Globalization can be defined as the act of or process of globalizing : The state of being globally integrated, especially which is the creation of a global economy that allows for free trade and capital flows, and taps into cheaper labor markets. Globalization has created a need for standardized reporting standards. Globalization has also had an impact on the education of accountants due to the need for Globalized Accounting Standards. Globalization has a significant impact on the profession of accounting. This is necessary to ensure that accountants can compete in today’s globalized environment and provide comparable financial information to users.
A functioning, growing or developing capital market requires reliable and relevant financial information. Effective accounting procedures and standards are established to help capital markets succeed. These standards are known as GAAP (generally accepted accounting principles) in the United States. GAAP refers to a set of common accounting principles and procedures. It is defined as either a body that has established a standard of reporting in a particular area or a practice that has been recognized as acceptable because it has universal applicability. International Financial Reporting Standards are all accounting rules that have been accepted for international use by the International Accounting Standards Board. (Kieso, Weygandt, & Warfield, 2012. The main difference is that IFRS can be interpreted and is more general than GAAP. GAAP users are often better off than users of IFRS, as it does not provide investors with the same information.
Many accounting scandals in the United States, such as those of Enron and World Com, brought attention to the convergence between GAAP and IFRS. FASB and IASB made the “Norwalk Agreement” in 2002 with the goal of integrating GAAP and IFRS into high-quality Global Accounting Standards. The two boards reiterated their shared goal in February 2006. The Securities and Exchange Commission (SEC), on November 15, 2007, no longer required foreign companies to reconcile their statements from IFRS and GAAP when filing on US stock markets (Fosbre Kraft, Fosbre, & Fosbre 2009).
Accounting education has been affected by globalization. Accounting education has been affected by the shift to IFRS. This is because it requires accountants to have the right knowledge in order to be competitive in today’s globalized market. To illustrate, accountants in the United States must be able to explain the differences between GAAP and IFRS reporting standards to clients who are making investment decisions. Another example of why it is important for accounting education to include both IFRS AND GAAP in the curriculum is the SEC’s decision that both IFRS can be used on U.S. stock markets. Bruce Pounder also made an important point about the impact on accounting education. “As international accounting standards begin to overshadow U.S. standard in significance, most U.S. accounting professionals will find that they know, skills, and abilities have obsolescing quicker than ever before,” (Pounder 2006). This could lead to the conclusion that U.S. accountants will have to adapt to both GAAP as well as IFRS in order to be ready for the transition to IFRS.