17 • 1

CHAPTER

17

EUROPEAN HARMONIZATION

Peter Walton

Open University Business School, United Kingdom

CONTENTS

17.1 Introduction 1
17.2 Institutions 1
(a) Role of the Commission 1
(b) Role of the Council of
Ministers 2
(c) Evolution of the EU 3
17.3 Accounting Harmonization 3
(a) History 3
(b) Impact of the Accounting
Directives 5
(c) End of the First Cycle 7
(d) Second Cycle 8

(e) IFRS Endorsement Mechanism 9

(f) Future Harmonization 10

17.4 Auditing 11

17.5 Capital Market Enforcement 13

17.6 Taxation 14

17.7 The Euro 15

17.8 Conclusion 16

SOURCES AND SUGGESTED

REFERENCES 17

17.1 INTRODUCTION. The harmonization of accounting within the European Union
(EU) can be seen as a unique experiment in accounting, and one that reveals a great
deal about the nature of accounting regulation and its relationship with cultural vari-
ables. Of course, accounting is just a very small part of a much wider program, and to
some extent exhibits the same strengths and weaknesses as the overall project of polit-
ical and economic harmonization. However, accounting harmonization in the EU has
probably gone through one complete cycle, only to start up a new, and perhaps more
promising, cycle. The first cycle went from initial, and perhaps naïve, enthusiasm,
through practical difficulties, to disillusion and finally abandonment, having achieved
some major objectives but failed in others. The second cycle has set out on a different
track, using different instruments, and in a world which has moved on significantly.
In this chapter, the state of harmonization will be examined, in the first place by
presenting a brief outline of the institutions of the EU, its accounting harmonization
program and the effects of this on member states, and then reviewing the plans to har-
monize audit, taxation, and the euro.

17.2 INSTITUTIONS

(a) Role of the Commission. A detailed knowledge of the institutional processes of
the EU is not really necessary to understand harmonization, even if essential to a lob-