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Globalization: Changing the Accounting Profession in the U.S.
Globalization:Changing the accounting profession in the U.S
In order to understand how globalization is impacting the field of accounting in the United States, one must first understand what globalization means. The Merriam Webster Dictionary defines globalization as: the act or process of globalizing: the development of an increasingly integrated global economy marked especially by free trade, free flow of capital, and the tapping of cheaper foreign labor markets.
Globalization is not a new concept. In fact, it has been around for thousands of years. People, companies, and countries have all been selling, buying, and trading goods with far away lands.
The business world is always adapting and changing which results in higher marginal returns for the world as a whole. This is a result of business globalization. Examples of globalization date back to ancient civilizations but it was not until the Industrial Revolution that we saw a large increase in global GDP, population, resource use, and much more. The global economy continues to grow today and that is largely due to the impact of globalization.
Accountants must adapt to this fast changing economic environment or they will be left behind as others take advantage of the effects of globalization. We have seen major changes in financial reporting and this is due to the significant change we see in global markets. This article highlights the different effects globalization has on accounting and how accountants should adapt to the changing business world.
Globalization presents many benefits. Accountants who are willing to adapt to the changes in the business market and invest the time to learn about business practices around the world will exceed. Having this knowledge will bring them a significant return on investment. Tit will present these accountants with new career paths and opportunities for them to pursue which will ultimately lead to a better future.
On the other hand, globalization has a negative impact on those who are not willing to adapt to global changes in the business world. The accountants who refuse to change face a long future in front of them. By remaining static as the whole world continues to grow puts these accountants on a path for failure that will continue to spiral out of control as time goes on.
The GAAP is slowly becoming less dominant around the world and is mainly only used in the United States. As it continues to grow smaller, the GAAP will eventually be replaced by something else. As emerging international accounting standards continue to change, the GAAP is less distinct which is part of the reason for this change. The impact of globalization is now leading accountants to look into ways to create a universal set of high quality standards for financial accounting and reporting. A quote from Graham Ward, President of International Federation of Accountants (IFAC), stated, "We firmly believe that it is in the public interest to have a single set of international standards, of the highest quality, set in the public interest by an international expert body which transparently consults with, and recognizes the legitimate interests of, the international community (Pounder, 2006)."
Universal accounting standards would have a positive impact on the business world because the result would be one set of standards and regulations. This would eliminate the need to read two different financial reports, GAAP and IFCA, enabling accountants and companies to allocate more resources elsewhere and ultimately improve revenues and returns. This would make the world's capital markets more efficient and it would produce more economic growth.
GAAP still has the most comprehensive standards but if it does not adapt to globalization there will be a change in how US accountants view financial standards. For example, the International Financial Reporting Standards are growing in usage around the world. IASB Chairman Sir David Tweedie said, "International Financial Reporting Standards are now used by 100 countries throughout the world. Within the next five years we expect the accounting standards of major economies such as those of Japan, Canada, China and India to converge with IFRSs while at the same time the differences between international standards and U.S. GAAP are being eliminated (Pounder, 2006)." This quote alone shows IFRS is starting to be used in the biggest economies around the world. IFRS is even starting to be used by companies located in the United States already.
If the GAAP standards are to stay in the business cycle they are going to have to adapt to global changes. The GAAP and IASB have been working together for years in an effort to update the standards and regulations and account for global changes and demands. This is crucial as International accounting will continue to become more robust and relevant. US accountants will be at a disadvantage compared to the rest of the world if they don't adapt to international standards.
The business world is always growing and a better business world results in a better global economy. This leads to job creation and an increase in global well-being. From an accounting perspective, if we were to adapt to universal accounting principles it would change the business world forever. This is inevitable as globalization continues to expand. Eventually, the question will no longer be “if we will adapt” but, rather, “when will we adapt to universal accounting principles.”
Toth Kornel, & Herczeg Adrienn. (2015). THE EFFECT OF GLOBALIZATION ON FRAMEWORKS AND CONCEPTS IN ACCOUNTING. Annals of the University of Oradea: Economic Science, 25(1), 968-975.
Kose, M. Ayhan and Prasad, Eswar S. and Terrones, Marco E., How Does Globalization Affect the Synchronization of Business Cycles? (January 2003). IZA Discussion Paper No. 702. Available at SSRN: https://ssrn.com/abstract=383101
Pounder, B. (2006). How Globalization is Affecting U.S. Accountants . Retrieved 2006, from https://www.accountingweb.com/sites/default/files/How_Globalization_is_Affecting_US_Accountants--by_Bruce_Pounder_of_CPEanywhere.pdf