Creation of World Wide Accounting Standards: Convergence and Independence

Ruder, David S., Canfield, Charles T., Hollister, Hudson T. | January 1, 2005

“Cross-border trading” in the stocks of multinational companies is the code word for the ability of all companies worldwide to be able to sell their securities in the markets of all countries. In a cross-border trading environment, the world’s investment resources would be freely available to companies in all countries and capital would be allocated in an optimal fashion. One of the primary barriers to cross-border trading is the requirement that the financial statements of the companies being traded in the securities markets of a particular country be compatible. With comparable financial statements, multinational companies would be able to access capital markets worldwide without being required to create different financial statements that conform to the accounting requirements of different countries. Investors would be better able to compare the financial statements of all companies and would have the tools to make better investment decisions. The world’s supply of capital would be allocated with more efficiency so that the cost of capital would decline.