Why International Financial Reporting Standards Matter

With globalisation has come the increasing integration of world markets for goods, services and capital - with the result that companies that traditionally were reliant on their domestic capital markets for financing now have substantially increased access to debt and equity capital both inside and outside their national borders.

Yet - perhaps not entirely surprisingly - the world of financial reporting has historically been slow to respond reflecting, no doubt, a widespread nationalism in respect of countries' own standards.

Undoubtedly, one of the main advantages of a single set of global accounting standards is that it would enable the international capital markets to assess and compare inter-company performance in a much more meaningful, effective and efficient way than is presently possible. This should increase companies' access to global capital and ultimately reduce the cost thereof. Thus the request for global standards came both from regulatory bodies and from preparers of financial statements. As early as 1989 the International Organisation of Securities Commissions (IOSCO), the world's primary forum for co-operation among securities regulators, prepared a paper noting that cross border security offerings would be facilitated by the development of internationally accepted standards. For preparers, greater comparability in financial reporting with their global peers had obvious attractions.

Notwithstanding these anticipated benefits it is only since 2000 that there has been a realistic prospect of such global standards and that has come about largely as a result of bold action by the European Commission.

The fall-out from the 2007 - 2010 financial crisis created a strong underlying political pressure towards convergence of global accounting standards. Comments on the need to achieve this are a regular feature of communications from the G20.