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Adjusting for Globalization in the Accounting World

Updated on November 13, 2017

Today’s businesses are bigger and more successful than they have ever been in the past. In a world full of innovation, it is no surprise how easily businesses can spread to more than just one country and operate on an international scale. The process of companies operating on a global scale is known globalization. It occurs when a company Globalization is key for business to expand, but as companies continue to grow, accountants must adjust and adapt to international standards, because they need to follow their clients around the world. If accounting firms fail to adjust for globalization and are unable to grow with their clients, it is possible the firms will face future hardships since companies will prefer globalized firms.

There are a few different factors that have allowed globalization to gain popularity. Specifically, deregulation has attributed to the growth of globalization. In fact, globalization is been occurring for many years now, but it has recently seen rapid growth. Many accounting firms have seen this change and have responded accordingly. In fact, globalization has given accounting firms many more opportunities. There are many different advantages to an accounting firm working on a bigger scale. The first is their bigger size makes them better known and furthermore attracts more clients. Also, as a bigger company, they have the resources to train more employees to fit their needs.

Although operating on a global scale is beneficial to an accounting firm in the long run, there are a few changes and adaptations that employees must endure through preparing financial statements for each separate country. Specifically, one-adjustment United States firms have to face as the differences in types of accounting. In the United States, companies are required to use the Generally Accepted Accounting Principles, GAAP, which are accounting standards. However, on a global scale, companies must use the International Financial Reporting Standards, IFRS, which are international accounting standards that allow for companies across different nations to easily be compared and allows for consistent financial reporting. If a United States company makes the decision to globalize, they must still use GAAP first, even if they operate internationally. One difference is that GAAP is rules based whereas IFRS is principles based. This means that when using GAAP, accountants have to be more stringent with their financial reporting; whereas, under the principles that IFRS follows there is more room for interpretation. There are also differences between the two standards when it comes to capitalizing or expensing development costs on fixed assets. GAAP mandates that these costs be expensed compared to IFRS allowing these costs to be capitalized which leads to a difference in financial leverage among companies and also differences in the financial statements. There are also slight difference in accounting for intangible assets and debt. Although the differences might appear small, it is important for United States accountants to acknowledge that there are differences and make sure that all financial statements match.

There are several accounting firms that strive to help their clients succeed in the globalized world; however, there are only a few companies that stand out. The biggest accounting firms that operate on a global scale are called “The Big Four.” The Big Four includes KPMG, Price Waterhouse Coopers, Ernst and Young, and Deloitte. These four companies go above and beyond and have successfully navigated the globalized world. Originally, there were eight firms, but through different mergers and acquisitions there are now these four major firms. These four firms provide accounting services to almost all public companies and many private companies as well. In fact, these companies cover more than 90% of the global market. The “Big Four” have spread to many different countries through using a network of services. Each firm provides services to over 150 different countries around the world. Each company prides itself in dissolving borders and connecting the world. For example, Ernst and Young lives by the saying “building a better working world.”

As innovation continues, globalization will continue to play a key role in today’s businesses. As visible now, a country’s borders no longer are a setback and growth for all countries is possible. Through globalization, developing countries will be able to grow at a faster rate, as companies will be able to help in the process. Accounting will continue to be an important aspect of globalization. “The Big Four” will continue to do their part in creating financial statements that follow both GAAP and IFRS. Through their hard work and dedication, these companies allow globalization to leave its mark in the world.


References

Parker, Alision, and Cheryl Hartfield. “The Globalization of Accounting and Auditing Standards.” Accounting Today. 1 Dec. 2016. https://www.accountingtoday.com/news/the-globalization-of-accounting-and-auditing-standards

Pounder, Bruce. “How Globalization is Affecting U.S. Accountants.” Leveraged Logic, 2006. https://www.accountingweb.com/sites/default/files/How_Globalization_is_Affecting_US_Accountants--by_Bruce_Pounder_of_CPEanywhere.pdf

Wójcik, Dariusz, et al. “Accounting for Globalization: Evaluating the Potential Effectiveness of Country-by-Country Reporting.” Environment and Planning C: Government and Policy, vol. 33, no. 5, 2015, pp. 1173–1189.

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