Globalization refers to the act or procedure of globalizing . This is the process of globalizing . specifically, the development and integration of a global economy marked by free trade, the free flow of capital and the taping of lower-cost labor markets. Globalization has changed accounting standards and created the need to have a standard set of reporting guidelines. Globalized Accounting Standards are a necessity due to the impact that globalization has had on accounting education. Accounting professionals must address the effects of globalization on their profession in order to be competitive in today’s globalized world and to provide similar data to financial information users.
Reliable and relevant financial information is crucial for any capital market that functions, develops or grows. Effective accounting procedures and standards have been developed to ensure reliable and relevant financial information. This is essential for capital markets. These standards are known in America as “Generally Accepted Accounting Principles” (GAAP). GAAP is a set or procedures of accounting that are generally accepted by accounting authorities. International Financial Reporting Standards, also known as IFRS, are the international accounting standards that are accepted for international usage. They were issued by IASB (Kieso, Weygandt, & Warfield,2012). The key difference between them is that IFRS has a broad scope and can be interpreted, while GAAP has a more specific and complex structure. GAAP is not able to provide the same level of information required for investment purposes, so users of IFRS are more likely to have an advantage.
Enron, World Com and other US companies’ accounting scandals have brought attention to convergence of GAAP (and IFRS) standards. FASB & IASB signed the Norwalk Agreement in 2002 to bring together GAAP & IFRS into high quality Global Accounting Standards. This shared objective was reaffirmed by the boards in February 2006. On November 15, 2007, Securities and Exchange Commissions (SEC) stopped requiring foreign firms to reconcile IFRS and GAAP statements when they file on US stock exchanges.
It’s obvious that accounting education has also been affected by the impact of globalization on accounting standards. The globalization of accounting has impacted the knowledge that accountants need in order to succeed in today’s globalized world. For example, US accountants must understand the differences in IFRS and GAAP reporting standards so that they can communicate them to clients making investment decision. The SEC’s decision allowing both IFRS (and GAAP) on U.S. stock market exchanges is yet another reason why it is crucial for accounting education that both IFRS as well as GAAP are included in the curriculum. Bruce Pounder makes a valid point about the impact of international accounting standards on accounting education. According to Pounder (2006), “as U.S. accounting standards have started to overshadow U.S. Standards in significance”, most U.S. accountants are going to find that their knowledge skills, abilities, and abilities are deteriorating faster than ever” (Pounder). To prepare for the shift towards IFRS, it is possible to assume that U.S. accountants must adapt to both GAAP (and IFRS) standards.