Globalization Impact on Accounting Education
According to the dictionary, globalization refers to the process in which a company expands to operate internationally. Accounting is considered to be the language of business. Due to different legal systems, inflation, culture, and economic ties, accounting standards differ from country to country. These differences pose problems for multinational corporations. The result of these differences, make it hard for investors to compare financial statements of a company. As globalization increases steadily, in the business world today, it is important to achieve a common accounting language, such as the International Financial Reporting Standards (IFRS).
The International Accounting Standards board created the IRSF. This type of reporting is being adopted by many countries across the world. In contrast, the Financial Accounting Standards Board or FASB created the Generally Accepted Accounting Principles or GAAP. These are the common standards that are used in the US today. There are three main differences between the two accounting systems. One of these differences exists between revenue and expense recognition. The IFRS concepts on revenue recognition are less extensive than the GAAP and contain little to no industry specific instruction. The second important difference is that IFRS does not allow the use of LIFO, last in first out, as a method of inventory costing. And the third reason is that when it comes to intangible assets, the GAAP requires you to recognize these assets at fair market value when being compared. The IFRS however, requires you to recognize these assets only if they are probable to have a future economic benefit and a measured reliability.
Some people ask, what are the advantages of changing the accounting language in the United States? This question can be answer in many ways. The IFRS can improve the functionality of global capital markets by providing consistent information to creditors, investors, and other users of financial statements between countries. Also, it will decrease the cost of preparing and interpreting financial statements between companies in different nations. This effect would make it easier for consolidation. There would only be one set of books used as well. This result will bring new business and capital to many companies and cut audit costs. The change in accounting language will encourage global education, while providing job security to employees. If a person cannot find a job in the United States, they can travel to a foreign country to find the same job and not need any additional training because the accounting language is standard.
It is projected, that within the next ten years companies, around the world, will use one uniform language of accounting. What kind of impact does this impose for the United States? Since some of the GAAP principles are considered to be out of date, the IFRS standards will replace these principles and reduce confusion. Also, the IFRS will encourage more emphasis on principles and less emphasis on rules. US accountants will become experts in making financial decisions. Their decisions will focus more on the future instead of what has happened in the past.
The result of globalization changing the world of business creates problems with accounting education. In order for the change to happen in the United States, the transition will have to be slow and gradual. If the United States was to rush this process, it may be very costly. Many companies would have to retrain and educate their accountants. One suggestion is to start this change at the university level. College accounting courses should implement the IFRS by reprinting textbooks. Also universities should require students to take separate IFRS related courses instead of GAAP related courses. For businesses that already have an accounting team, Internet training courses or web-based courses could be cost effective. A newsletter should be printed to keep accountants up to date with the new and unusual concepts of the IFRS.
In conclusion, globalization has changed the business world for the better. Although, it will require the United States to change their accounting education process, such as college courses and text books, in the long run, a universal accounting language will benefit everyone by lowering the cost of preparing financial statements. The change will also promote growth in businesses because investors and creditor will have an easier time comparing the different financial statements.
Bibliography:
Austin, Tschakert, and Norbert Stephen. "Major Differences Between US GAAP and IFRS." Slide Share Present Your Life. N.p., 19 5 2009. Web. 14 Nov 2010. .
Karr, Susan Schott. "Climbing the learning curve from GAAP to IFRS: moving from US GAAP to International Financial Reporting Standards." Financial Executive. 1 June 2008. 14 November 2010.
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Nash, Richard. "Difference Between GAAP and IFRS." DifferencesBetween.net. N.p., Jan 2010. Web. 13 Nov 2010. .
Questions and Answers
As technology grows, and the world becomes smaller many nations believe that a global accounting procedure would be beneficial for everyone.
The Globalization of accounting standards is without a doubt going to be a reality eventually. Exactly when these standards will finally be enacted might still be a few years, but with the knowledge of its approach; some companies have already begun the transition to International Financial Reporting Standards. Is it better to make the switch willingly and automatically? Or will most US companies slowly begin to think about the switch that looms ahead?
This article explains some of the key differences between Generally Accepted Accounting Principles and International Financial Reporting Standards.
By way of basic definition, globalization is worldwide integration and development. This worldwide integration and development applies to various aspects of the business world, including financial, economical, and accounting, to name just a few. With regards to the globalization of accounting, several countries already are unified under one set of rules, known as the International Financial Reporting Standards, or the IFRS, created by the International Accounting Standards Board, or IASB.
The U.S. embarks on changes in accounting standards to become more globally accepted. The transition from GAAP to IFRS has many business people nervous, but support has been increasing since the SEC's pursuit for change in 2002. By carefully analyzing the advantages and disadvantages of IFRS, one can conclude that the new standards will provide global advantages and success in the future.
A brief comparison of GAAP and IFRS as well as its effect that a change in accounting practices will have on U.S. accountants.
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