Globalizations Impact on Accounting Standards and Education

Globalization is defined as the act or process of globalizing : the state of being globalized; especially : 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 has altered accounting standards by creating the need for a universal set of reporting standards. As a result of the urgent need for Globalized Accounting Standards, globalization has further created an impact on accounting education as well. The impacts of globalization in the accounting profession must be addressed in order for accountants to successfully compete in today’s globalized economy and to provide users of financial information with comparable data.Relevant and reliable financial information is a critical success factor in any functioning, developing or growing capital market. To aid in successful capital markets, effective accounting standards and procedures are set to ensure that relevant and reliable financial information is being provided. In the United States, these standards are referred to as generally accepted accounting principles (GAAP). GAAP is defined as a common set of accounting standards and procedures, for which either an authoritative accounting rule-making body has established a principle of reporting in a given area, or over time, a given practice has been accepted as appropriate because of its universal application. International Financial Reporting Standards (IFRS) are all the accounting rules accepted for international use, issued by the International Accounting Standards Board (IASB) (Kieso, Weygandt, & Warfield, 2012). The major difference between the two is that IFRS is very broad and subject to interpretation, while GAAP is very specific and complex. Users of IFRS often have an advantage over the users of GAAP, which does not provide users of financial information with comparable information needed for investment purposes.The accounting scandals of many US companies such as Enron and World Com brought focus to the convergence of GAAP and IFRS. In 2002 FASB and IASB signed the “Norwalk Agreement” with the aim of convergence of GAAP and IFRS into high quality Global Accounting Standards. In February 2006, the two boards reaffirmed this shared objective. On November 15, 2007, the Securities and Exchange Commission (SEC) no longer required foreign firms to reconcile their statements from IFRS to GAAP when filing on US stock exchanges (Fosbre, Kraft, & Fosbre, 2009).It goes without saying that the globalization’s impact on accounting standards has in turn impacted accounting education as well. The move toward IFRS has affected the knowledge that accountants must possess to compete in today’s globalized marketplace. For Example, Accountants in the U.S. must understand the differences between IFRS and GAAP reporting standards and be capable of conveying these differences to clients making investment decisions. The SEC’s decision to allow the usage of both IFRS and GAAP on U.S. stock exchanges is another example of why it is essential for accounting education to include both IFRS and GAAP into the curriculum. Additionally, Bruce Pounder has made a valid point in regards to the impact on accounting education as follows; “as international accounting standards have begun to overshadow U.S. standards in significance, most U.S. accountants will find that their knowledge, skills, and abilities are obsolescing faster than ever before” (Pounder, 2006). With this in mind it could be assumed that U.S. accountants have no choice but to adapt to both GAAP and IFRS to prepare themselves for the shift toward IFRS.ReferenceFosbre, A., Kraft, E., & Fosbre, P. (2009). The Globalization of Accounting Standards: IFRS vs. US GAAP. Global Journal of Business Research, Vol. 3, No. 1, 61-71.Kieso, D., Weygandt, J., & Warfield, T. (2012). Intermediate Accounting. Hoboken: John Wiley & Sons, Inc.Pounder, B. (2006). How Globalization is Affecting U.S. Accountants. Accounting Web.

This entry was posted in Education and tagged , , , , , , , , , , , , . Bookmark the permalink.