Challenges of Accounting in Global Organizations

Research Problem and Research Questions

In today’s era, businesses are driven by numbers, be it the public, private, small or large firms, all businesses drive for profitability. Keeping a follow-up of the sales, payroll and inventory falls under the umbrella of accounting and is crucial for tracking the progress of the business (Murphy, 2017). A solid accounting system is cardinal for a robust administration of the sales, revenue, turnover and profits. The preliminary function of accounting is to keep a record of the ongoing financial activities. It keeps a track of information of all types of maneuvers involving salaries, capital, and different types of expenditures, cash flow, operational expenses, donations, investments and many more. It is of key eminence that the accounting information of a firm is tracked on a monthly basis so as to avoid any sort of glitches. Accounting ensures that the financial history of a firm is monitored. It provides a snapshot of the financial health of the business to the managers so that the necessary actions can be taken at the time of pitiable monetary resources.

It is evident from the previous assessment that the concept of accounting is widely used at a global level in all organizations. It plays a fundamental role in international businesses. It is used for communicating in context of the financial position of the firm. It is usually managed by professionals in the form of financial statements (Bujaki and Mcconomy, 2017). Challenges of accounting in global organizations are selected as a topic of interest so as to gain profound knowledge regarding different perspectives of organizations in the context of accounting. Furthermore, it will also provide knowledge regarding the implications of technology in the field of accounting.

Another reason for the selection of this topic is also associated with acknowledging how a change in the accounting trends can impact the role of accounting professionals and the way organizations maintain their monetary tracks. The global challenges in the field of accounting are crucial to understanding so that the ways to overcome them and possible solutions are determined (Bujaki and Mcconomy, 2017). It will further contribute to the accounting literature and future studies on the same. With the increasing intervention of technological advancements, accounting is continuously modified and the development of this practice is leading to change in the objectives of the system and associated standards.

There are diverse challenges that are involved in accounting which directly impact the international market opportunities. The alterations in technology impact all industries in which accounting and finance industries are also incorporated (Nasseri, Yazdifar and Askarany, 2016). The study of the challenges can assist in comprehending the changing accounting profession and the process of recording the transactions. The vital aim of the assessment is to principally determine the external environment and its impact on accounting in global organizations in the 21st century; it also intends to determine the degree of influence of the external environment.

The research questions of the assessment are listed below as follows:

1. What is the situation of accounting in the 21st century?

2. What are the key challenges faced by accounting?

3. What is the impact of external factors on accounting in the global organizations in the 21st century?

Discussion of Key Theories and Models

With the changing dynamics and altering technology, new models are evolving and are employed in organisations. Different types of financial models are used for accounting purposes by the professionals. The most used type of model is the three statement model which is the most basic setup for financial modelling, it can be clearly inferred from the name itself that it incorporates three statements which are cash flow, income statement and balance sheet that calculate the dynamically linked formulas in the Excel sheet (Malik, McBain, Wiedmann, Lenzen and Murray, 2019).

Other traditional models incorporate Discounted Cash Flow model which is used to add value to the company based on the Net Present Value of the firms' cash flow in future (Montesdeoca, Medina and Santana, 2019). Merger model is another framework used to evaluate the pro forma dilution of an acquisition or merger; it is a single tab model for each firm wherein the consolidation of two companies is amalgamated to calculate the merged Co.

Other models involve Initial Public Offering Model (IPO), Leveraged Buyout Model (LBO) Consolidation Model, Sum of Parts Model, Option Pricing Model and Forecasting Model. The IPO model is used by the corporate development professionals and investment bankers for adding value to the business, it involves performing comparable company analysis on the ground of assumption that the investors will be willing to pay for the firm in question (Malik, McBain, Wiedmann, Lenzen and Murray, 2019). The LBO model requires complicated depth schedules and is basically an advanced form of the financial modelling, in technological terms, it is more detailed as compared to the other financial models and is challenging as well in terms of the number of layers of financing circular references and cash-through waterfalls. Technology has invaded in the financial models used for accounting.

Artificial intelligence and robotics are widely employed in the financial systems for automating the complex and repetitive tasks and for reducing the operating costs, maximizing accuracy and increasing the efficiency. As a result of this, accounting software tools have been developed such as OneUp, Xero, Intuit and Sage. The contingency model evaluates the impact of new accounting technology systems in different settings by perceiving the roles of accounting professionals. The contingency theory is a widely used approach to management accounting. This theory of accounting critical discusses the adoption of sophistication levels of management accounting practices in businesses (Otley, 2016).

The matching principle accounting theory can be used in the assessment for the laying stress on the intervention of technology and the associated intricacies. This principle states that it is cardinal for all transactions within a particular type of revenue to be reported as a single unit and also to be kept together (Fera, Moscariello and Cinque, 2018). For eradicating human errors, technology has intervened and employed this principle in the firms. However, apart from the pros, it is also associated with the challenges in terms of cons that incorporate unencrypted data, poorly synchronised computing systems, the requirement of trained staff, professional handling or ineffective cloud computing and security walls.

Literature Review

Accounting in 21st Century

For running a business, it is vital that proper documentation of accurate information, profits, debts, liabilities and assets is maintained. It is crucial for the decision-making and management of the firm. With the help of accounting information and the statistical data, most of the decisions in the firms are made in the 21st century (Shim, 2016). Accounting is closely related with financial management; due to the emergence of concepts of entity management and joint-stock company, international businesses have expanded and are increasingly laying prominence on accounting data and information for making most of the business-related decisions. Accounting needs to be updated with the technology and the latest trends; this is so because it plays a vital role in effective execution of the functions of the management organisation (Shim, 2016).

It provides the key data to the organisation that involve a percentage of profit over capital efficiency in controlling management and capital investment. It also plays a critical role in achieving unexpected performance from the employees as the financial rewards which are promised in return for virtuous performance. The motivation of the employees is also for coordination as it is a critical function of the management to accomplish the final target of the business by aligning activities of diverse departments (Darlington et al. 2016).

Accounting is imperative for budgeting which forms the basis for running a business. In international businesses, it makes sure that the financial health of the firm is assessed and the investors and managers are constantly communicated regarding the same. For reflecting on the daily economic activities of a business setting, it is crucial that the record-keeping is sustained (Watty et al. 2016). Accounting is relied on reporting the information system on the basis of financial transactions. It is imperative that the financial, environmental and social performance of the organisation is inflated so that transparency is added to the accounting system so that the economic development can be effectively managed (Watty et al. 2016). The key requirement of amalgamation of technology in the accounting system is based on the fact that the modern management systems are continuously stimulating the ways in which the financial data is handled and progressed. A rapid change in the business environment conditions assists in bringing innovation and flexibility in the firm so that competitiveness is sustained in the international business environment.

Key Challenges Faced by Accounting

Constant alterations in the regulation system, staff attention and hiring along with the impact of technology are emerging as key challenges in the modern accounting businesses. Getting clients on board with the new technological changes is a challenging task in the accounting system. There are constant regulatory amendments which the public practitioners need to adhere to for guiding their clients. Businesses run from multiple locations, measurement of the multi-locational strategies has many associated challenges. This phenomenon causes stress on the financial resources, manpower and time management. The key challenge faced by organisations globally is that local regulations for every country are different; Accepted Accounting Principles vary from one country to another, for example; IFRS, US, GAAP and SFRS. There is a lack of a universally accepted standard, which is quite challenging for organizations operating in different countries.

Transfer Pricing (TP) is fixing types of services and goods sold between diverse entities and group of entities (Klassen et al. 2017). For multinational corporations and global businesses, adequate and appropriate accounting from the perspective of TP and the intercompany cost allocations are required for smoother and regular financial transactions with the global subsidiaries. Since there are many challenges associated with ensuring compliance in different jurisdictions and business, there are continuously changing business regulations and high cost. It is intricate for the accounting system to accordingly manage. Accounting firms have also exhibited a rocky relationship with technology and advancement.

In technology control, using new models for accounting which is difficult for organizations to accept and accordingly manage on a global level. It is automating much of the accounting sector involving bookkeeping. Not only the transactions are recorded in an automatic custom but the analysis procedure is also automated and new tools are used for providing quick depreciation schedules (Klassen et al. 2017). With the intervention of technology, cybersecurity is becoming a priority in firms; accounting is usually the hot target for the hackers. Technology is continuously intertwined with accounting systems to update the software and restrict user access and remove the data that is no longer required.

Impact of external factors on accounting in the global organizations in the 21st century

The contingency theory suggests that no particular model can be applied to all the firms. From the perspective of this theory, the financial models adopted by the firms are a result of the external environmental factors (Otley, 2016). It states that a firm is conditioned by the factors features of the environment. The matching principle requires all the expenses to be reported as a unit within the same period which can be the yearly, monthly or quarterly (Fera et al. 2018). These functions can be appropriately performed by the standard traditional models as listed above; however, the steadiness is boosted by the technological interventions to cope up with the latest trends and the needs of the consumers and the changing dynamics of the businesses. As per this principle, it is cardinal that the accountants are consistent and very careful about the documentation. There are many factors that influence Accounting in the global organisations which involve the uncertainty in the environment and excessive market competition.

The very first level of the influence of these factors on accounting practices involves costing and financial control and planning. The second level incorporates diminishing the waste in terms of business resources and the third level is concerned with the creation of unique value through the effective use of resources. According to the authors Eliseev and Semenov (2016), an organisation cannot reflect on its objectives and the needs of its members or leadership without considering the external environment. They need to comply with the constraints that are imposed by its connection with the external environment. The unpredictability of the environment has many implications for the accounting systems.

Environmental uncertainty is one among the most contingent actors that pose an impact on the design of the management accounting practices, when the perceived environmental uncertainty is at a diminished level then it is easier for the management of a firm to accurately predict the market. However, the higher degree of environmental uncertainty results in the pitiable prediction of the market. Market competition is another aspect which undertakes the intensity of market on the grounds of competition and the extent to which it influences the accounting practices.

An increment in the intensity of competition in the market is usually associated with elevated managerial use of accounting information. This clearly brings forward a picture of the close relationship between market competition and the information used by accounting professionals. With the increment in the competition in the market, managerial accounting control systems are accordingly modified to provide accurate and relevant information on an array of perceived issues, provide timely information, inform on quality, customer service and productivity, and customer satisfaction. Authors Amara and Benelifa (2017) argue that there is a need to comprehend the fact that managerial accounting control systems need to be altered offer and developed to lay prominence on the value-added activities of the business in relation with its competitors.

With exponentially growing globalisation, the technological interventions have further impacted the accounting systems in the context of its alignment with the business line, organisational structure business, applications size and satisfaction of the customers (Amara and Benelifa 2017). IT is continuously pressurising the counting practices to develop the use of the computerized system for administering the financial transactions and present financial information of the management in the shortest possible time.

Relation with The Research Questions

The literature review has effectively focused on all the aspects of accounting in global organisations in the 21st century. It has effectively covered all the critical key themes of the research questions. It has focused on the key theories involving the contingency and the matching principle theory. The changes in the financial models for accounting with respect to technological intervention are also effectively elaborated in the review. It is effectively summed up in the review that there is complexity for the accounting system to accordingly manage with the global dimensions at the same time keeping pace with the latest IT systems. Accounting firms have also exhibited an unsteady relationship with technology and advancement. It has also effectively presented a critical discussion of accounting in the 21st century by laying emphasis on environmental uncertainty, competitiveness and latest technological trends (Malik et al. 2019).

References

Amara, T., and Benelifa, S. 2017. The impact of external and internal factors on the management accounting practices. International Journal of Finance and Accounting, 6,2 pp.46-58.

Bujaki, M. L., and Mcconomy, B. J. 2017. Productivity in Top‐10 Academic Accounting Journals by Researchers at Canadian Universities at the Start of the 21st Century. Accounting Perspectives, 16,4 pp.269-313.

Darlington, J., Found, P., and Francis, M. (2016). Flow Accounting: The Next Challenge for 21st Century Lean Businesses. In Understanding the Lean Enterprise, pp.79-99.

Eliseev, A. V., and Semenov, V. A. 2016. Arctic climate changes in the 21st century: Ensemble model estimates accounting for realism in present-day climate simulation. In Doklady Earth Sciences, 471,1 pp.1183-1187.

Fera, P., Moscariello, N., and Cinque, E. 2018. A Renewed Interest on the Fundamentals of Accounting: The Impact of the Matching ‘Principle’on Earning Attributes. Accounting from a Cross-Cultural Perspective, 1.

Klassen, K. J., Lisowsky, P., and Mescall, D. 2017. Transfer pricing: Strategies, practices, and tax minimization. Contemporary Accounting Research, 34,1 pp. 455-493.

Malik, A., McBain, D., Wiedmann, T. O., Lenzen, M., and Murray, J. 2019. Advancements in input‐output models and indicators for consumption‐based accounting. Journal of Industrial Ecology, 23,2 pp.300-312.

Montesdeoca, M. R., Medina, A. J. S., and Santana, F. B. 2019. Research Topics in Accounting Fraud in the 21st Century: A State of the Art. Sustainability, 11(6), 1-31.

Murphy, R. 2017. Bringing Tax Accounting into the 21st Century. Int'l Tax Rev., 28, 20.

Nasseri, A., Yazdifar, H., and Askarany, D. 2016. Management accounting education for the 21st Century firms. International Journal of Finance and Managerial Accounting, 1,1 pp. 75-77.

Otley, D. 2016. The contingency theory of management accounting and control: 1980–2014. Management accounting research, 31, pp.45-62.

Shim, J. K. 2016. Accounting and finance for the nonfinancial executive: An Integrated Resource Management Guide for the 21st Century. Florida: CRC Press.

Watty, K., McKay, J., and Ngo, L. 2016. Innovators or inhibitors? Accounting faculty resistance to new educational technologies in higher education. Journal of Accounting Education, 36, pp.1-15.

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Business Research Assignment Help

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