The Globalization of Accounting & It's Impact on Developing Countries
The globalization of business and accounting has been growing year after year. For the most part, people have discussed the impact that globalization has had on our country. In this paper I will discuss the different ways that the globalization has affected other countries, especially developing countries. More specifically, I will discuss the positive and negative effects it can have on the maturing countries and the people who live there. I will address the effects for emerging countries using globalized accounting principles in their business and how it can hurt or help them to grow.
For developing countries, globalized accounting and related principles can be a very beneficial tool to use for a growing economy. As more and more companies move to standard accounting principles it makes it easier for the entire accounting community to use information and it will create a starting point for some countries’ financial information. This globalization increases the access to other countries’ markets for these blossoming countries.
As the smaller countries start to build their economy, other countries will see it as an opportunity to invest some of their money and businesses there. Also, as the countries improve they can begin to create their own industries to which will help them establish an economy that will attract investments. In a 2012 study of 124 countries, researchers Gordon, Zhu, and Loeb found that foreign direct investment had a direct, positive relationship with the growing countries adopting the International Financial Reporting Standards.
Not only will it increase the access to the financial markets it also increases the ability to access the production networks and supply chain industries. With accounting being globalized it will make it easier for companies from different countries to interpret opportunities and create business between each other. The standard accounting principles and functions will create a solid infrastructure for all emerging countries so they can begin to increase their own economy and create business with other countries. With this increase in the economy the developing countries will have access to better medicine and health care and ability to improve other facets of their countries infrastructure.
With these positive effects there are also a few negative side effects that comes with the globalization of accounting standards. There have been many articles that have discussed the negative effects; one that has been mentioned by a majority of them is that this concept is not for the good of the developing countries but, instead, the advancement of larger countries and their markets. Many believe that the accounting procedures that work in developed countries like the United States and Britain would not be relevant to smaller growing countries in places like Africa. Larger countries just want to increase their ability to invest and use these countries for their own agendas.
Another major concern with the globalization of accounting standards is that while the living conditions may increase in some countries, “it has contributed to hollowed-out welfare states, growing unemployment, and repressive employment conditions.” (Hopper 2016). The increase in globalization has created a so called “race to the bottom” where countries lower their standards to attract investments. The issue is that these small countries do not always have the ability or resources to be able to adopt the accounting principles that well-developed countries are using very quickly.
There are not many countries who have the expertise to implement the accounting standards that are used in larger countries who have been using them for much longer periods of time. There has also been domestic conflict as a result of some evolving countries trying to move toward globalized accounting. In these countries the local residents may have a resentment for foreign countries trying to tell them how to run their country or they may not see the need for these globalized standards. Another, more personal, negative effect is the thought that some countries will lose their cultural uniqueness and everything will become too uniform.
There are many effects to consider when thinking of moving to a globalized accounting procedure. There are factors from outside the developing countries that must be considered as well as some factors at home. There is no easy way to say which country would be able to adopt and thrive with accounting principles that are new and very different but it would definitely have some benefits for the economies in developing countries. Developing countries must decide what is best for them to grow and improve their economy and their standard of living.