Current national accounting requirements often differ, with the result that like transactions and events are reported differently in different countries. Such differences can have a significant impact on both the balance sheet and the income statement. This situation is illustrated dramatically by international companies such as SmithKline Beecham and Daimler-Benz, which, for capital market purposes, prepare financial statements based on different requirements and disclose widely different figures for the same transactions and events. These differences make it difficult to distinguish changes in the performance from the effects arising from the use of different accounting requirements.

The aim of accounting harmonization is to make the financial statements of companies comparable with the financial statements of companies in other countries. Accounting harmonization is important because companies want to operate in a business environment in which they can trade, raise capital, list their securities and attract investors in different countries. Investors also want to seek new investment opportunities throughout the world. Accounting harmonization will assist companies and investors and, consequently, the efficient operation of capital markets. Therefore, several major initiatives have been launched to seek harmonization of accounting requirements and the actual reporting practices of companies.

At an international level, the International Accounting Standards Committee (IASC) has developed a set of accounting standards which deal with most of the topics that are important internationally in published financial statements. Compliance with these standards helps to harmonize financial reporting: for example, standards can be used by a national standard setting body as (or as the basis for) national accounting requirements or as a benchmark in developing national requirements, or by a company in its published financial statements in addition to national requirements.

In the European Union (EU), accounting directives provide a legal framework for the annual accounts and consolidated accounts of companies in member states. The directives are generally consistent with, but less detailed and more flexible than, the international accounting standards. The flexibility of the directives has restricted the degree of harmonization which has been achieved; nevertheless, the directives have led to significant improvements in financial reporting in the member states and in those central and eastern European countries which have used them as the basis for their accounting laws.

National bodies are also working together to achieve harmonization through the adoption of common improvements in national accounting requirements. Cooperative efforts include a number of joint projects as well as regular consultations among standard setting bodies, the European Commission and the IASC on issues of common interest.

Efforts to harmonize accounting requirements are further enhanced and are often led by the actions of companies themselves, particularly European multinationals which have adopted accounting practices that exceed national requirements but which meet international expectations. They have done this because they want access to international capital markets. In the 1970s, many continental European multinationals published consolidated accounts long before they were required to do so. In the 1990s, these same companies started to publish financial statements which conform to international accounting standards even when the requirements of the standards exceed appropriate national requirements.