Convergence of accounting problems and progress

Today’s economies depend on cross-border transactions and free international flow of capital. These capital allocation decisions require assessment of company’s value. Financial reports are integral and fundamental to such a valuation exercise. However, because of different legal political and economic systems, measurement, analysis, and reporting of many business and financial transactions is country specific. Differences in accounting rules and principles add cost, complexity, and risk for both the companies preparing financial statements and the investors making economic decisions. Such differences complicate comparison of accounting statements prepared under different regimes. This article approaches the problem from two perspectives. The historical perspective helps understand the evolution of accounting into an important business tool and the need to have common accounting practices across the globe. The second perspective looks at the progress made till date to achieve convergence and important areas of economic activity where differences exist. The findings have been arrived at with the help of an in-depth review of available literature. They help conclude that the much sought after convergence is still work in progress as there are large number of economic activities whose accounting treatment differs in different areas of operation.