An-Najah National University

Accounting department

International Accounting
Assignment 1:
The effect of Globalization Aspects on Accounting
By:
Mohammad Bilal Wahid Arafat
11822486
Summer Semester 2022-2023
For:
Dr.Muiz Alia

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Table of contents

Subject Page #
Introduction 3
Globalization 3
Multinational Corporations 4
International Trade 7
Foreign Direct Investments 8
International Money Markets 10
Conclusion (Findings) 12
REFERENCES 13

Figure explain globalization

By: James Flora

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Introduction
Globalization, which appeared during the past century, and specifically its four main aspects,
from the increase in global capital markets, the increase in international trade, the emergence of
multinational companies, and the increase in foreign direct investment, had a major role in
reducing accounting differences between countries. In this research, it shows how these four
aspects affected accounting during the past twenty years, information is collected from various
sources, studies, research, magazines, etc., and then results are obtained through those sources.
This study is useful for global governments. In addition, it is directed to users of the financial
statement, the bodies that set accounting standards, and the judicial authorities that develop
accounting laws, to help them understand the extent of the impact of the change in the four
aspects of globalization on accounting. It is also useful for those who study accounting.

Globalization
Jagdish Bhagwati describes Globalization in the Field of economics as "the integration of
national economies into the international economy through trade, foreign direct investment,
capital flows, migration, and the spread of technology." (Afisi,2009), To study globalization and
its effects, it is necessary first to mention its different types and how each of these types affected
the economy. Below are the main types of globalization in detail:
1. Cultural globalization is about unifying ideas, values, customs and traditions across
countries, so that they are common in all countries of the world the same customs and
traditions so that peoples have the same lifestyle in the sense of wearing the same clothes
and the same lifestyle of luxury cars and this also contributed to the spread of some
goods and products Which then became international, for example, Coca-Cola drinks
that had a great economic impact on the countries that were able to make their products
international in a large way, so the great countries in the world were able to make their
products spread in the world, which makes them own most of the multinational
companies and control many of the global markets, the most important of these countries
are United State.
2. Political globalization is about increasing the interdependence between countries and
governments around the world, in addition to resolving all the different conflicts around
the world, and here we mean political conflicts, and this concept also includes the
establishment of international alliances between countries such as the United Nations
and the World Trade Organization, in addition to unifying issues such as human rights,
protection of the environment and global security is one of the most important types of
globalization because it is basically the rest of the types of globalization cannot take
place without eliminating political differences around the world, which affected the
behavior of major countries around the world that tried hard to make their economies the
best in the world by exploiting Globalization and its positive aspects in favor of it
in a certain way. “Almost all developed countries have well-established political systems
which are based on high levels of democracy, freedom, political stability and a culture of

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 accountability” Alia and Branson (2011) said which Who explained its relationship to
globalization.
3. Technological globalization: In the beginning, what is meant by technology is simply
the application of knowledge. Therefore, what is meant by technological globalization is
the unification of the spread of certain types of technology and information systems
around the world, such as communications, the Internet, transportation, and
communication. Technological globalization had a great impact on the economy, as it
facilitated the movement of global trade in addition to the possibility of investors
obtaining information related to the financial statements of foreign companies that they
wish to invest in, which led to an increase in foreign direct investment.
4. Economic globalization: All types of globalization that we mentioned earlier are very
important to achieve this type of globalization, and this is because all of these types
included elements that lead to an increase in economic globalization around the world,
which is about increasing the linkage of economies between countries of the world. One
of the most important determinants of economic globalization is foreign direct
investment, International trade , multinational companies and the emergence of global
capital markets, in any case, the fact that the economy leads to an increase in the well-
being of people and an indicator of the extent of success of each country in the world,
the great countries in the world are able to exploit the positive aspects of economic
globalization, so many countries succeeded, such as the United States and Britain is able
to exploit the four determinants in the best possible way, as many countries control the
global economy, especially European countries, America and Japan.
5. Educational globalization: The phenomena of growing interconnection and interchange
of educational concepts, methods, and resources on a worldwide scale is referred to as
educational globalization. It encompasses cross-border exchange of information,
students, teachers, educational technologies, and educational programs. Spring (2014)
said that English become the as the language of commerce are contributing to global
uniformity of national curricula.

Multinational Corporations
Here are some of the problems faced by multinational companies due to the development of
globalization, which resulted in accounting change and diversity, which led to the need to change
accounting treatments and practices:
*. Foreign Currencies changes problem: Companies employ a variety of strategies to deal
with exchange rate fluctuations and mitigate the risks associated with exchange rate fluctuations.
Here are some common approaches:
(a) Hedging: Hedging is the use of financial instruments to guard against exchange
rate swings. To fix exchange rates for upcoming transactions, businesses can
utilize derivatives like forward contracts, options, or futures contracts. By
hedging, businesses may lessen the risk associated with future cash flows and
limit the possibility of losses brought on by unfavorable currency changes,

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 Makar, DeBruin and Huffman (1999) founded that the evidence indicates that
large companies' foreign exchange derivatives use increases with the level of
foreign currency exposure as well as with the degree of geographic concentration
indicative of using less natural hedging. Also founded that evidence consistent
with economies of scale in foreign exchange derivatives use is also provided.
(b) Pricing in local currency: Companies can use pricing in the same currency that is
the currency of the country in which the product or service was made, this
protects the company from changes in the currency exchange rate changes.
(c) Diversification: By make operations across several nations, businesses can lessen
their exposure to currency concerns. A business may be able to balance losses in
one currency with gains in another by operating in markets with many currencies.
By distributing the risk over several different currencies, this tactic might lessen
the effects of unfavorable currency changes, Álvarez-Díez and Fernández-Blanco
(2016) founded that just by investing in other currencies, a significant risk
reduction in Conditional Value-at-Risk and Value-at-Risk can be obtained.
(d) Currency Swaps: Currency swaps are agreements between two parties to
exchange a specified amount of one currency for another at a predetermined
exchange rate. Companies can use currency swaps to manage currency risk
associated with debt obligations, investments, or foreign operations. Swaps allow
companies to convert their exposure from one currency to another without
directly engaging in currency markets.
(e) Monitoring and Analysis: Businesses must constantly keep an eye on the foreign
exchange markets and the variables affecting exchange rates. This makes it
possible for companies to efficiently predict and react to currency swings.
Businesses may decide on their currency risk management methods by being
knowledgeable about economic data, political changes, and market trends.
In any case, all these solutions to the problem of currency differences affected accounting
greatly, as it became in need of new accounting practices treatments that are compatible with all
our previous cases, and it also led to the complexity of the accounting treatment process, for
example, the diversification of subsidiaries in several countries, it makes the company need a
larger number of experts, from every country where the company has a branch.

*. Financial Reporting problem (Accounting standards diversity problems): The

compilation of consolidated financial statements, which are financial statements that show the
financial position, financial performance, and cash flows of a group of businesses as though they
were a single entity, which is a one of the impactions of the diversity of accounting standards.
Typically, a parent company that has authority over one or more subsidiary firms would prepare
consolidated financial statements. Consolidation aims to provide users a thorough understanding
of the group's overall financial performance and position; this process became harder as the
differences increased between the related countries.

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 *. Digital Transformation: Technological and digital development accompanied by a
significant development and increase in the globalization of markets. Multinational companies
wish for digital tools and platforms to expand global reach, facilitate operations and enhance
customer participation. This affects computational practices by introducing new ways to capture,
process and analyze financial data, Cloud-based accounting systems, automation of routine tasks,
and advanced data analytics are increasingly utilized to improve efficiency and accuracy in
financial reporting.

*. Remote work and the formation of virtual teams: The globalization of remote work and
the formation of virtual teams has been easier as companies can benefit from the important
experiences and differences around the world, which allows employees to work over time to
manage distributed teams and ensure safe access to data and maintain communication and
coordination between group members.

*. Regulatory changes and Harmonization Efforts: Globalization has led to continuous

efforts to improve accounting standards and unify them in line with regulatory frameworks all
over the world Regulatory bodies or accounting standards work organizations around the world
complement their efforts to develop related accounting standards and principles that include the
necessary developments, preparations and financials, in addition to providing regulations related
to the preparation of reports Finance, taxes and corporate wisdom, so national companies must
be constantly aware of these changes and these developments in accounting standards.

*. Sustainability reports: Globalization has increased the importance of awareness of social,

environmental, and governance issues, and the importance of reporting on that. Using financial
statements, companies are required to disclose what is related to community service. Therefore,
multinational companies are working to integrate sustainability practices into their accounting
practices, such as their participation in community service by providing courses for employees or
provide services to the public sector and other related practices.

*. Data Privacy and Security: Due to the globalization of operations and the digitalization of
financial data, MNCs now have serious issues regarding data privacy and security. MNCs must
have strong data privacy safeguards in place in order to comply with data protection laws like the
General Data Protection Regulation (GDPR) of the European Union and laws of a similar kind in
other countries. When gathering, processing, and keeping financial information, accounting
teams must guarantee the confidentiality, integrity, and compliance with privacy laws.

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 *. Transfer Pricing Scrutiny: Tax authorities throughout the world continue to closely
examine transfer pricing, which is the setting of prices for intercompany transactions. The
attention on transfer pricing techniques has increased due to globalization, and tax authorities are
being more watchful to make sure that multinational corporations adhere to arm's length norms.
To comply with tax laws and show transfer price compliance, accounting teams must follow the
rules on transfer pricing, keep accurate records, and report related-party transactions correctly.

International Trade
Whenever globalization is developing, it has a positive impact on global trade, which causes me
to have an equivalent increase in the development of globalization. Here are some problems that
have arisen due to the increase in global trade and what is the impact it has on accounting:
*. Import and Export Duties: Complying with import and export duties, tariffs, and customs
laws is a requirement of international trade. Accounting for these expenses may be challenging,
especially when figuring out how to classify products correctly, calculate tariffs, and make sure
local laws are followed. For appropriate reporting and compliance with trade rules, accurate
record-keeping and classification of import and export transactions are crucial.

*. International taxation: There may be complicated tax implications as a result of

international trade. The tax laws and obligations of many nations, such as transfer pricing rules,
withholding taxes, and tax treaties, must be understood by businesses. Specialized knowledge
and collaboration between the tax and accounting teams are necessary for calculating taxable
income, managing tax liabilities, and guaranteeing compliance with international tax regulations.

*. International shipping and logistics costs: International shipping and logistics expenses
might be difficult to account for. These expenditures, which may include freight charges,
insurance, customs clearance fees, and other related expenses, must be properly allocated and
recorded by businesses. To ensure accurate financial reporting, accurate tracking, appropriate
documentation, and uniform accounting treatment of shipping and logistics expenditures are
required.

*. Revenue Recognition: Companies must decide the appropriate timing and methods of
recognizing revenue, taking into account contractual terms, applicable accounting standards
(such as IFRS 15), and any specific guidance related to international trade. Revenue
Recognition: International trade can introduce complexities in revenue recognition, particularly
when dealing with long-term contracts, multiple deliverables, or performance obligations that
span across different jurisdictions.

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 *. Trade Financing and Currency Risk: Businesses involved in international trade may
make use of trade financing instruments including export credit facilities or letters of credit, to
control cash flow and reduce risks. To provide accurate financial reporting, accounting for trade
financing arrangements, including the recording of interest expense and the related currency risk,
requires careful analysis and appropriate documentation.

*. E-commerce and Digital Trade: E-commerce and digital trading have been more popular
as a result of globalization. The growth of internet platforms and digital marketplaces has made it
simpler for businesses to do cross-border business. Accounting procedures must change to
accommodate the particular issues posed by digital commerce, including figuring out how to
recognize and evaluate online sales income appropriately, accounting for intangible digital
assets, and handling the tax ramifications of such transactions.

*. International Financial Reporting Standards (IFRS): As a result of globalization,

several nations have embraced and converged on IFRS. Global comparability and transparency
are made easier by the International Financial Reporting Standards (IFRS), which offer a
standard framework for financial reporting. International Financial Reporting Standards are a
requirement for accounting procedures, assuring the consistent application of accounting
principles and disclosure standards in global corporate operations. For instance, Irvine (2008)
contends that the UAE was pressured to adopt IFRSs by its trading partners. The UAE is under
pressure to embrace these norms because of the trading ties it has with European nations.

Foreign Direct Investments

It is either by opening a new project or by investing in a previously opened project. In both cases,
many accounting problems arise as these issues develop. The following is a group of issues
facing accounting in relation to foreign direct investment and its impact on accounting.

*. Internal Control and Risk Management: To attract more foreign direct investment,
businesses must set up efficient internal control frameworks and risk administration procedures.
Implementing controls to handle risks related to international operations, such as those related to
financial reporting, regulatory compliance, and foreign exchange risks, is part of this. The quality
and dependability of financial information must be ensured, and any risks must be mitigated, by
having sufficient internal controls and risk management frameworks.

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 *. Investment Accounting Complexity: The growth of FDI has resulted in investment
accounting becoming more difficult. Companies must use the proper accounting techniques, such
as the equity method or consolidation, to account for their interests in overseas subsidiaries, joint
ventures, or associates. To do this, it is necessary to manage currency translation and
consolidation adjustments in addition to comprehending and upholding the accounting standards
and reporting requirements of many countries.

*. Consolidation and Reporting Challenges: Due to a surge in FDI, MNCs frequently need
to consolidate financial statements from several subsidiaries that operate in various countries.
Eliminating intra-group transactions, making adjustments for unrealized gains or losses, and
giving a consolidated view of the group's financial status and performance are all aspects of
consolidation. Accounting teams must deal with the difficulties of consolidation, including
balancing various accounting standards, handling currency conversion, and assuring uniformity
in accounting methods and reporting across various companies.

*. Technology Advancements: Accounting procedures were changed by technological

developments including cloud computing, data analytics, and automation. Through these
developments, accounting procedures were made more accurate and efficient, which allowed for
better administration of FDI-related accounting activities including reporting, intercompany
reconciliations, and consolidation.

*. Regulations Changes: To encourage and facilitate foreign direct investment, governments

all over the world changed the regulations. These adjustments included the easing of investment
requirements, tax breaks, and corporate process streamlining. By affecting reporting
requirements, tax liabilities, and compliance requirements, these regulatory developments had an
impact on the methods of accounting.

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International Money Markets
They are markets in which companies sell their shares and bonds to the public Archambault and
Archambault (2003) argue that the nature of capital markets influences the information
requirements of investors. Companies from countries with large capital markets disclose more
information than companies from countries with small capital markets. The global capital
markets increased with the increase in globalization, which resulted in many effects that had a
great impact on accounting. The most important of these matters and how they affected
accounting during the development of globalization are as follows:

*. Increased Integration and Interconnectedness: As a result of globalization, worldwide

financial markets are now more integrated and linked than ever. Cross-border financial
transactions, including currency trading, money flows, and investment activity, are common. By
adding complexity to the recording and reporting of these cross-border transactions, controlling
currency risks, and ensuring compliance with international financial reporting requirements, this
integration has an influence on accounting processes.

*. Foreign Exchange Rates: Globalization has an effect on foreign exchange rates, which
directly affect accounting procedures. Changes in exchange rates can result in profits or losses on
transactions using foreign currencies, which can have an impact on financial statements and need
the proper accounting treatment. When reporting in multiple currencies, accounting teams must
take into account swings in foreign exchange rates, appropriately record profits and losses, and
guarantee accurate translation of financial statements.

*. International Financial Reporting Standards (IFRS): International Financial Reporting

Standards Many nations have adopted and converged on International Financial Reporting
Standards (IFRS) as a result of globalization. A standardized set of accounting principles, known
as IFRS, improves cross-border comparability and transparency in financial reporting. To
provide uniform financial reporting throughout foreign money markets, accounting teams must
understand and implement IFRS requirements.

*. Regulatory Compliance: International regulatory frameworks to oversee financial

markets have been established as a result of globalization. Aiming to harmonize rules and
standards are organizations like the International Monetary Fund (IMF), the Bank for
International Settlements (BIS), and regulatory agencies in various nations. These rules and
reporting requirements, which include disclosure duties, capital adequacy standards, and risk
management recommendations, must be complied with by accounting practices.

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 *. Hedging and derivatives: The usage of financial derivatives, such as options, futures, and
swaps, has expanded as a result of globalization in international money markets. Derivatives are
employed in hedging, risk management, and speculation. Following certain accounting rules,
such as IFRS 9, is necessary for accounting for derivatives and hedging operations. The fair
value of derivatives must be precisely measured, reported, and disclosed, along with any related
risks and hedging techniques.

*. Technology and Digital Transformation: International money markets have gone through
a technical and digital transformation as a result of globalization. It is now common to employ
computerized trading platforms, algorithmic trading, and high-frequency trading. Accounting
procedures must change to keep up with these developments by integrating technologically based
solutions into financial reporting processes, resolving the challenges presented by automated
transactions, and assuring correct recording and reporting of digital financial transactions.

*. Risk management and reporting: The complexity of risk management in international

money markets has risen as a result of globalization. Risks such as operational risk, market risk,
liquidity risk, and credit risk must all be evaluated and managed by accounting teams. Effective
accounting processes in the context of international money markets require robust risk
management systems, including risk assessment, monitoring, and reporting methods.

*. Regulatory systems: What kind of laws exist in each country made us to divide it into two
main types, the first type is called common law countries, and the second type is called a code
law country for it. What distinguishes this type is that the state sets detailed laws, unlike the first
type, where the laws are brief and not detailed. The researchers Alia and Branson
(2011) concluded that the goals of common-law nations' financial reporting regimes include
complete disclosure, transparency, and fair presentation. Governments in nations with a codified
system of accounting, in contrast, set and enforce national accounting standards, sometimes with
participation from significant political parties like labor unions, banks, and industry associations.

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Conclusion (Findings)
This research revolves around the importance of making unified accounting standards as much as
possible that apply to all countries. As we have seen the impact of globalization in its various
forms on accounting during the past century, multinational companies faced a problem in the
accounting differences that exist in each of the countries in which it has a branch, so it became a
process of making consolidated financial statements for all its branches include a complex
process, and this is another problem that caused it. Also, the technical transfer, remote work,
legal changes, social responsibility, and other issues that we discussed all led to accounting
differences between countries. As for international trade, it had many obstacles that caused
accounting problems, such as international taxation, revenue recognition, foreign currency risk,
electronic commerce, all of these factors that we have discussed have caused accounting
differences between countries. On the level of foreign direct investment, they have caused
complications both in recognizing expenses and revenues that are collected in foreign branches,
as well as on the level of making consolidated financial statements and disclosure requirements.
Which is determined by the government of each country, as it differs from one country to
another. All these matters, in turn, affected this accounting around the world. Finally, the global
capital markets. The emergence of many hybrid investments and the need to hedge against them,
as well as the technical and technological transformation and the need for disclosure and risk
management whose requirements differ from another country that led to a difference
Accounting among the countries of the world, the important conclusion that we must take into
account the need to continue working on the standardization of accounting standards between
countries, through which we must reduce the differences that hinder globalization.

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REFERENCES
Afisi, O. (2009). Globalization and value system. Lumina, 22(2), 1-12.
Makar, S. D., DeBruin, J., & Huffman, S. P. (1999). The management of foreign currency risk:
derivatives use and the natural hedge of geographic diversification. Accounting and Business
Research, 29(3), 229-237.
Álvarez-Díez, S., Alfaro-Cid, E., & Fernández-Blanco, M. O. (2016). Hedging foreign exchange
rate risk: multi-currency diversification. European Journal of Management and Business
Economics, 25(1), 2-7.
International Accounting Standards Board. (2018). Revenue from Contracts with Customers.
Retrieved fromhttps://www.ifrs.org/issued-standards/list-of-standards/ifrs-15-revenue-from-
contracts-with-customers/

Irvine, H. (2008). The global institutionalization of financial reporting: the case of the United
Arab Emirates. Accounting Forum, 32, 125–142.

Alia, M., & Branson, J. (2011). The effect of environmental factors on accounting diversity. A
literature review. 2011, P 04, Available at SSRN: https://ssrn. com/abstract, 1780479.

Archambault, J. J., and Archambault, M. E. (2003). A multinational test of determinants of

corporate disclosure. The International Journal of Accounting, 38, 173–194.

Spring, J. (2008). Research on globalization and education. Review of educational research,

78(2), 330-363.

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