Globalization and Accounting

Globalizationand Accounting

Globalizationand Accounting

Inthe contemporary time, globalization and accounting are some of theaspects that have gained attention from the international media.Setters of accounting standards throughout the globe basicallyconsider that the public would be interested with the development andupholding of worldwide accounting standards (Diaconu &amp Coman2006). Such standards, which would be of high-quality, would assistin financial accounting as well as reporting. As put forth by GrahamWard, having a single set of global standards set by a global body ofexperts that clearly discusses with, and acknowledges the rightfulinterest of the worldwide community is paramount (Godfrey &ampChalmers 2007). It is assumed that general acceptance of suchstandards would help the globe’s capital markets in becoming moreeffective. It would be attained by improving the comparability andreliability of financial statements. Increased efficacy in thecapital markets would eventually reduce business and capital costs,encouraging global economic growth.

Globalizationhas made accountants to face a wide array of difficulties as theyhave remained cut off by the modifications taking place throughoutthe globe (Diaconu &amp Coman 2006). Globalization has positive andnegative impacts on accounting. For instance, it enforces novelpersonal and professional challenges on accounting. It also generatesnovel career opportunities to those who acknowledge the constantmodifications which characterize globalization. Taking advantage ofthe available opportunities and coping with the present challenges isthe best thing for present-day accountants. In view of this, thecurrent paper investigates the issue of globalization and accounting.In particular, various factors are investigated including effects ofglobalization on accounting, benefits of globalization in the fieldof accounting, globalizing accounting standards, the chaotic businessof standard setting, the need for accounting harmonization, as wellas the benefits of globalization to accounting.

Definitionof Terms

Globalizationis defined as the procedure of global assimilation caused byinterchange of products, technology, ideas, services and culturalaspects across the world. Advancement in technology,telecommunication and transport infrastructure are some of the keyaspects in globalization. These factors are continuing to generatemore interdependence of both cultural as well as economic activities.Globalization has made countries around the world to becomeincreasingly interdependent, relying on each other for variousthings.

Accounting,also referred to as accountancy, is the process of measuring,processing, as well as communicating financial information regardingeconomic corporations. Generally known as the “language ofbusiness”, accounting computes the outcomes of a company’seconomic activities and communicates such information to differentstakeholders encompassing creditors, regulators, the management,investors and customers. Accounting practitioners are responsible forperforming accounting roles. The accounting field consists ofdifferent subdivisions that encompass management accounting, taxaccounting, financial accounting and auditing. Different accountingfirms have been set up to facilitate accounting. They encompassprofessional bodies, standard setters, as well as accountingcompanies. Accounting firms are responsible for auditing financialstatements, which are prepared in line with generally acceptedaccounting principles (GAAP). In 2012, key international economiescame up with a plan of converging or adopting the InternationalFinancial Reporting Standards (IFRS).

Effectsof Globalization on the Generally Accepted Accounting Rules

Thedevelopment of alternative standards that outperforms the GAAP is animpact that globalization has to the accounting vocation (Godfrey &ampChalmers 2007). According to setters of accounting standards, thepublic would be interested in the formulation and upholding ofcombined set of quality principles (Godfrey &amp Chalmers 2007).Such standards would be responsible for accounting as well asfinancial reporting. As put forth by the International Federation ofAccounting (IFA), such a move would be important in improving thereliability and comparability of financial records. This would inturn result in efficacy in capital markets, reduced business costsand improvement of universal economic growth. During the pastdecades, GAAP has offered a set of superior quality reporting andaccounting standards collectively (Diaconu &amp Coman 2006).Nevertheless, GAAP seems to face dawdling progress and enhancementsince commerce has become complex and has gone universal.

Variousaccounting bodies encompassing the International Accounting StandardsBoard (IASB) and the IFRS play significant function in the accountingvocation (Fosbre, Kraft &amp Fosbre 2009). As an example, the IASBpublicized publicly traded firms’ conformity with the IFRSprinciples. In spite of the presence of diverse resemblances betweenGAAP and other novel standards including IASB and IFRS, thereadditionally exist major differences. Besides, the majority ofaccountants throughout the globe have a lower preference of GAAPstandards. The result was the formulation and upholding of otherglobal standards that are highly preferred by accountants. It hasbeen evidenced that approximately 100 countries throughout the globeemploy the standards formulated by the IFRS (Godfrey &amp Chalmers2007). Additionally, various economies in the globe including the US,China and Japan prefer using IFR as compared to GAAP.

Effectsof Globalization on the Management Accounting

Accordingto Fosbre,Kraft &amp Fosbre (2009), globalization has played a key role inchanging the balance amongst various disciplines in the filed ofaccounting. In the past, the accounting vocation in the entire globeseemed to focus wholly on preparing and auditing of accounting andfinancial statements. While dealing with financial accounting, mostpeople only consider Certified Public Accountants (CPAs) among otherprofessionals practicing in the field. Nevertheless, in somecountries, the discipline of management accounting emerges as asubdivision in the field of accounting. In such places, financial andmanagement accounting are two diverse professions. It has beenevidenced that financial accounting surpasses management accounting(Sahi &amp Dua 2012). Such overshadowing is caused by globalizationand has led to economic problems. The challenges have beendisseminated by managerial weaknesses. Clearly, overseas enterprisesrely on management accounting to attain their goals in theinternational market. It means that management accountants have arole to play in saving the falling overseas ventures in the currenttime characterized by huge pressure on firms (Sahi &amp Dua 2012).

Managementaccounting has been insignificant due to a number of reasons. Tostart with, some countries such as the US failed to dedicatethemselves to international competitiveness (Godfrey&amp Chalmers2007). The resultant effect was minimum competition of theirbusinesses in the foreign market. During the 1980s, the US facedshortcomings from overseas enterprises and businesses that hadimproved competitiveness. Obscurity in management accounting is alsocaused by low information-centric management style (Godfrey&amp Chalmers2007). The majority of managers have a high probability of makingdecisions founded on personal interest rather than formalinvestigation to capitalize on competitiveness.

Effectsof Globalization on Threats and Opportunities of Accountants

Globalizationposes major threats as well as opportunities to accountingprofessionals working in different corporations. For instance,accountants who work at ventures that have gone global, those whowork for Security and Exchange Commission (SEC), as well asaccountants whose capabilities, knowledge and skills prevents themfrom carrying out compliance-oriented jobs (Fosbre, Kraft &ampFosbre 2009). These categories are particularly significantconsidering the weakening importance of skills and capability foundedon GAAP. As out forth by Fosbre, Kraft &ampFosbre (2009) current accountants should possess the capacity toread, comprehend and evaluate financial statements on the basis ofGAAP and IASB standards. Accounting professionals also face the riskof losing their job due to globalization (Diaconu &amp Coman 2006).For instance, accountants with limited knowledge and abilities have ahigher likelihood of being pushed out of employment. They would bereplaced by those who have more management accounting capabilities.The reason is that the supplementary talents correspond to therequirements of overseas competitors for effective competition.

Inspite of these challenges, globalization is believed to benefit someaccounting professionals. For instance, accountants enhancing theircapabilities and skills so as to become accustomed to the modifyingglobal accounting standards are the first group to benefit. Thesecond group comprises those accountants who complement theircompliance-based skills and capabilities with performance basedskills and capabilities of management accounting (Diaconu &amp Coman2006). As put forward by Godfrey &amp Chalmers (2007) the twocategories have an opportunity of benefiting from job opportunitiesboth nationally and internationally. An example of such a company isPricewaterhouseCoopers. It is amongst the four major accounting firmsin the globe. The company necessitates its employers to possessskills, knowledge and capabilities that go past the US foundedaccounting principles.

Globalizationhas enabled accounting professionals to search for modifications withthe intention of meeting the worldwide accounting standards (Godfrey&amp Chalmers 2007). It necessitates accountants with limitations tobroaden their knowledge, improve their capabilities, skills, as wellas credentials. The majority of accounting professionals have optedto acquire education that is advantageous for career growth in thehighly globalized world. A significant source of information is theinternet that has been at the center stage in globalization. A numberof accountants are also taking online learning to obtain globallyacknowledged credentials including Certified Management Accountant(CMA) and Certified Internal Auditor (CIA) (Diaconu &amp Coman2006).

Anotherimpact of globalization on accounting is that it has obliged a numberof professional associations to start coping with the growingrequirements of accountants in international issues (Godfrey &ampChalmers 2007). For instance, the North Carolina Association of CPAshas put in place a global practice committee (Diaconu &amp Coman2006). It is responsible for providing accountants with the necessaryknowledge on universal business and enterprise practices. Anotherrole of the association involves offering services such as merging oftransnational firms and joint enterprises and planning of taxesacross border. The New York State Society of CPAs is another exemplarof professional association. It has a global auditing and taxationcommittee. Through these, associations, accounting professionals areable to acquire the knowledge and skills needed to work in thecurrent time that is characterized by increased globalization.

Benefitsof Globalization to Accounting

In2002, the US was converged with the global accounting standards (Sahi&amp Dua 2012).This was achieved after the IASB and the FASBbroadcasted the issuance of the Norwalk Agreement, showing theirdedication on the same. Converging and implementing rules ofaccounting standards exhibits a positive effect of globalization. Itimplies that the accounting professionals would become a universalbreed, working in any part of the world due to the similarities inaccounting rules. Globalization has made the field of accounting tomove towards becoming a solitary and reliable world.

Whilepreparing financial statements of corporations throughout the globe,accounting professionals are using the IFRS. It indicates howglobalization has converged the accounting field to a singleuniversal understanding. For instance, it has been evidenced that 123nations worldwide allowed or obligated IFRS reporting (Fosbre, Kraft&amp Fosbre 2009). Using similar standards throughout the globe isan advantage for smaller companies that desire to expandinternationally. In addition, it would cut the costs involved incommunicating financial statements. Also, companies desiring to raisefunds in the global market are not required to reiterate theirfinancial statements to abide by the accounting standards of thetargeted country. The resulting effect is reduced costs of raisingfunds in a foreign nation.

Theemployment of XBRL also referred to as eXtensible Business ReportingLanguage has taken effect in the current time (Fosbre, Kraft &ampFosbre 2009). It is an electronic communication language used toconverse financial data of an organization. It simplifies theprocedure of comprehending the information in the financialstatements. Corporations throughout the globe are endeavoring to filltheir financial information in the XBRL. The language regulatesfinancial statements in a manner that enables individuals to evaluatethe performance of a corporation against that of its peers. In pointof fact, converging the accounting standards and standardizing theXBRL procedure would make the accounting world to progresseffectively towards a technological and global level (Fosbre, Kraft &ampFosbre 2009). Through this, both the foundation of financialstatements and the language used to report financial data would becomparable.

Similarly,globalization enforces organizations to abide by accountingprinciples, regulations and rules (Sahi &amp Dua 2012).Organizationsdesiring to invest abroad, sell its products overseas or raise fundsinternationally must conform to international accounting rules andstandards. Breaking such rules is illegal and considering how greatlythe world has been globalized, such news would travel fast. Variouscompanies have broken such rules and they have in the forefront ofthe media news as well as the public. A good example is Satyam, whichfaced a massive scandal in 2009, attracting the attention of manypeople (Sahi &amp Dua 2012).

TheNeed for Accounting Harmonization

Thespeedy growth of the world economy has led to considerable impacts onthe accounting field. For instance, the obstacle among diverseaccounting regulations and rules in every nation while incorporatinginternational activities (Diaconu &amp Coman 2006). The reason isthat accounting is termed as the business language. The implicationis that the harmonization of accounting standards throughout theglobe would remove the existing gap in accounting system. As aresult, international efforts have been made with the aim ofestablishing common accounting standards to be used by nations aroundthe globe. These would not only open novel evolution horizon, butwould also assist in enhancing financial information among differentcorporations. This would in turn help in doing comparativeexaminations.

Harmonizingaccounting standards is advantageous for the global world for variousreasons. SEC for instance argues that applying IFRS and IAS wouldmake financial statements more comparable (Sahi &amp Dua 2012). Theresulting impact is the reduction of misapprehensions pertaining tooverseas financial statements, therefore saving money and time.Accounting harmonization also maintains high accounting quality, andis relevant for the legal, social, as well as economic conditions forall countries. According to Diaconu &amp Coman (2006) firmsoperating in line with IAS achieve higher quality compared to theircounterparts. The use of IAS enables companies to carry out anefficient and competitive examination required to run an enterprisein the easiest way possible. Financial executives would also beassisted in managing strong linkages with suppliers, clients, as wellas other stakeholders. In this case, multinational corporations arethe key gainers.

Theestablishment of IFAC in 1977 was aimed at harmonizing accountingstandards. The agency represents sixty three accounting firms offifty one nations across the globe (Fosbre, Kraft &amp Fosbre 2009).IFAC is mostly interested in globalizing all professions related toaccounting. They encompass management accounting, financialaccounting and accounting ethics among others. In addition, it alsofocuses on harmonizing processes used in accounting among its membernations in proportion to international accounting. This is beneficialto worldwide economics.

TheChaotic Business of Standard Setting

Althoughglobalization has resulted in the harmonization of accountingstandards, setting such standards is extremely challenging. Somescholars have referred to the standard setting as a chaotic andcontroversial aspect (Fosbre, Kraft &amp Fosbre 2009). For manyyears, leaders from the G20 have given their proposals regarding theimportance of setting universal accounting standards to be applied inall nations across the globe. It is a common way of describing thefinancial performance of corporations worldwide. The standardizationof accounting principles that is brought forth by globalization iscontentious. For instance, it can outshine the already establishedstandards, which have developed over several decades. Additionalthese standards have the capacity of challenging cultural factors.For example, most companies are managed in accordance with thecultural settings of the home country. It means that a French companyis managed and operated differently to that of German or America.What this means is that the proposal of G20 requiring IASB toformulate common standards to compare companies is fairly difficultand contentious (Godfrey &amp Chalmers 2007).

Theissue of transparency has also been raised. In this case, the concernof IFRS which is a private company working for the interest of thegeneral public has been raised (Fosbre, Kraft &amp Fosbre 2009).Therefore, in conjunction with IASB, IFRS had to prove itslegitimacy. The authenticity instigates from various aspectsincluding consultation procedure, governance, as well as transparencyof different activities performed by the institution. Transparency issignificant in order to show that the institution considers thebenefits and costs of the universal accounting standards, and that ithas seriously taken into consideration the wide array of feedbackthat has been provided (Godfrey &amp Chalmers 2007). Nevertheless,transparency implies that IABS has to put on view everythingincluding warts and board meetings to the general public. Certainly,this could not be favored by companies that would like to keepprivacy of their operations and management.

Thiskind of wide-spread transparency is significant in sustaining poisein accounting standards. On the other hand, setting standards is adifficult assignment, which is also subjected to broad lobbying fromopponents who oppose the modifications recommended. As such, standardsetting is a long-lasting and complex process. However, with theglobalized world, all the involved parties should come together andagree on the right step in order to take advantage of the benefitsbrought forth by globalization.

Conclusion

Thepaper has focused on the issue of globalization and accounting. Inthe current time, globalization has led to the integration of variousactivities throughout the globe. It has also changed how companiesconduct their accounting practices as evidenced in the current paper.The need for universal accounting standards has become mostimportant. Such standards, which would be of high-quality, wouldassist in financial accounting as well as reporting. Setters ofaccounting standards throughout the globe basically consider that thepublic would be interested with the development and upholding ofworldwide accounting standards. Various accounting bodiesencompassing (IASB) and the IFRS play a significant function in theaccounting vocation. Globalization has enabled accountingprofessionals to search for modifications with the intention ofmeeting the worldwide accounting standards. Harmonizing andstandardization of accounting standards offers a universal platformin which financial statements would be reported. It also offersaccounting professionals an opportunity of growing their careerinternationally. It means gaining more knowledge and skills that areapplicable in a global level. In a nutshell, globalization hasgreatly influenced the accounting field, both positively andnegatively. However, the positivity’s surpasses the negativities.

ReferenceList

Diaconu,P &amp Coman, N 2006, Accounting research from the globalizationperspective,InternationalJournal of Human and Social Sciences,vol 1, no. 1, pp. 25-31.

Fosbre,AB Kraft, EM &amp Fosbre, PB 2009, The globalization of accountingstandards: IFRS vs. US GAAP. Global Journal of Business Research,Vol. 3, No. 1, pp. 61-71.

Godfrey,J &amp Chalmers, K 2007, Globalisation of Accounting Standards,Reprint edn, Edward Elgar Publishing, Cheltenham.

Sahi,A &amp Dua, K 2012, ‘Globalization’s impact on accountingresearch’, International Journal of Information Technology andKnowledge Management, vol 5, no. 2, pp. 468-470.