Globalization can be termed as the process of international integration arising from the interchange of worldviews, products, ideas and other aspects of culture. The four basic aspects of globalization are; trade and transactions, investments and capital movements, migration and movement of people and dissemination of knowledge.
Globalization demands that countries set and follow high standards of accounting. The most significant changes include; a change to a consistent and more readable format for all of auditor’s report standards. A change in authoritative status of traditional 10 generally accepted auditing standards and changes in the wording of the auditor’s report and changes in standards for group audits. Traditionally, U.S accounting standards have high regards, although, in the aftermath of the Enron fiasco, they questioned. However, the fact remains that every nation should follow high accounting standards, which probably could be set internationally. Auditors must adhere to these standards to report the true state of financial affairs of any institution in the country, be it a company, agency, or government department.
As a matter of fact, high standards of behaviour and conduct should be observed by all participants in all affairs. Public officials, as well as corporate executives, should set the examples by following accepted norms in their day-to day activities. In the words, they should not take advantage of their privileged position in any way. Furthermore, standards should be set to match the highest in the world. If a country has weak standards, adhering to them is not enough. Even a single company in a developing country can set itself apart by following high standards in industrialized nations, and the company thus can gain international recognition.
One reason why globalization leads to economic prosperity is that it encourages competition among companies, as well as among nations. For example, investors have a choice of making investments in their own country or outside, and outside in countries A to Z. The investor will choose the nation that promises the best return and fewer headaches. A nation hoping to be part of the globalization trend must control corruption and offer a free press.
Finally, globalization will affect not only the audit practice but also the audit education. With globalization, international accounting is becoming more relevant, and US GAAP decreasingly relevant.