Discuss about the Challenges of Accounting in Global Organizations for Economic Development.
Accounting is a professional tool which is used to play the role of economic development in the nation. According to the American accounting association in 1986, accounting helps the organization in presenting the qualitative information in financial matters. Accounting helps the organization in making various economic decisions. Here economic decisions are in the form of selecting one best alternative from various set of alternatives (Romanus, 2014).
According to Armstrong in 2010, the accounting helps the organization in utilizing the full potential of its available resources, by this organization can make the utilization of its scarce resources such as manpower, cash, and many more. This results into increase in the wealth of the organization and helps the organization in producing qualitative goods and services. To accomplish such role the company need accountants which are expert in their subject, the organization must have sufficient number of accountants with it to help the organization in an effective manner during the period of crises (Arnold).
Accounting in case of global organization such as Microsoft, should not only contain the practical knowledge but also a mix of theoretical and economical knowledge. This would help the companies such as Microsoft in analyzing the solutions for complex problems. Accounting in informational technology can be understood in two aspects those are: it can be used for educating the accountants and for increasing the knowledge aspects of the accounts so to make them efficient in providing an effective judgment (Unegbu, 2014).
However in case of global organizations, such as Microsoft as an informational technology company, to maintain professionalism in the organization, an accountant must possess the professional qualifications. For establishing professional qualifications the accountant must be aware of various national as well as international standards of accountancy, and what are the consequences of adopting any standard or not (Ali, 2011).
In case of accounting challenged as posed in global organization is majorly for the accountants to comply with the rules and regulations of the accounting profession. This affects the perception of the accountants and how they can apply this in their management functioning. In case of global market, accounting education has came across with numerous challenges and issues, which are in the form of regulatory, economic, technological, social, and global environment changes (AICPA, 2017).
According to Kavanagh and Drennan in 2008, the accountants in case of global companies need not require an extensive knowledge of accountancy to excel in their carrier, besides this, they need to enhance the level of knowledge in relation to accountancy and skills. Hence in case of global organizations the accountant faces challenges in developing knowledge and skills to develop their knowledge in case of technical matters.
According to Iyoha in 2011, following are some of the challenges which are faced by the multinational informational technology companies such as Microsoft:
Economic condition: it is considered as one of the considerable determinant in the growth of the company as well as industry as a whole. In case of changes in the economy, it also leads to make some effect in case of measurement and presentation of the accounting data. It also leads to impact in disclosure aspect of the accounting data in the organization, like in case of Microsoft, the changes in the economic condition would lead to changes in the disclosure requirement of the financial and non financial data of the organization. In case of countries which are highly undeveloped in terms of economic criteria, has also lesser accounting principles and ethics. In case of Microsoft, it is headquartered in United States, which is highly developed country; hence, it faces more accounting challenges as compare to those of highly under developed countries (Saudagaran, 2009).
- Besides economic criteria, the company also faces challenge in case of general education. By general education the report means the way according to which the accountants would be educated so to meet the professionalism in relation to their responsibility and duties towards their work and organization. In case of global organization, the company should select those employees which posses a high level of the skills and knowledge in accounting, quality of accounting, competence and expertise level of the accounting.
- One of the major challenge as faced by the organizations which work on the global basis, has difference in accounting practices followed. The global organization works at multinational locations. Hence to operate effectively the company accountant has to accomplish various standards, rules and regulations. Like in case of Microsoft, the company targets the world market, in case of United States; the organization follows generally accepted accounting principle (GAAP), while in case of United Kingdom the organizations need to follow the rules and regulations of International financial reporting standards (IFRS). Hence it is said that the company working at global level has to follow the accounting practices as pertained in that respective organization.
According to Trigo, Belfo and Estebanez in 2014, in case of traditional accounting the organizations needed to prepare accounting statements on the annual or quarterly basis. But due to advancement in technology and accounting standards the organizations especially global organizations need to modify their accounting policies in the form of disclosures and presentation, as in modern accounting the multinational and global organization need to increase the level of transparency. This would help the company in competing with its competitor organizations such as apple, SAP, IBM (Duvier, C, et al,. 2016).
In modern accounting, the global organizations face challenges in presenting the real time information reporting. Real time reporting provides various benefits as in comparison to those organizations which are following the traditional accounting method. In case of traditional accounting methods, the organizations has to present only financial and non financial matters in their annual and quarterly financial statements, but in case of modern accounting method such as real time reporting, the organizations are required to present not only financial and non financial matters but also about the corporate and social ethics of the company. This will increase the interest of investors in making some investments in the company. Hence it is said that the company faces challenge in case of applicability of modern accounting practices, as it has lead to increase in the responsibility of the company towards the presentations and disclosures and applicability of corporate and social standards to increase the stakeholders’ interest in the company (Black, and Morrison, 2014).
The real information system is understood as processing of the data in milliseconds, in case of global organization, they possess a huge amount of data with them, hence it is very difficult for the management to arrive at a common solution or objective, therefore it has made a compulsory requirement for the global organizations to adopt the practices of modern accounting practices (Efrat, 2016).
According to Yadav, in 2013 in case of Microsoft as a global organization, the perspective of accounting has been broadened, now the company has to comply with the creative principles of accounting. Creative accounting is a kind of challenge for the global companies the reason behind this is, this accounting would change the image of the company in the minds of its stakeholders and competitors, this is so, it makes a mix between the ethics and accounting principles. This creates a responsibility of the organization towards the development of the nation (Microsoft Corporation, 2012).
The accounting would lead to increase the protection of the rights and obligations towards the shareholders, it would bind the company to treat all the shareholders in an equal manner, and this would lead to drastic reduction in insider trading and self dealing. Besides this it leads to disclosure and presentation of company performance, governance and ownership issues to its stakeholders. For accomplishing such objectives, the responsibilities of the board members have been increased so to check whether the company is complying with the accounting principles or not. These positive aspects has considered as challenges by the company, the reason being it would lead to reduction in confidentiality principle of the company, as modern accounting requires full disclosure of the information in timely and accurate manner (Hult International business school, 2016).
In 2011, the FINANCIAL ACCOUNTING STANDARD BOARD (FASB) has issued rules and regulations regarding the disclosure requirement for the right to compensate the arrangements of derivative and financial instruments. This requires the disclosure of the gross amounts which can be set off as by complying with a set standard. Besides this, FINANCIAL ACCOUNTING STANDARD BOARD (FASB) has issued standard for impairment of the intangible asset to check out the differences between the carrying value of the intangibles and its fair value. According to FINANCIAL ACCOUNTING STANDARD BOARD (FASB), if the company has greater carrying value as compare to its fair value, the recognition of impairment is required. In case of Microsoft, as it deals into intangible assets majorly, hence it should comply with such standard, but the company has refused to accept such standard, as it would lead to affect the company’s accounting policies, as complying to these requirements of Financial accounting standard board (FASB) are considered as challenge for the company (Zakari, 2014).
It is said that the changes in accounting are considered as challenges for the company because, it would lead to change the management own accounting policies. Besides this, by compliance to the accounting policies in case of global companies such as in case of Microsoft, it has to comply with different accounting policies; this also includes the changes in tax rates. Microsoft as a global company has a liability to pay tax amount in the country in which it is trading goods, for accomplishing this, the company has to adopt various corporation tax rates which are applicable in the foreign market. Besides tax rates, each country has different compliance of taxes and policies, hence in case of Microsoft the company has to comply with all such requirements which are considered as challenges for the company (Yadav, 2013).
Furthermore, to effective compliance of such changes in tax rates and accounting compliances, there should be treaty between two or more than two countries. Hence for such, the political factors and economic factors of those countries should be matched, hence in case of Microsoft as a global company, the company faces challenge in case of trading into foreign market (Adagey, Azagaku, B and Umbugadu, 2015).
In case of global company which is dealing into information technology industry such as Microsoft manufacturing software, the company has to rely up on the great deal of functionality. For accomplishing this, the company has to use some software and tools such as tax program or accounting tools. This is also considered as a challenge for the global companies, the reason behind this is, every country has different accounting and legal systems (Trigo, Belfo, and Estebanez, 2014).
Hence it is said that in case of global companies, the company cannot rely upon a single base of accounting or any tax program, as it changes from region to region. Apart from these challenges, the global companies also face challenges from accounting that is increase in the cost. Due to changes in the technological aspects, it leads to change in the rules, regulations and hence cost structure due to compliance of these rules and regulations. Hence it is said that change in the accounting policy leads to change in the cost structure of the company. It has also been analyzed that due to change in accounting compliance, the company has to increase its training and development cost, and has to incur expenditure in recruiting more experienced and skilled labor. These are the reasons which are considered by the company as challenges of accounting in adopting these in the structure of the organization (Ferran and Carlos, 2008).
Adagey, I,. Azagaku, B and Umbugadu, S,. (2015) Threats and challenges to accounting profession: a draw back to the development of accounting practices in Nigeria, International journal of academic research in accounting, finance and management sciences, Vol 5(4)
AICPA,. (2017) Emerging issues impacting today’s accountants. Retrieved on 12th April, 2017 from https://www.aicpa.org/InterestAreas/YoungCPANetwork/Resources/ProfessionalIssues/Pages/Emerging_Issues.aspx
Ali, I,. (2011) Current issues and challenges facing accounting education and the pedagogical implications: A review of the literature. Retrieved on 12th April, 2017 from https://www.aut.ac.nz/__data/assets/pdf_file/0004/247198/20.0-2011-ARA-Conference-paper-.pdf
Arnold P., “Global financial crisis: The challenge to accounting research”, Accounting, Organizations and Society, Volume 34, Issues 6-7, Pages 803-809, August-October (2009) 3
Black, J, S and Morrison, A,. (2014) The global leadership challenge, Routledge, New York
Duvier, C, et al,. (2016) Social and economic perspectives on sustainability, IJOPEC Publications, United Kingdom
Efrat, Z,. (2016) In the black, Top global challenges facing accounting practices today. Retrieved on 12th April, 2017 from https://www.intheblack.com/articles/2016/11/01/top-global-challenges-facing-accounting-practices-today
Ferran and Carlos,. (2008) Enterprise resource planning for global economies: managerial issues and challenges: managerial issues and challenges, IGI Global, London
Hult International business school,. (2016) 11 biggest challenges of international business in 2017. Retrieved on 12th April, 2017 from https://www.hult.edu/news/international-business-challenges/
Microsoft corporation,. (2012) 2012 Annual report. Retrieved on 12th April, 2017 from https://www.microsoft.com/investor/reports/ar12/financial-review/discussion-analysis/index.html
Romanus, O, O,. (2014) The challenges of accounting education: the Nigerian experience, Accounting and finance research, Vol 3, No 2
Saudagaran, S, M,. (2009) International accounting: a user perspective, CCH, USA
Trigo, A,. Belfo, F and Estebanez, R, P,. (2014) Accounting information systems: the challenges of the real-time reporting, Procedia technology, Vol 16, pp 118-127
Unegbu, A, O,. (2014) Theories of accounting: evolution & developments, income determination and diversities in use, Research journal of finance and accounting, vol 5(4)
Yadav, B,. (2013) Creative accounting: A literature review, The SIJ transactions on industrial, financial & business management (IFBM), vol 1(5), pp 181-193
Zakari, M, A,. (2014) Challenges of international financial reporting standards (IFRS) adoption in Libya, International journal of accounting and financial reporting, Vol 4(2), pp 390-412