In the treaty of Rome signed in 1957 the main powers of Europe constituted the European Economic Community better called the European Union, in this document the foundations on harmonization in a global sense are collected.
The Single European Act signed on February 17, 1986 renews the commitment of member countries to remove obstacles to the completion of a common internal market, allowing the free movement of people and establishments.
Harmonization has two basic objectives in the area of this freedom:
- to. The removal of barriers between national laws b. Coordinate the guarantees established in national laws in order to ensure a minimum number of regulations that appear in all legal systems.
This framework establishes the basic premises for the development of the harmonization of community law, in which the efforts related to the harmonization of company accounting information are located.
One of the basic purposes of the European Union (EU) is the promotion of a single market through a trend in the laws of different countries, this has also directed its efforts in the field of accounting information and specifically in the company law program.
Community company law has been directed at the regulation of capital companies.
The preference given to these companies has been due to the need to protect the interests of partners and third parties against the limited liability of the latter and the characteristics of their management bodies.
Accounting harmonization has been implemented through the "Directives"; instrument that establishes an obligation to member states regarding the objectives to be achieved.
The harmonization technique adopted at the community level is novel and is not found in any other part of the world, this particularity is fundamentally due to the procedure itself and not to the consequences derived from its adoption, since the participation of the accounting profession in the The elaboration of the directives is carried out through the Federation of European Experts (FEE), but they do not have a monopoly character as is the case of the International Accounting Standards Board (ISAB).
Achievements of harmonization via directives
The process of issuing Community Directives relating to company law developed practically at the beginning of the nineties, later a stage elapses until 1995 in which the process of issuing this type of regulation stagnates and more specifically the preparation and presentation of accounting information.
It is notable that the various options and items included mainly in the IV Directive (Regulates the annual accounts) have been the result of a hard negotiation.
Notwithstanding the controversial alternatives, their incorporation into national regulation has produced a change in the dynamics of accounting information applied in community countries, this circumstance has been the cause of delays that have produced the different national legislations for adaptation and application of said Directive.
Van Der Tas (1992) analyzes the level of harmonization achieved in 9 EU countries in relation to deferred taxes, concluding that there is an increase in harmonization in this area.
For Theorell and Whittington (1994) they have made progress in the harmonization framework, however there are some deficiencies such as the alternatives allowed in the accounting criteria, the absence of definition in some aspects and the need for new developments in the aspects treated in the harmonization..
Herrmann and Thomas (1995) in their study of the level of harmonization, detect the heterogeneous behavior of various practices regarding this level.
For his part, García Benau (1995) shows the existence of a comparable basis in financial information in the community countries.
Archer et al. (1995) Analyzes the situation in two areas of accounting information, goodwill and deferred taxes and at two different points in time concludes that the degree of harmonization achieved is less than desired.
Cañivano and Mora (2000) evaluate the level of homogeneity existing in the accounting practices adopted by large European companies that carry out their activity in different countries (global players).
Jarne (2002) analyzes the accounting criteria applied by a sample of companies belonging to the 15 EU countries. The results obtained from the sample produce a significant lack of homogeneity.
In conclusion, in general, the different authors who analyze the result of the European accounting harmonization process highlight the progress made so far and express the existence of aspects still with a significant level of heterogeneity and question the future progress in this process.
In the same way, it expresses the need to reduce the alternatives allowed in the harmonizing models, in order to improve the comparability of financial information, in other words, the harmonization of accounting systems.
In this environment existing in the middle of the last decade of a certain disenchantment with the results of the process of community accounting harmonization, it is observed that it is necessary to seriously consider where it should run from then on.
This fact, together with the pressures exerted by European global players, can be seen as the information that they prepare under their national legislation and, therefore, from the Directives is not useful when crossing the borders of the EU.
The new harmonization strategy in the European union
The new approach adopted in the process of European accounting harmonization is reflected in a communication from the European Commission published in 1995 under the title "Accounting Harmonization: A new strategy for international harmonization". This document expresses its point of view on what is the best solution to the problems that arose in the process of community harmonization.
However, it is pointed out that this regulation does not provide solutions to the problems that in the 90s were presented to those responsible for preparing and analyzing accounting information, especially that referring to companies with an international profile.
All this means that the information prepared in accordance with the Directives in which national legislation is framed, does not meet the requirements established outside the EU.
Different proposals were evaluated within the European Commission, which can be summarized as follows:
- Excluding large listed companies from compliance with the Directives, allowing them to take advantage of another regulatory framework, this presented various difficulties. Need to modify the Directives, delimit exactly what type of companies would be involved, define what rules could be followed These companies and, additionally, that solution would break the existing homogeneity in the EU in harmonization issues, jeopardizing even the comparability of information in the same country. Achieving agreements with non-EU countries on the mutual recognition of accounts. Joining the international process of accounting harmonization that is fully underway within the IASB.
The new strategy adopted is to take as reference the international regulations promulgated by the IASB, this solution may seem the most logical compared to the others mentioned above, in particular a possible approach to US principles.
This approach to the IASB regulation should take place under a series that we summarize below:
- Preserve the achievements that the EU had achieved in the area of accounting harmonization, trying to achieve the highest level of coherence between the Directives and the IAS. Improve the functioning of the existing bodies at the community level that deals with accounting matters. number of possible changes in the Directives Create a more flexible framework that is able to adapt quickly to the evolution of the accounting environment Gradually increase the influences on the work of the IASB, transferring a consensual position of the EU to the problems that are addressed in the international organization. Provide more content to the role of the Contact Committee increased technical and operational capacity. Focus the work on the consolidated accounts since they are the companies that prepare consolidated information,additionally entering the consolidated accounts, additionally entering the individual accounts, which could be much more complex due to its direct link with fiscal aspects.
Continue with the work that the Advisory Forum has been carrying out as an advisory body.
Under the new harmonization strategy adopted by the EU, it was considered necessary to carry out an analysis of the degree of compatibility between the Community Directives and the IAS. In this sense, the work carried out by the Contact Committee has been diverse, limiting the existing differences to two aspects:
Negative Goodwill treatment: IAS 22 indicates its systematic allocation to results, while the Seventh Directive indicates that it will be reflected in the result to the extent that the forecast of expenses with which this item can be linked is made.
Exclusion of subsidiaries from the scope of consolidation: IAS 27 only provides for the exclusion of consolidation when control is temporary or when the subsidiary operates with strong long-term restrictions. However, the reasons for exclusion from the Seventh Directive are broader, since it provides that a subsidiary must be excluded from consolidation when its inclusion contravenes the principle of faithful image.
These small differences tend to be eliminated in practice, so it can be concluded that the divergences between the two regulatory blocks are not significant.
Now, without questioning the validity of this conclusion, its reading must be carried out focused on the following aspects:
- Comparison of the Community Directives with the IAS. There are a good number of accounting areas with respect to which the Directives do not position themselves and yet there are IAS in this regard. The analysis incorporates both the preferred treatments and those allowed by the IASB.
2005 as horizon
The declaration of intention of the 1995 communication led to the adoption of legislative initiatives by some EU countries, considering them individually in the sense of allowing the application of IAS.
In this context, in June 2000, a new communication from the Commission "The EU strategy on financial information", The Way Forward, emerged: in which the European position already outlined in 1995 is specified.
In this document, the increase in the comparability of financial information is considered a priority objective as a necessary condition for the establishment of an internal market for financial services in which European capital markets operate that are efficient for the benefit of both the entities themselves and the investors.
Other events that have taken place in the international accounting environment are added to the pursuit of this objective, which generates the need to establish future lines of action for the EU. We are referring to:
The recommendation made by the International Organization of Commissions for Securities Markets - IOSCO - in mid-2000, that its members allow companies listed on their markets to use IAS in the preparation of the State Financial for cross-border offers and quotes.
The restructuring generated within the IASC, which became operational in April 2001 in order to make IAS a set of accounting standards of higher quality and more complete to be applied worldwide.
The strong pressure towards convergence in accounting standards applied in the different areas
In the aforementioned communication, it is considered essential to have a financial reporting framework internationally for the EU companies that are listed on the stock exchange, ratifying it via the IASB as the most appropriate against the US GAAP. Likewise, the year 2005 is established with a limit so that all EU companies listed on the stock exchange prepare their consolidated accounts in accordance with IAS.
Therefore, the scope of IAS covers:
- Listed companies and For their consolidated accounts
With regard to non-listed companies, the European Commission proposes that each Member State should decide whether or not to extend the use of IAS.
The debate that has arisen in recent years about the desirability of achieving higher levels of harmonization and comparability in financial information prepared by economic agents who, as a consequence of the internationalization of their activity and the globalization of the economy, is known to supply information to a range of users, increasingly wide and heterogeneous.
The entry of large companies in the financial markets of different countries in search of greater resources, both their own and those of others, in addition to increasing their turnover, entails an exchange of information between these companies and the users of financial information eradicated in those countries.
Notwithstanding the foregoing, this communication process is currently hampered by the diversity of existing accounting principles and standards, which produce substantial differences in the quantification of basic business figures, difficult to justify by issuers and to understand by recipients of this information.
Currently there is full conviction of the need for international accounting harmonization that enables the comparability of financial information of all companies operating in the same market, through an approach to accounting legislation, which is why during In recent years, an effort has been made to find this set of standards that could be applied and at the same time respond to the objectives of providing information that is sufficiently homogeneous to allow full accounting harmonization.
The result of this effort is the approval, on June 7, 2002, of a Regulation of the European Parliament and of the Council regarding the application of International Accounting Standards, which establishes the obligatory nature of preparing the consolidated annual accounts of the groups listed on regulated European markets, from the application of accounting standards issued by the IASB (International Accounting Standards Board).
With this approval, a first step is taken in achieving comparability, specifically, of the financial information provided by the groups listed on regulated European markets, a fact that although it is described as important, invites us to continue working in the same direction. in order to achieve full harmonization of the information provided by European companies.
The next step, once the Regulation is approved, is to put into operation the European Accounting Regulatory Committee, the body whose function is to study the draft measures proposed by the Commission and which contains the proposals regarding the acceptance of a Standard Accounting International as an integral part of the community accounting acquis, provided that they meet a series of requirements defined in the Regulation itself, in this sense, it will be the representatives of the Member States who pronounce positively or negatively on it.
As a result of this reflection, in Spain, an Expert Commission was created by Order of the Ministry of Economy of March 16, 2001, which aimed to prepare a report on the current situation of accounting and basic lines for, where appropriate, tackle your reform.
Said report, known as the Accounting White Paper, was approved by the plenary on June 26, 2002, and it reflects the Commission's proposals regarding the steps to be followed to undertake the accounting reform.
The next step, once the content of the White Paper recommendations is known, must be undertaken by the national accounting standardizing body, the Institute of Accounting and Accounts Auditing, and consists of drawing up an action plan defining the strategy to be followed in the face of effective accounting reform, a plan to be approved by the Ministry of Economy in the terms it deems appropriate, which will be the starting point in this new phase of accounting.
As we see, we have before us a great work to be done to achieve that final objective of international harmonization, it is a new challenge that is opening before us and that requires all our effort in order to obtain the desired result.
Conclusions
The process of accounting harmonization in the European Union, as has been shown throughout the work, has gone through different stages, currently being one of the most important.
In a first phase from 1973 to 1990, the need to accept the different national laws led the EU to adopt a clearly synthetic position, which, however, encountered difficulties due to the profound divergences existing in the legal and accounting systems of the member countries.
Subsequently, there was a period from 1990 to 1995 in which there was a certain lack of definition in the sense that the process should adopt, also coinciding with the existence of contrasting opinions that doubted the results that had been obtained and future success.
In the mid-1990s, the EU seriously analyzed the problems inherent in its harmonizing model and rethought it towards the approach of the IASB criteria, being interested in the degree of homogeneity by the Directives and IAS.
In 2000, the trend towards International Standards was definitively promoted, defining the way, tools, deadlines, etc., in which the EU and the countries that comprise it should adopt them.
Therefore we are at this moment in a stage of adaptation of the community and national accounting structures to this strategy that is expected to culminate, at least in a first phase in 2005.
