IFRS and Globalization of Accounting

In 2002, The International Accounting Standards Board (IASB) created a new standard for financial reporting known as the International Financial Reporting Standards. These new standards made an effort to bring the accounting and financial reporting throughout the world together. The IFRS is attempting to globalize the accounting and financial world by having a set of standards that allow investors in different countries understand the financial records and make an informed decision on whether to invest or to not invest. With markets becoming more complex, easing the analysis of financial records is a necessity so that the market can have the most accurate price for stock, bonds, or any other financial investment.

Globalization is occurring more rapidly than ever before, with the communication systems that are available. The market truly never sleeps, companies have interests in other countries and have the means of knowing the current price of their investments. The IASB amends the IFRS when they see fit. The newest amendment was announced on December 8th, 2016 and to take effect for annual periods beginning on or after January 1st, 2018. This allows companies or countries who use the IFRS time to adapt to the changes. Although some countries have their own set of accounting standards, they still will use the IFRS for investors in different countries because the financial reports will be in a readable format that international investors will understand.

The United States has their standards for financial reporting, Generally Accepted Accounting Principles (GAAP), some companies will also use IFRS to display their reports and for their affiliate companies in other countries. This will help companies save money on keeping just one set of books for only one way to record their transactions. Companies can now expand easily into other countries because they can learn the IFRS methods and apply them to their current business. The IFRS has many different standards for different categories, such as bookkeeping, financial statements, accounting standards, and auditing.

Companies today can easily grow and expand past their own country’s border. Companies go into other countries, whether that be to sell their products or service or to have their products produced. Globalization helps spread the ideas between companies, an employee in Europe could have an impact on an employee in America. Globalization is leading helping technology grow at the rate it is currently growing at. With better technology producing products becomes more efficient, times of delivery become more accurate, communication would be faster, and research and development would lead to new products quicker. Globalization has impacted nearly everyone on Earth, and will continue to grow and expand the global economy for many years to come.

The Impact of Globalization on Management Accounting

With a movement towards globalization approaching, the change brought on by it can change how companies in the U.S. view their accountants. First, there are two types of accountants, financial accountants and managerial accountants. A definition of financial accounting, taken from Merriam-Webster, is the systematic analysis of information about the economic affairs of an organization for the use of persons outside the organization. Merriam-Webster goes on to explain management accounting as “the creation of reports for planning and decision-making”… “It’s aim is to provide managers reliable information on the costs of operations and on standards with which those costs can be compared, to assist them in budgeting”. The key difference to take away from these two definitions is that financial accounting provides information to people outside of the organization, and management accounting is aimed at helping managers within an organization make decisions.

The U.S. becoming more globalized will increase competition for firms within the country, therefore making management accountants more valuable to firms. To understand what an increase in competition will do to U.S. companies and their accountants, one must first take a look at how companies in the U.S. see management accountants in comparison to another country. In a research article titled “Management Accounting Practices in the U.S. and Japan: Comparative Survey Findings and Research Implications (1991)” by M. Shields and C. Chow, notes the difference in goals set by U.S. and Japanese accountants. The survey suggests that U.S. accountants “emphasize the use of standards to control manufacturing costs after the fact”, while contrasting Japanese accountants use practices that look towards the future. This difference here lies within the goals set by the companies. While firms in the U.S. are looking at what they can do now to lower costs, Japanese firms are looking into the future to lower costs for products that might not exist yet. This type of thinking for U.S. firms is not acceptable, and the state that companies are in now is less than satisfactory because the current state of management accounting is in the wrong direction.

Management accountants look toward the future, they set up budgets, forecast, and steer companies in the right progressive direction. In increased competition, especially for U.S. firms, companies will need managers that make the right decisions for the good of the company. In an article by B. Pounder, “How Globalization is Affecting U.S. Accounting (2006)”, Pounder states that one of the main reasons management accounting is obscure in this country is because American managers are more likely to make “gut feeling” choices (usually for personal gain) rather than making the choices that will be good for the company in the long run. This can be tied back to the research survey from Shields & Chow, looking at firms and their respective goals. It is more common for businesses in the U.S. to demonstrate action for personal gain than it is in Japan, and in an age of globalization and increased competition companies cannot survive with that type of mindset and framework.

A report by N. Miculescu, “Current Trends of Production Cost Accounting (2011)”, Miculescu concluded that companies have an exponentially growing duty to find solutions as quickly as possible in order to keep up with this rise in competition due to globalization.

The current state of management accounting in the U.S. rewards managers and puts the company as a whole in jeopardy, and with a rise in competition approaching is it in firms’ best interests to employ management accountants that make decisions for the best interest of the company.

The Effects of Globalization on Both Accounting Profession and Education

Innovations in technology has catapulted the financial district into a global market. Globalization has had a large influence on the way businesses conduct business. Firms are not only responsible for being privy to information involving consumers in their own backyard but also understanding consumer culture as well as economic, political, and legal structures that exist in other countries. Due to the influence globalization has had on businesses, it has changed the expectations that are required of incoming business students and their education. More specifically, accounting students are being impacted by the changes globalization has influenced the market with. These students are challenged more particularly throughout their undergraduate years to understand not only the rules and regulations of GAAP (General Accepted Accounting Principles) but also the standards set forth by the IFRS (International Financial Reporting Standards). Within the accounting sphere, the primary focus has been on external reporting which involve the preparation of financial statements and auditing. However, due to the ever changing world of the global market, future accountants are required to possess perspectives that influence both external and internal reporting. The market will continue to change due to the fast paced journey of information making globalization an important factor in accounting education.

Businesses in the United States have largely adopted GAAP which is a guide to how business are to construct financial information to produce statements. GAAP has been useful in the last couple of years because it facilitates the way businesses in the U.S. communicate with each other. However, in the global environment, GAAP proves to be burdensome for most companies. Overseas, they have adopted IFRS which is another guide to producing financial information which aids foreign companies with communicate amongst each other. Most countries use IFRS as a basis for the way business transactions are conducted. Since most of the world is using IFRS as the standard it leaves the U.S. with the tedious task of having to incorporate two different principles to conduct business. In the article, “How Globalization is Affecting U.S. Accountants” by Bruce Pounder, Pounder states that “U.S. accountants will find themselves at a severe disadvantage to the many foreign accounting professionals who have already mastered international accounting standards and who are therefore much better-positioned to take advantage of rapidly growing career opportunities in China, India, and other emerging economies” (Pounder, 2007, p. 3). He then goes on to predict that as GAAP becomes more overshadowed by IFRS, U.S. accountants will find their skills and knowledge becoming obsolete. Therefore, IFRS has become more integrated into the accounting curriculum for education. Students are required to understand not only GAAP but IFRS and the changes that occur when working with both. By involving IFRS into the learning process, students will be prepared to later take the CPA Exam which has recently been updated to include information about IFRS in the Financial Accounting and Reporting (FAR) section. Students are becoming better equipped with skills and information that will make them more marketable and efficient in the globalized business environment.

In the U.S. economy, a thriving financial sector is usually supported by a strong public accounting and auditing firms. Therefore, the focus over recent years has been to ensure that accountants excel at compiling information involving a company’s assets, liabilities, equity, investments, etc. However, due to globalization, external accounting practices aren’t as valued if internal practices are not also implicated. Internal practices are important because it shapes the way businesses reach their customers in the foreign market. Authors Paul Danos and Richard L. Measelle stated in their article, “Globalization of the Business Environment: Implications for Accounting Profession and Business Education”, that “In a competitive global market place, the internal accountant must be sensitive to what drives the costs of products and he/she must work with production and marketing people to rationalize all cost accounting procedures” (Danos, 1990, p. 79). The responsibilities of the internal accountant is becoming more critical to the success of businesses. For a business wanting to expand into foreign territory, cost accounting is used to accurately develop product price information, location of manufacturing facilities, picking suppliers, etc. Due to these factors, internal accountants have to be familiar with regulations across borders, tax treatments, and currency conversion costs. When it comes to public accounting, auditors must be heavily versed in global accounting standards because “the world’s economies are becoming increasingly interdependent… ” (Needles, 2010, p. 602) according to Belverd E. Needles Jr. author of the article “Accounting Education: The Impact of Globalization”. The author goes on to encourage global standards for auditors because it strengthens their practices by only having to be familiar with those regulations. In order to be well versed in the global market, accounting students are advised to take courses specifically designed to analyze different cultures, languages, and political factors that influence societies.

Globalization has influenced many changes that have taken place in both the accounting profession and education. Students are now exposed to problems that occur in the global market and how to go about solving them. Not only are these students expected to understand all the mathematics and jargon involved with the business world, but they are also expected to have a good sense of foreign consumer culture as well as the regulations bound to each country. Implemented with these skills, students will be able to excel in the new business world.


Danos, P., & Measelle, R. L. (1990). Globalization of the Business Environment: Implications for the Accounting Profession and Business Education. Human Resource Management, 29(1), 77-84

Needles, B. E. (2010). Accounting Education: The Impact of Globalization. Accounting Education, 19(6), 601-605. doi: 10.1080/09639284.2010.501578

Pounder, B. (2007). How Globalization is Affecting U.S. Accountants. Montvale: Institute of Management Accountants.