Accounting research is torn between two competing forces. In one hand, a quest for general results and internationalization of financial markets calls for a global approach and international co-operation (Abernethy, Chua, Grafton and Mahama, 2006). On the other hand, domestic institutional settings call for research that deals with the relevant problems of the existing accounting systems. Accounting in organizations has recently faced several issues and challenges due to rapidly changing business processes, economic, regulatory and global environment. Accountants in global firms do not only need to have technical skills but also a wide range of generic and non-technical skills. The current economic and financial crisis in organizations has significant implications for accounting. Since global organizations operate in several countries, the accounting department faces many challenges (Bebbington, Unerman and O'Dwyer, 2014). The Accounting department has been widely appreciated as a fatal facet of an organization. However, it faces several challenges. The aim of this paper is to analyze and discuss these challenges faced by accounting in global organizations.
The Stock Market
Accounting plays a vital role in within the concept of generating and communication wealth in companies. For investors to take the right decisions to invest in these companies, they have to obtain this financial information to invest. One of the most vital sources of this information is the Stock Exchange. Investors and other people interested in the organization make use of financial statements and disclosures to assess the risk of them investing in these organizations (Stacey, 2007). This therefore shows that there is a direct relationship between earnings of these companies and their stock returns. In a global organization where a well-developed capital market does not exist, the need for informed and reliable financial statements may not be achieved. This therefore means that few or no people and businesses will want to invest in the company. This might cause problems such as the dissolution of the organization. Organizations are left with the mandate to ensure that the information about stock market has to be kept in sync in all the countries they carry out their businesses.
Different countries have different legal systems, which have a direct impact on the accounting operations of organizations. Accounting is directly related to the legislative system of a country and the government of these countries enforces these requirements (Ervik, 2005). In many countries, the legislative requirements and laws contain details specifying accounting rules and procedures. For example, the income tax of a nation influences accounting and operations of global organizations in different countries. Regulatory laws by various governments such as reporting laws to the government and investors also differ in various countries (Ervik, 2005). Global organizations are therefore faced with the challenge of making sure that they are compliant with all these laws to prevent drastic actions by the government in various countries. These shows the influence the government has on the organizations.
Accounting Errors and Frauds
Accounting plays a very vital role in safeguarding organizational finances. Investors, managers, and other company stakeholders depend on accurate accounting information to make informed decisions about companies (Ervik, 2005). Accounting malpractices is a major blow to the global organizations and therefore has resulted in several losses. These malpractices include embezzlement, fraud, and abuse of power.
Embezzlement occurs when a company employee manipulates the accounting records of the organization to steal funds from the company. This vice may lead to several losses in an organization if it goes undetected for several years. Some of the signs of embezzlement in an organization include altered check amounts, missing receipts or accounting documents and unexplained decline in profits of an organization.
In many cases, Fraud occurs in a company with the help of the managers. Managers do this to hide financial problems facing the organizations from the public and investors thus may lead to several losses. Due to fraud, some organizations have had a bad reputation from the public and therefore forcing the organizations to go out of business (Stacey, 2007). Depending on the countries the organization is operating in, legal charges may be brought upon those individuals that engage in fraud in organizations (Lamberton, 2005). However, apart from above-mentioned causes of accounting errors, people may violate these rules due to such reasons as work stress, density, neglect and similar other reasons and this brings the notion of mistake (Lamberton, 2005). Global organizations are heavily hit by these malpractices and experiences huge losses due to errors or voluntary frauds by their accountants.
Sometimes Accounting Auditors of these organizations find it difficult to distinguish between fraud and errors. If a fraud is overlooked by an organization, they are at a high risk of encouraging the vice (Hopper, Northcott and Scapens, 2007). These organizations, therefore, might lose a lot of money to fraud. In the case of accounting errors in these organizations, Accountants might find it difficult to trace the source of these errors since global organizations are large and operate in several countries or regions. A Comprehensive analysis should be undertaken in the event of fraud or accounting errors for corrective measures to be undertaken. Since most accounting processes in global organizations depend on technology, the accounting systems should be secure from unauthorized access.
Technology has had an influence on the work of global accountants. Since technology continues to evolve, it still does, and it will continue to influence accounting practices. Apart from having the necessary business skills, a typical accountant today requires IT skills to operate in these organizational environments (Hopper, Northcott and Scapens, 2007). This poses a challenge to the accountants, as they are required to learn various skills that keep evolving.
Technological changes such as cloud computing have also affected the accounting wing of a global organization. Some organizations run accounting and tax software on the cloud rather than on the local organizational computers. This is done to ensure that the business processes of the organization are coordinated in various parts of the world (Hopper, Northcott and Scapens, 2007). This poses several security threats such as hacking to the organizations, which may lead to loss of funds and vital information. Since Accountants are faced with the challenge of keeping up to date with the latest technology changes, there could be a strain in the accountants’ daily activities that may lead to errors, therefore, causing losses to the organization (Howieson, 2003). Proper training of accountants in these global organizations should be carried out to ensure that they run their daily accounting activities smoothly.
Accountants of these organizations are also faced with constant training in the event of technical aspects of the organizational accounting systems. Organizations find themselves spending huge sums of money that could be used in building the business to hire trainers to guide accountants on the latest accounting software applications
Organizations, therefore, should only acquire new accounting software’s when there is a new business process that is not captured in the current system or when there is, need to improve on existing systems. Accountants should be trained through in order to eliminate accounting errors that may occur due to lack of technical expertise of the accountants
Global organizations may encounter inter-company accounting. Several challenges arise during global expansions of these organizations this is because of a major acquisition or when the company has gone under a complex chain of supply. Inter-Company has three main functions. These are accounting, tax, and treasury. Misstatement of financial reports may have an impact on organizations reputation, stock price and the shareholder value. Weaknesses of Inter-Company accounting usually surface during a company financial audit. Insufficient transparency may lead to the hiding of assets flowing out of the organization to false vendors. Transactions between organizations in different countries are also subject to specific tax laws. Miss claimed profits could result into penalties interest and reputation damage.
Since money flows through different legalities, Inter-company accounting might be difficult to operate. Accountants face challenges on how to make this work without infringing on any legality" (Bazley, 2003). A 2016 Deloitte poll of more than 3,800 accounting and finance professionals suggests that disparate software systems in the different legal entities pose the biggest problem. Organizations of any size can encounter intercompany challenges. Additional challenges may arise during global expansions by these organizations (Gray, 2010). To avoid intercompany problems, communication is important. This can be done through phone class, emails, and Teleconferencing. This is important for organizations that do not have consistent systems that need to communicate well to meet their deadlines.
To tackle these intercompany accounting challenges, organizations need to have a standardized global policy that governs critical organizational areas. This includes data management, pricing, and transfer pricing (McDonald, Millman and Rogers, 1997). Organizations also need to use third party reconciliation software to match their transactions. Establishing a center of excellence is also key to these organizations.
Recruiting and Retaining Staff
Recruiting of accounting professionals is an important aspect of an organization. Organizations strive to make sure they hire the best people with the required qualifications. This comes with several challenges. In some cases when a company issues a job advert, there are chances that the job advert will not reach out to the qualified personnel (Gray, 2010). Employers in the organizations then get piles of curriculum vitae of unqualified persons requesting for a job. Sometimes this leads to the recruitment of unqualified staff who later on make accounting mistakes that may cause the organizations huge amount of money in losses.
It might also be difficult for these organizations to retain top-notch talent in accounting if those with good talents are enticed by other rival companies who offer to pay them more. To curb this, organizations should play a role in making sure the work environment is conducive for such young talents. This includes having staff holidays instead of making employees feel tired of constant heavy workloads.
Other several factors determine how attractive a practice is to various candidates. The organization that addresses these factors are likely to retain more employees as compared those that do not. These include Modern technology, a learning culture, Involvement in managing change, a clear career path, and mentorship programs.
Accounting for changing prices
Inflation has hit many parts of our society. Most importantly for global organizations, it makes it seriously difficult to perform measurement and financial reporting (Bodie, 2013). Analyses by various national accounting firms show that inflation has adjusted corporate income. As a result, there has been a rise in government taxes and dividends imposed on organizations (Adams and Larrinaga-González, 2007). Inflation in several countries makes it difficult for global organizations to come up with specific pricing for its products. This may lead to inconsistency in companies’ revenue analyses. Organizations should come up with a standardized way of ensuring consistency in their pricing concerning government taxes in various countries.
In view of the problems and solutions presented here, global organizations could be better placed if the organization could learn how to balance between employee welfare, work process and learn how to embrace technological changes. Due to continued globalization of accounting, standards and raising the regulatory complexity are the two important aspects of global accounting.
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