Money is as crucial to global finance as blood is to our body. With the fall of the Berlin Wall, the Cold War ended and democratic and market liberalism became the foundations of the global growth. The global economy move has been in full swing, making capitalists dominant in global politics and consequently in global trade and investments. Globalisation was on top of the global agenda.
But globalization has presented both threats and challenges for the well-being to many around the world. If individuals and societies are to adjust smartly to the challenges of global capitalism, it is important that they understand the principal forces transforming international economic and political affairs. Investments, markets, and finances are the prominent victims of the political decisions made by governments. During the Cold War, the U.S. Japan and Germany had strong investment relationships than their counterparts, the Soviet Union, and its allies. This opened the door for US and Japan to lead the global economy even more during the post-Cold War era.
The end of the Cold War and the emergence of globalisation mark the global market to go beyond the axis of political ideology. For this reason various bilateral and multilateral trade agreements have been signed between various governments to foster the economic growth of their respective countries. The Sino-American, The Partnership and Cooperation Agreement between the EU and Russia, the Trans-Pacific Partnership (TPP) are good examples for global trade going beyond the political axis.
The global economy went on a fast track, trade exchange between partners increased dramatically. According to WTO, trade statistics released in 2013, the value of world merchandise exports rose from 2.03 trillion US dollars in 1980 to 18.26 trillion US dollars in 2011, which is equivalent to 7.3pc growth per year on average in current dollar terms. Commercial services trade recorded even faster growth over the same period, advancing from 367 billion dollars in 1980 to 4.17 trillion dollars in 2011, or 8.2pc cent per year. When considered in volume terms (i.e. accounting for changes in prices and exchange rates), world merchandise trade recorded a more than four-fold increase between 1980 and 2011. In all those changes, multinational companies are playing a pivotal role for those trade exchanges among nations
The conquests of globalisation enabled multinational companies to vie to capitalize in the wider globe through FDI, and merger or acquisitions. Many countries opened their doors for those companies to create new job opportunities for their citizens, fill the foreign currency deficit, and ensure knowledge and technology transformation.
Operating in a multi-cultural environment, the difference in functional and reporting currency, tax regulations, and fiscal policies become some of the challenges for multinational companies. Preparing a seamless report was also a big challenge. This makes the demand for a common standard of financial reporting by companies’ worldwide.
By considering this, The IASB (International Accounting Standards board) propagated IFRS (International Financial Reporting Standards) as global standards for the world economy. According to IASB, IFRSs are designed as a common global language for business affairs so that company accounts are understandable and comparable across international boundaries. They are the consequence of growing international shareholding and trade and are particularly important for companies that have dealings in several countries.
They are progressively replacing the many different national accounting standards. They are the rules to be followed by accountants to maintain books of accounts which are comparable, understandable, reliable and relevant for internal or external users.
Now the world’s lineup is shifting. Around the world, nationalists are gaining ground and countries are shifting from the universal, civil nationalism towards the blood-and-soil, ethnic sort. From Beijing to Istanbul, Delhi to London, Washington to Moscow and from Cairo to Paris nationalist voices are rising and railing against globalism.
The emergence of nationalists could be one of the major threats, may be the final bullet against globalisation. Brexit could now be followed by a French exit in an indication that the globe is now moving from globalization to localization. It seems the era of globalization could be slowing down. As a result, national rules, regulations and standards will again be important and the reliance on international standards will be questioned. Bench marking international best practices and advice policy makers to produce seamless national financial reporting standards is up to the professional associations and their members. ACCA Ethiopia is one example as it offers advice to policy makers to incorporate their professional opinions on the national tax proclamation, reporting standards, and commercial codes.
As brains of the organizations, accountants shall gather and analyze rationalized global political and business information to give a preliminary financial and non-financial demonstration and its implication for their respective users. Any high-level decision made in every organization is based on the information provided by CFO’s. Hence, the consequences of the decisions are directly or indirectly dependent on the information provided by the accountants. This resembles the computer GIGO term (Garbage in Garbage Out) in the world of accountancy. It is the role of the brain to control incoming garbage to avoid the outgoing garbage decisions.
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