Globalization plays a huge role in the world of accounting. It is a very significant topic because as globalization becomes more and more important, it changes which accounting principles one would use when certain situations arise. There are two sets of accounting principles: the Generally Accepted Accounting Principles (GAAP) and the International Financial Reporting Standards (IFRS). The Generally Accepted Accounting Principles are mainly used within businesses in the United States, while the International Financial Reporting Standards are used in most international companies. The fact that there are two sets of standards or principles that can be used in the accounting world makes certain scenarios difficult. For example, when investors are choosing a company to invest in, they need to use their financial data to inform themselves and make specific decisions. However, this is sometimes made difficult because if one company uses IFRS and another uses GAAP, it’s challenging to form a proper comparison across the two principles. This is continuously becoming more and more of a relevant issue as companies continue to expand their markets globally. With no sight of a universal system being put into place soon, accountants are forced to expand their knowledge of both forms of accounting principles.
A few decades ago, there were very few international accounting courses offered at universities. Now, there are enough for it to be considered its own major. In today’s world, where all world economies directly affect each other, U.S. accountants must use international practices along with practices in the United States to properly conduct business. Take for example a situation placed in an article written by Paul E. Holt who is an accounting professor at Texas A&M. In Dr. Holt’s example, he states:
What if you buy something that requires payment in a foreign currency or sell something for which you will receive foreign currency? You are immediately challenged with a number of new problems that you don’t have to deal with in domestic accounting. For example, what if the exchange rate between the U.S. dollar and the foreign currency changes between the date you record an accounts payable and the date you actually make payment in foreign currency? There would be either a gain or loss from the exchange rate fluctuation. (Holt)
This is just an example of the many situations that could arise within the world of international accounting. There are many other instances in the areas of tax, as well as audit, which has drastic effect directly related to the financial status of a company. These new problems and situations are forcing accountants to increase their knowledge and form new understandings of international business. One positive outcome of this aspect is the fact that it also creates more jobs within the accounting field such as international accountants. The area of international accounting offers many opportunities for those who wish to expand their knowledge, skills and abilities to fit the world of international business. Though it may require the learning of new languages or constant travel, one can find endless opportunities in the accounting world for international accountants who are highly sought after.
Globalization has massive effects upon the accounting world. New and emerging technologies are making it easier for all businesses to expand internationally. As businesses are expanding internationally, accountants must prepare and adjust for international accounting. Without a universal accounting standard to follow, the world of accounting is drastically affected. Every single part of accounting is affected as businesses are moved internationally. On top of that, the knowledge that accountants are expected to have increases every single day due to the expansion of international business. Therefore, if globalization and businesses continue to expand, the world of accounting will continue to grow and evolve.