What is Global Accounting?

The field of accounting has been undergoing radical changes recently. Many critics believe that Generally Accepted Accounting Principles (GAAP) standards are outdated, according to Accounting Coach. Global accounting is a speciality in the field of accounting that is rapidly becoming more important in a setting where companies have international locations all over the world. American companies with locations in other countries face unique challenges when trying to adhere to required accounting principles that are not uniform across the world. Global accounting is a field that is developing to address these issues. Following is an explanation of what global accounting entails and how it has developed in the recent past.

The History of Accounting Principles

The stock market crash of 1929 gave rise to the Securities and Exchange Commission (SEC). The SEC recognized the need for established uniform accounting practices. In 1973 the Federal Accounting Standards Board (FASB) was established. FASB has been the major policymaking board for accounting since that time. They were instrumental in establishing Generally Accepted Accounting Principles (GAAP). GAAP policies are basically a standard set of rules that every company has to follow so that their reported earnings and financial health is objective and investors can trust the information these companies are publishing. GAAP standards came at a critical time when our financial system desperately needed a set of common rules for accounting practices.

The Development of Global Accounting

As the way American companies do business began to change, it became apparent that GAAP policies are no longer as useful as they once were. During this period of global marketing and manufacturing, many corporations have branches in other countries. This makes it extremely difficult to adhere to U.S. based GAAP policies across the board. The globalization of business has given rise to the need for a more global accounting system. In 2002 FASB began working with the International Accounting Standards Board (IASB) to develop a new system of international accounting standards.

This has proven to be an extremely difficult process. Changing GAAP standards can potentially have a huge impact on the U.S. banking system, the stock market, and the way companies and corporations account for revenue and expenses. Setting up a “one-size-fits-all” set of accounting rules for companies that are global players in the business world might sound good in theory, but it has proven to be almost impossible in practice.

The Future of Global Accounting

At this point, it is obvious to everyone that there is a need for one universal set of accounting practices. However, what those practices should be and how to implement them is still a work in progress. In addition the process of switching over to new accounting practices could prove to be confusing to investors and subject to manipulation by unscrupulous corporations determined to manipulate their financial statements.

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The recent accounting scandals have exposed the weaknesses in the way American countries account for profits and expenses. In addition, as more and more companies blur the boundaries between countries the need for some type of international accounting standards becomes more apparent. FASB has vowed to continue to work with IASB to align their standards. The one certainty is that global accounting is on its way.

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