IFRS Harmonization and Foreign Direct Investment

Background And Literature Review

The notion of unifying accounting principles dates back to the early 19^th century. It is at this time that the concept of international financial standards originated, specifically during the first Global Congress of Accountants held at St. Louis in 1904 (Fritz & Lammle, 2003, p. 3). At the conference, the need for harmonization and cooperation in the accounting field was emphasized. Despite the initiative, differences in the accounting principles still abound, mainly because the dissimilarities in legal systems, the manner in which providers of capital operate, taxation systems, national cultures, and general accounting practices. The differences hindered investors from obtaining clear financial information, which is vital for strategic planning. Thus, international trade was constrained; countries experienced unequal opportunities as a result of the dissimilarities. In this regard, the inequalities and unclear financial statements were the main reasons behind the call for financial standardization.