Globalization of Accounting Standards
The world of international business accounting would benefit greatly from a transition to a single, uniform method of accounting. In doing so, both domestic and international business would be held by the same set of standards, and all business globally would be comparable to one another. The regulations of international accounting would be globally recognized and followed, which would eliminate the discrepancies and errors that occur when translating this information across multiple platforms. Implementing one method for international business accounting would ultimately make information more reliable for debit/creditors and easier for accountants to utilize when working with global accounts.
The reality is that many companies are becoming international and their expansion into other countries has created a need for accounting to become mobile and universal. One major aspect of this transition has been the growing use of IFRS (International Financial Reporting Standards) instead of GAAP (General Accepted Accounting Principles) to record Financial statements. This evidence is supported by the Journal of the Global Accounting Alliance when they stated: “As The Accountant noted earlier this year, the globalization of the profession has accelerated in the past two years as [Western accounting] institutes expand abroad and accountants become increasingly mobile. The transformation is palpable across Asia, Eastern Europe and Latin America as the profession races to build capacity, develop specialty practice areas and expand the clout of large domestic firms. Meanwhile, accountants have become increasingly respected and sought after, especially in fast-developing nations where for years they did little more than prepare taxes or do basic bookkeeping tasks for state-controlled enterprises. (That said, regional data show that while the locus of global economic growth has shifted to the emerging BRIC economies, the bulk of accounting revenue and personnel is still located in North America and Europe.)” (SOURCE GAA3) By creating and implementing global standards, the financial information itself would become more accurate and international accountants would be more equipped for their job.
One significant step towards this universal accounting standard was on November 15,2007, when the United States started accepting IFRS for their stock exchange. (Glob) Previously, the US made international companies reconcile their financial statements from IFRS to US GAAP. This directly impacted domestic and foreign markets because “financial information is the critical currency for investors seeking returns and for companies seeking capital to grow.”(SEC) This, in itself, proves that how financial information is reported has a direct impact on the growth and success of international companies. The US has taken one step in globalization of standards, but it is still a work in progress.
Since 2007, there has been positive effects resulting from the use of IFRS as an acceptable form of financial statements for the stock exchange in the US. If additional steps were taken to complete this process, the SEC states that the elements of an effect global financial reporting structure would include:
Effective, independent and high quality accounting and auditing standard setter;
High quality auditing standards;
Audit firms with effective quality control
Profession-wide quality assurance;
Active regulatory oversight (SEC)
So now that the process has started, what is preventing the world from completely converting to universal international standards? Ultimately European companies question whether the incentives for the us to permit the use of IFRS is really just another way to gain international control of their financial market. According to Roel Campos, SEC Commissioner “’the SEC is simply trying to respond to registrants that have a global presence and may find using IFRS more practical.’” (Reason) However, since the SEC regulates the New York stock exchange and the largest capital markets in the world, their global power would significantly increase with the creation of global accounting standards. This causes hesitation for all international companies.
Ultimately, the pros of implementing one method of international business accounting would undoubtedly make information more reliable and easier for accountants to utilize when working with global accounts. The transition to the use of IFRS for reporting financial statements has resulted in the growth and expansion of many companies to become international. It has made the process simpler for investors to identify opportunity for the return on their investment and for companies to obtain capital to grow. However, there are yet more steps to take in order for all countries to agree and be comfortable with a single method for reporting financial accounting. It is imperative to consider that no one country gains too much global power over the financial market, and therefore there needs to be a set of standards that is agreed upon unanimously across the globe. I believe this is possible, but it will involve careful consideration of international infrastructure and identification of a common goal.
Fosbre, Anne, Kraft, Ellen Fosbre, Paul. “Globalization of Accounting Standards”. Academia, Vol 3, NO 1 pp 61-71 http://www.academia.edu=/4386162/THE_GLOBALIZATIONOFACCOUNTINGSTANDARDSIFRSVERSUUS_GAAP Accessed 8 November 2017
Herdman Robert K. “SEC Speech”. SEC https://www.sec.gov/news/speech/spch554.htm Accessed 8 November 2017
GAAA Accounting. CAmagazine http://www.gaaaccounting.com/the-globalisation-of-the-accountancy-profession/ Accessed 8 November 2017
Reason, Tim and Johnson, Sarah. (2008) Regulations of the World Unitehttp://www.cfo.com/article.cfm/11571221/c_11569934?f=home_todayinfinance