Accounting Is Being Changed by Globalization
Over the last two decades there has been a rapid increase in technology. With new technology comes the idea that access to new places will be easily accessible. The world has come to know this as globalization. Globalization can be defined as, “a process of interaction and integration among the people, companies, and governments of different nations, a process driven by international trade and investment and aided by information technology.” The main reason this is relevant in the field of accounting is due to the involved of international trade and investment. With more and more companies having locations all across the world it is becoming increasingly harder to keep records at a professional level. By this I mean, in America the accounting standards are GAAP however, across the world there are other standards such as IFRS and IFAC.
Before we get into that, let us take a closer look at what accounting is. Accounting can be defined as, “is the systematic and comprehensive recording of financial transactions pertaining to a business, and it also refers to the process of summarizing, analyzing and reporting these transactions to oversight agencies and tax collection entities.” Going forward, with more international business being conducted on a regular basis there are new challenges faces the accounting profession. One of the biggest issues the accounting profession faces in the United States is how the rest of the world is moving away from using GAAP. This may cause a direct effect on how the accounting profession is taught in America going forward. There are other threats that the accounting profession will face with globalization and we will touch on them later.
GAAP stand for generally accepted accounting principles and has been around for a very long time. Every American based company has to follow the accounting principles under GAAP. These rules and regulations get updated when needed and then the accounting profession must adjust to these updates. When we take a look at how globalization would change GAAP, we do not have to look far as we can just look at IFAC. The International Federation of Accountants have been working since its foundation in 1977 to create and international set of standards and practices for accounts around the world. The result of the International Federation of Accountants bringing together an international set of rules and regulation will then allow an easier transition with the globalization process.
If America decides to move away from GAAP the most logical choice would be to help the International Federation of Accountants come up with a set of standards that accommodate companies worldwide. The problem with this in America would be colleges and accounting firms all across America would have to change the way they teach accounting. Students and professionals would no longer have to just learn how business in conducted in America, they would have to learn how it is done in Europe, Russia, China and every other major country that international business is conducted in. There are positives that come with the idea of unified accounting code. It would not matter if you lived in America or China you would be able to report on a company and transfer information back and forth with no problem. It would allow the idea of globalization to continue on without a hitch going off in the accounting profession once it was up to speed.
However, with the good there is also the bad. With new standards and codes being introduced on a worldwide scale it will take a processing period for everyone to become acquainted. Within this processing period there is a potential threat that companies may find loop holes within the new standards and unethically or illegally profit from it. The human nature of people will cause someone to want to be greedy and potentially cause a major scandal. It also poses the threat that with new technology being created every day that if the everyday accountant cannot adjust to the international standards they will simply be left out to dry. When it is all said and done, globalization is inevitable so therefore a change in the accounting profession is going to come it is just a matter of time. I hope when the time is come, the universities of America as well as the entire profession will be able to adjust so we can avoid international scandals while international trade and investment continue to enhance the economy.