Introduction
Financial accounting makes a crucial element in companies across the world. Accounting bodies, non-governmental organizations (NGOs), governments, international companies, regulators, and professional institutes rely on several guidelines in accounting. Regulations vary between countries and regions based on the established factors considered important in each jurisdiction. These differences are the reason for the increased need for a single global standard for sustainability accounting. It emerges when economies have become increasingly vulnerable to the financial practices of companies in their jurisdictions (Loft, Humphrey and Turley, 2006). The 20th and 21st centuries have experienced several financial crises that had devastating impacts on economies (Humphrey, Loft and Woods, 2009). Average citizens are the most affected by unethical practices, as evidenced by the last two financial crises. Coupled with continued unethical practices, concern over the need for global sustainable accounting where standard guidelines are adhered to and stakeholders can be held accountable is significant. Principal bodies responsible for setting international standards have not completely adopted a common set of global standards due to the process’s complexity, contestability, and unpredictable nature.
Discussion
The global financial architecture safeguards global financial and monetary systems. The framework comprises international governance arrangements that ensure the international financial systems work effectively to meet the world’s economic needs (Tarca, 2012). The agreements vary based on their development and implementation. A more structured system characterized contemporary architecture after the post-Asian GFA revealed significant shortcomings in the existing structure. The current financial framework aims to achieve a global consensus on the factors that comprise a sound financial and regulatory system (Camfferman and Zeff, 2017). It aims to create sound principles and practices through technocratic institutions that will enhance the effectiveness of systems. The GFA also seeks to strengthen the practice of sound principles using markets as incentives and to promote sound principles through multilateral institutions like the International Monetary Fund (IMF) that encourage structural adjustments through conditional loans. Integrated financial markets and government deregulation are current features of the GFA. These characteristics promote risk-taking and market crises based on changes in financial markets. Therefore, market failure is structural and should have motivated the establishment of a new financial architecture, but challenges exist in its adoption.
Complexities in financial market regulations are a significant barrier to developing a global body with global standards. Every country has a set of guidelines and principles that ensure the governance of its financial systems. The standards are based on several factors that are not always shared with other countries. The lack of harmony in regulations has made it challenging to develop and implement a single set of global standards to address sustainability in accounting. They result in differences in financial accounting, a principal cause of the slow progress in implementing worldwide standards. Nobes and Parker (2016) note that if accountants from different countries were given financial transactions, they would not provide similar reports due to differences in accounting rules between their respective countries. Another complexity that emerges is the differences between individual companies and groups. These challenges are evident in preparing financial statements in multinational companies where the financial statements in one country can vary significantly from those in another, yet the transactions are the same.
The differences in financial regulations between different bodies make it complex to develop and implement a body that will regulate financial practices worldwide. Regional bodies like the European Union (EU) have established accounting practices for their members, which creates significant differences when considering the role of each body. An example of this is evident in guideline differences between the generally accepted accounting principles (GAAP) in the United States and the United Kingdom. The differences in reporting elements like goodwill lead to significant differences in the financial statements provided by the same company in the two countries (Nobes and Parker, 2016). Therefore, the existing reporting standards in different countries become a challenge since each country’s acceptance and implementation of standards is based on varying factors that lead to differences.
The case for the lack of global sustainability is supported by the political and economic systems that affect the institutional characteristics of accounting standards. Every country has a different political and economic approach to accounting principles (Walker, 2010). The development, implementation, and use of accounting guidelines are based on political and economic influences. Current accounting is evidence of this as America has a different set of GAAP from those of the United Kingdom and other countries for companies listed on their stock markets (Nobes and Parker, 2016). These political and economic influences are significant in having a global board and standards for financial practices since each nation tries to protect its economic and political interests.
Adopting a single form of accounting standards faces the risk of restricting the different forms of capitalism. Financial markets are currently hinged on capitalism and the ability of every country to drive its economic agenda toward success. The various forms of capitalism have necessitated the development and use of different accounting principles, which conform to the respective agendas of the countries (Walker, 2010). The presentation of a unified accountability system presents the challenge of restricting capitalism in its various forms (Walker, 2010). Conformity leads to stagnation, which can harm countries in the current world where uncertainty and frequent changes require subsequent adoption of new regulations to facilitate sustainability in monetary markets.
Stakeholders in accounting cannot agree on accounting concepts, which are fundamental in developing global standards. The elements that make up good accounting vary between professional accountants, academic accountants, and standard setters. The scope of financial reporting raises several differences between professionals in the discipline (Pacter, 2014). The objectives of financial reporting and the means to achieve these objectives also cause disagreements between stakeholders in the sector. The International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB) have made concerted efforts to gain support for developing common financial standards that will be applicable globally (Larson and Kenny, 2011). However, their efforts have been met with many differing views over factors like accounting concepts, financial reporting, and the objectives that will make the practice unified. These differences have made the establishment of sustainable guidelines difficult to achieve.
Other contributing factors to the issue include the costs that have emerged from adopting international standards like International Financial Reporting Standards (IFRS) and the occurrence of financial crises years after its adoption. Stakeholders in accounting are critical about adopting common financial standards due to the emergent costs from the adopted IFRS (ICAEW, 2015). According to CAEW’s Financial Reporting Faculty, there have been unexpected costs emerging from IFRS since it was adopted as a regulation for professionals in the discipline. Some of the expenses identified from its adoption include increased compensation for financial officers, changes in capital structures, issues in the capital, increased risks due to the adoption of financial instruments, and an increase in audit market concentration (ICAEW, 2015).. These costs mainly affect individual companies subject to the established guidelines. The occurrence of financial crises due to collapses in the market despite the mandatory adoption of regulations like the IFRS. Several international accounting guidelines have been introduced and implemented in most countries to ensure the use of standard practices that help to prevent crises. However, the effectiveness of such interventions is challenged by the occurrence of crises and a looming one in the current market due to the current conflict in Europe.
Changes to the GFA have been incremental and left the world at risk of more failures. The need for common accounting guidelines has been advocated for several years due to globalization and the need for standard practices. The current structure presents several challenges to the monetary system due to varying regulations that have to be addressed (Michelon, Sealy and Trojanowski, 2020). The recent financial crises indicated the lack of robust architecture to protect the world from adverse outcomes. Efforts to resolve the challenge are yet to meet the requirements as the world is headed to another financial crisis due to inflation. The existence of a brief financial architecture can ensure that economic and monetary markets are properly regulated and do not contribute to crises. However, the incremental approach continues to expose the world to poor financial practices and maintains the risk of a crash.
With such issues prevailing in the reporting approaches for companies, it becomes necessary to have a unified accounting practice system. Having sustainable global standards presents several benefits to the monetary markets that could help to improve practices and avoid crises (Pacter, 2015). The advantages of accounting will include having the capacity to generate similar financial statements that provide stakeholders with accurate data about companies. The lack of a unified practice system allows companies to take advantage of reporting regulations. Organizations are consistently looking for more revenue, including reducing the taxes they pay to respective countries. They take advantage of the current accounting practices to determine countries that do not have strict requirements and where they can reduce taxation. The existence of a common reporting system can ensure that nations have standard financial statement generation that can fill tax loops exploited in the current system.
The development and use of global standards are essential in supporting globalization and enhancing financial practices for multinational companies. The current system presents challenges for organizations obligated to publish their financial statements in different countries (Young, 2006). Every country uses a set of guidelines that align with policies they agree with and conform to their goals. It makes it difficult for multinational companies to keep up with the changing regulations. Businesses can benefit from the global system through reductions in costs incurred from hiring several accounting officers based on the country that requires financial reporting. Organizations can have better risk management when there is an international regulatory body that will provide the relevant guidelines for financial instruments. Governments and regulators also stand to gain from having financial statements that can be shared to enhance globalization and better financial markets.
Developing a sustainability standards board that will create standards to be used globally can help to address differences in approach to factors like defining good financial practices and objectives to achieve them. The existing differences can be easily resolved by having a board that resolves such issues. It will also be essential in improving accounting practices whereby significant differences are exhibited in the generation of financial statements by individual companies. A major benefit to the regulatory body will be increasing the sharing of financial information that enhances oversight and prevention of crises. The previous market crushes are partly blamed on the lack of sufficient oversight by individual countries and regulators to ensure that companies were engaging in activities that avoided financial crises. The current architecture has experienced few changes to avert this, making it essential to adopt a system that will ensure companies do not lead the world to another crisis. A common set of guidelines will help to establish common oversight and improve risk management in the monetary markets of respective countries.
Conclusion
The need for sustainable global accounting practices is supported by existence of several challenges that make the current financial architecture ineffective in achieving its mandate. Several issues exist in the current system, which has raised the need for a more effective system. However, the adoption of a new international financial architecture faces several barriers. The new architecture has to overcome the challenge of convincing all the countries to adhere to similar standards given that every country adopts standards based on their interests. Existing international regulations in the architecture face the challenge of being ineffective in achieving their mandate to ensure oversight in financial practices. The occurrence of economic crises due to crushes in the market is an issue that prevents the complete adoption of the board to begin creating relevant regulations. Also, complexities emerge over the diverging accounting principles each country follows, along with application of regional standards. The new financial architecture has great potential in resolving most of the issues in the markets but they have to overcome existing barriers to be effective.
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