Impact Of Globalization On Accounting Standards

Introduction

Globalization is a process of international recognition of principles and ideas which are created by ever changing aspects of culture and products. “It refers to a process through events and decisions in one part of the world can have significant consequences for individuals and societies in distant parts of the world” (Ussahawanitchakit, Intakhan and Sumritsakun, 2010). Here we are going to discuss the effects of globalization on the accounting standards. They have both negative and positive effects. The positive effects are that globalization put new challenges on the existing accounting standards and also creates new career opportunities. People who take this change in a positive manner tend to succeed while others who take

It is strongly believed that the standards established by the accounting bodies should be single and a collection of high quality universal accounting principles for accounting and reporting and must also lie within the public interest. Agtarap-San Juan (2007) stated that prior to the the appearance of globalization it was assumed that the efficiency in the capital markets could be increased through a single and collective set of high quality accounting principles which enhanced the uniformity and comparability of the financial statements of the companies. Efficiency in the capital market would drastically decrease the firm’s cost of capital and encourage economic growth globally. According to Kinney and Raiborn (2008) GAAP conventionally provided a collective set of high quality universal principles for financial accounting and reporting. But, the principles of GAAP exhibit slow development as firms have become more complex and trade

IFRS includes high quality international principles of accounts that are easily understood, transparent, can be implemented and are thoroughly applied, (Shekhar and R.A., 2013). As a result, IFRS is a sign of globalization and also a technology through which globalization is organized, (Alfredson et al, 2005). IFRS is a common international accounting language for business activities so that the financial reports of a company can be easily understood and compared across the world. They are a result of increasing global trade and shareholding and are specifically designed for businesses that operate in many countries across the world, (Shekhar and R.A., 2013). The advantages of using IFRS system includes reduction in the capital cost of a firm, increasing efficiency in resource allocation, increased flexibility of capital, uniform and easy comparability of the financial reports of the companies and decline in the options for earnings management. All these benefits compel the economies across the world to adopt IFRS as they aim to take part in the financial opportunities indicated by globalization, (UNCAD, 2005).Also, Sahi and Dua (2012) stated that many of the accountants worldwide view the standards of GAAP as less preferable. Thus, the circumstances led to diverse results in the maintenance and expansion of