The Reflections of the International Accounting Harmonization on Emerging

Abstract:

               Beyond the phenomenon of international accounting harmonization and its causes, there still a debate on its reflections, implications and consequences, especially in the emerging economies. In addition, there are proponents and opponents for such a topic as it looks like a form of globalization and a rigid standardization. Therefore, it is questionable whether international standards driven by the advanced countries for a social science like accounting can be installed and are optimal for emerging economies with the Jordanian case taken as an example. With this example, it is apparent that there are ambitious steps in applying the economic reform regime on the one hand, however it lacks the large Jordanian multinational companies (MNCs), which are one of the most vocal parties in demanding a cosmopolitan set of accounting standards, on the other hand.

1. Introduction

            The international accounting harmonization is considered to be a new accounting phenomenon presented by some advanced countries. This phenomenon started to take place effectively in 1970's and continues till present (Choi et al, 1999). Demands for greater comparability and transparency in financial reporting have arisen due to the increase of international business activities and the greater participation in the global financial markets. If a firm selects accounting policies that are consistent with international standards, it will increase the quality of reporting in terms of transparency and comparability with other companies using the same set of international standards. Nowadays, advocates of global accounting uniformity believe that the emergence of the so-called economic globalization and the urgent need for huge capital markets to finance the governmental privatization policies are major justifications for developing and adopting international standards for accounting. It could be argued that such standards would facilitate comparisons among companies’ financial performance across countries and consequently enhancing the efficient allocation of resources in an increasingly global capital market.

            In promotion for such an argument, in 1998, Sir Bryan Carsberg, Secretary-General of the International Accounting Standards Committee (IASC) comments on the need for one set of global accounting standards:

            “…So the use of different accounting rules in different countries limits the efficiency of the capital markets in attracting investment funds to the applications where they will earn best returns and therefore has some depressing effect on economic growth in general”[1]   (Eccher and Healy, 2000: 1).

            After stimulating the appetite for the need of harmonizing the international accounting standards to reach a global uniform of financial reporting practices, the IASC was launched in London in 1973 (Epstein and Mirza, 2001). The goal of the IASC, which became the International Accounting Standards Board (IASB) in March 2001, is to create a single set of understandable and enforceable global pronouncements –International Accounting Standards (IAS) are issued by IASC, then the International Financial Reporting Standards (IFRS) are issued by the International Accounting Standards Board (IASB) (the new name of IASC) – (IASB, 2005) that will help increase transparency, consistency and comparability in accounting numbers across the globe.

            A lot of enormous objectives are assumed to be accomplished through the issuance of internationally harmonized standards. However, important questions concerning the impact and the effects of international accounting harmonization in some applying societies are raised and need to be answered.            For instance, the standards developed by the international regulatory body, the IASB, are primarily based on those standards for countries with highly developed capital markets, such as US and UK. Nonetheless, these international standards are still under the stage of development, analysis, comparison and argument. Furthermore, it has not ascended yet to the level of theory.

            Beyond this phenomenon and its causes, there are also various reflections, implications and consequences, especially in the emerging economies (Eccher and Healy, 2000). In addition, there are proponents and opponents for such a topic as it looks like a form of globalization. Therefore, it is questionable whether such standards can be installed and are optimal for developing economies with the Jordanian case taken as an example. With this example, it is apparent that there are ambitious steps in applying  the economic reform regime on the one hand, however it lacks the large Jordanian multinational companies (MNCs), which are one of the most vocal parties in demanding a cosmopolitan set of accounting standards, on the other hand. The impact of international accounting harmonization, therefore, is questionable in developing countries.

            In this paper, we provide a literature review and a theoretical basis on the potential reflections by the international accounting harmonization with shedding a light on the Jordanian case. Our argument in this paper based on the fact that accounting as a social science is a product of its environment and that the international accounting harmonization is being perceived as a globalizing force. In the next section we provide an analytical frame and a literature related to the topic. Then the concept of globalization is discussed considering both proponents’ and opponents’ perceptions. Afterwards, we give a glance on the role of multinational companies in the international harmonization before discussing the dimensions of the global accounting between the comparative approach and the uniformity approach.

             Finally, analytical view is presented on the Jordanian context in terms of the related regulations, the economic regime and the reaction toward adopting IAS/IFRS then ending with a conclusion.

2. Analytical Frame and Literature Review

            The so-called process of harmonizing international accounting standards is viewed by many researchers as a tool of globalization (Al-Abdullah, 2000; Kirby, 2001; Rasheed and Hussein, 2002; Diaconu and Coman, 2006; Baker and Barbu, 2007; Baskerville and Hay, 2007) and, consequently, this topic became debatable taking the controversial consequences of globalization specifically on the developing countries (Drache, 1999; Henry, 2003; Mott, 2004) and sometimes going conservative further by claiming that harmonization process is structured according to the capitalism, which comes from powerful economic lobbies resulted from globalization (Rasheed and Hussein, 2002). In reviewing the literature in this paper we find more focus on the technical issues of the harmonization process and its consequences and implications afterwards.

            Initially, one may ask why national accounting standards differ among various nations.  Ding, Jeanjean and Stolowy (2005) emphasize the role of culture as an explanatory factor underlying differences between national accounting standards and IAS/IFRS through selecting sample of 52 countries[2].They show that culture even matters more than legal origin (common law/civil-law) in explaining divergences from IAS/IFRS and, therefore, opposition to IAS/IFRS is not exclusively driven by contractual motives, a claimed technical superiority, or legal origin, but also by diversity in cultural factors. Al-Ani (2004) provides evidence on the relationship between the cultural framework, which is important in building the accounting theory and accounting practices, and financial reporting system.

            Ideally, it could be argued that a world-wide integration of economic, legal and political systems is required to achieve optimum accounting uniformity and comparability, and alternatively, if these cultural, political, legal and economic dimensions are taken into considerations whilst the harmonization process, many harmful reflections are likely to evolve (Ball et al, 2000; El-Jajawy, 2000).

            Internationally speaking, on assessing the efforts on international accounting harmonization, Carmona and Trombetta (2008) and Garrido et al (2001) suggest that the IAS/IFRS constitute a significant step forward in the process of accounting harmonization.  However, there still a need to continue working towards greater formal harmonization. To attain the required higher level of harmonization, it could be suggested to allow more policy options (Tarca, 2003) in the international standards in order to mitigate the gaps and to converge different national standards. Carmona and Trombetta (2008) suggest that the current standards are flexible enough to enable the application of IAS/IFRS to countries with diverse accounting traditions and varying institutional conditions.

            However, major changes are expected in the expertise, the educational background and training programs held by accountants, and in the organizational and business models of accounting firms (Carmona and Trombetta 2008; McGee and Preobragenskaya 2004; McGee and Preobragenskaya, 2003). Nonetheless, there is still far to go in the comparability of accounting measures across countries and regions, knowing the fact that  a complete and perfect comparability would also require a uniform set of international manager and auditor incentives (Ball et al, 2000)

Eccher and Healy (2000) examine the usefulness of applying IAS in a transitional economy, considering China as a case, and they claim that IAS are based largely on UK and US accounting standards, in addition, the absence of effective controls and infrastructure in China to monitor the additional reporting judgment available to managers under IAS. This illustrates the potential incompatibility between the IAS/IFRS and a transitional environment on which these standards are applied.

            The same sort of argument is addressed by some empirical evidence, which also suggests the high level of proximity between IAS/IFRS and US-GAAP explicitly (Eccher and Healy, 2000; Leuz, 2002) or implicitly (Dunagploy and Gray, 2005) in terms of the resulted accounting information under each set of standards. Dunagploy and Gray (2005) found that the difference statistically in key financial ratios between US-GAAP and Japanese-GAAP (after being revamped in line with IAS/IFRS) is not significant and Leuz (2002) emphasize the same result after finding that the differences in key financial variables in the financial statements prepared under IAS and those prepared under US GAAP firms are statistically insignificant and economically small.

            However, an interesting evidence provided by Christensen, Lee and Walker (2007) on examining the economic consequences for UK firms of the European Union's decision to impose mandatory IAS/IFRS. They find that mandatory IFRS adoption does not benefit all firms in a uniform way but results in relative winners and losers.  As of January 1, 2005, all European Union companies with shares listed on securities exchanges are required to prepare their consolidated accounts in accordance with IAS/IFRS (Baker and Barbu, 2007). In this occasion, the role of multinational companies (MNCs) in demanding, supporting and disseminating the international standards (Ruder, Canfield, and Hollister, 2005) could be found mentioned in the literature since 1973. Savoie (1973) warns the increased power of MNCs, which has raised a lot of criticism and he suggests that harmonization of the world standards should be the response.

            In a more focused view within the context of Jordan, Al-Jajawy and Noor (2003) examine the application of IAS/IFRS in the Jordanian environment, the role of auditors and companies in the application, and the role of universities and other academic institutions to improve the compatibility and harmony. They found that the academic environment varies in the level of compatibility with IAS/IFRS, and the practical environment varies in the level of application of IAS/IFRS as well. They conclude that it is necessary to focus more on the study of factors and elements to achieve more appropriate compatibility and perfect application of IAS/IFRS. Moreover, the compatibility between the legal infrastructure and the plugged in accounting standards is one of the most basic requirements to allow these standards work properly in serving accounting profession. Al-Abbadi (2003) highlights this issue in Jordan by studying and analyzing the degree of compatibility of the items of the Jordanian income tax law, with the requirements of the IAS/IFRS and examining the extent of commitment of the Department of Income Tax to the use and application of the IAS/IFRS.             His evidence states that there is no compatibility between the income tax laws and IAS/IFRS in many aspects, and as a result there is a great difference between the auditory profit and the tax profit. Therefore, he recommends that the sample system should be applied in a better way when considering the IAS/IFRS and taking them into account in tax regulations and laws.

            To shed light on the capital markets and financial statements effects of adopting the international standards, the literature shows that some accounting information under the international standards are generally value relevant, some other information (such as the adjustments to income) are generally value irrelevant compared to the same information provided based on the national standards as in Germany for example (Hung and Subramanyam, 2004). 

            Empirical evidence, which is provided by Assa'aideh (1997) on investigating the impact of adopting IAS in Jordan on the usefulness of accounting information to market investor, reveals a significant improvement in the correlation with, and the predictive ability of financial leverage of equity market risk measures and he concludes that adopting IAS has been partially effective, however, fewer methods and choices in IAS and more compliance with them are still needed in order to limit the management ability to manipulate published accounting information which reduces its usefulness to market investors.

            Nonetheless, an inconsistent evidence provided by Juhmani (1998), who examines the effect of introducing IAS on the Jordanian stock exchange during the period 1990-1991. Juhmani (1998) finds that the adoption of IAS does not increase the information content of financial statements. He also presents evidence that although IAS adoption has little influence on Jordanian domestic-owned firms' share price reactions, there is a considerable effect on foreign-owned firms' share prices.

            This quick glance on the literature shows the interrelationships between globalization, MNCs and harmonization and that establishing a global set of accounting standards cannot be done by only translating these standards into different languages without considering the substantial cultural, legal, economic and political variables (Diaconu and Coman 2006).

3. Globalization Vs Glocalization: Proponents and Opponents of Globalization

            Cancelling the customized-nationally standards and replace them by having one set of standards to be applied on the globe sounds much related to the term globalization.  However, more than one definition of globalization can be found and they are different explicitly but they all have the same essence, which is the "integration", "convergence" or "intensification" of worldwide aspects in some sense Many writers (Kiely and Marfleet, 1998; Mott 2002; Graham and Neu, 2003) agree that globalization is best defined by David Harvey as "a compression or overcoming of both distance and time, and noting the variety of effects this has on social and cultural relations" (Harvey, 1989:240). Within accounting literature, prior research on economic globalization has focused on the role of financial market liberalization and the harmonization of accounting standards in encouraging the spread of common practices (Al-Abdullah, 2000; Al-Jajawy, 2000; Graham and Neu, 2003; Ghadar, 2004). So far, globalization is still a debatable topic under the shadow of the distinct cut rural backgrounds. To the vast majority of economists, political scientists, and political commentators globalization is a "friendly force" (Gundlach and Nunnenkamp, 1996), leading the world ultimately to the era of converging world economies, converging institutions as democracy becomes a universal norm, and cultural richness as people of different background interact more frequently. However, this view has been opposed by many. For example, Branko Milanovic in World Bank argues that: 

"We shall show here that this view of globalization is based on one serious methodological error: a systematic ignorance of the double-sided nature of globalization, that is systematic ignorance of its malignant side" (Milanovic, 2002:3).

            In the above stated argument, there is an obvious indication to the double-sided effect of globalization which leads theorists, thinkers, commentators and critics to ramify into two groups; proponents and opponents regarding the potential cultural and economic impacts.

Proponent Perception:

            Proponents suggest that the ultimate openness under the umbrella of globalization offers better chances for developing countries to catch up with the industrialized countries as well as to achieve an economic reform, especially after the emergence of Washington Agreement in 1989, which was suggested by the American economist John Williamson, in a form of Ten Recommendations toward the broken-down communistic countries (Kikso, 2002).

            Globalization is perceived by its proponents as a mean to ease the inflow of capital and technology, thus, helping to increase the rate of factor accumulation beyond the level to be financed by domestic savings (Gundlach and Nunnenkamp, 1996). Others argue that countries that rank high in economic freedom and trade openness also rank high on social (e.g. infant mortality, longevity, etc.) and economic indicators (GDP growth, GDP per capita, income share of the poorest, etc.) (Mejia-Vergnaud, 2004).

            They believe that those countries with greater barriers to trade and economic activity exhibit high poverty and low levels of human development. Moreover, they argue that critics of globalization have conveniently chosen to ignore the obvious link between closed markets and corruption. Therefore, in a corrupt and closed economic environment, the gains from economic activity are more likely to be captured by elites, and then, increase economic inequality (Mejia-Vergnaud, 2004).

            Some suggest that the improvement toward welfare is a direct result of the increase in globalization in both developing and developed countries. However, this requires an open market, protection of private property rights, the rule of law, privatization of public assets and limited government intervention. These suggestions with an empirical study taking the following social indicators into consideration: 1) individual rights (measured by child labor and human development), 2) income distribution, 3) health, 4) the environmental effects, 5) gender equality (Quinlivan and Davies, 2003).

The implication for accounting would be obvious then. As any other globalization tool, accounting would work well for everybody and everybody would accordingly be well-off.

            However, globalists believe that globalization also reduces the degrees of freedom of economic policy making in developing countries (Gundlach and Nunnenkamp, 1996), and they support the economic policies that assist disadvantaged and poor countries through both: multilateral grants (not loans) and trade policies that would create millions of jobs (Quinlivan and Davies, 2003).

            The effects of globalization on developing countries which are perceived by globalists can be summed up and summarized as follows:

1-        Developing countries are economically benefited from the industrialized countries.

2-        Easing the inflow of capital and technology into developing countries.

3-        Increasing the rate of factor accumulation beyond the level to be financed by developing countries domestically.

4-        Earning a high rank on social indicators as well as economic indicators.

5-        Squeezing poverty and maximizing the levels of human development.

6-        Reducing corruption which is combined with the closed economic environments.

7-        Contributing to economic equality.

8-         Improving social welfare represented by human development, gender equality, income distribution, health and environmental conditions.

9-        Creating more job vacancies and contributing to employment.

10-   Attaining multilateral grants.

11-   Losing the freedom of making an economic-policy decision.

Opponent Perception:

            In view of the fact that opponents of globalization suggest that the globalizing movement is being led by capitalism, which is related to pure Euro-American origins, it will not be surprising to find that most anti-globalists are from developing countries.

             The central argument of anti-globalists that there are "invisible hands" behind globalization aiming at demonstrating supremacy on developing countries by advanced counties (Sulaiman, 1999; Ragheb, 2001; Al-Abdullah, 2000; Tahoon, 2003; Ghadar, 2004). They also argue that globalization is a kind of colonialism or imperialism permitting one party to control another one.

            The former produces informational tools, methods and techniques in order to spread facts, knowledge, values, culture, standards and rules from its "own" perspective to the latter. Then ultimately the following clear classification of the world comes up. Producing party (an active sender) that controls and imposes its environment conceptually and materially and, on the other hand, consuming party (a passive recipient) which is fascinated by the easiness of obtaining information, knowledge, entertainment and other products. (Tahoon, 2003). This relationship between the producing and consuming parties impairs the equilibria at different levels of flow of "things" leading more poverty in the developing countries and more richness in the advanced countries. Consequently, the gap between the rich and the poor countries is getting wider. Even capital flows into developing countries, sometimes, have considerable negative effects on economies. Examples of economic crises resulted from the liberalization of capital flows are obvious in Mexico (1994), South East Asia (1997), Russia (1998) and Brazil (1999) (Khateeb, 2002; Titawi, 2002).

            According to the Islamic philosophy, economic activities are bounded by many ethical values and principles that prohibit unfairness, deception, usury, monopoly and so on. This philosophy does not consider "profit maximization" as the highest goal of economic activity as it is in the case of the capitalistic system. Thus, any activity that does not agree with these high values would be prohibited and not allowed by Islam. Since the economic globalization is considered to be an extension of "unfair" capitalism, then the Islamic system is conservative and cautious of this phenomenon.

            The effects of globalization which are perceived by anti-globalists on developing countries can be summed up and summarized as follows:

1-           There are "invisible hands" behind globalization aiming at demonstrating supremacy on developing countries by advanced counties.

2-           Globalization is a kind of colonialism and imperialism.

3-           Globalization allows advanced countries to spread its knowledge, values, culture, standards and rules to developing countries.

4-           Globalization impairs the equilibria at different levels. This implies more poverty in developing countries and more richness in advanced countries.

5-           Economic crises can be resulted from liberalization of capital flows.

6-           International organizations are established to impose certain plans, rules and conditions on the Third World but in behalf of the advanced countries.

7-           International organizations and advanced countries trick the developing countries to uncover their markets, resources and other information through the promotion for "transparency".

8-           Globalization is an extension of "unfair" capitalism.

9-           Globalization impairs the ethical values of Islamic philosophy and, thus, it is resisted by the Islamic system.

            From an accounting perspective, the anti-globalists argue that accounting is employed in the globalization process and it would then disseminate western values around the globe. So they would discredit accounting globalization benefits and accordingly would raise an obvious red flag pertaining to the detrimental effects of accounting globalization on cultural, economic, and political aspects of most countries of the world.

Glocalization as a reformed Globalization:

            While globalization is critiqued as a biased power, a new concept arose, glocalization. The term was modeled on Japanese word dochakuka, which originally meant as a concept arose to help mitigate the conceptual difficulties of global-local relationship (Khondker, 2004). 

            The word and the concept came from Japan and it is composed of Globalization-Localization. It is defined by Wordspy[3] “the creation of products or services intended for the global market, but customized to suit the local cultures.” (Khondker, 2004). For more illustration, if a marketing plan of an international restaurant series recommends to adjust the menu according to each country’s distinct cultural and social norms this can be described by glocalization, i.e. a global product is modified to fit the local “endogenous” system. If these international products are introduced to different societies as they are without any adjustments, probably they will not sell.

            In the accounting harmonization literature, we could not find any previous use of this term, which has been intelligently used by many researchers in the social, political and even psychological sciences to describe the need of “indigenization” whilst the process of globalization because it raises questions about the applicability of social scientific ideas and concepts (Khondker, 2004). One basic question arises here as an example on the need of employing this concept in the accounting harmonization –at least at this stage of the process-, do all countries have the same regulatory, legal and taxation frames? Some studies show that incompatibilities can be found between the applicable code of tax and the international standards of accounting (Al-Abbadi, 2003), which implies the need of either having “glocalizable” international standards or then local legal modifications will be urgent.

4. The Multinational Companies (MNCs): a Key Player

            As it is mentioned above, globalization means a closer international integration of markets and production, or, in general, the liberalization of the trade. This means that firms can place their production around the world, and source inputs from different countries. This would be better by harmonizing the atmosphere of international environment regarding many aspects. Governments, laws, rules, accounting standards, norms, cultures, technologies and languages are examples. It is noticeable that this kind of business, international or multinational, has emanated from globalization. It refers to Multinational Companies (MNCs), Multinational Enterprises (MNEs) or sometimes Transnational Companies (TNCs). The simplest definition of MNC is "a business organization operating in more than one country" (Miller, 1979:3; Kiely and Marfleet, 1998:50). However, the definition constructed by Professor Raymond Vernon of Harvard University is widely used. It depicts an MNC as a "parent" or dominant enterprise controlling the operations of a network of foreign corporations and furnishing them with "common" objectives, strategies and resources (Miller, 1979). 

            US-based MNCs responded to particular conditions; market saturation in some sectors, a developed international communications and transportation system, and growing economic challenge to the US from Europe and Japan (Kiely and Marfleet, 1998; ILO, 1981). European and Japanese companies have followed the steps of the US companies to increase the direct foreign investment. This has resulted in some giant MNCs whose assets are comparable to some developing countries GNPs and they started to dominate some important decisions on the international arena.

             During the 1970s, the growing problems associated with the emergence of MNCs, as well as international accounting diversity, began to attract interest. These resulted in the establishment of IASC in 1973. At the same wise, the U.N. Economic and Social Council focused on this area by appointing a study group which eventually led to the creation of a U.N. Commission on Transnational Corporation in 1976 (Evans et al, 1985). 

            Views regarding the effects of multinationals on the developing economies vary, supposing one of them is a host country[4]. These opinions can be categorized into two categories; the optimistic versus pessimistic view. In the optimistic view, three types of effects may be distinguished (1) net macro-economic impact, such as adding to total national income and to the host government's revenue and foreign exchange availability, (2) horizontal impact, which is the impact of MNCs on other enterprises that compete with them or are otherwise linked to them through various market-structure mechanisms and (3) vertical linkage impact, which is the impact of MNCs on employment in other enterprises directly linked to them in the production chain, by selling or buying from them (ILO, 1981).

            On the other hand, MNCs are charged with some concerns, as a pessimistic view, by developing countries. An example of these concerns, which is not all-inclusive, such as having the power to be above any government and abrogating the sovereignty of the local government, competing unfairly, fostering technological dependence, lacking social responsibility, destroying stability of labor markets, disrupting foreign exchange markets, exploiting local resources and capital and evading taxes (Miller, 1979).

            From an accounting perspective, since the international accounting harmonization primarily serve this kind of organizations, it could be argued that accounting harmonization ease the spread of MNCs, and at the same time, support greatly the spread of IAS/IFRS in all the host countries where their subsidiaries operate. Therefore, a debate regarding the association between the international accounting harmonization and MNCs might arise also when the positive and negative effects of MNCs are taken into consideration.

5. Global Accounting: Uniformity Vs. Comparative

           

            As a result of the growing importance of financial and economic globalization[5], more awareness by the accounting profession has recognized the need to establish a uniform set of accounting standards that would be valid at the international or global level.

More specifically, it could be said that globalizing or internationalizing of accounting is induced by the following four critical factors: 1- Multinational enterprise[6] operations, 2- Globalization of money capital markets, 3- International nature of some technical accounting problems, and 4- Historical antecedents (Choi and Mueller, 1984).

 When talking about international, global, universal or world accounting, there is confusion in the literature regarding these concepts. A good definition for the purpose of this study is set by Weirich et al as follows:

"International accounting is considered to be a universal system that could be adopted in all countries. A worldwide set of generally accepted accounting principles (GAAP), such as the set maintained in the United States, would be applicable to all countries. This concept would be the ultimate goal of an international system" (Weirich et al, 1971:80).

            It could be said that, on one hand, an ideal condition is to have a complete "uniformity" of accounting standards in order to be adopted by all countries around the globe. On the other hand, a concept of "comparative international accounting" directs international accounting to understand, study and analytically classify national accounting systems as has been done in the other social sciences such as economics, politics and laws. This involves an awareness of the international diversity in corporate accounting, understanding of the accounting standards and practices of each country, and assessing the impact of diverse accounting practices on financial reporting.

            Many have investigated the determinants and factors influencing the accounting standards, practices and financial reporting. For example, Nobes and Parker (1991) have set the following seven factors that may explain the financial reporting differences internationally:

1- Legal systems, 2- Providers of finance, 3- Taxation, 4- The accounting profession, 5- Inflation, 6- Theory, and 7- The accidents of history.

             Belkaoui (1985) believes that five environmental factors are affecting the determination of accounting standards, namely; 1- cultural relativism, 2- linguistic relativism, 3- political and civil relativism, 4- economic and demographic relativism, and 5- legal and tax relativism. While others, such as Arpan and Al Hashim (1984), suggest these determinants as only four, namely; 1- the differences in accounting uses, users and preparers, 2- socio-cultural differences, 3- legal and political differences, and 4- economic conditions.

            Given these determinants of accounting standards while assessing the logic, applicability or relevancy of both uniformity and comparative concepts, it is noticeable that uniformity, as an ideal state, requires a maximum level of homogeneity for the international environment in terms of culture, language, policies, civilization, economics, demographics, laws and taxing systems in order to achieve the optimum compatibility between the standards and the environment, whereas the comparative theorem of international standards seems to be more logical but serves at the national level, and might not be useful internationally.   

            Such a debate does exist between those favoring "uniformity", and those preferring a "comparative" analysis of different national accounting systems. The argument of those supporting the comparative standards that accounting is influenced by accounting objectives, cultures, policies and techniques result from the environment factors in each country since these environmental factors differ significantly between countries. It would be expected that the major accounting concepts and practices in various countries would also differ.

            Therefore, the environmental conditions affect the determination of accounting standards as it is shown above. However, there is an internationally organized trend toward uniformity which is represented by the process of International Accounting Harmonization.

International Accounting Harmonization:

            Indeed, the starting point of the efforts of international accounting standards setting in 1959 is credited to Jacob Kraayenhof[7], who urges that the work on international accounting standards ought to begin. In 1961, "Groupe d'Etudes"[8] was established in Europe to advise European authorities on matters concerning accounting. Then in 1966 Accountants International Study Group was formed by professional institutes in Canada, United Kingdom and the United States of America (Choi et al, 1999). In June 1973, IASC was founded to be charged with the issuance of IAS, but later it changed its name into IASB, which has issued the IFRS (IASB, 2005).

            During this phase, a debate regarding two concepts associated with the efforts of the uniformity of accounting standards namely, "standardization" and "harmonization" has been existed. In fact, it could be said that the term "standardization" has some rigidity since it implies no flexibility in a given set of standards, then incompatibility with different applying environments might arise. Generally, standardization means the imposition of a rigid and narrow set of rules, and may even apply a single standard or rule to all situations (Nobes and Parker, 1991).

            Therefore, using the word "harmonization" sounds more favorable to remove this rigidity since harmonization is defined as a process of increasing the compatibility of accounting practices by setting limits on how much they can vary (Choi et al,1999). Thus, harmonization implies a reconciliation (bringing together) of different points of view. This is more practical and logical when the formation of accounting standards at the global level takes place.

            A third related concept, which is not commonly used, has appeared and used especially in the European literature is "normalization". English "standards" being called "norme" in French, the process of "standardization" is translated by "normalization" (Barbu, 2004:5).       According to Barbu's opinion (2004), normalization is situated between harmonization and standardization.

However, it is argued that every country has its own sets of rules, philosophies, and objectives at the national level aiming at protecting or controlling the national resources. This aspect of nationalism gives rise to particular rules and measures which ultimately affect a country's accounting system. It is suggested that harmonization requires: (1) recognizing these national particularities, (2) attempting to reconcile them with other countries' objectives, and (3) correcting or eliminating some of these barriers in order to achieve an acceptable degree of harmonization (Belkaoui, 2004).

            This agrees somehow with the scientific logic suggested by Al-Abdullah (2000), in which he argues that determining the causes and providing explanations and justifications is a must to conclude a scientific result. Otherwise, globalization of accounting could suffer a complete absence of scientific logic.

            It is fair to mention that international harmonization could have the following advantages and disadvantages (Choi et al,1999; Al-Abdullah, 2000; Epstein and Mirza, 2001; Belkaoui, 2004).

Advantages of international harmonization:

1-     The comparability of international financial information.

2-     Set-up cost and time saving for those countries which have no adequate codified standards of accounting and auditing.

3-      Time and money saving that is spent to consolidate divergent financial information, which could lead the international financial markets to be more efficient.

4-     The tendency for accounting standards throughout the world to be raised to the highest possible level and to be consistent with local economic, legal and social conditions[9].

Disadvantages of international harmonization:

1-     International standards could not be flexible enough to handle differences in national backgrounds, traditions and economic environments.

2-     It would be a politically unacceptable challenge to national sovereignty.

3-     Tax-collection systems vary internationally. Since this requires diversity in accounting standards and systems used internationally, it creates "standards overload".

4-     Corporations that must respond to an ever-growing array of national, social, political and economic pressures are hard pressed to comply with additional complex and costly international requirements.

6. Harmonization and the Context of Jordan

            Jordan has become a member of the board of IASC since 1988 (IASB, 2005). The Jordan Association of Certified Public Accountants (JACPA) recommended the adoption of IAS in the 1988 and 1989 fiscal years but mandated them for 1990 and beyond by its Board of Management' Decision number (54) on March 13, 1989 (Assa'aideh, 1997).

            Moreover, Article number (42) of Chapter (6), which is issued by the Board of Commissioners of the Securities Commission pursuant to Articles (9) and (53) of the Securities Law, No. (23) for the year 1997, states that all entities subject to the Commission's monitoring shall apply IAS issued by the IASC, unless there is a conflict between these standards and the legislation in force in Jordan, otherwise, the national legislation shall supersede, then the Directives of Disclosure and Auditing and Accounting Standards issued under No. (1) for 1998 (JSC, 2005).

             The aims of these directives, referring to Jordanian Securities and Commissions (JSC), are to maintain fair dealing in securities, enhance the trust of investors and savers and achieve transparency in the market in line with international standards.

             Furthermore, the Jordanian legislation mandates the application of the international standards. According to the Articles (62), (75), (184), (195), (201) and (208) of The Jordanian Companies Law No. (22) for the year 1997 with its latest modifications, there are explicit indications of subjugating each of the limited liability companies, closely held (private) corporations and publicly held corporations to provide their accounts and financial statements in accordance with the internationally accepted standards, at the same vein, the auditor is responsible to follow the international auditing standards to examine the companies' appliance of the international accounting standards.    

            It is fair to mention that economic reform have become a part of the overall economic package that the government adopted in the early nineties and after the economic crisis that affected the country.

            The economic reform process in Jordan initiated in 1989, through signing arrangements with the International Monetary Fund (IMF). However, the period 1999-2008 marked with remarkable reform effort under the new regime of King Abdullah II, who made economic reform one of his top priorities and launched a many initiatives and projects aiming at promoting economic development (Alissa, 2007). This period has also characterized by an accelerated economic developments at the global scene in terms of globalization, increasing of competition, lifting of tariffs and administrative barriers to liberate international trade, capital flows, the communications and information revolution, privatization process and a dramatic involvement of the Jordanian economy in the global economy (ASE, 2005; MOF, 2005).

             Thus, the Jordanian choice is to open up to the world through the international economic tools such as adopting international standards -including IAS/IFRS- and developing partnership agreements by signing three free trade agreements with the United States, in 2000, and the European Union, effective 2002, and gained accession to the World Trade Organization (WTO) in 2000 (Alissa, 2007).

7. Conclusion

            The international accounting harmonization is perceived as a contemporary phenomenon with questionable reflections, implications and consequences, especially in the emerging economies. The increasing debate on this issue ramifies commentators into proponents and opponents as it has been being viewed as a tool of globalization and creating rigid standardization following the Western domination. Therefore, it is controversial whether international standards for a social sience  like accounting, which are also driven by the advanced countries, can be installed and are optimal for emerging economies with the Jordanian case taken as an example. With this example, it is apparent that there are ambitious steps in applying the economic reform regime on the one hand, however it lacks the large Jordanian multinational companies (MNCs), which are one of the most vocal parties in demanding a cosmopolitan set of accounting standards, on the other hand.

                  Generally, the distinctiveness of each country and the differences among them should be taken into consideration in the process of setting international standards. A new concept can illustrate and facilitate this situation, glocalization. In the accounting harmonization literature, we could not find any previous use of this term, which has been intelligently used by many researchers in the social, political and even psychological sciences to describe the need of “indigenization” whilst the process of globalization. Therefore, IASB should permit more flexibility when setting any standards to actually harmonize, but not standardize, the international standards then international standards should be examined and tested before adopting them, to ensure their impact and appropriateness while applying.

                  Finally, economic globalization could have double-sided effects. While it holds many economic benefits, it should be dealt with carefully to ensure that this does imply drastic cultural and economic impacts. These impacts could evolve in case of hosting the huge foreign MNCs as well. However, going back since the start of economic reform process in Jordan through integrating the Jordanian economy in the global economy and through getting the accession into many international organizations and partnerships, it could be concluded that the Jordanian choice of being involved in the international accounting harmonization is a justified choice and a consistent policy with the current economic regime.

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[1] “Global Issues and Implementing Core International Accounting Standards: Where Lies IASC's Final

Goal?” Remarks of Sir Bryan Carsberg at the 50th Anniversary Dinner, Japanese Institute of CPAs,

Tokyo, 23 October 1998.

[2] It is worth to mention that Morocco and Iran are included in the sample.

[3] http://www.wordspy.com/words/

[4] Host country is the country in which a subsidiary operates and is located.

[5] The concept of Globalization and Economic Globalization is discussed in Part 2 of this chapter.

[6] The concept of Multinational enterprise (MNE) is discussed in Part 2 of this chapter.

[7] A founding partner of a major European firm of independent accountants.

[8] An association of practicing accounting professionals.

[9] Choi et al refer this point to Turner, John N. (1983). International Harmonization: A Professional Goal. Journal of Accountancy. January, pp. 58-59.