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The Impact of Globalization on Accounting Education

Globalization is the driving force behind many changes occurring in the accounting world today. Globalization and advancements in communication technology have knocked down national borders and led to and increase in free trade and outsourcing. This has opened up a large amount of business opportunities if companies are willing to adapt and adjust to new standards of accounting. No one knows for sure what the future holds, but from the looks of it, and an official statement from the SEC, GAAP is on the way out and IFRS is here to stay (“Globalization’s”). Globalization and the change from GAAP to IFRS will have profound effects on accounting education around the world.

What does this mean?
The conversion from GAAP to IFRS means many things for the accounting world. Accounting has been thought of as a profession that primarily analyzes the past, but with the change to IFRS looking into the future has become equally important. CPAs around the world, especially in the U.S., will need the knowledge of every country’s standards he or she is working in. There are an increasing number of globalized businesses in the world with a desperate need for a common accounting language. “There are already over one hundred countries throughout the world that are following one standard set of rules, called International Financial Reporting Standards, or IFRS for short” (“Globalization’s”). Most of the larger firms have long since made the leap to IFRS. They have opened international offices and have been working with multinational clients for years. It is important now for the mid-sized and smaller firms to make the transition to IFRS standards. “I personally predict that the last year GAAP may be used in the U.S. by SEC reporting companies is for fiscal years ending December 31, 2010″(Albrecht). Failure to comply may lead to several repercussions including the possible of loss of potential and current clients to multinational companies.

Effects on Education and colleges
Globalization and the change from GAAP to IFRS will bring many changes in accounting education. It’s becoming increasingly important for college students, as well as current accountants, to be educated on accounting standards of other countries. This process is going to require continuous learning and an increased number of hours and credits completed in school. There have been IFRS seminars occurring all over the U.S. whose goal is to bring current accountants up to speed while universities can make the change to IFRS teaching. A complete retirement of GAAP would mean drastic changes in college business programs. The SEC has already announced that a complete change of accounting language is coming. Professors will need to be updated on IFRS teaching methods and new textbooks will have to be made. Textbook companies like McGraw-Hill and Prentice Hall can lead the way in the transition from GAAP to IFRS. Another major aspect of accounting that will be affected is the CPA exam. The exam has become longer, computerized, and contains roughly 70% new content. There are many differences in methodology and goals associated with GAAP and IFRS.

The U.S. GAAP system is currently the primary accounting standard and is structured with several hierarchical levels. It is a rule-based system and is governed by the Financial Accounting Standards Board (FASB). The IFRS system is a principle-based and has no hierarchical structure. It contains 2,000 pages compared to the 25,000 GAAP has, and its standards and interpretations are overseen and approved by the International Accounting Standards Board (IASB) (“IFRS”). The IFRS also offers flexibility and alternatives that GAAP does not. The FASB and IASB have been working together on several projects to make their standards compatible. Their goal is to improve financial reporting for investors while coordinating accounting standards.

A change from GAAP to IFRS is definitely coming, but there are a few downsides to the new international system. One of the main issues is cost. The high costs associated with the switch come from several places. College will become more expensive if students are expected to stay longer and complete more credits. Current professors and accountants will have to travel and take classes to update and learn more about the IFRS system, both of which cost money. Other problems can affect cost in a more inconspicuous way. A failure to adapt to the new system could result in the loss of international clients; therefore, costing the company money and resources. However, it is evident that the advantages significantly outweigh the disadvantages.

The change from GAAP to IFRS is necessary and apparently inevitable. The change will have major effects on education as well as current accounting practices across the world. International accounting has become a critical component of accounting firms and has opened created opportunities that may not have been available ten years ago. Most large firms have made the transition, but many mid-sized and small firms must make the change in order to keep up with current accounting standards.