The 20th century: how did accounting become an international language?
What does it take for an investor in Tokyo or London to understand the financial statements of a company in Tashkent? A short road map of the international standards that emerged in the 20th century and of the national NAS system.
When two people use the same word but mean different things, disagreement follows. In the mid-20th century this is exactly what happened with financial statements: each country calculated "profit" and "assets" in its own way. International standards emerged as an answer to this problem.
Key facts
- 1973, London. The International Accounting Standards Committee (IASC) was founded. It was set up by agreement among the professional accountancy bodies of the following countries: Australia, Canada, France, Germany, Japan, Mexico, the Netherlands, the United Kingdom and Ireland (as a single member) and the USA.
- The purpose. Companies had begun listing their shares on stock exchanges in other countries as well. Investors from different countries needed to read financial statements prepared under the same rules. The standards issued by the IASC were called IAS.
- 2001: restructuring. On 1 April 2001 the IASC was replaced by a new structure: an independent standard-setting body, the International Accounting Standards Board (IASB), and a foundation overseeing it.
- IAS and IFRS. New standards issued after 2001 began to be called IFRS (International Financial Reporting Standards). The IAS issued earlier were kept as part of the same single set.
- The foundation's name. The foundation, originally called the IASC Foundation, took the name IFRS Foundation from 1 July 2010.
- There are national standards too. In Uzbekistan, the National Accounting Standards (NAS, BHMS) apply to business entities: NAS No. 1–12, 16, 17 and 19–24. Standard No. 13 is the budget accounting standard (BHS) for budget organizations. There are no standards No. 14, 15 or 18.
- The new chart of accounts. The current chart of accounts, NAS No. 21, entered into force on 1 January 2025. All the journal entry examples on our site are based on this document.
Example (prepared by the author, hypothetical)
"Ipak yo'li Tekstil" sent its financial statements to two investors: one from Germany and one from Japan. If each reads them by the rules of their own country, the same figures carry two different meanings:
| Question | Without a common standard | With a common standard |
|---|---|---|
| How was "profit" calculated? | Each investor guesses at the rules of their own country | Both read on the basis of the same rules |
| Comparing two companies | The statements must first be reworked | The figures are compared directly |
| Investor confidence | Requires additional explanation and time | Understanding is quicker |
This is the main value of standards: they turn accounting into a common language everyone understands.
See also
Sources
- IFRS Foundation: An agreement to establish an International Accounting Standards Committee (1973) · the agreement signed in London on 29 June 1973
- IAS Plus (Deloitte): International Accounting Standards Committee (IASC) · founders: professional bodies of Australia, Canada, France, Germany, Japan, Mexico, the Netherlands, the United Kingdom and Ireland, and the USA; replaced by the IASB on 1 April 2001
- Encyclopaedia Britannica: International Accounting Standards Committee · founded in London in 1973, replaced by the IASB in 2001
- IAS Plus: New name and web address for the IASC Foundation (2010) · the IASC Foundation was renamed the IFRS Foundation from 1 July 2010
- IAS Plus: Overview of the structure of the IFRS Foundation, IASB and ISSB · structure of the foundation and the standard-setting board
- NAS No. 21 "Chart of Accounts" (registered with the Ministry of Justice on 27.12.2024, No. 3593), paragraph 3 of the order · in force from 1 January 2025
- The two-country investor example · prepared by the author, hypothetical