Samples-Myassignmenthelp.com

Question: Discuss about the Accounting Harmonization in UK. Answer: Introduction of Accounting Harmonization: Accounting harmonization is the process in which different methods of accounting are used and integrated into the accounting practices of any organization. Moreover, accounting harmonization can be termed as the integration of different accounting methods and standards (Strouhal, 2011). Why Accounting Harmonization: Accounting harmonization helps in ensuring the quality in the financial reporting of an organization It assists in developing reliability of the financial reporting and disclosure by the company It contributes to improving the global credibility of an organization It provides better platform where an organization can be compared with national and international corporate peers (Strouhal, 2011) Force to lead accounting harmonization: The globalization is the most crucial force and factors led the accounting harmonization practices by the organization. The globalization provides opportunities to the organization to sell their products and services in more than one country (Prochzka, 2011). They show their desires to be listed on stock exchanges in different countries to attract equity to debt in order to raise the fund. Therefore, the reporting in different countries requires organization meets local accounting standards. This led EU to do harmonization through IFRS adopted in 2005. Advantage and disadvantages of Accounting Harmonization: The main advantage accounting harmonization is that it brings consistency to the international market. The combination of GAAP, IFRS and local accounting standard are pursued by the ISAB to achieve the objective of fair and efficient capital across the international market. This makes necessary for all the organizations to follow the same kind of standard and accounting principle that assists the investors easily evaluate and comparing the organization (Prochzka, 2011). Along with this, the international accounting standards allow the international investments into the company that overall leads the economic growth of the country. There is some drawbacks tool associated with accounting harmonization. This may be very expensive to the organization to adopt the new accounting standards and principles. The application of the new accounting standards may take time because accountants, investors and other management staff would need to gain knowledge about the new accounting standards and their application (Prochzka, 2011). Introduction to the UK: UK (United Kingdom) is a country situated in Western Europe. The UK comprised of four countries that include Wales, Northern Ireland, England, and Scotland (Expatica, 2017). UK follows its own accounting standards and UK GAAP. UK is striving to implement the accounting harmonization by adopting IFRS. The organization in the UK followed and complied with UK GAAP in accounting practices and financial reporting. The company act and law of UK defines some minimal requirements for the accounting practices and financial reporting by the organization (Barbu et al, 2014). Issues faced by the UK in process of Accounting Harmonization: There are various difficulties have been faced while implementing the accounting harmonization in UK (EU). These challenges and difficulties may be provincialism, the difference in the social environment, the difference in the economic environment, diverse accounting practices, gaps between developing and developed economies, the difference in tax law, the difference in disclosure law, local standards, competition between international agencies, and corporate attitudes (Rzsa, 2013). These are the difficulties realized while practices accounting harmonization. Provincialism relates to the reluctance of countries to listen to others and change the views they have. Every country perceives that the system they follow is the best system. People in such countries think of their views as superior to others that impede the agreement on the common solution to a problem. Apart from this, every country is different to each other in terms of the social and economic environment that causes barriers to the enforcement and implementation of the harmonization of accounting. The economic policies and structure may have an impact on the harmonization practices (Albu et al, 2011). Furthermore, the diversity in accounting practices also affects the harmonization. In different nations, different accounting practices are followed that causes difficulties in the harmonization. Besides this, every country has their own legal system related to tax law, disclosure law, and accounting practices law that also affect the implementation of the harmonization of account ing (Barrett et al, 2013). The European Union has been striving to implement the harmonization of accounting and financial reporting standards for a few decades. The national accounting system in EU is highly diverse as there are numbers of nations are the members of the EU but following different accounting systems (Wang, 2014). UK was one of the members of the EU. EU as well faced difficulties while implementing the harmonization of accounting. The difference of the law for the national accounting systems created a barrier in the process of harmonization of accounting in the UK. Tax oriented peculiarities and provision in the accounting system of members countries in EU was different that caused impedance in the implementation of accounting harmonization. Apart from this, poor guidelines in IFRS endorsement, low experience with some specific kind of transactions, capital market development and others were also the barricades in the accounting harmonization practices in EU. When the IFRS was adopted in 2005, most of the companies in UK, Sweden, and other country members of EU were unprepared to endorse and comply with the IFRS in 2005 that also caused the barrier in the endorsement of the International Financial Reporting Standard (Guggiola, 2010). By 2011, people still were criticizing and urging the government of UK to cancel the application and adoption of IFRS for financial statements and financial reporting in the UK. The companies which are multinational and working in the UK have to adopt the principles of IFRS. The companies are listed only in one nation or operate within one economy were not obliged or is not obliged to adopt the IFRS in their accounting and financial reporting (Gray et al, 2014). The implementation of IFRS in the UK and other country members of EU were criticized mostly in regarding of fair value principle and model of accounting. The critics argued that the fair model in IFRS overstates the profitability of the organization and banks that generate liability to them to provide an excessive dividend to shareholders (Collings, 2010). Along with this, there is clear guideline under the company act of UK that the financial statement of the companies in the UK must be prepared based on the principle of true and fair which somehow conflicts with the IFRS. This causes also barriers in the implementation of accounting harmonization. The IFRS has been developed by the IASB that does not consider the principle of true and fair (Barbu et al, 2014). Many of the financial institutions resist to the adoption of the IFRS cost of equity, interest rates, and other financial items vary from market to market or country and country. Therefore, it can be said that the UK faced di fficulties in the implementation of the accounting harmonization and adoption of the IFRS. Comparing the domestic accounting standard vs. IFRS standards The UK accounting standard involves the UK GAAP as domestic accounting standard. It is also known as Generally Accepted Accounting Practice and it is formulated by the FRC (Financial Reporting Council UK). In the UK GAAP accounting standards are effective for the year 2015, January. Along with this, IFRS standards are also accounting standards that provide a framework to business organizations for the preparation of financial statements. It is also set to different accounting standards and developed by the IASB (International Accounting Standards Board) that is an independent organization (Kieso et al, 2010). In the use of IFRS standards, the business organization uses the historical cost and business firm can revalue their investment property, intangible property, plant, and assets. But at the same time, through following the UK GAAP, business firms do not recognize the derivatives at the fair value and they can represent the securities at the fair value (Betakova et al, 2014). At t he same time, businesses are allowed to revalue their investment property. The adoption of IFRS is also effective for the business at the reporting data along with limited mandatory exceptions. But at the same time, UK GAAP is similar to the US GAAP as it has requirement of retrospective application and standards are reported for the use of GAAP accounting standards for first-time use. Apart from this, the IFRS does not provide the specific format for the preparation of balance sheet and business firms present the business assets and liabilities as liquidity presentation (Hilliard, 2013). It provides the reliable and relevant information when businesses use the liquidity presentation method. But at the same time, in the use of UK GAAP in the preparation of financial statements, company law provides the two different formats for the balance sheet and presentation of current and fixed assets are required and it also analyses the shareholder's funds into equity. Moreover, IFRS does not provide the specific formats for the preparation of income statement but UK GAAP provides the four different formats for the income statements with the help of company law (Haller and Wehrfritz, 2013). Apart from this, for the preparation of financial statements with the help of IFRS, it does not involve the exceptional items but it discloses some items such as nature, size, and incidence to explain or disclose the performance of the business firm. In the use of UK GAAP standards, it provides the information with the help of notes to presents the true and fair view of the company in its income statement. At the same time, IFRS standards also recognize the losses and gains in the notes or represent in the shareholder's equity statement separately (Horton and Serafeim, 2010). But in use of UK GAAP, it provides the statement of total losses and gains. Introduction the Tesco Plc: The company selected for this study is Tesco in the UK. It is one of the largest grocery firms in the UK and it has ranked among the top 10 retail sector companies in UK market. The company operates around 3500 stores in the UK along with 310,000 colleagues (Tesco plc, 2017). Analysis the influence of accounting harmonization to Tesco Plc: The use of different accounting standards such as UK GAAP and IFRS increased the reliability and validity of Tesco financial statements. Due to following the IFRS standards in the preparation of financial statements, company discloses that noncurrent business assets are held by the firm for the sale and discounted operations and results of these activities are disclosed in the company income statement separately. But at the same time, the assets and liabilities of business operations are disclosed in the balance sheet of Tesco separately to present the fair view of information. But at the same time, Tesco use the Non-GAAP profit measures to support the investors and shareholders in getting the information about the company performance through underlying the profit before tax and diluted earnings per share (Tesco, 2017). The Tesco use this performance measure because IFRS standards do not define the underlying profits. Along with this, use of IFRS standards in the preparation of financial statements also supports in providing the additional disclosures. It discloses additional information when users of statements such as investors, customers, suppliers, and stakeholders are enabled to understand the impact of particular transactions on the financial position of the company. The use of IFRS has a significant impact on the amount of company financial statements. The adoption of International Financial Reporting Standards supported the Tesco in recognizing the right of use lease liability and assets in relation to all the applicable leases. Apart from this, to present the fair and relevant information about the company position, Tesco replaced the rent expense by interest and depreciation expense in the company income statement. It increases the finance costs but it decreases the cost of sales that has influence in the company operating profit. Furthermore, use of IFRS measures in the company financia l statements support in measuring the periodic exchange rates (Tesco, 2017). The IFRS measures are translated based on constant exchange rates to measure the company performance and constant exchange rates are the average of the previous years periodic exchange rates. Tesco uses the IFRS measures in relation to eliminating the impact of the fluctuations in the exchange rates in relation to analyze the company financial performance or position. Moreover, use of IFRS standards in the preparation of Tesco financial statements provides the transparency of accounting practices and it enhances the flow capital in or outside the international markets. The IFRS also provides the similar framework for the accounting work that supports the business firms or investors and other users in comparing the performance of one company with other competitor or international companies. Along with this, IFRS standards also enhanced the quality of financial reports because it provides the guidelines for the accounting work and preparation of financial statements (Tesco plc, 2012). The boost in the quality of company financial reports support the investors to make the decision related to investment. Conclusion: From the above analysis, it can be said that the report effectively analyzed the accounting harmonization. It defined that accounting harmonization is the combination of local and international accounting standards to bring the consistency and similarity in accounting practices. Apart from this, the report identified that EU first implemented accounting harmonization by adopting IFRS in 2005. The companies in the UK now are complying with the principle of IFRS. However, there are critics and barriers to the endorsement and adoption of IFRS in the UK. The language barrier, legislation, big financial institutions, and tax law, and others barriers still resist to the endorsement of IFRS in the UK. The UK GAAP is significantly different form IFRS that causes conflicts in the harmonization. Furthermore, Tesco Plc is the British multinational retail organization that adopts IFRS in its accounting and financial reporting practices. Recommendation: Based on the above analysis and results found, it can be said the accounting harmonization of annual reports of the companies is beneficial for the economies and assists in comparing the companies working in different economies. The ISAB can be suggested to some steps to endorse the IFRS in the UK effectively. The representation on the ISAB should be enlarged including the developing countries that are not at present. This would provide world wide acceptance of the principles of accounting set by ISAB. Apart from this, all the pressure from the government agencies and private institution should be avoided while deciding about the international accounting standards. The decision in pressure may lead ISAB in the wrong direction that can cause deviation in the way of achievement of the goal of ISAB. Therefore, all the pressure should be eliminated while ISAB would determine the international standards. ISAB should publish the standards it developed and put efforts to gain the support from government agencies, accounting professions, corporate houses, and member countries. ISAB should try to encourage the member countries or bodies to adopt IFRS or revise their accounting standards and systems in line with IFRS. The IFRS should be passed under the legislation of UK and there should be clear guidelines for the organization to adopt and comply with it. There is an issue of the true and fair model in IFRS that is not designed by ISAB while the local accounting standards include this model. Therefore, ISAB should include the provision of the true and fair model in IFRS so that the local and international standards in the UK can be linked to each other better. Reflection: I have selected the topic accounting harmonization in this research. The accounting harmonization is becoming much famous among the organizations around the world. I gone through the international and national accounting standards of the UK and then found the elements of the harmonization. After analyzing the international accounting concept and its importance, I selected the harmonization between international accounting standards and national accounting standards. As I know that, the international accounting standard is IFRS that is followed in almost all the organization over the world. The UK government made it compulsory for the middle and large organizations. That is why this topic was very interesting and critical and based on this I selected this topic. I conducted the secondary research only to gather the information for analyzing the harmonization between national accounting standards of UK and international accounting standard. From this research, I learned that the accoun ting harmonization is the mixing of the national accounting standards and international accounting standards. Moreover, it can be said that the accounting harmonization is the implementation of national and international accounting standards in the organizations together. Moreover, I have used different sources such as text books, journals, research papers, literature reviews and online sources. I have gathered most of the information from online sources related to the harmonization, introduction to the UK, issues in faced in the accounting harmonization in the UK, introduction to Tesco Plc, and analysis of effects of the accounting harmonization on the Tesco Plc. I have focused on the oral and written communication in the research. I have used both interpersonal and analytical skills effectively to meet the requirements and objectives of this project. I have focused on the critical thinking, data analysis, creativity, and research skills to analyze the information retrieved from the secondary sources. These skills are necessary and required to effectively dig into the research problem using the available information. The critical thinking helps in finding pros and cons of the possible decision towards problem-solving. Apart from this, I have used dif ferent interpersonal skills decision making, assertiveness, and problem-solving skills. I have effectively used the interpersonal and analytical skills to achieve the research objective that is to critically analyze and discuss the success of accounting harmonization in the UK. Furthermore, I have faced different challenges and issues while researching the topic and research problem. The topic I selected is too typical to research. The findings are theoretically that is very difficult to communicate easily. The finding is pure theoretical that is very difficult to demonstrate everything effectively and is very challenging task to show the effect qualitatively. I have faced challenges in demonstrating the effects of accounting harmonization in the UK on the Tesco Plc. I had to establish the comparison between IFRS and national accounting standards in the UK. I faced challenges in writing the report based on the information that was very limited related to the effect of accounting harmonization on Tesco in the UK References: Albu, N., Nicolae Albu, C., Bunea, ?., Artemisa Calu, D., M?d?lina Girbina, M. (2011) A story about IAS/IFRS implementation in Romania.Journal of Accounting in Emerging Economies,1(1), pp.76-100. Barbu, E. M., Dumontier, P., Feleag?, N., Feleag?, L. (2014) Mandatory environmental disclosures by companies complying with IASs/IFRSs: The cases of France, Germany, and the UK.The International Journal of Accounting,49(2), pp.231-247. 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