Challenges in Accounting in Global Organizations: A Report

This report provides a comprehensive analysis of the challenges encountered by accounting practices within global organizations. It begins by outlining the impact of globalization on accounting, emphasizing the evolution of accounting practices in response to increased competition, technological advancements, and regulatory changes. The report delves into the role of accounting in decision-making, particularly in areas like cost reduction and strategic planning. It examines how environmental and organizational factors, such as customer focus, technological advancements, and evolving accounting tools (JIT, TQM, etc.), influence accounting practices. The report highlights specific challenges related to environmental factors, including market globalization and technological advancements, and organizational factors, such as hierarchical structures and supply chain management. Ethical challenges are also addressed, providing a holistic view of the complexities in global accounting. The report concludes with a discussion of the importance of adapting to these recurring changes to remain competitive and relevant in the global business environment.

Running Head: Challenges in Accounting in Global Organisations1
Challenges in Accounting in Global Organisations
Student’s Name
Professor’s Name
Course Name

Running Head: Challenges in Accounting in Global Organisations 2
Table of Contents
Introduction: Accounting in Global Era 3
Project Objective 3
Project Scope 3
Literature Review 3
Role of Accounting in Globalisation 4
Factors influencing the change in Accounting practices 5
Trends in Managerial Accounting practices in the global organisations 6
Factors affecting the accounting practices and the Challenges faced by accounting in
global organisations today 7
Challenges by Environmental factors to Accounting 8
Challenges by the Organisational factors to Accounting 10
Ethical challenges 12
Conclusion 12

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Introduction: Accounting in Global Era
Globalisation has changed the manner in which the business and organisational practices are
carried out in today’s world. The accounting practices of the 21st century have also been
revolutionised with the changes in the business environment due to globalisation, increasing
competition, the evolution of information technology, and the change in the regulatory
practices as the firms cross borders for business purposes (Sunarni, 2013). These changing
dimensions of business practices have changed the way management accounting was carried
out in the traditional firms. There were always international dimensions to finance and
accounting practices earlier, but these dimensions have become more pronounced in the last
few decades with more economies opening up their borders for international trade (Lavia
López, & Hiebl, 2014). This paper will examine the role of accounting practices in the global
business environment and the key challenges faced by the accounting in the era of
globalisation.
Project objective
The objective of the paper is to understand the impact of the trends and changing accounting
practice in the global organisations today.
Project scope
The scope of the study is to understand the challenges and issues facing the accounting
practices in the global organisations today.
Literature review

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The Role of Accounting in Globalisation
The advent of globalisation has brought forth many dimensions which have a strong
implication on the accountants and accounting practices in the organisations. Accounting in
today’s organisations has taken on a much broader perspective and role as compared to its
functions in the traditional organisational set up (Tarca, 2012). The issues related to corporate
governance, financial standards and codes, anti-corruption measures, standards of regulation
and accountability in the large multinational corporations, and many other such concerns
involve accounting (Van der Stede, & Malone, 2010).
The general view about accounting is that it presents a neutral financial and economic reality
of an organisation. But, in reality the functions of accounting go much farther than that and it
presents an economic reality of the organisation or an industry which has been shaped by the
dominant economic powers. The accounting practices and the results present an organisation
with the objective basis for taking the crucial decisions for the company (Carpenter, &
Dunung, 2011).
Accounting plays a very important role in the decision-making process of the practices and
strategies which are based primarily on the numbers or figures generated by accounting. For
example, most of the companies operating in the world market are always looking for
reducing the cost of labour for their manufacturing and other processes. These sources of
cheap labour make the companies shift their production and manufacturing to areas where
cost-effective labour is available. The analysis which forms the basis of this decision is based
on the numbers and figures generated by the management accounting of the organisation.
In the rapidly changing and dynamic business environment of today the firms have to
continuously innovate to maintain their sustainability in the increasingly competitive market.

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The accounting departments today are working in a flat organisational structure in
coordination with the other departments. The management accounting practices in the
companies have to assure that the data and information being provided to the other
departments to facilitate the making of key decisions that enable a company to compete on a
local, national, and international level (Ahid, & Augustine, 2012).
Factors influencing the change in Accounting practices
Besides the change in the activities of the organisations and businesses due to globalisation,
there are many other factors which have influenced the change in the role that management
accounting and management accountants play in a business organisation (Zadek, Evans, &
Pruzan, 2013). The developments in the production and technology have impacted the
functioning of every aspect of business including the accounting practices and principles. The
evolution of the modern business strategies in the era of information technology has
witnessed a drastic change in the manner in which the services and products are delivered to
the consumers (Arnold, 2009).
The processing of information and statistics, and the dissemination of information has
become much faster and easier than ever before and this has resulted in faster response times
from internal and external customers. Traditional accounting and financial tools that were
used earlier like the variance analysis, standard costing, cost-volume profitability analysis,
budgeting, and other such methods are no longer considered adequate for the global business
standards today (Doupnik, & Perera, 2011).
The increasing competition in the global business community has resulted in many
organisations going for innovative accounting, financial, and statistical analysis tools like JIT
or just in time, TQM or total quality management, AMT or advanced manufacturing

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technology, in their business practices (Cinquini, & Tenucci, 2010). The pressures of the
global competition have changed the dynamics of management accounting in organisations
with contemporary practices like balance scorecard and activity based costing being adapted
to meet the requirements of the changing needs of an organisation (Cooper, & Dart, 2009).
Trends in Managerial Accounting practices in the global organisations
Green accounting: The concept of an environmentally friendly and green business is
spreading across the world from developed to the developing countries. To be successful at
the global level and form a fruitful relationship with the public and government authorities of
a nation, it has become imperative for businesses to adopt an environmental friendly
approach along with maximising profits (Kidane, 2012). This puts the accounting practices of
a firm in a crucial position to devise financial planning and statistical analysis in a manner to
accomplish the task of achieving the ‘Green GNP’ for the company. Investment in green
policies and environmental protection is one of the key functions undertaken by the financial
planning and accounting in an organisation with the objective of expanding the business into
new territories and maximising green profits (Talha, Raja, & Seetharaman, 2010).
Harmonisation in Accounting: Harmonisation in accounting practices basically means
developing policies to enhance the comparability between the accounting practices of
different companies. In the global business scenario, today developing practices to achieve
international harmonisation in business accounting practices has become an important trend
(De Loo, Verstegen, & Swagerman, 2011). The main objective of promoting international
harmonisation is to devise some common accounting practices in the business analysis all
over the world to put the financial information and accounting data of the different countries
on a more comparable platform. Common internationally accepted accounting principles will

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make the financial information easy to decipher and reduce conflicts of interest among
business organisation across different regions (Ramli, Zainuddin, Sulaiman, & Muda, 2013).
Technology support- In many developed economies, the companies and organisations are
required, under the law of the nation, to disclose the complete financial statements and other
financial information about the company online within a period of 24 hours of completing the
financial statements. But the main challenge that arises here is the means to guarantee the
quality of the financial information being disclosed (Taipaleenmäki, & Ikäheimo, 2013). In
this age of the information technology and the internet, the accounting practices of any
business cannot exist in isolation. With the development of new forms of economy in the
rapidly technological global environment of today many new kinds of economy like the
knowledge-based economy, cyber economy, and the new political or centralised economic
systems, accounting has become an important part of the economic managerial tool of the
organisations (Sunarni, 2013). Therefore, the need to make the accounting principles more
comparable and reliable became a must as unreliable information could lead to a legal crisis
for a company and even lead to overall market crisis (Lavia López, & Hiebl, 2014).
Therefore, multiple accounting standards created with the help of technological support from
the information technology have gained prominence in the recent years, particularly in the
disseminating of accurate financial information to the public (Carpenter, & Dunung, 2011).
Factors affecting the accounting practices and the Challenges faced by accounting in
global organisations today
To be competitive and relevant in the increasingly competitive global business environment,
the accounting practices in the businesses have to adapt to the recurring changes that have an
influence on the practices of the accounting. The factors which influence the accounting
practices include the business environmental factors like the increase in customer focus, rapid

Running Head: Challenges in Accounting in Global Organisations 8
pace of globalisation, and changes in the technology (Zadek, Evans, & Pruzan, 2013). The
second factor is the response of the business to the environmental factors which include the
flat hierarchical structures, value chain and inventory cost, the business-to customer and
business-to-business interactions and dealings, change in the manufacturing techniques and
quality, and much more (Doupnik, & Perera, 2011).
The third factor which has influenced the accounting practices in the global organisations is
the changing and evolving accounting tools that are becoming a prime requirement of the
accounting practices. Tools like Just-in-time inventory, benchmarking, supply chain
management, activity based costing, target costing, balance scorecard, enterprise resource
planning, are all an integral part of management accounting and financial planning today. Out
of these factors, the external environmental factors and the rapidly evolving organisational
factors pose a significant challenge to the accounting practices today (Cooper, & Dart, 2009).
Challenges by Environmental factors to Accounting
The external factors that influence the accounting practices of a business are also known as
the environmental factors. For example, the rapidly occurring dynamic changes in the
external business environment like the increasing rate of market globalisation (Kidane, 2012),
increase in the competition from old and new firms due to globalisation, and the rapid
advancement in technology leading to better production techniques and information
management, are all the major elements that have contributed to the evolution of the
principles and practices of accounting in the organisations in the recent years (Ramli,
Zainuddin, Sulaiman, & Muda, 2013). These changes in the external business environment
have increased the role that accounting and especially the management accounting has to play
in the business organisations today (Tarca, 2012).

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The accounting practices are continuously facing the challenges thrown by the external
environment in providing the accurate information to support and facilitate the effective
business operations and efficient management under the changing circumstances (Van der
Stede, & Malone, 2010). The management accounting in an organisation has to evolve with
the change in the manufacturing technology, the information technology and the other
environmental trends so that accurate customer oriented information can be provided to the
other concerned departments in the company. The accounting function in the organisations is
no longer limited to financial numbers but has become an integral part of the management
process with a much wider scope (Ahid, & Augustine, 2012).
Due to rapid globalisation the companies do not have to compete with the local firms but also
with the international players in the national as well as the world market. To ensure business
sustainability the firms have to ensure competitive and attractive prices of the goods and
services, ensure the quality of the products and services, a fast delivery of the company’s
products and services, and living up to the expectations of the consumers (Arnold, 2009).
Therefore, the modern businesses need empirical and financial measurements on all these
aspects of business. This has increased the role of management accounting in the businesses
as they are faced with challenges of providing reliable information on all such factors which
may influence the business and marketing strategy of the organisation (Cinquini, & Tenucci,
2010).
The advancement in information and computer technology and the availability of analytical
software have increased the accuracy and the speed at which the data can be stored and
processed (De Loo, Verstegen, & Swagerman, 2011). It has also made the dissemination and
accessibility of the information much faster and easier, but this also poses a challenge to the
management accountants in an organisation for timely appraisal of data and disseminating the

Running Head: Challenges in Accounting in Global Organisations 10
accurate and relevant information to the other departments on a real-time basis (Sunarni,
2013).
Other factors like the changes in the rules and regulations, implementation of new accounting
standards and practices, deregulation of the markets and the finance sectors, and the
increasing dominance of the service segment in business organisations, escalate the
challenges of the accounting practices in an organisation to provide information, financial
implications and solutions for business growth and development (Lavia López, & Hiebl,
2014).
Challenges by the Organisational factors to Accounting
Organisational factors which influence the business outlook and the accounting practices
consist of the organisation as a whole, the strategy of the business, the products and services
of the business, the competition, the internal operations of the business and the perceived
uncertainty (Tarca, 2012). The organisational factors have a profound impact on the daily
activities and practices of the business including the accounting practices (Carpenter, &
Dunung, 2011).
The organisational factors place a lot of emphasis on the core competencies, supplier and
customer relationships, outsourcing, downsizing, flat organisation structures, organisational
restructuring, and other such elements which aim at improving the productivity and
efficiency of the company (Van der Stede, & Malone, 2010). With any changes occurring in
the internal organisation constitution and functioning, like a new style of management
reporting, the whole structure of the company and the process of the flow of information
undergo a change. This will also change the attitude of the people in the company and the
work patterns of the people (Ahid, & Augustine, 2012).

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As mentioned earlier, the accounting department is not an isolated function anymore and the
management accounting process in the organisation is closely integrated with the workings of
other departments, the top level management, and the operations management in the
organisation (Talha, Raja, & Seetharaman, 2010). The organisational decisions like mergers,
take-overs, organisational restructuring, new technological innovations are among the most
influential factors affecting the accounting practices (Zadek, Evans, & Pruzan, 2013). The
accounting department is responsible for coordinating and liaisoning with the other
departments to ensure smooth flow of relevant statistical, analytical, and financial
information. Therefore, any kind of changes in the quality control, work patterns,
organisational restructuring, managerial practices are among the leading organisational
challenges faced by the management and business accounting in the global organisations
today (Arnold, 2009).
Besides these, the factors like customer oriented activities, core competencies, the form of
ownership, size and type of organisation, profitability and the financial position of the firms,
also contribute a lot to the challenges faced by the business and management accounting in
the global marketplace today. Most of the organisations today have a flexible and flat
organisational structure where the accountants and the managers work inter-changeably in a
cross functional manner (Doupnik, & Perera, 2011). This has lead to an increasing demand
for transparency and accountability from the stakeholders in a firm. This change in the work
practices and increase in transparency escalate the challenge for the business and
management accountants in a firm to develop an in-depth understanding of the different
processes in a business to be able to take on the challenge of a cross functional role (Cinquini,
& Tenucci, 2010).
Ethical challenges

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The accounting department in an organisation has an access to a lot of confidential and
sensitive information about the business, strategies, and practices of an organisation. Any
kind of unauthorised disclosure to a third party outside the organisation could put the
company at a competitive disadvantage against the rival companies and may lead to loss of
credibility for the company (Cooper, & Dart, 2009). Similarly, any unauthorised disclosure
about the policies and strategies of the organisation, like information about potential layoffs
and budget cuts, to the people inside the organisation would be against the interests of the
organisations. The management accounting in every organisation has to deal with these
ethical challenges and resolve them in the best possible manner while working under the
professional standards and code of ethics (De Loo, Verstegen, & Swagerman, 2011).
The current trends in the business world point towards an emerging consciousness in the
minds of the consumers about sustainable development in business and industry (Zadek,
Evans, & Pruzan, 2013). Therefore, the management accounting in a global business
organisation is faced with the challenge of rethinking from a financial and profit oriented
point of view and adopt practices and accounting systems that incorporate and integrate the
practices which are based on performance management along with profit maximisation
(Ramli, Zainuddin, Sulaiman, & Muda, 2013).
Conclusion
In the rapidly changing and dynamic global business environments, the role of business and
management accounting practices is undergoing a significant change in the role played by
them in the modern business organisations (Taipaleenmäki, & Ikäheimo, 2013). The
accounting function does exist in isolation any longer and is proactively engaged and
integrated with the other functions like the strategic management, leadership improvement,
and operational alignment in a firm (Talha, Raja, & Seetharaman, 2010). The continuous

Running Head: Challenges in Accounting in Global Organisations 13
changes in the external and internal environment influence the management accounting
practices. To survive and succeed in the increasingly competitive global arena the business
and the management accounting practices have to continuously evolve to the challenges
posed by the internal or organisational factors and the external or environmental factors in the
dynamic business world today (Kidane, 2012).
The accounting practices in a firm have to be prepared to face the challenges of globalisation
in the local markets and traditional dominions also. With rapid globalisation and evolving
technology, the business transactions in a company are becoming more complex and
voluminous, and there is an increasing emphasis on standardisation of practices
(Taipaleenmäki, & Ikäheimo, 2013). This increases the pressure on the management
accounting in a business to achieve uniformity in accounting practices and also keep up with
the technological advancements, to be able to provide the best and accurate information in
real-time to the internal and external stakeholders of a business.

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