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PUBLICATVOLUMUL: IMEA 2004. Conference ProceedingsAPARITIA: Pardubice / CehiaISBN: 80-7194-679-6ANUL: 2004

The acoouning standards in the globalization process

Razvan Valentin MustataRaluca Oana Iosivan

AbstractIn a world where a “globalization” has become a common part of the language, global

standards and, particularly, existence of the International Financial Reporting Standards are anecessity. Financial reports are the most fundamental way in which a company communicatesits results and financial conditions to outsiders.

The way in which developing countries respond to the current forces drivingglobalization will have a major effect on their accounting and reporting systems, anddevelopment process, generally speaking, in the coming period. The adoption of IFRS willintroduce an almost entirely new basis of reporting for many companies. This might representto re-create reporting systems.

With the globalization of the world economy, international convergence of accountingsystem is attracting attention in many countries. International convergence of accountingstandards is inevitable as a result of globalization of the world economy and IFRS is animportant achievement of the convergence process.

A phenomenon by the name of globalizationIt is being discussed more and more about a phenomenon which manifests worldly,

but with a zonal and local action. Either the treating of this theme are more or less relevant, orthe view points from which the phenomenon is viewed are or they are not the most favorable,every single time when there is a new occasion the new global phenomenon is brought intodiscussion. It has been the situation when the researches regarding the global economy hadfocused on the study of this phenomenon, and what it had been found was the fact that it isabout a specific phenomenon of the end of the century and millennium, which has beenamplified once with the evolution and the development of the technology, of the internationaltrading and of the economy, in general. This phenomenon is named globalization, and thespecialists had tried to circumscribe the globalization with relevance and objectivity as muchas possible.

The laureate of the Nobel Prize for Economy – Joseph E. Stiglitz – asserted about theglobalization, that principally, it consists of the more powerful integration of the countries andtheir population, as an outcome of the significant deflation of transportation andcommunication costs and of the freeing of the artificial pikes ahead of the circulation of thegoods, of the services, of the capital, of the acquaintances and (in a less measure) of thepeople between the states. (Joseph E. Stiglitz, 2003: 37). Another point of view defines

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globalization as being the very dynamic process of the development of the interdependencebetween national states, as consequence of the amplification and profoundness of thetransnational bindings in larger and more diverse spheres of the economic, political, social,and cultural life and having as inference the fact that the problems become rather global thannational, requesting, at their time, a solution rather global than national. (I. Bari, 2001: 19)

As any ampleness phenomenon, the globalization hadn’t been exempted of hostilereactions, of disagreements and adverse actions. But the controversies formed by the present,singularize that not the globalization is the problem of the malfunction often founded after themanifestation of this process, but the manner in which it had been developed by now. A partof the problem is represented by the international economic institutions – IMF, World Bank,and W.T.O., that “participate at the establishing the rules of the game”. These institutionshave taken actions more in the interest of the advanced countries then in the interest of thecountry in process of development. In what the evolution of the process of the globalizationconcerns by now, the controversies take into consideration, firstly, the implied economicalaspects and the institutions that generate and impose the rules of the “economic game”.(Joseph E. Stiglitz, 2003: 329)

The large majority of the positive aspects of globalization are unanimous appreciated,the controversy appears when the economic aspects of globalization are involved , and ofcourse the respective international institutes who are imposing the rules.

Being a contested phenomenon, the necessity of the making of a viable choicebecomes obvious. The idea of the existence of an alternative at the process of theglobalization carried on to the apparition, formulation of some possible alternative ofcounterattack of the phenomenon. Some specialists in global problems had asserted that thealternative to the process of globalization, considered to be determined mostly by the UnitedStates, is a diplomatic way of existence of the anti-globalization movements.

Hans-Peter Martin asserted that “against the danger of the globalization, the Europeanstates can and have to act together”. (P. M. Hans, H. Schumann, 1999: 383) Despite the factthat we consider that the existence of a firm and direct opposition of Europe againstAmericans is not the solution of a success against globalization, due to the unquantifiableconsequences under the economic aspect of such dispute. Nevertheless, we appreciate that theexistence of an alternative to this process as complex as globalization, can have positiveeffects, due to the existence of the competition and of the manifestation of the competitionlaws. It is true that we have to deal with a debate – competition between two phenomena thatmanifest in this world and not between two entities of the gender of some companies incompetition in the market. The power in our world is given by the economical force that wehave it. In this sense, European Union would become a new pole of the international power, ifit adopts an alternative attitude to the American world and not as opponent of the latter one. Inthis way, United States will decrease its status of global power, but on the other hand,,together – Europe and US – can become the only alternative to the Asiatic world, which is infull moment of devilment, as a consequence of the slow, sure process of transition, but with aprecise target.

On the other hand, the specialists in the area consider that the globalization process isone with benefic effects that can be observed easily for a medium- and long-term, but in thesame time it is an unavoidable process. In this context, it is recommended: the implications ofthe political decisions at international level to be more seriously taken into consideration, andthe interest of all the states of the world, especially of those the undergo change countries andthe poor ones, is taken into consideration and the followed purpose doesn’t excuse anymorethe used means. It is recommended that international organizations as International MonetaryFund and World Bank to re-examine its attitude and conception about world states andnational economies, so that they, IMF and WB modify the present status of the latter ones as

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laboratories of study, into patients with a sure diagnostic and treatment. Joseph Stiglitzconsiders that, “without reform, the reaction of protest that has already been triggered willamplify, and the discontent about the globalization will decrease.”

It has to be recognized the reality according to the globalization of the economy hadbrought welfares to the countries that they had took advantage of it identifying new marketsof export and draw the external investments. The countries that had the most to earn werethose that assumed their own faith and understood the role that the state can play in theprocess of the development, renouncing to the idea that the market is capable to solve itselfthe problems. (Joseph E. Stiglitz, 2003: 378) So, we consider the globalization asrepresentation of the reality and we sustain that every country interested of its own future hasto take into consideration the causes, the manifestation way and the effects of themultidimensional and complex process, called globalization.

The accountancy, limited just to register economic and accounting facts, had enhancedits appliance sphere as a result of theological and doctrinaire mutation. Doctrinaire mutationoutlooks to focus the efforts towards the conceiving of fundamental accounting principle andaccounting conventions, the objective of accountancy being defined as the financialstatements that assures an accurate image of the economic act. This mutation comes as aresult of internal and international accounting normalization .

The normalization is an activity that establishes norms, with the final aim of obtainingdocuments that comes with some solutions for technical or commercial problems that appearsin economic, scientific, and social relations. (French Decree:1984) The normalization issupposing the existence of practices to be regularized, through the selection of a commonframework, considered as being the most sufficient, so this is the way to be standard.

Accounting convergence – from necessity to realityReferable to the evolutions that are recorded in the domain of the accounting

regulations, both at national level, and international level, a new concept called convergenceappeared, being used to express the efforts to bring at a common denominator of theseregulations, concept that seeks to take the place of the concept of harmonization used till now.

The concept of harmonization, from accounting perspective, represents a process ofalienation of the accounting rules from different states. (Adela Deaconu, 2003: 118) It can beasserted that harmonization represents a complex process with major implications, whichmanifests in the area of accounting regulations and whose final purpose is the alignment ofthe accounting norms existent in different states, and the concept of convergence represents aprocess of making suitable the accounting rules. (Adela Deaconu, 2003: 119)

In the conditions of the existence of two concepts that satisfies the same process thatmanifests in the accounting domain, it is posed the problem if harmonization, and theprocesses that it implies, from a conceptual point of view is stale? Contestants of the processof harmonization say this process failed because there was no veritable conceptual base, therewas no real motivation to go outside the borders of the country (despite of the fact thatnational legislation had been aligned in a large measure, though the practice took only in asmall measure the existent regulations), and on the other hand it had been remarked theexistence of connections too confined with taxation and juridical. The arguments that can bebrought for sustaining the failure of the harmonization can be varied, but it can be broughtexamples for sustaining this process too.

From the perspective of the investors – existent or potential – the accountingconvergence has a special significance because there is the fact that they can understand betterthe financial situations of the external partners, and also because of the facilitating theprocesses of consolidation of the accounts from the multinational companies.

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Beyond the interest of investors, the accounting convergence is actually an ampleprocess that manifests between two enough different worlds, specifically between Americansand Europeans, between FASB and IASB. The purpose of the process of accountingconvergence is to attend to a common point between the American GAAPs and theinternational rules of accounting, represented especially by IFRS. The common point betweenthese two sets of accounting regulations is actually that stage in which the accountingconvergence had been done. It is a desideratum difficult to reach in the absence of a politicaldetermination manifested from both parts.

Financial Reports – the object of the accounting convergenceI.A.S.C. (International Accounting Standard Committee) appeared in London, in

29.06.1973, at the initiative of professional organizations from many important countries,same as: Australia, Canada, France, Germany, United States of America. This organizationincludes 142 national organizations from 103 countries.

The globalization process, so being the uniformisation process determine theappearance and coexisting of an judicial system (AQUIS) and social, so being the protest ofthose big analysts Americans or Europeans found an answer. The first years of it existence theactivity of IASC was considered as an “intellectual whim” that a manner of supporting theconvergence process.

By the 1995 Notification, the EU Commission started the third phase of theaccounting harmonization process. Already in the eighties, and particularly in the nineties, thenumber of the European companies listed at the NYSE who were supposed to prepare theirfinancial statements according to the US GAAP was growing. Also, the InternationalAccounting Standards Committee (IASC) reached in 1995 an agreement with theInternational Organization of Securities Commissions (IOSCO). According to the agreement,the organization shall recommend to its members (national commissions) to use IAS indrafting the financial statements of the listed companies. Significant for the harmonization(1995) was the relation between the Directives and IAS.

In 1994, the European Accountants' Federation (FEE) studied the differences betweenthe Directives and IAS. The conclusion was that IAS, with minor exceptions, is consistentwith the EU Directives and may be proposed as a qualified basis for drafting of the financialstatements. The other research of differences between the Directives and IAS was carried outby the EU Commission in late 1997 Its conclusion (same as that of FEE) was that, all optionstaken, there are only minor differences in the consolidation field. IASC then decided toexamine each standard not in harmony with the Directives. The most efficient way ofharmonization of IAS and the Directives, even at minimum, in the area of consolidationwould be through a higher influence of the EU Commission to the IASC Council. That meansalso a higher number of votes (of EU members) in the IASC Council. There are at least twodisturbing factors for a higher EU influence in IASC Council, namely: (1) EU is unable todictate the IASC Council members and (2) EU members are not a cohesion block, insteadthere are significant differences between Great Britain and the continental EU (primarilyGermany and France).

Thus the EU Commission in 1995 adopted the internal document pointing out to theproblems of the international companies' financial reporting. The companies should draft twosets of financial statements. One should be harmonized with the Directives and the othershould be harmonized with the international financial markets requirements. Between them,there are sometimes significant differences with positive and negative effects on the financialmarkets. One of the best known German “global players” Daimler Benz in early nineties wenton NYSE listing. For transfer to NYSE, they had to adjust their financial statements to the USGAAP standards. The adjustment was defeating.

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So the EU has declared its options in what the convergence process is regarded. Whenwe speak of the accounting regulations, we should have in mind two sets of business entitiessubject to the accounting regulations. They are (1) legal entities listed on the national orinternational financial markets and (2) legal entities not listed on the financial markets. Theiraccounting is governed by the laws or standards of the accounting profession.A research in the accounting regulations of developed countries encompassed the EUcountries plus G7 group countries other than EU members.

The research was carried out on the basis of several sources, among which the mostsignificant are: (1) European Accounting Guide, (2) European Accounting Review and (3)Statistics of the International Accounting Standards Committee (IASC/IASB).

What IFRS means and represents? The specialists in the domain consider thatfinancial report represents the fundamental way that a company communicates, to the externalbeneficiaries, its results and its own financial conditions. (Shuping F., 2002: 3).

In a larger acceptation, the external beneficiaries are represented by the assembly ofthe entities interested of the information regarding a certain company, both the existent ones,and the potential ones. Beneficiaries of the accounting information can be considered acomplex of users formed of: the present and potential investors, the hired personnel, thefinancial creditors, the producers and other commercial creditors, the clients, govern and itsinstitutions and, not at last, the public. (IASB, 2001)

In the context of the financial situations, it has been often spoken about the purposethat these have it and in this sense the existent acceptances are varied. The InternationalStandards of Accounting present the purpose of the financial situations as being representedby the providing of the information regarding the financial position, the performances and thechanging of the financial position of the corporation, which are useful to a large sphere ofusers, in the endorsement of the decisions of investments or management. According to IASBthe presentation and the communication of a lot of sets of financial situations are taken intoconsideration, according to the specific international necessities of each category of users andbeneficiaries of the information.

The financial situations have the purpose of accounting about the transaction realizedby the administration of the corporation, including the accounting about the manner in whichthis one used the resources put at disposition. In this context, it has to be said that theresponsibility regarding the elaboration and the presentation of the financial situations are inthe duty of the administration council or in the duty of other equivalent members ofmanagement.

The acceptance of IFRS or the accounting convergence represents today a globalphenomenon, which beyond its economical advantages produces an apparent climate ofpeace. (www.pwcglobal.com: 02.05.2004) For the simple reason that states from the world,from different continents, some of them, declared political and economical rivals, wishes therealization of this desideratum. From the companies’ perspective, the acceptance of the IFRSrepresents a great challenge, a test that will be gained only by those who are capable to adaptunder way, by those who prepared this changing early. Those companies that have alreadystarted the processes of training for the acceptance of the IFRS had observed that such changeimplies much more than a consolidation of the financial situations. Such change implies boththe financial capital, and especially the human capital.

Many companies which started the process of accepting the IFRS had remarked thatthese standards help them to have access on the international market of capital, and also toreduce their costs. Communication in a single international language facilitates the increasingof the possibility of financing. In the conditions of a more and more competitive internationalmarket, the international standards of financial reporting permit to the investors to produce acomparison between the performances of different companies, on the international level. On

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the other hand, the companies that can not be capable to reach the level where they can becompared with the others competitors, from self-interests, or from interests that related to thenational regulations, will be disadvantaged and as consequence, their capacity of drawing thecapital and of producing value is decreased. (www.pwcglobal.com: 04.05.2004)

Globalization, convergence, reporting standardsGlobalization can be a feature of the welfare and has the possibility to bring richness

to everybody, especially to the rich people. But, the manner in which the globalization processdevelops, including the international trading agreement that had such an important role in theelimination of those borders and politics imposed to the undergo change countries in thisprocess, has to be radically rethought. The adepts of globalization consider that globalizationmeans progress, and, as consequence, the undergo change countries have to accept it if theywant to progress and to fight successfully against the poverty. Beyond the economical andpolitical implications, globalization has contributed to the increasing of people’s health, andalso to the intensification of the struggle held by the civil society for democracy and socialjustice. (Joseph E. Stiglitz, 2003: 10).

We can assert that the accounting convergence process is imminent and can beconsidered as a result of the globalization phenomenon of the global economy. Theinternational financial reporting standards (IFRS) can be classified as being of an importantrealization in the domain of the accounting regulations. The convergence of these standardshas to be considered as an important forward step to a world that feels the shock provoked bythe misfortune and bankruptcy of some multinational companies. There has to be elaboratedrealistic plans for the success of the convergence, taking into consideration the fact of theobservance of the clear and real effects of this process might take more than a financial year.An important role in all this process it will be played by the people, those who are called toimplement the international accounting regulations at national level, and especially in owncompany. For this reason it is important that a company to beneficiate of people who fullyunderstands what they have to do and who really can contribute to the success of thischanging. The key of these changing is the simplicity – if the standards are clear and precise,the life of those who will implement the standards will be easier. (www.pwcglobal.com,10.05.2004)

This “tour de force” of the global situation, in witch the implementation of IFRS isregarded makes us turn to the Australian continent, were until 2005 all the big companieshave to have adopted the IFRS.

The US SEC consulted a few years ago on what change it should make to itsregistration requirements in relation to IFRS. No indication has been given of any proposedrelief from the reconciliation and with the recent arrival of a new chairman and chiefaccountant it is likely o be some time before any specific policy proposals will appear.However, recent speeches from the chairman are more hopeful and it is expected that theissue will be reviewed again in 2005. It is expected that the reconciliation requirement will beremoved as soon as possible, but this will depend upon progress made on the furtherdevelopment of accounting standards and the development of an effective enforcement systemin Europe, and elsewhere.

There can be shown significant differences between IFRS and US GAAP at present.This is and particularly in the areas of: impairment, discounting of provisions, and somebusiness combination issues such as the recognition of in-process research and developmentand other intangibles. The IASB and the FASB have both set out to reduce these differenceswhere possible, consistent with improving the quality of financial statements. Thus thedifferences will become less significant over the next few years.

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Literature[1] Alexander, D., Archer, S.,: Miller European Accounting Guide. AspenLaw&Business. Gaihtersburg. 2001.[2] Bari, I.: Globalizare si probleme globale. Editura Economica. Bucuresti. 2001.[3] Boden, R., Baskaran, A.: Globalization and the commodification of science. Ed.RAW Rhodes. London. 2000.[4] Deaconu, A.: Impactul convergenþei contabile asupra reglementãrilor ºi practicilornaþionale- Contabilitatea mileniului III. Editura Sincron. Cluj Napoca. 2003.[5] Martin, H. P., Schumann, H.: Capcana globalizarii. Editura Economica. Bucuresti.1999.[6] Oprean, I.: Bazele contabilitãþii agenþilor economici din România. EdituraIntelcredo. Deva. 2001.[7] Shuping, F.: Strengthen Co-operation to promote International Convergence ofAccounting Standards. Hong Kong. 2002.[8] Stiglitz, J. E.: Globalizarea. Sperante si deziluzii. Editura Economica. Bucuresti.2003.[9] United Nation – Economic and Social Council: The realization of economic, socialand cultural rights: Globalization and its impact on the full enjoyment of human rights.2000.[10] http://www.pwcglobal.com

Raluca Oana IosivanRazvan Valentin MustataT. Mihali Street, No. 58-60400591 Cluj NapocaRomaniariosivan@econ.ubbcluj.rormustata@econ.ubbcluj.ro