Globalization and Ethical Standards in Accounting

Introduction

Countries and capital markets across the globe demonstrate that globalization has had a significant influence on 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 undertaken by the United States and the international community towards establishing these standards are also discussed, along with the challenges these two governing bodies have experienced in the process.

The Need for a Global Set of Ethical Standards

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 other markets or regions. This increased interdependence has been characterized by growing interest in cross-border investment opportunities. One of the major reasons for the increase in cross-border investments is rapid technological advancement, which has effectively made national borders disappear. Because of the significance of financial information to stakeholders, accounting has become increasingly important. As a result, there have been numerous initiatives for a global set of accounting standards driven by increased globalization — initiatives that have in turn contributed to the need for a global set of ethical standards, attracting the attention of two major governing bodies: the United States and the international community.

Recent events have shown increased interest in cross-border investments brought about by globalization, which is itself attributed to rapid technological advancements that have made the world a global village. Even though globalization is not a recent phenomenon, it has accelerated over the past two decades to an extent that it is fueling greater interdependence among 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 toward the development of a set of global accounting standards. One of the most significant 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. These initiatives additionally resulted in the establishment of the International Accounting Standards Committee (IASC) to work toward enhanced comparability between financial reports across countries. The committee was subsequently reconstituted and rebranded as the International Accounting Standards Board (IASB), which has assumed greater responsibility. The IASB has had considerable influence on global accounting standards, to the extent that over 100 countries are now adopting or converging with IFRS.

Development of a Common Set of Ethical Standards

These developments have contributed to the need to develop and establish a global set of ethical standards. This need is also attributed to recent accounting scandals — such as WorldCom and Enron — that caused the investing public to lose confidence in global financial reporting (Mitchem, 2009, p. 41). As numerous efforts have been undertaken to address financial reporting worldwide, similar measures should be carried out to establish ethical standards in accounting. While countries and regulatory systems are adopting and converging with 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.

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 doing so, primarily because of the need to prevent future 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 the public interest and foster the global accountancy profession. The International Ethics Standards Board for Accountants (IESBA) was also established and has published ethical standards grounded in 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 the IASB and the Financial Accounting Standards Board (FASB) as part of ensuring that the country adopts a global set of ethical standards. Together with the international community, the United States has helped develop an ethics education framework with four major objectives: to create a sense of ethical responsibility, to enhance moral standards and attitudes, to develop problem-solving skills with ethical implications, and to create a sense of professional responsibility (Sadowski & Thomas, 2012, p. 17). Moreover, the United States and the international community have created publications supporting an international oversight mechanism for accounting ethics.

Conclusion

The need for a global set of ethical standards has been influenced by efforts towards a global set of accounting standards, driven by technological developments and globalization. This need has attracted significant attention from the United States and the international community, both of which have undertaken various measures to address it. However, these regulatory systems have faced numerous challenges, including the complexity of developing and implementing such standards. Continued collaboration between governing bodies will be essential to overcoming these obstacles and advancing a consistent global ethics framework in accounting.