Adaptive practices in organizational and operational contexts

Adaptive Practices: Global Economy and Accounting Standards

Now that the economy has become much more global, everyone from major corporations to sole proprietorships is able to do business across the country and across the world through the internet. There is no longer any need to only do business in one's home town - or even one's home country - and that makes for all kinds of issues and changes that have to be addressed. One of those issues is the way accounting is handled. The International Financial Reporting Standards (IFRS) were started back in the 1970s, and many of them have carried forward into the present day (Bradshaw, 2010). They have also been joined by other, newer requirements, most notably between 1989 and 2001 (International, 2007). The Boards that are required to create and care for these standards have also been changed and adjusted over time. Currently, the International Accounting Standards Board (IASB) is the one "calling the shots" when it comes to the rules and regulations that must be followed throughout the world.

The IFRS provides a framework by which businesses in countries all over the world can create reports that show how they are handling their funds (Gucenme & Arsoy, 2005). The accounting principles set up by the IASB are designed to ensure that accounting forms and financial statements across the world provide the same type of information that was acquired, analyzed, and provided in the same way. By doing that, the IASB is providing anyone who examines the financial documents with an assurance that the documents are correct, accurate, and adequately prepared. Financial statements need to be true, and they should accurately reflect all of the affairs of a particular organization. Statements are used by the company, other companies, regulators, and others, and the statements must reflect the true information of the financial health of the company for the period to which they allude.

Before the IFRS was developed, the standards for accounting were based on what was requested or required by a particular country (Gucenme & Arsoy, 2005). That does not mean that the accounting was inaccurate, but only that it could be quite different from other accounting requirements in other countries. When companies wanted to work with other companies or they wanted to merge with or buy out other companies that were not located in the same country (and subject to the same accounting standards), it could be very difficult for them to determine whether the merger or acquisition was a good choice. Investors also struggled with that issue. Determining the financial health of a company is complicated when that company is not required to use the same standards of accounting and financial reporting. Not having global or international standards of accounting could cause companies to avoid mergers and acquisitions, or it could cause investors to take risks that may not pay off for them because they did not clearly understand the type or style of accounting used by a company.

In order to avoid those kinds of problems, global accounting standards are necessary. That is where the IFRS comes into play. The rules and regulations are designed to ensure that the balance sheets and other financial documents from a company in one country are calculated and displayed in the same way as financial documents from a company in another country (Bradshaw, 2010; Gucenme & Arsoy, 2005). That can help companies decide if they want to merge with one another, or if one company wants to acquire another. It can also help companies determine where they stand when it comes to other companies of the same or similar size and in the same or similar industry. Good financial health is very important for any company, but there is more to that financial health than just the balance sheet. It is also important to determine how the company is doing in relationship to other companies, because that can also be a good indicator of whether the business is moving in the right direction or whether there are changes that can and should be made in order to improve the company's future.

One global set of accounting standards is the right choice. There will be those who disagree, of course, but it is difficult for companies to work together on a global level when the way they deal with their accounting is very different. In order to foster good relations between companies throughout the world, accounting transparency and accuracy are highly significant (International, 2007). But there is more than just accuracy and transparency that have to be considered. In short, a company can be just as accurate and transparent as possible and still not provide another company (or a regulator) with needed information if the accounting standards of that company's country are very different. In the past that would not have mattered very much, but now that so many companies are doing business across the world it has become more important that they are able to do so with standards that apply to all companies no matter where they are located or doing business.