The Effects of Globalization in Accounting

Globalization in trade refers to the transformation of business where a company of a country is connected or collaborated with another one operating many firms in different countries. This concept is an ever-changing and growing aspect of business around the world. Globalization has both positive and negative effects for the accounting industry. The differences between GAAP and IFRS cause many issues for accountants, thus we need a harmonization of standards. However, globalization has also lead to extreme growth in the accounting industry. Offering room for more jobs, ease of business transactions, and increased communication around the globe. It is continuing to be an increasingly important trend over the past couple decades.

Up until recently, GAAP (generally accepted accounting principles) have been the guidelines for the accounting industry. However, recently this has been changing. These changing laws and regulations has made it especially difficult for students and those new to the industry. This meshing in the business world means that accountants will also need to understand the culture and the business of other countries. Accountants who are familiar with global regulations are in high demand. In addition, fraud within the industry is spurring a demand for fraud examiners and forensic accountants. When a business practices globally, it may complicate the process even more.

In addition to working towards a harmonization of standards, tax is an issue as well. A realistic approach would be expecting a universal tax system but with differing rates to meet different nations’ needs. Many agree that globalization can and does in fact increase the level of inequality globally. These areas cannot compete at the same level as the already developed and growing countries. However, the rapid growth in information technology and industrialization has helped these developing nations in Asia. Globalization has also had effects on rural areas. In the earlier 2000s these areas have grown economically. The debt is relatively low, and thus they have become more competitive on the business front. The rural regions are typically in “early stages of development” and this makes them more attractive to investors. In turn this will support things like employment, debt relief, and profit. However, it can also be argued that this type of industrialization can hinder the cultures of the area, creating a more urban-like atmosphere.

The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) worked to converge in 2002. This lead to the issuance of the “Norwalk Agreement” which was the first formal step to intertwine the two organizations. In addition, the use of “Extensible Business Reporting Language (XBRL) is the electronic language of communication and financial data.” This can make it much easier to work globally in the accounting field. Between 2008 and 2011, India and Canada made efforts to adopt the IFRS system in hopes of easing international business. It has been analyzed that globalization can be indirect results of market changes. Dating back to 2012, when the economic meltdown occurred, the wealth was redistributed thus would have positive effects in the accounting world.

Globalization is an important part of our economy today, and the United States’ “FASB has agreed to work with the Canadian Accounting Standards Board to harmonize business combinations.” In addition, the Auditing Standards Board has also made moves towards working with the International Practices Committee. An indicator of the incline in globalization is the decline in home bias, especially between 2005 and 2006. Home bias is “the tendency for domestic savings to be invested predominantly at home”. The increase in communication on a global scale has had a positive impact on the world, increasing our problem-solving options and expanding cultures into the business sector.

Overall, globalization has many positive and negative effects on the accounting industry. Depending on which point of view, and which area of the world, it can mean many things. We are still today working towards a unified system for financial reporting across the globe. This could offer extreme growth in all areas of business. Some issues have been resolved and some are yet to pop up. These issues can involve financial reporting, tax, communication, and numerous other topics. Globalization and industrialization can help the economy of developing countries by increasing their footprint in the business world and upgrading their technology. On the other hand, such changes may also deteriorate their cultures and the values among them. Globalization in accounting is a hot topic, work in progress, and as the years go by we will see even more drastic changes in the accounting profession regarding globalization.