Latin American Capital Markets

234 PIETRO MASCI AND IVAN SOTOMAYORapplication of accounting standards in financial reporting constitutes a fundamental instrumentfor achieving the goal of releasing information according to the criteria ofaccuracy, completeness, and comparability.These requisites allow the market to functionand grow, introducing more effective market discipline, which results in propervaluation of business entities according to the risk-reward trade-offs.Latin American and Caribbean countries are at a crossroads; if the countriesin the region want to develop their financial markets, they must embrace the processof transparency and disclosure. It is likely that in the long run, through cooperationamong national and international standard-setting bodies, the two relevant bodies ofstandards, that is, IAS and U.S. GAAR will converge. Nevertheless, Latin American andCaribbean countries should aggressively pursue the political decision to effectively implementappropriate and internationally accepted accounting and auditing standardsand prepare themselves for the process of harmonization and globalization. Implementationrequires more than just passing legislation. Making accounting standards apart of the routine of the local business community entails considerable efforts throughsetting up independent regulatory bodies, ensuring effective enforcement, providingtraining and education, and implementing quality control systems. It represents a longterm,continuous exercise that demands patience, commitment, and oversight.Any change in a country's legal and regulatory system requires coping withthe political, cultural, and social realities of that country. However internationally acceptedaccounting standards have specific characteristics that facilitate their adoptionand effective implementation. More than other standards, they are self-contained andstand alone, in that their application does not require that the domestic legal systemnecessarily be changed.This is the so-called interdependence of rule under which therules have to be inserted and understood in the context of other legal concepts ofthe domestic system. The autonomy feature of the accounting standards facilitatestheir introduction in national systems as the rules embodied in the international standardsmake only limited reference to legal terms and concepts existing in the recipientlegal system. In addition, accounting standards are a crucial component of financialstability and therefore have important characteristics and benefits that go beyondan individual country.It should be highlighted, however, that no matter how good and sophisticatedthe rules and practices that are put in place, the system's success ultimately dependson the set of incentives that are designed around various stakeholders whose ultimateinterest is the preservation of an efficient capital market system.The system also depends on the institutional settings that mold the behaviorof the various players. In addition, policymakers must have a long-term view and beCopyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub