Economic ties to, and relationships with other countries may have influence on one country’s accounting system development. Pressures to change international accounting have become stronger and stronger. These international pressures come from growing international economic/political interdependence, new trends in FDI, changes in multinational corporate strategy, impact on new technology, rapid growth of international financial markets, expansion in business services, and the activities of international regulatory organizations:
“Historically, the first of such arrangements was colonialism. The colonies adopted or were forced to adopt the accounting system of their colonial power, even though it may not have been particularly appropriate at the colony’s stage of development. Thus, the accounting systems in the British colonies were significantly influenced by British accounting, and the influence remains today, such as in the United States, Canada, Jamaica, and the Bahamas” (Arpen and Radebaugh, 1985:23).
Secondly, the globalization and harmonization of markets have begun to affect accounting all over the world. Although several large multinational companies are based in comparatively small countries (e.g. the Netherlands and Sweden), international influences are likely to be particularly great. The harmonization of a regional economy calls for the harmonization of accounting also. Formal regional economic groups, such as the European Union (EU), the Andean Pact group, and the Central American Common Market (CACM), can significantly affect accounting development and practices, as harmonization requires countries to modify their historical ways of accounting. This may promote member countries to reconcile their accounting standards to the one accepted by the groups or by worldwide. For example, “the EU has embarked on a major program of harmonization, including measures to coordinate the company law, accounting, taxation, capital market, and monetary systems in the EU countries”. As the result, the “EU has emerged as a major economic and, to some extent, political force in recent years” (Radebaugh, 1997:60). These harmonizing objectives were mainly achieved through EU Directives. In June 2000, European Commission (EC) published a draft regulation, which proposed a compulsory use of IAS for the consolidated financial statements of European listed companies and would have to be effective as from 1 January 2005 onwards and would imply that 7000 European listed companies, including those listed at the Amsterdam stock exchange, should apply ISA for their financial reporting as for this date. “The EC also provides the member states with the possibility to compel or allow the application of IAS for the parent company financial statements and for the category non-listed companies” (Deloitte & Touche, 2002:7). The Netherlands is an example of fully supporting a worldwide harmonization of accounting standards. Dutch government has laid down a bill stating that companies must fully adopt IAS regulations and comply with the legally required ‘true and fair view’. This also means that non-listed companies in the Netherlands can change to IAS.
Thirdly, international organizations, such as the United Nations (UN) and the Organization for Economic Co-operation and Development (OECD) have been deeply involved in the development of international business on a global scale:
“The UN is responsible for the emergence of organizations such as the World Bank Group, the International Monetary Fund (IMF), the UN Conference on Trade and Development (UNCTAD), the Conference on the Law of Sea, the General Agreement on Tariffs and Trade (GATT), now the World Trade Organization (WTO), and the Economic and Social Council (ECOSOC). UNCTAD now includes the work of former Commission on Transnational Corporations, which was designed to promote an effective international framework for the operations of transnational Corporations and to monitor the nature and effects of activities. In particular, the UNCTAD and its Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR) is involved, among other things, in initiatives to develop international standards of accounting and reporting and to promote accounting education in Russia and Africa” (Radebaugh, 1997:61).
At the level of international financial markets, the OECD and especially the European Union have been influential in efforts to harmonize the minimum requirements for the admission of securities to listing and the content of prospectuses.
In addition, the International Coordinating Committee of Financial Analysts Societies and the International Organization of Securities Commissions (IOSCO), both private organizations, are seeking to promote the internationalization and integration of securities markets on a global basis. On May17, 2000, the International Organization of Securities Commissions decided to endorse IAS. This endorsement implies that the IOSCO advised its members (the Securities Commissions) to accept 30 IASC, which has changed the name into IASB on 1 April 2001, standards as the reporting basis for companies that are listed at several (national) stock exchanges. In fact, the SEC’s decision whether or not to accept IAS unconditionally will be of crucial importance for the worldwide harmonization of accounting standards.
Finally, MNEs may also exert a significant impact on the culture and social development of host countries. Employment and consumption patterns are often significantly influenced by MNEs.