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The Accounting In Global Organization Economic Development.

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Question:

What is the Global Organization and Change of the Accounting ?

 

Answer:

Introduction

For the economic development a standardized high quality financial accounting and reporting practice governed by law is utmost necessary. Ethics, auditing and financial accounting based on highest qualities are the real reason why investors invest and depend on such financial information. Combining national and international standards is a common scenario today. To adopt such international standards companies often face many challenges. This literature review is to study such issues and challenges faced. Following are some of these challenges:-

  1. Regulatory challenges and the adoption of these regulatory standards on an international and national level.
  2. Gap bridging in between the accounting practices which are being done and the research methodology prevalent in the world of academics.
  3. Cultural constraints and challenges in adoption of certain accounting practices and its implementation.
  4. Role of accounting and its link with the macro political economy

Comparing and Contrasting Literature

 

Economic Scenario

One of the major determinants in the growth and expansion of the accounting profession in a country is its various economical conditions. This has been a subject of discussion hence, As per Belkaoui (Belkaoui, 1983) for example it is argued that as there occurs development in economies, communicating of economical data and various accounting functions for easement becomes crucial elements. There have been other similar arguments made by Mhedhbi and Zeghal (Zeghal and Mhedhbi, 2006) that where economic expansions are high, in such countries measurement of accountancy and its social function used as a tool to measure communicating is relatively important. The basis of these arguments are such that ir bases itself on economic developments which are more advanced and which can be connected with disclosure and financial reporting practices which are of very high levels.  Countries which has low economic growth there economic activities involved is very less and the profession of accounting is underdeveloped as per Salter and Doupnik (Doupnik and Salter, 1995). In terms of strategic planning and leadership organizations must find whether finance and the organization both have adequate understanding  as well as funding for supporting the fair value creation process expenditure requirements.Technologically, whether accounting is having enough access to the various technical tools and capabilities based on which accurate, timely and standard information and recommendations are made (Wong, 2014). In regards to human capital whether accounting division of the global organization have enough knowledge and resources capable enough  for ensuring a continuity in support from its business partner.

Regulatory Standards

In the international level accounting practices and procedures can be adopted and implemented by an organization basing itself on factors which are exclusive to that particular country. For an instance, law, politics, economics, culture and regulations are such factors. many times companies face the implementation of such regulatory standards as they believe some changes are needed to be made in the international regulations and standards to sync it with the specifications at the national levels. Another example can be given in this regard. Suppose, in a country  determining taxable income is one of the top aim of national accounting practices and standards. The financial statements which are formed are serving the capital market requirements.  This can differ from the local requirements of the local tax authorities. These are the various accounting standards which are aimed in suggesting some rules or some accountancy related measurements that one needs to consider while undergoing accounting calculations. These are sort of legislations and guides based on which accounting practices are conducted. For example, while preparing financial statements having adequate disclosures as per the Companies Act 1956 these standards must be in compliances with Accounting Standards (Icsi, 2013). The main responsibility in this regard remains with the auditor who is in charge of the formation of such financial statements. As per Lawrence (Lawrence, 1996) legal system of a nation or a country impacts its accounting profession and its growth either directly or indirectly. This is because based on the legal needs of a country its accounting is developed. It is the government who determines such requirements. In some countries the legislations and the government is also engaged in forming accounting rules and certain procedures (Adagye, Azagaku and Umbugadu, 2015). For an instance income tax related law of a country can be influenced by the various practices of accounting.

Gaps

As per theorist Ryan (Ryan, 2008) there is a gap which occurs persistently in between how the academic world researches and how in practice accounting is being performed by global organizations. Governance of valuation of assets and entities which are off-balance sheets are two crucial requirements of financial reporting. Although these seems to be mundane affairs, yet in account the survival of an organizations dealing in finances depends on how well they balance the valuation of their assets and how well they engage into auditing consolidating off balance sheet entities. Major controversies are prevalent in the rules of fair ways of accounting which needs every global organization or national organization to declare the value of their financial assets honestly. Moreover as per Boyer (Boyer, 2007) such fairness of accountancy valuation leads to excessive credit expansions this encouraging risk taking of pro cyclical natures.

 

Cultural Challenges

For thousands of years culture has been a crucial subject of observation and research  as it affects every human activities. Culture, by definition as per the theory of Hofstede (Hofstede, 2007) is a thought process which is collective in nature which differentiates people belonging to one society from another.The theory of Hofstede further categorises culture into the extent into which members in a society accepts power of institutions present in it, the extent to which people in as society fears uncertainties, individualism and collectivism comparisons and comparisons on masculinity over feminism.In accounting practices executed by global organizations are also affected by such cultural differences. Such differences are not minor differences which are affecting harmonization of policies on a global level. Rather these are effecting majorly in auditing assumptions about the integrity of financial information on an international level. Accounting figures in Uk and in America if they mean different then it can cause major hurdles in practicing accounting.

Macro Political Economy

Discussion about the link between fair valuation in accounting and its impact on macro political economy has been going on in the world for long. The pressures which have been excreted on the various accounting standards must along with financial reporting include financial stability as well. As per Jules Muis (Muis, 2008) firms dealing in accountancy must make reports on any systematic risks which they come across while performing accounting practices as these can be the various upcoming threats that can hamper the organized operations of the financial markets.  Theoretically still, primary account research has not been able to interpret the interrelationship between accountant and the macro political economy. However traditionally these are the reduction of any asymmetries occurring in between financial information which can affect the world capital market. There are theoretical perspectives of understanding this. The basis of political economy is to study accountancy and the effects of the various conflicts of the society on it. This is also interrelation with the entire capitalistic societies present. As per Bryer (Bryer, 1993) there are many foundations and theories which helps understanding the inter relationship in between capitalism development and accountancy in different time periods.

 

Corruptions

On a global level accounting faces the challenges from the corruptions prevalent in the world of financing. As per the theory of Enmenyonu (Enmenyonu, 2007) it is a problem which exists universally and is completely related to human beings. Corruption is present in all the countries which are existing in this entire world. Pervasive levels of corruption also exist in some countries where any other growth or progress becomes difficult due to its presence. Progress in the sector of accounting thus also becomes weak in such countries. In the viewpoint of Wallace (Wallace, 1992) a city where corruption is at its highest levels, there can be instances where global concerns are not permitted to execute auditing practices as the people engaged in corruption are highly violent and dishonest.

Similarities in Theories

The three theories in relation to economic scenario are all right and there is a direct relationship in how the economic condition of a place measures the expansion and advancement of the accountancy profession related to the place. From earliest of times of civilization accountancy has been placing itself with social and economical environments all of which are governing features amongst individuals. Additionally, theories expressed in terms of issues such as regulations and corruption in the world both of which has an impact on the accounting profession are completely right in their own respects. It is true that regulations can either boost the effectiveness of the accounting profession and the implementation of its theories while corruption on the other hand alone can stop its use completely. More and more researches and theories made focuses on finding the role played by various accounting firms in the occurrences of such crisis and challenges. The economical financialization which has taken place in last century not only covers financial institutions and banks but also accounting firms directly related to it.

Differences and Conclusions Drawn by Some Theorists

The theorists view on the gaps which exists in between real world accounting practices and how it is researched in the academic world calls for advises made to accounting scholars for being more critical, normative and descriptive in their approaches of reporting. The theories are similar in their basic thought process where the various accounting professional are asked to make their judgments on valuations for explicit for determining real world actions of accountancy. However what in the real world is witnessed in regards to the accounting theories are different. Financial reporting and accounting has developed in different ways. Depending on quantitative databases this can lead to developments which fail in the real world. The business environment is increasingly becoming more complex day by day. Hence, new challenges are being created while meaningful information is being accumulated. The world's most successful global organizations are those which are efficiently combating such challenges. They are encouraging more and moder departments of the business  to do partnerships with various financial organizations. This will enhance business support and will derive better insights for these business. Most of the theories stated here are similar in this study. Overall all over the world theorists are busy studying the challenges which accounting practices face. The financial organizations must realize that these hurdles or obstacles are common by nature (Bhimani and Bromwich, 2009). All financial activities depends on these challenges and hence the organizations must study all the aspects of standards, leadership, technological and  human capital related challenges it faces.

 

Conclusion

The entire study has helped in making identifications of the various threats and challenges and theories of accounting practices occurring in global organizations. It is concluded that such threats and challenges can be a hurdle on the development of such a profession. Hence to stabilize a country’s financial area  and aid in its economic growth understanding of such threats is necessary (Arnold, 2009).  Especially in today's world which is driven by globalization, the need to identify the challenges global organizations face with respect to accounting and finances is mandatory. Although the various professionals belonging to accountancy  practices are recommended to be more proactive in their approaches in managing the various hurdles, practices and advancements in a better way, it is also recommended that the regulators and governing bodies must consider the various objectives of accountancy practices and come up with common legislations and standards.

The shortcomings which the world is facing in speculating the  current crisis of finances occurring in the world limits the ability of analyzing, responding and interpreting these as it goes on unfolding itself. It is only accounting scholars who has the right positioning for using knowledge and intricacies of the various rules of accounting observing the various social and political nature of such practices. Observing these they can rightfully explain how reevaluation is needed to be made in the various agendas of the researches made with respect to this crisis subject.

 

References

  1. Adagye , I., Azagaku, B and Umbugadu, S. (2015). Threats and Challenges to Accounting Profession. International Journal of Academic Research in Accounting, Finance and Management Sciences. 5 (4), pp96-104.
  2. Arnold, P. J. (2009). Global financial crisis: The challenge to accounting research. Journal of Accounting, Organizations and Society . 34 (1), p803-809.
  3. Belkaoui, A. (1983). Economic, political and civil indicators and reporting and disclosure adequacy:Empirical investigation.Journal of Accounting and Public Policy, (2), 356-412.
  4. Bryer, R. A. (1993). The late nineteenth-century revolution in financial reporting: Accounting for the rise of investor or managerial capitalism? Accounting Organizations and Society, 18 (7/8), 649–690
  5. Bhimani, A and Bromwich, M (2009). Management accounting in a digital and global economy: the interface of strategy, technology, and cost information . 4th ed. UK: Oxford University Press. p1-50.
  6. Boyer, R. (1990).The regulation school: a critical introduction. New York:
  7. Columbia University Press
  8. Doupnik, T. S., & Salter, S. B. (1995). External environment and accounting practice: a preliminary test of a general model of international accounting development. The International Journal of Accounting, Education and Research, 30(2), 189-207
  9. Emenyonu, E. (2007). The Accounting profession, the Church and the Nigerian State: Potent Change Agents for National Rebirth. Covenant University Public Lecture Series (14).
  10. Hofstede, G., Hofstede, G. J. (2007). Kultury i organizacje. Zaprogramowanie umys?u. Warszawa: Warszawa.
  11. (2013). COMPANY ACCOUNTS, COST AND MANAGEMENT ACCOUNTING. Available: https://www.icsi.edu/Webmodules/Publications/Company%20Accounts,%20Cost%20and%20Management%20Accounting.pdf. Last accessed 2nd May 2017.
  12. Muis, J. (2008). Written submission to the Advisory Committee on the Auditing Profession, US Department of Treasury, Washington, DC, May 23.
  13. Ryan, S. G. (2008). Accounting in and for the subprime crisis.The Accounting Review, 83 (6), 1605–1638
  14. Wallace, R. S. O. (1992). Growing Pains of Indigenous Accountancy Profession: The Nigerian Experience. Accounting, business and Financial History, 2(1)
  15. Wong, P. (2014). CHALLENGES AND SUCCESSES IN I PLEMENTING INTERNATIONAL STANDARDS. Available: https://www.cimaglobal.com/Documents/ImportedDocuments/ifac_report_challengesuccess_111004.pdf. Last accessed 2nd May 2017.
  16. Zeghal, D., & Mhedhbi, K. (2006). An analysis of the factors affecting the adoption of international accounting standards by developing countries. The International Journal of Accounting, (41), 373–386
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