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Globalization and Accounting
The Importance of the IASB
Globalization and Accounting
Globalization is defined as the process of integrating nations and people politically, economically, and culturally (Encyclopedia). This term has become an everyday term for business owners and corporations who are trying to grow. In order to compete in industries where local supply and demand has been saturated, many are looking to expand operations and sales globally or use labor in other countries in order to maximize profits. With deregulation and the expansion of technology, including the internet, companies are able to reach far beyond their traditional national borders. This expansion in international business has grown to even include young entrepreneurs. New ventures presented to investors on Shark Tank already show international sales, often including products that can help countries in times of crisis. While this globalization of businesses is helping companies thrive in their profitability and are creating opportunities for countries all over the world, the realm of accounting has gotten more complicated. In the past, companies were able to follow their own nation’s set of principles and standards. For example, the SEC required US public companies to abide by the generally accepted accounting principles (GAAP). However, comparing financial reports with different countries produced in different formats with different rules created ambiguity and confusion. Therefore, the International Accounting Standards Board (IASB) was created and plays a crucial role in monitoring different accounting principles universally (Petkov). The Board has created International Financial Reporting Standards (IFRS) in an effort to provide a framework that all international companies can follow to ensure consistency. IFRS standards unravel the complexities and will only continue to help companies grow. More importantly, there will be many opportunities for accountants who are willing to dive in to learn these standards.
The IASB now plays a crucial role in our modern economy that relies on substantial cross-border transactions and international capital. More than 33% of all transactions are internationally based and over 100 nations have adopted these principles (IFRS). The benefits of IFRS are enormous. First, because the IFRS standards are based on broad, high-quality accounting principles, they lend themselves to be flexible as the environment changes. The generalized specifications were created to accommodate varying circumstances and customs (Petkov). Previous to IFRS, a nation might have been able to evade a country-specific rule by clever interpretation. Second, consistent reporting allows investors and stockholders to more easily compare company performance consistently. This makes it less expensive and much easier to procure business capital from anywhere in the world (Cole-Ingait). Because performance measurements are standardized, the risk is reduced in making economic decisions. Also, preparing IFRS-compliant financial reports is easier and therefore less expensive, as the standardization has removed the inconsistencies (IFRS). Only one set of reports has to be completed as opposed to preparing nation-specific versions. In addition, it reduces the complexity in taxing global income (Cole-Ingait). Finally, countries committed to IFRS can more easily compete abroad to win global contracts and ultimately drive up earning (Accounting).
Although the initial impact of financial international standardization was quite costly because of the time of researching and creating new universal rules as well as system changes, ultimately the value achieved is immeasurable. In addition to the benefits of standardization, the opportunity for accounting jobs is also substantial. Accountants that are open to learning new methodologies will always be needed. Especially since the world will continue to evolve, smart thinking individuals will always be needed to continue to make adjustments using sound judgment. There are some people that avoid change and some people that embrace change. The latter will have many opportunities and view the challenges as opportunities. Old-school accountants not willing to embrace the inevitable globalization, however, do not have a good career outlook. In addition, managerial accounting, using both financial and non-financial information to make good management decisions, will become more prevalent. For years, this discipline took less of a priority in the world of CPAs, especially in the US where we were not paying as close attention to global competition. Foreign companies have relied more heavily on managerial accounting with good results (Petkov). Accountants who embrace continuing education to enhance their credentials, knowledge, and skills will be in demand by big accounting firms. Accountants can gain specialized certification as a Certified Internal Auditor (CIA). Accounting associations are also looking for and continually training experts in international business to provide services with international taxation and auditing.
Globalization is here to stay and that is good news for everyone involved. AISB ensures that IFRS standards provide a level of transparency, accountability, and efficiency to management, investors, stakeholders and regulators. Good decisions can only be made with good information. Accountants who complement their compliance-oriented knowledge in international standards, skills and abilities with performance-oriented knowledge will thrive.
Petkov, R. "Scholastic Views on International Accounting within the Lenses of the Global Medium." Trakia Journal of Sciences, vol. 10, no. 4, Dec. 2012, pp. 20-27. EBSCOhost, proxywcupa.klnpa.org/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=a9h&AN=84515609&site=ehost-live&scope=site.
“Why global accounting standards?” IFRS, IFRS Foundation, www.ifrs.org/use-around-the-world/why-global-accounting-standards/.
“Why is IFRS Becoming So Important?” Accounting Major Tips , Accounting Major Tips, 24 Feb. 2016, www.accountingmajortips.com/why-is-ifrs-becoming-so-important/.
Cole-Ingait, Paul. “What Are the Benefits of International Accounting Standards?” Chron, Hearst Newspapers, LLC, smallbusiness.chron.com/benefits-international-accounting-standards-74934.html.