Global Set of Ethical Standards

¶ … globe demonstrate that globalization has had significant influence in the development of a global set of accounting standards. This paper examines the role globalization has played in this process, especially in how it has contributed to the increased need for a global set of ethical standards. The discussion incorporates an evaluation of this need in light of recent accounting scandals attributed to unethical practices. The efforts taken by the United States and the international community towards establishing these standards are also discussed. In addition, challenges experienced by these two governing bodies in this process are also evaluated.

Globalization in Accounting Ethics:

Over the last several years, countries and capital markets across the world have become increasingly interdependent. Consequently, recent events have shown that a shock in one area or region may affect the other markets or regions. The increased interdependence of countries and capital markets has been characterized by increased interest for cross-border investment opportunities. One of the major reasons for increase in cross-border investments is rapid technological advancements that have made borders to disappear. Based on these investments, accounting has become increasingly important because of the significance of financial information to stakeholders. As a result, there have been numerous initiatives for a global set of accounting standards due to increased globalization. These initiatives have in turn contributed to the need for a global set of ethical standards that has attracted two major governing bodies i.e. The United States and the international community.

Need for a Global Set of Ethical Standards:

Recent events have shown increased interest in cross-border investments brought by increased globalization, which is attributed to rapid technological advancements that make the world a global village. Even though globalization is not a recent phenomenon, it has accelerated in the past two decades to an extent that it is fueling greater interdependence of economies. Notably, accounting has had a significant role to play in this process mainly through the functions of multinational firms, the pervasiveness of international accounting companies, and the regulatory systems of developed countries (Irvine & Lucas, 2006).

Globalization and technological advancements have contributed to efforts towards the development of a set f global accounting standards. One of the manifestations of these efforts is the introduction of the International Financial Reporting Standards (IFRS), which also acts as a tool through which globalization is mobilized. Secondly, these initiatives resulted in the establishment of the International Accounting Standards Committee (IASC) to work towards enhanced comparability between financial reports across countries. The committee was recently reconstituted and rebranded to International Accounting Standards Board (IASB), which has assumed more responsibility. IASB has had considerable influence on global accounting standards to an extent that over 100 countries are adopting or converging International Financial Reporting Standards (IFRS).

These developments have contributed to the need to develop and establish a global set of ethical standards. The need for such standards is also attributed to the recent accounting scandals such as WorldCom and Enron that made the investing public to lose confidence in global financial reporting (Mitchem, 2009, p.41). As numerous efforts have been undertaken to deal with financial reporting worldwide, similar measures should be carried out to establish ethical standards in accounting. While countries and regulatory systems are adopting and converging IFRS, it is increasingly important for accounting educators and professionals to learn and apply professional ethics, attitudes, and values. Ethics has become a major component of professional orientation for accountants in light of the increased globalization of business.

Development of a Common Set of Ethical Standards:

Given the need to establish a global set of ethical standards in accounting, several countries and regulatory systems have undertaken measures to address the issue. The United States and the international community have played a crucial role in addressing this issue mainly because of the need to prevent incidences of unethical accounting scandals. The international community has developed a framework for global ethics through the International Federation of Accountants (IFAC), which was instituted to serve public interest and foster global accountancy profession. The International Ethics Standards Board for Accountants (IESBA) was also established and publicized ethical standards based on the principles of professional competence and behavior, integrity, confidentiality, objectivity, and due care.

On the other hand, the United States has undertaken measures to converge IASB and FASB as part of ensuring that the country adopts a global set of ethical standards. Together with the international community, the country has helped developed the ethics education framework, which has four major objectives. This framework seeks to create a sense of ethical responsibility, enhance moral standards and attitudes, create problem-solving skills with ethical implications, and create a sense of professional responsibility (Sadowski & Thomas, 2012, p.17). Moreover, the United States and the international community have created publications for international oversight mechanism.

However, in the process of developing a global set of ethical standards, the United States and the international community have experienced several challenges that have hindered the effectiveness of their plans. One of these challenges include the fact that some countries or regulatory systems are yet to adopt or converge global accounting standards, which make it difficult to enforce these ethical standards. The other challenges include the complexity in developing accounting standards, complex financial reporting infrastructures, and the need for overarching reforms in many countries.

In conclusion, the need for a global set of ethical standards has been influenced by efforts towards a global set of accounting standards due to technological developments and globalization. This need has attracted significant attention from the United States and the international community that have undertaken various measures to address it. However, these regulatory systems have faced numerous challenges including complexity of these standards.