International trade once could have been defined as the process of exporting and importing. In terms of America’s interests, the US imported things they did not produce and exported things they produced in excess. That has all changed. Today, American companies have subsidiaries in other countries and other countries own American-based businesses. The result is a global economy that has some real benefits and some inherent problems. International trade involves procurement of financing and supplies, knowledge of international rules of commerce and legalities of trade, coordination of employee’s salaries and benefits, job training, exchange of information and data and other issues. Perhaps one of the aspects of business most affected is accountancy, or the way companies track all these financial issues across borders and oceans.
Whenever international trade is brought up, it is fair to expect the sub-topic of accounting to come up as well. After all, most types of trade, if not all, would be impossible to conduct absent experts who understand finance, taxation, business laws, and many other areas tied to global distribution. And while the impact of CPAs on cross-border operations is quite easy to dissect, what happens when the question is flipped? In other words, what exactly is the impact of trading on the sector operated by accountants?
Although an average accountant has a plethora of responsibilities, they are seldom engaged in topics pertaining to the growth of globalization. While they may certainly work for international companies and facilitate matters of international tax, they are not the trend-setters who help improve worldwide connections. This is the responsibility of high-level politicians, CEOs, and other mainstream leaders. So, one of the first notable impacts that international exchanges will have is the improvement of accountants’ ability to globalize the industry. For those unfamiliar, this translates to job techniques and strategies that help pair operators from new nations.
Increases the Necessary Knowledge
If one was to use the CPA pass rates as an indication of how hard it is to be an accountant, which is indeed a great way to gauge the level of difficulty, they will probably be shocked. According to the American Institute of Certified Public Accountants (AICPA), which is the administrative body for the license, approximately half of the candidates fail at least once. So, it is fair to say that becoming an accountant is going to be incredibly tough as it mandates a high level of college education and endless courses of continuing education.
Once global trading enters the equation, however, all the knowledge acquired during the initial education may become insufficient. Exchanges that combine multiple countries are often subject to ever-changing international laws and other types of policies that depend on the political climate. Due to this, the field of accounting must constantly seek innovative ways to summarize and supplement its practitioners with the tools that will allow them to thrive in cross-border ventures.
In America, and many other countries, accountants operate using standards based upon the GAAP, or Generally Accepted Accounting Practices. This has worked well for many years because other countries have looked to the United States for economic leadership and English has been the accepted language of business. That made sense because the gross domestic product of America, Britain and other English-speaking countries far surpassed that of other nations. According to the website alexica.com, today’s English-speaking countries have a GDP of 20.7 percent of global GDP, while Chinese-speaking countries lag by just a bit more than a percentage point. That fact may tip the scales of “who makes the rules.”
Additionally, countries that don’t have their own accounting practices rules generally adopt the practices of another organization, the International Accounting Standards Board ( IASB). In response to this, accounting professionals are “scrambling” to make changes in the GAAP to allow easier interface with international interests.
Gives Rise to New Specializations
Many decades ago, the notorious taxation practice in the United States was a general area of work for a lot of accountants. Nowadays, however, the rise of new regulation has given birth to specialists who handle much smaller sectors. For example, instead of focusing on the entire taxation system, CPAs can choose between property, sales, state, federal, value-added, and gift or estate tax.
Well, since international trading came to life, the aforementioned list was further expanded to include international tax as well. Some common duties for folks working within this sector include researching foreign laws, filing the appropriate paperwork with governments of all involved countries, and keeping up with trends related to exchange rates and tariffs. Therefore, global trading has led to a mention-worthy expansion of the practice of accounting. In other words, it facilitated more jobs accompanied by an improved versatility when it comes to areas of practice.
Another change that international business has brought is the tangle of differing economic policies that vary from country to country. Along with taxation laws, there are other rules that concern policies of things like labor relations and operations safety. Also, there is a language barrier to cross. For instance, in the UK, what Americans call a car “hood” is termed a “bonnet.” In the same way, a “turnover” in Britain is the revenue of a company. Consider that those differences exist between two English-speaking countries. Between countries that speak entirely different languages the challenges are immense.
There are differences even in things such as clothing and shoe sizes. A disclaimer on a dress sold on social media and made in China says that the garment will not fit Americans. A woman who wears a size seven shoe in American measurements wears a size 37 in Euro reckoning.
Other differences between countries include cultural barriers to trade such as monetary systems, religious aspects, attitudes toward gender equality and even the etiquette and protocol of business. Politics affects markets and trade, too. Trade between capitalistic countries and monarchies, communist countries, socialistic countries and other types of governments create boundaries.
Accountants must be competent in accounting for all of these variables and be able to translate their information into data that is understood and accepted by all parties.
Politics and Accounting
Of course, accountants working in international trade must be aware of political undercurrents and occurrences in other countries. The current pandemic has impacted accounting by limiting resources, forcing companies into bankruptcy and making financial reporting more complex among other effects. Wars are another concern that could disrupt economic factors. In a global economy, issues that arise in only one country can have economic ripples across the world.
Another way in which politics affects international trade accounting is in the very thing that should be beneficial: the international accounting practices. It would seem that with the acceptance of international standards, accounting would be universal. The problem is that many countries do not enforce the adherence to those standards. The World Bank recently said that countries with poor enforcement of accounting and audit practices must show improvement before being qualified to receive loans and grants from international donors. Accountants working with international trade must be certain that their numbers and the numbers of the accountants in other countries match.
In addition to specialization that results in accountants each taking a smaller “bite” of the accounting pie, there are additional adaptations in response to radical changes made in the face of a global economy.
According to Forbes Magazine, one of the biggest factors arising in the face of expanding international trade is technology. Artificial intelligence allows today’s accountants to digitalize data and even enter it automatically. The margin of error is drastically reduced by this step, but so is the amount of time accountants spend on repetitious tasks that computers can now perform.
This is especially important when considering that corporations that have subsidiaries in other countries must connect the financial aspects of all of them. This would have been a daunting task when all accounting was done manually, because of all the individual discrepancies involved. Today, computers can process all of the information, translate it into different languages, frame in within different cultural concepts and reconcile all of the data in a fraction of the time it would take a human accountant. However, human input is generally necessary to program the computers.
That’s where Forbes notes another technological innovation that will help accountants assimilate this universe of data. The “Intelligence of Things” has the potential of interconnecting all of the computers, data systems and software through machines talking to one another without human intervention.
Cloud technology allows storage of immense amounts of data. It also permits rapid retrieval of files. What is still an issue, even with the trend toward automation and artificial intelligence, is the security of the documents. “The Cloud” is a fundamentally secure database, but millions of people access it every day. Accountants must understand how data is stored and the ways it is secured through firewalls and encoding. “Blockchain,” for instance, is a technology that will change the way accountants keep ledgers. It uses steps of data that are interconnected, dated and encrypted and allows people to access it but not alter it. All of this means that the complexities of international business will mandate that accountants who work in the global arena be tech-savvy.
Of course, there are many more connections that could be analyzed. The aforementioned few, however, are the most obvious and important ones when it comes to the impact of international trade on accountants.
Modernization of Standards
The Generally Accepted Accounting Practices protocols are changing. Bruce Pounder, a writer who is a Certified Management Accountant and a Certified Financial Manager is also the founder of the GSSP Lab for research in modernization of the American standards. An article in humor.nigeria quotes Pounder as saying that American accountants are at a disadvantage to foreign accountants. This is due to the GAAP standards being outdated and inapplicable to many international corporate accounts. He says that accountants from countries where the International Accounting Standards Board principles are utilized don’t have to learn both protocols and already are familiar with the IASB so they are able to take advantage of “ rapidly growing career opportunities in China, India and other emerging economies.”
Changes in Accounting Education
Accounting students of twenty or thirty years ago had to understand the taxation and financial regulations and procedures in the country where they worked. Their education focused on the mechanics of accounting, and much of the emphasis was on the process of internal accounting. That is, they mastered ledgers, sales and purchase invoices, learned to produce profit and loss reports and figure taxes. All of this was done according to the GAAP. Today’s student must understand global economies and the financial and tax structures for countries they have never visited. That involves another concept: external accounting. External accounting includes reports on the “financial health” of a business and is for the benefit of stockholders and investors. The reports produced are distributed to the public, and in this case, to the international public. They must be in a form that people in other countries can readily understand and take into account things like foreign currency rates of exchange.
Accounting students must also be competent in using technology. That is difficult for many people, but in a world where the smallest business can have a virtual storefront in any country, it is imperative. Technology courses will become more standard for accounting students as will the International Accounting Standards Board principles. Additionally, courses in culture and inclusionism, along with foreign languages will be prevalent.
Future of Independent Accounting
Does all this spell the end of the individual accountant who owns a one-man company? According to an article on the website accountingtoday.com, it does not. International trade allows small businesses to have a global footprint, but most do not. The article says that there are about 42,000 accounting firms in the United States. The top firm employs more than 65,000 people and has revenues of $16 billion. The 400th firm on the list employs 20 people and has an annual income of about $3 million. That means there are 41,600 firms smaller still. Most have staffs of less than four or five people and have an income of less than $600,000.
Those firms are run by people who really love being accountants. They actually like the mechanics of accounting, from the process of putting pen to paper to face-to-face meetings with clients. Individuals still need assistance with filing taxes, small companies still need help with compiling reports and required audits and many small businesses prefer to use accountants that are accessible.
Of course, these accountants must still have the expertise to tackle aspects of international trade. Their educations will include using international accounting standards and attaining a basic understanding of global economics. They, however, will be content to run their businesses the way they always have with personal attention to the finances of their clients.
So, is international trade affecting the field of accounting? It unquestionably is. Even accountants who want to open local “mom-and-pop-shop” firms will have to master the tenets of global economies to be certified. So-called “soft skills” will be replaced in degree programs with tech courses. The basics of accounting will include internationally accepted protocols that may only be used on the global scene, but which create more “hoops” for the independent local accountant to jump through. Nevertheless, Americans who enjoy the benefits of a global economy will need accountants who can “navigate those waters.”