Accounting In Global Organization Essay

Question:

Write a literature review on Challenges of Accounting In Global Organization.

Answer:

Introduction: Accounting in Global Era

Globalisation has changed the manner in which the business and organisational practices are carried out in today’s world. The accounting practices of the 21st century have also been revolutionised with the changes in the business environment due to globalisation, increasing competition, the evolution of information technology, and the change in the regulatory practices as the firms cross borders for business purposes (Sunarni, 2013). These changing dimensions of business practices have changed the way management accounting was carried out in the traditional firms. There were always international dimensions to finance and accounting practices earlier, but these dimensions have become more pronounced in the last few decades with more economies opening up their borders for international trade (Lavia L?pez, & Hiebl, 2014). This paper will examine the role of accounting practices in the global business environment and the key challenges faced by the accounting in the era of globalisation.

Project objective

The objective of the paper is to understand the impact of the trends and changing accounting practice in the global organisations today.

Project scope

The scope of the study is to understand the challenges and issues facing the accounting practices in the global organisations today.

Literature review

The Role of Accounting in Globalisation

The advent of globalisation has brought forth many dimensions which have a strong implication on the accountants and accounting practices in the organisations. Accounting in today’s organisations has taken on a much broader perspective and role as compared to its functions in the traditional organisational set up (Tarca, 2012). The issues related to corporate governance, financial standards and codes, anti-corruption measures, standards of regulation and accountability in the large multinational corporations, and many other such concerns involve accounting (Van der Stede, & Malone, 2010).

The general view about accounting is that it presents a neutral financial and economic reality of an organisation. But, in reality the functions of accounting go much farther than that and it presents an economic reality of the organisation or an industry which has been shaped by the dominant economic powers. The accounting practices and the results present an organisation with the objective basis for taking the crucial decisions for the company (Carpenter, & Dunung, 2011).

Accounting plays a very important role in the decision-making process of the practices and strategies which are based primarily on the numbers or figures generated by accounting. For example, most of the companies operating in the world market are always looking for reducing the cost of labour for their manufacturing and other processes. These sources of cheap labour make the companies shift their production and manufacturing to areas where cost-effective labour is available. The analysis which forms the basis of this decision is based on the numbers and figures generated by the management accounting of the organisation.

In the rapidly changing and dynamic business environment of today the firms have to continuously innovate to maintain their sustainability in the increasingly competitive market. The accounting departments today are working in a flat organisational structure in coordination with the other departments. The management accounting practices in the companies have to assure that the data and information being provided to the other departments to facilitate the making of key decisions that enable a company to compete on a local, national, and international level (Ahid, & Augustine, 2012).

Factors influencing the change in Accounting practices

Besides the change in the activities of the organisations and businesses due to globalisation, there are many other factors which have influenced the change in the role that management accounting and management accountants play in a business organisation (Zadek, Evans, & Pruzan, 2013). The developments in the production and technology have impacted the functioning of every aspect of business including the accounting practices and principles. The evolution of the modern business strategies in the era of information technology has witnessed a drastic change in the manner in which the services and products are delivered to the consumers (Arnold, 2009).

The processing of information and statistics, and the dissemination of information has become much faster and easier than ever before and this has resulted in faster response times from internal and external customers. Traditional accounting and financial tools that were used earlier like the variance analysis, standard costing, cost-volume profitability analysis, budgeting, and other such methods are no longer considered adequate for the global business standards today (Doupnik, & Perera, 2011).

The increasing competition in the global business community has resulted in many organisations going for innovative accounting, financial, and statistical analysis tools like JIT or just in time, TQM or total quality management, AMT or advanced manufacturing technology, in their business practices (Cinquini, & Tenucci, 2010). The pressures of the global competition have changed the dynamics of management accounting in organisations with contemporary practices like balance scorecard and activity based costing being adapted to meet the requirements of the changing needs of an organisation (Cooper, & Dart, 2009).

Trends in Managerial Accounting practices in the global organisations

Green accounting: The concept of an environmentally friendly and green business is spreading across the world from developed to the developing countries. To be successful at the global level and form a fruitful relationship with the public and government authorities of a nation, it has become imperative for businesses to adopt an environmental friendly approach along with maximising profits (Kidane, 2012). This puts the accounting practices of a firm in a crucial position to devise financial planning and statistical analysis in a manner to accomplish the task of achieving the ‘Green GNP’ for the company. Investment in green policies and environmental protection is one of the key functions undertaken by the financial planning and accounting in an organisation with the objective of expanding the business into new territories and maximising green profits (Talha, Raja, & Seetharaman, 2010).

Harmonisation in Accounting: Harmonisation in accounting practices basically means developing policies to enhance the comparability between the accounting practices of different companies. In the global business scenario, today developing practices to achieve international harmonisation in business accounting practices has become an important trend (De Loo, Verstegen, & Swagerman, 2011). The main objective of promoting international harmonisation is to devise some common accounting practices in the business analysis all over the world to put the financial information and accounting data of the different countries on a more comparable platform. Common internationally accepted accounting principles will make the financial information easy to decipher and reduce conflicts of interest among business organisation across different regions (Ramli, Zainuddin, Sulaiman, & Muda, 2013).


Technology support- In many developed economies, the companies and organisations are required, under the law of the nation, to disclose the complete financial statements and other financial information about the company online within a period of 24 hours of completing the financial statements. But the main challenge that arises here is the means to guarantee the quality of the financial information being disclosed (Taipaleenm?ki, & Ik?heimo, 2013). In this age of the information technology and the internet, the accounting practices of any business cannot exist in isolation. With the development of new forms of economy in the rapidly technological global environment of today many new kinds of economy like the knowledge-based economy, cyber economy, and the new political or centralised economic systems, accounting has become an important part of the economic managerial tool of the organisations (Sunarni, 2013). Therefore, the need to make the accounting principles more comparable and reliable became a must as unreliable information could lead to a legal crisis for a company and even lead to overall market crisis (Lavia L?pez, & Hiebl, 2014). Therefore, multiple accounting standards created with the help of technological support from the information technology have gained prominence in the recent years, particularly in the disseminating of accurate financial information to the public (Carpenter, & Dunung, 2011).

Factors affecting the accounting practices and the Challenges faced by accounting in global organisations today

To be competitive and relevant in the increasingly competitive global business environment, the accounting practices in the businesses have to adapt to the recurring changes that have an influence on the practices of the accounting. The factors which influence the accounting practices include the business environmental factors like the increase in customer focus, rapid pace of globalisation, and changes in the technology (Zadek, Evans, & Pruzan, 2013). The second factor is the response of the business to the environmental factors which include the flat hierarchical structures, value chain and inventory cost, the business-to customer and business-to-business interactions and dealings, change in the manufacturing techniques and quality, and much more (Doupnik, & Perera, 2011).

The third factor which has influenced the accounting practices in the global organisations is the changing and evolving accounting tools that are becoming a prime requirement of the accounting practices. Tools like Just-in-time inventory, benchmarking, supply chain management, activity based costing, target costing, balance scorecard, enterprise resource planning, are all an integral part of management accounting and financial planning today. Out of these factors, the external environmental factors and the rapidly evolving organisational factors pose a significant challenge to the accounting practices today (Cooper, & Dart, 2009).

Challenges by Environmental factors to Accounting

The external factors that influence the accounting practices of a business are also known as the environmental factors. For example, the rapidly occurring dynamic changes in the external business environment like the increasing rate of market globalisation (Kidane, 2012), increase in the competition from old and new firms due to globalisation, and the rapid advancement in technology leading to better production techniques and information management, are all the major elements that have contributed to the evolution of the principles and practices of accounting in the organisations in the recent years (Ramli, Zainuddin, Sulaiman, & Muda, 2013). These changes in the external business environment have increased the role that accounting and especially the management accounting has to play in the business organisations today (Tarca, 2012).

The accounting practices are continuously facing the challenges thrown by the external environment in providing the accurate information to support and facilitate the effective business operations and efficient management under the changing circumstances (Van der Stede, & Malone, 2010). The management accounting in an organisation has to evolve with the change in the manufacturing technology, the information technology and the other environmental trends so that accurate customer oriented information can be provided to the other concerned departments in the company. The accounting function in the organisations is no longer limited to financial numbers but has become an integral part of the management process with a much wider scope (Ahid, & Augustine, 2012).

Due to rapid globalisation the companies do not have to compete with the local firms but also with the international players in the national as well as the world market. To ensure business sustainability the firms have to ensure competitive and attractive prices of the goods and services, ensure the quality of the products and services, a fast delivery of the company’s products and services, and living up to the expectations of the consumers (Arnold, 2009). Therefore, the modern businesses need empirical and financial measurements on all these aspects of business. This has increased the role of management accounting in the businesses as they are faced with challenges of providing reliable information on all such factors which may influence the business and marketing strategy of the organisation (Cinquini, & Tenucci, 2010).

The advancement in information and computer technology and the availability of analytical software have increased the accuracy and the speed at which the data can be stored and processed (De Loo, Verstegen, & Swagerman, 2011). It has also made the dissemination and accessibility of the information much faster and easier, but this also poses a challenge to the management accountants in an organisation for timely appraisal of data and disseminating the accurate and relevant information to the other departments on a real-time basis (Sunarni, 2013).

Other factors like the changes in the rules and regulations, implementation of new accounting standards and practices, deregulation of the markets and the finance sectors, and the increasing dominance of the service segment in business organisations, escalate the challenges of the accounting practices in an organisation to provide information, financial implications and solutions for business growth and development (Lavia L?pez, & Hiebl, 2014).

Challenges by the Organisational factors to Accounting

Organisational factors which influence the business outlook and the accounting practices consist of the organisation as a whole, the strategy of the business, the products and services of the business, the competition, the internal operations of the business and the perceived uncertainty (Tarca, 2012). The organisational factors have a profound impact on the daily activities and practices of the business including the accounting practices (Carpenter, & Dunung, 2011).

The organisational factors place a lot of emphasis on the core competencies, supplier and customer relationships, outsourcing, downsizing, flat organisation structures, organisational restructuring, and other such elements which aim at improving the productivity and efficiency of the company (Van der Stede, & Malone, 2010). With any changes occurring in the internal organisation constitution and functioning, like a new style of management reporting, the whole structure of the company and the process of the flow of information undergo a change. This will also change the attitude of the people in the company and the work patterns of the people (Ahid, & Augustine, 2012).

As mentioned earlier, the accounting department is not an isolated function anymore and the management accounting process in the organisation is closely integrated with the workings of other departments, the top level management, and the operations management in the organisation (Talha, Raja, & Seetharaman, 2010). The organisational decisions like mergers, take-overs, organisational restructuring, new technological innovations are among the most influential factors affecting the accounting practices (Zadek, Evans, & Pruzan, 2013). The accounting department is responsible for coordinating and liaisoning with the other departments to ensure smooth flow of relevant statistical, analytical, and financial information. Therefore, any kind of changes in the quality control, work patterns, organisational restructuring, managerial practices are among the leading organisational challenges faced by the management and business accounting in the global organisations today (Arnold, 2009).


Besides these, the factors like customer oriented activities, core competencies, the form of ownership, size and type of organisation, profitability and the financial position of the firms, also contribute a lot to the challenges faced by the business and management accounting in the global marketplace today. Most of the organisations today have a flexible and flat organisational structure where the accountants and the managers work inter-changeably in a cross functional manner (Doupnik, & Perera, 2011). This has lead to an increasing demand for transparency and accountability from the stakeholders in a firm. This change in the work practices and increase in transparency escalate the challenge for the business and management accountants in a firm to develop an in-depth understanding of the different processes in a business to be able to take on the challenge of a cross functional role (Cinquini, & Tenucci, 2010).

Ethical challenges

The accounting department in an organisation has an access to a lot of confidential and sensitive information about the business, strategies, and practices of an organisation. Any kind of unauthorised disclosure to a third party outside the organisation could put the company at a competitive disadvantage against the rival companies and may lead to loss of credibility for the company (Cooper, & Dart, 2009). Similarly, any unauthorised disclosure about the policies and strategies of the organisation, like information about potential layoffs and budget cuts, to the people inside the organisation would be against the interests of the organisations. The management accounting in every organisation has to deal with these ethical challenges and resolve them in the best possible manner while working under the professional standards and code of ethics (De Loo, Verstegen, & Swagerman, 2011).

The current trends in the business world point towards an emerging consciousness in the minds of the consumers about sustainable development in business and industry (Zadek, Evans, & Pruzan, 2013). Therefore, the management accounting in a global business organisation is faced with the challenge of rethinking from a financial and profit oriented point of view and adopt practices and accounting systems that incorporate and integrate the practices which are based on performance management along with profit maximisation (Ramli, Zainuddin, Sulaiman, & Muda, 2013).

Conclusion

In the rapidly changing and dynamic global business environments, the role of business and management accounting practices is undergoing a significant change in the role played by them in the modern business organisations (Taipaleenm?ki, & Ik?heimo, 2013). The accounting function does exist in isolation any longer and is proactively engaged and integrated with the other functions like the strategic management, leadership improvement, and operational alignment in a firm (Talha, Raja, & Seetharaman, 2010). The continuous changes in the external and internal environment influence the management accounting practices. To survive and succeed in the increasingly competitive global arena the business and the management accounting practices have to continuously evolve to the challenges posed by the internal or organisational factors and the external or environmental factors in the dynamic business world today (Kidane, 2012).

The accounting practices in a firm have to be prepared to face the challenges of globalisation in the local markets and traditional dominions also. With rapid globalisation and evolving technology, the business transactions in a company are becoming more complex and voluminous, and there is an increasing emphasis on standardisation of practices (Taipaleenm?ki, & Ik?heimo, 2013). This increases the pressure on the management accounting in a business to achieve uniformity in accounting practices and also keep up with the technological advancements, to be able to provide the best and accurate information in real-time to the internal and external stakeholders of a business.

References:

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