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STRAYER UNIVERSITY

DISCUSS HOW GLOBALIZATION HAS CHANGED THE ROLE OF A CERTIFIES PUBLIC ACCOUNTING PRACTICING IN THE UNITED STATES TODAY

A PAPER ON BUSINESS GLOBALIZATION AND HOW IT IMPACR FINANCIAL ACCOUNTING AND REPORTING FOR THE GRADUATE SCHOOL OF PUBLIC ACCOUNTING

TO PROF JOHN RAY

BY MOJISOLA A GBADAMOSI OKUBULE

PLANO, TX AUGUST 2011

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INTRODUCTION

Context of the problem

This paper is on business globalization and how it impacts financial accounting and reporting. I will attempt to gather insight how globalization has changed the role of a certified public accountant practicing in the United States today. This paper will also discuss how either the convergence or adoption of International Financial Reporting Standards (IFRS) will impact the public accounting profession in the United States. I will also discuss the challenges facing certified public accountants in the U.S. when operating in a globalized economy. The main research state my recommendations for dealing with the challenges identified in the previous question?

Topic of Discussion

Discuss how globalization has changed the role of a certified public accountant practicing in the United States today.

Globalization is the economic, societal and political joining of countries around the world? Globalization has created competition and opportunity in the world marketplace today. Globalization dramatically increased the level of competition among organizations the world, CPAs and auditors? Traditionally, certified public accountants (CPAs) have served a unique role in the world of commerce and the profession of accounting. They perform an attest function and thereby serve as the chief providers of relevant, high quality accounting information to the

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decision making public. CPAs are licensed practitioners, who as expert independent accountants express opinions about an entitys financial statements. Their license provides them with the exclusive right to perform this attest function. This monopoly relies on the concept of independence that is the normative standard of accountancy. It is this perceived independence of auditors which provides credibility, reliability and trust in the financial accounting information upon which stakeholders depend to make informed decisions. CPAs are and will continue to be, in high demand. As we continue to move toward adopting International Accounting Standards as common practice, global opportunities will become increasingly available. Due to development of globalization, CPA needs to be aware of what role the entity is playing in global market? Today, more and more company have expanded there business to other countries, CPAs need to be able to handle the change as well. Many CPAs need to have a stronger sense of the broader context in which they function. They must continue to increase there knowledge and training. Most CPA will continue to take new positions at new companies especially in challenging environments in order to gain the best, most diverse, hands-on experience possible. (http://cpamaven.com/)

Today, we see the environment in which CPAs operate and undergoing rapid change? Both the globalization of business operations and technological advances has radically changed how and where CPA work and the speed at which things happen. The very nature of accounting information services is evolving; moving from a concentration on audits to an increasing reliance on consulting and assurance services. New ethical issues have been raised by this confluence of changes in the accounting environment. Noteworthy is that the application of the principle of independence by CPAs has been called into question by no other than the SEC. Are those shareholders who depend upon the independence of CPAs at risk? The influence of insiders has

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significantly increased as accounting firms perform multiple tasks for the same clients. This paper discusses the different groups who can potentially impair the independence of auditors and the steps that are being taken to enhance the "independence" of the auditors. Certainly, outsourcing opportunities, the interconnectedness of our capital markets and the ability for a new competitor to emerge from out of nowhere underscores the fact that the world is getting much smaller. Thats about to change even more with the expected forthcoming adoption of the International Financial Reporting Standards (IFRS). This is going to require an entire retooling of the skill set for many existing CPAs? (Accounting and the Global Economy after Sarbanes-Oxley)

Discuss how either the convergence or adoption of International Financial Reporting Standards (IFRS) will impact the public accounting profession in the United States.

Those CPA firms that have an international presence have already been affected by global hiring practices. These practices will continue to grow as we face the demands of implementing the International Financial Reporting Standards. Globalization, specifically the transition towards IFRS will create a situation where the demand for IFRS skills will undoubtedly exceed the supply. Many firms and other organizations will be vying for a limited pool of IFRS talent. If you have these skills you can expect higher than normal job security and compensation. I believe CPAs will need IFRS skills as the US moves in this direction. Also, strong communication and multi-lingual skills will become more important. With todays economic environment, the question is how long will demand exceed supply? Its difficult to say, but CPAs have many opportunities and are well positioned even in these difficult times. CPAs will most likely move from job to job at a higher rate than previous

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decades. The frequency of job change really kicked up around 2001 with major shifts toward globalization, corporate instability and economic uncertainty. The momentum of corporate change hasn't slowed down since. Mergers, acquisitions and reorganizations breed employment turnover. Basic economic principles rule here. As long as the demand for CPAs exceeds the supply, you can expect similar job hopping to that of the prior 10 years. I have heard individuals at many different companies question employee loyalty in the context of job hopping.

This are the factor that must be consider before the change can be implement? What will happen if the US adopt the International Financial Reporting Standards (IFRS) and how will it impact CPAs.In the USA. Do we need a change in system and if so why? How is it affecting the CPAs and reporting standards today? What are the compatibility of IFRS with the current U.S. regulatory and legal environment as well as the possible effects of IFRS adoption on the U.S. economy as a whole? How will a switch to IFRS affect worldwide competition among accounting standards and standard setters? There is also a political ramification of such a decision on the standard setting process and on the governance structure of the International world? It the USA ready for these changes? What are the pros and con of such major change? Those pro out weight the cons? ((http://www.ifrs.com) To better answer this question, I have to consider how economic and policy factor related to the potential adaptation of the (IFRS) in the USA will impact the global market? If the change is implemented, we must consider the following factors. What is the cost benefit trade off between the GAAP and the IFRS standard? Will the shareholders of the company benefit from the changes? What will be the future of the of U.S. accounting standards, ranging from maintaining U.S. GAAP by letting firms decide if they want to adopt IFRS. The changes are need because the corporations in the USA integration with company in Europe via importing and

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exporting relation in the global market? CPAs have to following the guideline of the GAAP and GAAS in the USA. The International Financial Reporting Standards (IFRS) is what accountant follows in Europe. A lot of counties in Europe have adopted the IFRS standard including countries like Spain, Belgium and many others in the European Union. A convergence between the US and IFRS will affecting several major accounting standards most notably in the areas of leasing, revenue recognition, and financial instruments.Given the importance of the US, the views of the nominee for Securities and Exchange Commission chairman on accounting topics are about more than simply which accounting system US companies should use. US influence is such that the SEC's viewpoint is likely to shape a great deal of the debate about all sorts of changes to accounting rules over the coming years, including international ones. In August, the SEC announced it would produce its "roadmap" plan for how to switch to International Financial Reporting Standards, and in November it did so. Comments are due by the middle of next month. I also believe the US will eventually convert to IFRS standard. This move will seal the deal on a single set of global accounting rules? The good news is that the International Accounting Standards Board and its US counterpart have made it very clear they will only work together on rule changes. I also believe the change is need due to the fact that the sovereign debt crisis is affecting the US economic? Have a common financial reporting system will help CPAs around the world. This is part of their efforts to resist attempts by politicians and interest groups to play them off against each other. CPAs will have to ensure their systems, processes and controls can accommodate the proposed accounting models and changes? (http://www.ifrs.com/convergence_landing.html) IFRS is already impacting business decisions, and not simply through non-US subsidiaries. Understanding both of these major changes, and their business and operational implications, is

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an imperative for US companies. A change in standard will mean Accountants and CPAs will have to reeducate them to learn the IFRS standards. It also means company will have to reeducate themselves also? Companies may need entirely new systems or modifications to existing systems to ensure they can capture data, track contracts, support processes to develop and assess in conformation with the IFRS standards. We need to consider the potential costs of switching from U.S. GAAP to IFRS? Is the government of the USA and all the other Accountant association in support of this of this? This will be a very costly project? The financial Accounting Standard Board and International Accountant Standard Board are currently working on roughly a dozen joint projects designed to improve both US and international Accounting standards. The scale of the proposed changes and their potential impact on US companies are unparalleled. The change will affect revenue recognition, leases, and financial instruments reporting? The impacts will be broad and deep well beyond financial reporting. They must ask themselves this question can all the corporations and accountant afford the changes? The proposed standards have the potential to significantly impact revenue and expense recognition patterns as well as a companys reported assets and liabilities. Under the proposed revenue standard, the recognition of some revenue streams will accelerate while others will decelerate. Irrespective of the timing of revenue recognition, gross margin erosion will occur, as a result of the proposed incorporation of credit risk into the measurement of revenue. (Www. Fasb.org) The political ramification of this change is that the US senators and European leaders asking questions about "fair value" accounting, where marking assets to current market prices has decimated banks' balance sheets. There was also political anger way back in the early days of the credit crunch over the off-balance sheet accounting rules that had allowed many banks to

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hide the full extent of their activities. The bottom line politicians always oppose change and they find it very difficult to accept sometime?

Discuss the challenges facing certified public accountants in the U.S. when operating in a globalized economy. CPAs must provide a private and contracted service with the duty to care effectively and consider the follow? CPA must consider the International trade flow, when good and service that have been creates in one country are sold in another? The International income flows such as capital income, labor incomes or transfer payment go from one country to another? He must evaluate the International transactions of the company assets when they trade in financial assets such as foreign bonds or currencies, or make investments in real foreign assets such as businesses or real estate? The International flows of people, as people migrate from one country to another either temporarily or permanently? The International flows of technological knowledge, cultural products, and other intangibles, which can profoundly influence patterns of production and consumption as well as tastes and life-styles. The market is also competitive? (Accounting and Auditing Standards as Operating Parameters in the Global Economy) The challenges facing the CPAs in this situation will be perform aditing in following situations such as mergers, acquisitions, foreign currency transactions, derivatives, other financial instruments, fair value accounting and intangible assets. How will the enforcement of financial reporting requirements through auditors, securities regulators, the World Bank and others impact his audit? The certified public accountants in the U.S must understand foreign trade and rules involved in financial reporting? Any one of these forms of interaction may be crucially important for understanding the macroeconomic experience of specific countries at

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specific times? He has to inspect the source document involved in every transaction to make sure there is not material misrepresentation and fraud involved?

Competition is, of course, an important element in ensuring a 'free market' and efficient 'movement toward equilibrium' so expected in conventional economic circles (Scott, Solomon & McGowan, 2001) Competition will ultimately drive down the cost of audit to a point of equilibrium at which there is little money to be made and which satisfies the 'customer' (whoever that customer may be). Competition, in theory, thus keeps quality up at a level needed to attract 'demand'; but there's a 'catch' here with respect to professional audit practice. The loss in 'quality' is not immediately apparent because it only exists if the auditor lets his or her related interest affect the quality of their work. (Jayalakshmy, Seetharaman & Khong, 2005) He must understand the GDP of the US/foreign nation, International trade laws and the foreign currency involved? He must consider the risks involved in a global economy and how it impacts the company directly during the audit? The CPA must evaluate the risk through substantive and analytical testing? How does the global economy affect his skills? How does globalization impact domestic companies operations as well as more regional companies with minimal global presence? He must have independence to perform the audit and not compromise his integrity? He has to monitor the company and the staff involved? ((http://www.auditforum.org)

The CPA 'clients' are in a strong position to 'sway' the auditor's view simply because of their contractual relationship with them. If for example, the auditor is dependent upon the revenue provided by the client-company, they may be less inclined to come to an opinion that would render that company reluctant to enlist their services in the future. If their client-company has not paid the auditor's bill for services, if they have issued promissory notes in lieu, or if the

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audit services comprise a large portion of the auditor's revenue overall, then the auditor would have a natural inclination to avoid actions that threaten the losing the client-company relationship. These competitive incentives place them in direct conflict with their obligations to the public however. The importance of applying integrity and independence into all they do is frequently argued for on the basis of a public good concept, where the audit 'opinion' is to be provided in the public interest. The CPA must that the appointment letter communicates all the possible issue that could surface when dealing in a global economic market?

Discuss your recommendations for dealing with the challenges identified in the previous question. A professional CPAs responsibility is not exclusively to satisfy the needs of an individual client or employer. The standards of the accountancy profession are heavily determined by the public interest (IFAC, 2000, May, Para 910) In every country where audit is a professionalized practice, auditors also have to bid and compete for their audit revenues against other similarly competitive firms. To deal with completion, the auditor must be well educated and be familiar with the law, regulation of the IFRS. Risk management is an area of paramount importance to an organization. Because every Company is in business to take risks, effective risk management is necessary to the progression of a business entity taking too little risk can be just as dangerous as taking too much risk. The Need for CPAs to assist the management of a company s risk has important. Using a threedimension approach to identifying risk allows the CPAs to clearly see that risk is a result of numerous factors, and that each must be identified and evaluated. Further, CPAs will have the ability to recognize those risks that are predictable and/or controllable. An aptitude that enables a

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CPA to think outside the box concerning risk factors is necessary to extinguish gaps that may form as a result of newly formed risks, those that may coexist within the venture. The CPA must be on the alert for something that is not done, not checked, not monitored; or points where there is no control to ensure that the activity is well performed recommend the CPA assess the internal control of the company and make it is functioning properly. He must have a proper working knowledge of the in and out of the company. He can also watch the company employee perform there duty to ensure there is separation of duty and zero tolerance for fraud? Bottom-line, he must exercise due care, integrity and proper professional judgment in performing his audit. In conclusion: To improve the quality of accounting, which improves the flow of capital to the right places in the economy and facilitates economic growth, a CPA must have an environment that includes scrutiny by corporate regulators? "The auditor's job is to be the local policeman on the beat, making sure people aren't crossing the line. The CPA must be the eye and ear of the people (Shareholders of the company)

The goal of implementing the IFRS is to establish a single set of globally accepted accounting standards. The concept is rapidly gaining support by key groups such as the Securities and Exchange Commission (SEC) and the World Bank. IFRS are now used for public reporting purposes in more than 100 countries. The final goal of the change is to have common accounting basis seems to simplify global

References

http://www.brookings.edu/reports/2008/10_global_economics_top_ten.aspx

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Accounting and the Global Economy after Sarbanes-Oxley Authored by: Don E. Garner; David L. McKee; Yosra AbuAmara McKee http://www.sciencedaily.com/releases/2008/05/080514171804.htm http://cpamaven.com/ www.fasb.org http://www.auditforum.orgl.pdfhttp://www.eoearth.org/article/Global_economy