Question

Some recent research articles on the issue of accounting convergence (see, for example, Walker, M. (2010) in "Accounting for varieties of capitalism: The case against a single set of global accounting standards", British Accounting Review) question the value of worldwide convergence in accounting practice along a single set of standards (such as IASs) and advocate instead for the system which would be based on different accounting standards tailored to the requirements of different economic models and cultural traditions. Express your viewpoint in relation to the above arguments and explain your position.

Answer 1

Recent research articles on the issue of accounting convergence (see, for example, Walker, M. (2010) in "Accounting for varieties of capitalism paper argues that the optimal design of accounting standards may depend on the institutional characteristics of the political and economic system. The case against a single set of global accounting standards", British Accounting Review) question the value of worldwide convergence in accounting practice along a single set of standards (such as IASs) and advocate instead for the system which would be based on different accounting standards tailored to the requirements of different economic models and cultural traditions.

The use of one set of high qualty standards all over the world has the potential to improve comparability & transparency of financial information & reduce the prepration costs of the financial statements. Many arguments have been used to support IFRS.

There are several varieties of capitalism, and it is not obvious which of these varieties is best. Moreover, the existence of different varieties of capitalism arguably promotes economic progress. This being the case the paper urges a cautious approach to the imposition of a single set of global accounting standards for all companies. The forced adoption of single form of accounting runs the risk of severely restricting the different forms of capitalism that can develop. It also privileges one particular way of doing business over alternative forms that currently exist or, more importantly, may exist in the future. In effect the forced adoption of a single form of accounting can be viewed as a form of restrictive practice that prevents alternative and superior ways of doing business from taking shape. International accounting standards optimised for stock market based capitalism are not necessarily optimal for other forms of capitalism and, since stock market capitalism has lost credibility as a way of doing business, the world may be better served by encouraging alternative forms of capitalism to develop with accounting standards tailored to their needs.