International Harmonization: Cautions from the Australian Experience

Article excerpt

SYNOPSIS: Global harmonization of accounting is a challenging and controversial issue currently confronting accounting standard setters and market regulators internationally. To date, Australia is further along in its international harmonization program than any other country with an established standard-setting regime. While no country's national standard-setting arrangements are likely to be subject to political pressures identical to those recently exerted in Australia, there are lessons to be learned from the Australian events. Given the political nature of standard setting, it is not surprising that the Australian experience indicates that pushes for harmonization are not necessarily what they seem. This paper describes the Australian experience and identifies some of the political drivers of recent standard-setting reform initiatives. It demonstrates how the rhetoric of harmonization can divert attention from politically motivated changes to the fundamental basis of standard setting. Using the harmoniza tion banner to garner support in principle, parties with vested interests can push regulatory agendas that potentially subrogate user needs.

INTRODUCTION

Global harmonization of accounting is arguably the most challenging and controversial issue currently confronting accounting standard setters and market regulators. Recent discussions focus on experience from North America, the United Kingdom, and continental Europe (for example, Hegarty 1997; Sutton 1997; Zarzeski 1998; Bayless et al. 1996). However, a past chair of the International Accounting Standards Committee (IASC) and the immediate past chair of the Australian Accounting Standards Board (AASB) both argued that Australia has progressed further in its international harmonization program than any other country with an established standard-setting regime (Sharpe 1998, 18; Spencer 1998, 20). It is likely, therefore, that other national accounting regulators, particularly those in countries with rigorous accounting standards and strong regulatory enforcement, can benefit from an understanding of Australia's harmonization experience.

The extent to which embracing harmonization is allowed to impact on domestic standard-setting arrangements needs to be considered carefully by countries that have been at the forefront of standard setting. Australia is one of these countries, having played an active and influential role in international accounting development since the concept of an International Accounting Standards Committee was developed in Sydney, Australia, at the 1972 World Accounting Congress. Australia is represented on the IASC with full voting rights, and two Australian representatives served as chair of the Committee. International links are also maintained through the AASB's membership of the G4+1, a body comprised of the national standard setters from the U.S., Canada, U.K., Australia, and New Zealand plus the IASC. The immediate past chair of the AASB also chaired the G4+1. While the G4+1 never enjoyed legal status, it has been influential in the development of an integrated approach to standard setting across its member countr ies and the IASC. [1]

As in many countries, Australian regulators debate the merits of international harmonization of accounting standards. Not surprisingly, given the political nature of standard setting, Australian experience to date indicates that pushes for harmonization are not necessarily what they seem. This paper describes the Australian experience, and reveals some of the political drivers of recent standard-setting reform initiatives. This experience demonstrates how the rhetoric of harmonization is used to divert attention from other politically motivated changes to the fundamental basis of standard setting.

AUSTRALIAN ACCOUNTING STANDARD SETTING

Introduction of Mandatory Accounting Standards

Since the early 1980s, standard setting in Australia has been controversial in terms of the institutional standard-setting arrangements in place and the regulations introduced by the standard-setting bodies. …