Globalization Helps Build a Greener Future

As the business world continues to expand into international territories, competition continues to grow fiercer. The effects of differentiation and price leadership are dwindling as more and more companies enter the fight for consumers’ money. A new way to encourage customers to purchase a company’s products has emerged, and that is sustainability. Sustainability is growing as a tool for companies to use to hopefully stand out from their competitors. This rise in sustainability efforts has resulted in an increased emphasis on the use of sustainability accounting, which helps to measure the effects of the efforts of companies working towards greener business practices. Corporations have long been criticized for their negative economic impact, but with the help of globalization and rising sustainability accounting standards, that stereotype is about to change.

The idea of globalization does not exactly come to mind when we think about sustainability. Actually, typically quite the opposite comes to mind such as cross-border pollution and widespread environmental destruction. But, the increased competitive environment in the business world due to ongoing globalization has made it necessary for corporations to continue to find new ways to please consumers and set themselves apart from other companies. One way they are doing this is to make efforts to become more sustainable and eco-friendly. For example, water bottle companies making smaller caps and snack food companies making their packaging out of recycled or biodegradable material. In most parts of industry, improved processes, quality requirements, and other areas associated with globalization have worked to reduce the environmental impact of commerce. As consumers continue to take interest in sustainability, and as the global market continues to grow, companies will have to take more steps to become environmentally friendly to keep the buyers happy and the competitors behind. The increased consumer desire for sustainability comes with the need to find a way to measure and regulate the actual efforts being made by companies to make sure they are actually doing what they claim they are doing.

As the corporate sustainability trend continues to grow, so does the need for a way to evaluate the truthfulness of environmental claims being made by companies. The idea of sustainability accounting is becoming more popular and is getting closer to being implemented. Sustainability accounting is a proposed way in which firms will be required to report their environmental impact for the public to see. This may seem like a death sentence for many companies, but some companies are finding that making small changes in their procedures can mean big savings and big public support. Even though these reports are not yet required, the companies that have taken the initiative to set environmental goals and release sustainability reports are realizing increased business value and substantial cost reductions. If that were not enough incentive to go green, “companies that don’t participate are getting shunned by shareholders and NGOs” (Kline). Making sustainability accounting a legal requirement is getting closer, and it will mean big changes. In the past, many companies were not necessarily unconcerned about their environmental impact, as much as they were just unaware. With the implementation of these standards of accounting, a huge change in the way we handle the environment will be possible. Even though integrating sustainability accounting into regular accounting procedures “alone cannot ensure sustainability it is a powerful mechanism to help us all make better decisions about the resources we consume and the lives we lead” (Lamoreaux). Implementing required sustainability accounting standards will not only get large companies to make necessary changes in their practices, but it will also in effect, result in consumers becoming more aware of their own actions regarding the environment as well.

In a business world of expanding horizons, the competition gets tougher to beat. Traditional methods of winning the customer do not cut it anymore. Sustainability is moving in as the next big way to get consumers’ attention. Companies are beginning to see sustainability as an essential resource to gain respect and sales from buyers. As sustainability gains popularity, the need for sustainability accounting standards is growing in order to measure the environmental impact of changes companies are making. Globalization is leading to an increased awareness of consumer support for sustainability and the need for a way to accurately measure the effects of changes businesses are claiming to make. This new go-green goal for corporations could change the way they behave and the way they are seen forever.

 

Challenges of Adopting IFRS in Developing Nations

Introduction

Accounting methods vary around the world. The environments that allow the prominent methods, such as U.S. GAAP and IFRS, to flourish tend to be in the First World countries such as the United States, European nations, and Russia, or nations that closely use these areas as business models. The First World has the resources available to research the best options and continue innovation in financial reporting. They have the money, the man power, intelligence, and a significant amount of government connections to apply and enforce the guidelines chosen.

This is not the case for developing countries. They face several problems concerning accounting principles. The Third World does not always have access to these privileges. It’s not only limited resources that prevent proper reporting; a force that must be acknowledged is local culture and governments.

The main goal of accounting, anywhere in the world, is clear: presenting a business’ financial information clearly and honestly to investors and creditors in a timely fashion (Zahirul 2009). If the Third World is to keep up, each of their accounting branches must take the prior statement to heart, then unite under it and then under IFRS. This will “bring about accounting quality improvement through a uniform set of standards (Zahirul 2009).” They must educate accountants and auditors to become experts in IFRS so they may have global representation and be taken seriously in the accounting and business worlds.

Development and Solidarity

The biggest problem facing these developing countries in the business world is just that, they are developing. These countries face large obstacles such as lack of infrastructure, volatile governments, and corruption. Furthermore, the lack of set standards in accounting practices can lead to more corruption and a disincentive for foreign investors to move capital and resources to these countries. When foreign investors are in the process of planning their investments, an important step is studying the accounting system in the country of interest. They look for a uniform set of accounting standards like IFRS. Using a uniform set reduces confusion, error, and fraud which leads to a greater amount of transparency and most importantly trust in the investments. Developing regions need this growth to continue to survive and eventually prosper.

Most are not united under set standards, though, or do not have standards to call their own. The Third World is extremely impressionable by “Western Influence (The United States, Europe) or Eastern Influence (Russia).” The First World has developed their own principles right in their own nations, by their own people, for their own businesses. Through colonial influence, or the influence of large investors and corporations, the accounting systems of the First World have trickled down to the Third World countries (Perera 1989). The concern of the Third World is that foreign influence will not benefit and reflect the needs of specific localities. In the case of Bangladesh, accountants and academics believed “highly sophisticated rules like IASs is not suitable for the less sophisticated economic and regulatory structure of Bangladesh (Zahirul 2009).” Middle Eastern countries are also having difficulties making IFRS “workable” within their national standards (Razik).

Ultimately it is not IFRS itself that is not workable for the Third World. Hidden behind the façade is the fear of losing control. That fear is completely justified for these small nations that don’t have much to barter with. For a set of standards as vast as IFRS to work in developing countries, proper representation must be established. These nations need a voice of their own to speak for their concerns. In the Middle East where local Islamic culture plays a huge role in daily life and in their business world, representation is extremely valuable. Presently they do not have it. From 2001 to 2005 the Middle East was only represented by two members in the Standard Advisory Council and not represented at all in IASB (Razik). Local councils and governments need to work, hand in hand, with IASB and the SEC for the ability of customization in favor of developing localities while still conforming to IFRS.

In reality, to accomplish all of this, the Third World needs access to the most valuable resource of education. Skilled accountants that have the knowledge of the correct construction and use of financial statements and the policies that must be followed, are the core to success. Nigeria is another example of a developing country trying to fix the accounting situation at home. Nigeria is facing a shortage of skilled accountants and auditors competent enough to implement and continue the use of IFRS (Madawaki 2012). To ensure an acceptable amount of quality in financial reporting, Third World governments must implement an initiative to proper training in the academic and practical portions of IFRS.

Conclusion

The Third World is struggling to use modern accounting methods that investors would rather see than localized forms. They have many setbacks including lack of funding, knowledge, and government support. Solving the lack of proper accounting will first take education. Education is the base that keeps the accounting structure together. When accountants and auditors of developing countries show expertise in IFRS it will lead to more representation in large groups like IASB. From there they can try to implement some localized methods and help their nations succeed with IFRS. Funding from investors, large corporations, and wealthier nations will soon follow. Success will not be easy and it will take time, but it is essential for national growth.

 

Globalization Impact on Accounting Education

Globalization refers to the interaction and integration among the people, companies, and governments of different nations. This process is driven by international trade and investment and aided by information technology. Large companies now have to be aware of their own customs and environment and the rest of the worlds as well. With large corporations being stationed outside of the United States, those employees not only have to be educated with the American principles, but the international principles as well. Since globalization is pretty much impossible to prevent, and quickly becoming a norm in society, it is important that business leaders of the future are all taught on the same page with the rest of the world. With that being said, the impacts that globalization has on accounting education needs to be addressed so future scholars can succeed.

Accounting education policies and practices have been affected by globalization significantly. For example, many concepts are being taught differently, reevaluated and textbooks are being updated annually. Some of the policies and terms that are being reevaluated are GAAP (Generally Accepted Accounting Principals), IFRS (International Financial Reporting Standards), FASB (Financial Accounting Standards Board), culture, international trade and importing and exporting. Those are only a few out of the many that are being looked at throughout the world. Globalization has a negative and positive impact on the accounting education system.

If an American accounting firm comes into China and is asked to keep the books for a company located in China, they all have to be on the same page. The principals in the U.S probably are not the same. In the United States, FASB (Financial Accounting Standards Board) is used but anywhere else, the International Financial Reporting Standards is used. With globalization happening so quickly, it would not at all surprise me if there soon will be one international set of laws and standards to follow. In fact, according to George W. Russell in an interview with Sir David Tweedie (former chairmen of IASB), he has a new mission which is to “oversee the creation of a coherent global financial valuation framework.” He’s basically saying he wants the whole accounting world on the same page with the same set of laws and standards. Let us not forget how every accountant got to where they are now, and that is getting a degree through a university or college.

Since classes are constantly being added and dropped from the typical accounting degree requirements, this can place a delay on the development of accountants who already received their degree. As I said before, textbooks are being reevaluated and changed annually. Let’s say I graduated in 2005 with a BS in accounting and three years after, the textbook for financial accounting had a complete overhaul. The student in the classroom three years after me is already learning financial accounting differently than I did. This is only in the United States; imagine the different principals that students are studying outside of the U.S. That’s why there just needs to be one set of laws and standards. Let’s say for example that a guy working in the United States gets outsourced to an accounting firm in India. If he is not familiar with the customs, the accounting standards, and the overall feel of international accounting, then he simply won’t be prepared.

A positive effect that globalization has on accounting education is that it gives students who study in the U.S an opportunity to go out and travel the world looking for business opportunities. It gives an American born student a chance to place his “eggs” not all in one basket if you will. It gives the student a chance to experience the international business aspect of accounting. Globalizations impact on accounting education needs to be addressed throughout the whole accounting world not just in the United States. If there were one set of laws and standards it would be a lot easier for an American accountant to go out of the country and practice and vice versa. If a Chinese accountant came to the United States it would be just as easy with the same standards.

 

Accounting Harmonization

In today’s financial world many companies rely on the globalization to find success. This is no secret as more and more companies are operating internationally. With this in mind, each country has different accounting standards for which the company must follow. This poses a problem to these international corporations, as they now have to issue reports based on the accounting standards of the countries in which they operate. The solution to this problem is called accounting standard harmonization. This harmonization is defined by, “a political process which aims to reduce differences in accounting practices across the world in order to achieve compatibility and comparability” (Hoarau 1). This solution would provide a standardized set of accounting standards that each country involved would have to follow. On the surface this seems like the perfect solution to this problem, but unfortunately this is not the case. While there is a clear upside to international accounting standard harmonization, there is also a downside. This paper will describe the advantages as well as the disadvantages to accounting standard harmonization.

The advantages of harmonization include providing comparability of financial statements across international companies and countries. This provides many benefits to the companies operating and the countries that adopt the standardized rules. The first of these benefits is that investing in international companies is now easier. Companies can be compared to each other with ease and the risk of investing is reduced. This will lead to more investment and an economic boost to both the country and companies. Another benefit is that now emerging third world countries can adopt the new standards without going through the process to create their own. This process can be expensive and time consuming but with harmonization this is not a problem. It also decreases the expenses of international companies since they would not need to, “consolidate divergent financial information when more than one set of reports is required to comply with different national laws or practice” (Turner 1). This allows companies to take the money they would have spent on making these different financial statements and invest them back into their company.

As good as the idea of harmonization seems there are also some disadvantages to this concept. The first is the language and culture barriers of each country. Translating a standard set of accounting principles to each different language would be extremely difficult since each language doesn’t translate exactly to each other. Another downside to harmonization is trying to get every country to agree on the set standards. Since each country believes that harmonizing accounting standards will, “dilute the quality of their financial reports” (Roy 1) this becomes an increasingly difficult task. Currently each country with different standards has different views on certain topics such as amounts of disclosure. Getting each country to come to an agreement would be very challenging. Also, adoption of a new set of accounting standards would be costly to smaller companies in smaller countries that now have to figure out how to adjust to the new standards.

The idea of creating one set of accounting standards for every country to adopt seems like an extraordinary idea but as we’ve seen there can also be some disadvantages and drawbacks. The advantages include creating comparability among financial statements of companies in different countries as well as allowing smarter and better investing. However, the drawbacks are that creating these standardized rules would be extremely difficult. The translation between different languages and the priorities of different countries is what makes it so difficult to accomplish. It is obviously apparent that a globalized set of accounting standards would benefit everyone but creating the actual standards that benefits everyone is the major problem.

 

The Globalization Impact on Accounting Education

According to globolization101.org, globalization is defined as a process of interaction and integration among the people, companies, and governments of different nations, a process driven by international trade and investment and aided by information technology. Globalization is a trend that has created a huge impact on accounting education today. Globalization has its positives and negatives, but when it comes to accounting education it brings some difficulties. Globalization has the ability for any company to expand and export to other countries all over the world. The problems that come with globalization regarding accounting students are the accounting principles which are learned in school, compared to the accounting principles that are used internationally.

One of the main concerns that globalization brings to the accounting students is that they are learning the Generally Accepted Accounting Principles, also known as GAAP, which is not used globally. This can make it even harder for some students to receive a job that deal with international finances because their main focus while in school was directed towards GAAP and in the United States only. On the other hand, IFRS, or International Financial Reporting Standards is also briefly covered in education in the United States. This would be more beneficial to students learning accounting because it deals with International principles, which involve most businesses. Because there are two different accounting principles to learn, globalization has a big impact on the students’ needs to know both GAAP and IFRS to be more educated when they are entering corporations. Also, because these accounting principles are being updated and changed very frequently, it puts a lot of pressure on accounting students to stay up to date with the current principle. With that being said, it is way more beneficial for students to be learning IFRS while in school than to be focusing all of their time on GAAP because it is not the accounting principle worldwide.

IFRS is becoming a standard in accounting education because of globalization. The world’s economies are becoming increasingly interdependent, as illustrated by the 2008 financial crisis, and global standards allow financial performance to be better understood. These standards also strengthen accounting and auditing practices throughout the world, as accountants and auditors only have to familiarize themselves with one set of standards (Needles, 603).

One good thing about being an accounting major, or business major in general is that you have the opportunity now to study abroad. This would include learning IFRS more in detail than you would with regular college classes in the United States. Studying abroad would give these students a major advantage over students that do not chose to study abroad.

Globalization has made accounting firms find the need for employees with the ability in both of these accounting principles. Firms need employees who can do financial statements both using IFRS, and also GAAP. With globalization rising, it would be smart for university’s to start teaching the accounting students IFRS as well as GAAP.

 

Don’t Allow Your Small Business Accounting to Be Your Small Business Death

As a small business owner and operator, you know firsthand that it can be nothing short of a perpetual nightmare, especially in the early stages and during the tax season. Even in jurisdictions where measures have been taken to reduce small business red tape and reporting burden, few business owners would say that life is easy when it comes to accounting, project management, customer tracking, marketing. anything at all that is not that particular business’s major focus. Accounting for small business is the most usual cause of extreme stress on the part of entrepreneurs, and this may well be due to lack of proper information in their decision-making process when it comes to their accounting practices.

Path number one: braving it out on your own

Some small business owners think that as their business is only in the early stages of its life, an extravagance like hiring an accountant is out of the question. Such business owners attempt to do all of their day to day bookkeeping, accounting, invoicing, tax work, and so on, by themselves, which is the perfect recipe for making your accounting for small business the business’s demise. Few, if any, business owners actually have the adequate time to invest in bookkeeping and accounting, nor should they (especially if they are not professional accountants themselves). There is nothing wrong with admitting you need help. Toughing it out in your small business accounting will never be a positive experience and could have disastrous effects. Even if successful with it for an extended period of time, no businessman or businesswoman would ever look back at this time as well spent.

Path number two: bringing in some help

If you’ve avoided path one completely or saw where it was leading you early enough, your next contemplated option would be hiring an in-house accountant and/or bookkeeper. Such a person would certainly get your paperwork in order, assist you with day to day operations of the business, and prepare for the inevitable business tax filing process. An accountant like this is certainly to be cherished, but they are also not to be overworked and overloaded. Once your business starts to grow and payroll and daily expenses and revenues become increasingly complicated, one or two in-house staff members would start to visibly struggle, which brings us to option number three.

Path number three: outsourcing

Yes, you just read the formerly dreaded word ‘outsourcing’. As most successful companies now recognize that no one should attempt to be everything for all occasions, and outsourcing and contracting work out become common place, the outsourcing of your small business accounting becomes a reasonable and attractive option. Your internal accounting and bookkeeping department will, by this point, have enough on their plate as is, but a professional external provider of accounting for small business will take you to the next level when it comes to long term forecasting, budgeting, and taxes. Which option should you choose? Do your research some more and decide on the option that best suits your vision for the business’s future.