Globalization of business has been with us for many years and, in the main, has been managed successfully by organizations. This is because many of the problems have been concerned with practices, not policies, and working within regulations in other countries. It has not involved changes to the financial regulations affecting domestic operations. When the issue becomes one of international regulations and policies affecting domestic arrangements, the impact is much greater and pervasive.

Undoubtedly, organizations are going to be involved in a significant amount of work, but it will be gradual. However, the complete and the long term impact on all aspects of accounting have yet to be realized. The effects can be grouped under four headings of education and training, professional accounting bodies, regulators, and companies.

Education and Training

In 2000, the American Accounting Association (AAA) published the results of a joint research project with the AICPA, the Institute of Management Accountants (IMA), and a number of international accounting firms. Authored by W. Steve Albrecht and Robert J. Sack, the report makes a critical examination and analysis of accounting education in the United States. It is not surprising that these prestigious bodies were able to agree on the findings of the research. Their conclusions extend and reinforce previous studies and opinions expressed in other countries. The main message is that accounting education needs to change and it needs to change soon.

The authors of the report argue that accounting educators “have spent too much time resting on our traditions and looking into the rearview mirror when we should have been teaching for the future.” To reach that conclusion, they conducted a thorough analysis of the factors that have led to that position. They also point out that improvements have taken place in some institutions and offer sound recommendations as to how further change can be brought about. With the increasing influence of international accounting standards, the present provides an opportunity for introducing and accelerating change.

Some of the fundamental issues revolve around perceptions of accounting, held by a number of accounting professors. The method of teaching has been based on the preparation of financial statements and not their use. Introductory classes concentrate on the record-keeping aspect under the mistaken belief that it is both interesting and useful. Students whose career goal is to enter the accounting profession may find this approach useful, but the majority of students earning business degrees do not share this goal. They need to be able to understand, interpret, and use financial and statistical information, as well as deal with the conceptual issues such as recognition and measurement. The authors of the American Accounting Association report propose how this may be achieved. The main points they make are the necessity for an accounting department to:

• Assess the environment and the programs the faculty faces

• Examine rigorously every degree offered

• Challenge curricula and content from the most introductory course to the most advanced course

• Consider carefully the pedagogy in every class

The AAA report is applicable to educational institutions in many countries but it deals with the teaching of accounting per se and does not address the special needs of teaching international accounting. Such needs have been energetically debated in international circles. Conferences and workshops held by the International Association for Accounting Education and Research (IAAER) constitute a prime force for linking the activities of standard setters and professional accounting bodies with the concerns of academic institutions worldwide.

Professional Accounting Bodies

Those who are not accountants find it surprising how fragmented the accounting profession is in most countries. At one stage, professional accounting bodies attempted to secure their position and to grow by arguing a special skill and knowledge in a particular subdiscipline. Broadly speaking, this led to the division in most countries between those who claim expertise in financial accounting and those in managerial accounting. As businesses and accounting have become more complex and integrated, some accountancy bodies have established routes to specializations within a subdiscipline. For example, taxation or auditing has been considered as distinct career paths for some.

Recently, professional bodies have attempted to differentiate themselves by making geographic claims. Thus, there are claims to be the main accounting body in Europe, the largest in the world, or the fastest growing in Asia. Some, particularly the U.K. bodies, have also added international accounting as an alternative course or as a freestanding certificate or diploma in their portfolio. Such a strategy neatly fulfills a demand for knowledge and supports global ambitions.

Another strategy for growth has been to allow mutual recognition or various forms of support. Thus a member of one accounting body can be accepted as a member of another accounting body. This might require taking certain examinations, particularly taxation and regulatory requirements, when the qualification is to be used in another country.

This process of formal recognition and other working agreements has, to date, not resulted in national or international mergers. This is surprising, since the early twentieth century saw numerous mergers, often with regional bodies coming together to form a national body. The next logical stage would be for the accounting bodies in one country to combine to make it easier to achieve international presence and credibility. We would seem to be a long way from that final stage but the influence of international accounting standards is accelerating change, and interest in mergers at the national level has begun to reappear. Canada and the United Kingdom are currently the main incubators for mergers, and, if they take place, this development could accel erate further movements in other countries. To date, however, negotiations between professional accounting bodies have yet to result in mergers. It is apparent that there have been two levels of professional accountants for many years (the general practitioner and the specialist). The specialist is someone who is a general practitioner and either through experience, study or examination, has a higher level of specific knowledge and skills. Accounting bodies have formalized this by having separate streams, interest groups, or similar divisions. In some instances, courses have to be taken with, or without, an examination. There are also examples where the specialized qualification is obtained by acceptance into another professional body. It can be anticipated that mergers or some forms of mutual recognition agreements could take place at the specialized level.

National Standard Setters

The future of national accounting standard setters is uncertain as the influence of the IASB increases. It is evident that there will be a decline or a change in the focus of their powers and responsibilities. Normally, their authority comes from legislation that recognizes the accounting standards issued. If international standards are recognized as valid for the preparation and presentation of financial statements, the question arises whether national accounting standard setters are required if the IASB is doing the task.

In the foreseeable future, the response must be in the affirmative. There is the process of negotiating and managing convergence and meeting the needs of organizations, mainly small and medium-sized, which at present are not covered by international standards. The IASB currently has a project on the standards appropriate for smaller and medium-sized entities. A standard such as the U.K.’s Financial Reporting Standard for Small Entities (FRSSE) could prove a useful model.

It is probable that national standard setters will maintain their existence through various activities on several levels. First, the IASB still has to maintain an international consensus, and for this it needs national standard setting bodies. Political and interest groups are very powerful in some countries, and the IASB will have to rely on national bodies to reflect these and assist in forming opinion. Certainly, on the identification of issues for standards and emerging issues, national bodies will play a key role. The matter of ensuring compliance has also not been addressed. The IASB does not have an appropriate mechanism whereas some national bodies have established means for monitoring financial statements. It would seem that the IASB would therefore depend on auditors, national standard setters, stock exchanges, and independent bodies to ensure compliance. In addition, the iden tification of problems after implementation, the operation of standards, and the need for their revision have to be monitored.

Finally, a major role for national bodies will be in the area of education and research. This may be conducted either unilaterally or by various coalitions working on common interests. The research papers produced by the G4+1 are excellent examples of the progress that can be made, and some national standard setters are now working together to seek solutions to accounting and financial reporting problems.

Companies and Accounting Firms

One conclusion from the above analysis is that the main impact on harmonization of accounting standards will be best managed by companies and accounting firms. Indeed, for the latter it could be contended that a marvelous opportunity has been presented for increasing their revenues through consulting and advisory services!

The argument that these two groups will be least affected is at variance with popular thinking, which tends to concentrate on organizations that publish financial statements. The reason for this is that the most immediate, visible, and easiest impact of international harmonization that can be identified is compliance by organizations with the standards. In reality, companies have had a long history and considerable experience in dealing with new and revised accounting standards. In some countries the national accounting standard setters have issued a plethora of pronouncements and interpretations in the same year. CFOs may not have enjoyed the experience, but they have managed it successfully. Organizations that foresee moving to an international accounting regime are advised to start making plans early. Much initial planning can be done in anticipation of regulatory changes, even if these do not finally occur. One immediate action to take is the examination and analysis of the accounting procedures and systems. This should reveal any weaknesses or areas where attention is required in the organization and, regardless of IFRSs, should improve the efficiency of the organization and its internal control system. The next stage is to undertake a diagnostic appraisal of how IFRSs, if implemented, would affect accounting policies. The final stage is to design a plan for the transition to IFRSs. This should incorporate the following issues:

• The availability of suitably trained staff

• The adequacy of the internal control system

• The work of the internal audit department

• The knowledge of the directors and audit committee about the changes

• The likely impact on any covenants, agreements, and contracts that confo tain key financial performance indicators, including incentive targets for employees and managers

Finally, it will be necessary to determine how to manage communications to various groups involved. There will be an impact on both the staff managing the current system and the staff needed for the new system. Training may solve many of the problems, but there may be changes in job descriptions and these will have to be handled appropriately.

As well as those handling the practical change, it must be appreciated that financial performance indicators under IFRSs will differ from those reported previously. Communication must take place with interested parties before new financial indicators are published. Not only should the immediate impact be communicated, but it is also important to clarify what may be the long termf effects on managerial incentives and compensation plans. This may require explanations of how ROI-based performance bonus and incentive plans may be affected as well as the renegotiation of agreements with external parties that are based on financial indicators.