The Necessity of an Asian Accounting Standards

The Necessity of an Asian Accounting Standards

In this new economy we have seen how huge companies have both helped and hurt different countries' financial systems.Currently there are two main accounting standards: Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS).The United States utilizes GAAP while the rest of the world, including parts of Asia, practices IFRS. Both of these standards promote fair and truthful balance sheets, but they rely on different sets of numbers to get to that point.The global division in accounting standards can and will cause financial conflicts between countries and companies in the near future.It is only by using a globally acceptable accounting standards and full transparency can we avoid global financial catastrophe.

In the past decade we have seen what can happen when accounting practices have not been followed.It has caused many American and European companies to fail, led to countries and cities to go bankrupt, and some CEOs have lost their jobs over these financial oversights.As we look to the future it has become apparent that Asia will play a major role in the global economy.Asian companies are no different than any other company in the world; they are in the business of making money.There are many different routes a company can take to achieve their financial goals and some are more legal than others.That is why different economies have accounting standards that prevent business from taking advantage of the system.

Asia has become a powerful player in this new global economy with countries like India and China now leading the way. Unfortunately not all Asian countries practice the same accounting standards.Some Asian countries practice IFRS or they are planning to convert to it in the next 5 years.China uses their own accounting standards called AccountingStandards for Business Enterprises (ASBE), which they believe follows both IFRS and GAAP accounting standards.This lack of consistency in accounting standard within the region will be problematic when foreign companies and investors try to do business in the area.GAAP and IFRS help create financial standards for companies but it is also a measuring stick for investors as they need to have full disclosure so they can make accurate business decisions.When a foreign company or investor does business in Asia, they will have to manually sift through pages and pages of that company's financial paper work and then try to convert that information to find the relative financial information.Some companies will have the time and effort to do this process, but others will be turned off. For any businesses or country to be financially viable, they need a constant flow of money coming in and out or they will fail.So if Asia wants to be a financial player globally, they will all have to conform to acceptable accounting standards.

By adopting IFRS, Asian companies should not feel that they are being strong armed by the European Union or the United States; they should feel a sense of national pride.They are now part of the global finical community and that means that both the EU and U.S. are now treating them as serious business players.As serious business players, they need to adhere to either IFRS or GAAP. They could even create a new unified third accounting standard, but it must be one that can be accepted globally.If the different countries in Asia continue to function financially without acceptable accounting standards, they will lose credibility, business opportunities and even worse, countries could go bankrupt.

Financial transparency can only be achieved once countries and businesses are willing to use an accepted set of accounting standards.These standards can help companies and investors from around the world to honestly look at different aspects of other companies and make accurate business decisions.It will hopefully prevent companies from posting fraudulent numbers to help boost their own books. These fraudulent numbers can lead to a domino effect; when one company collapses, it can lead to others failing which in turn could cause a catastrophic global disaster.Globalization has forced companies to think internationally and it is because of that fact that companies must find a way to be accountable, not only to their own investors but to the rest of the world.

References:

http://dealbook.blogs.nytimes.com/2009/08/17/another-view-shanghai-ed-profits/

http://www.huffingtonpost.com/don-tapscott/major-step-towards-compre_b_679045.html

http://www.businessweek.com/news/2010-02-09/japan-urges-asia-to-form-third-force-on-accounting-standards.html

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