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June 18, 2012 12:25 am
The globalisation of accounting education has turned Suresh Govindaraj into a jet-setter. Ten years ago, the New York-trained financial accounting expert commuted by train from his suburban New Jersey home into Manhattan, where he would teach a largely US audience. But this summer, he is flying to Singapore, Shanghai and Beijing to lecture to executive MBA students and then stopping off in Viterbo, Italy, on the way home to do some research.
Prof Govindaraj teaches at Rutgers Business School, which launched its Asia programme a decade ago, to meet increasing demand for US-style business training.
But with more countries adopting and adapting international standards, he focuses on the foundations of financial statement analysis to assess the direction of companies, no matter where they are based. For example, in the US mortgage crisis, for all the complexities of structured finance, there were simple signals of problems in banks’ accounts. They showed a rise in uncollected loans, or provisions for them, long before the crash happened.
“Bad accounting is universal and it leads to disasters,” says Prof Govindaraj. To understand financial statements, “you need to find unifying principles that apply across countries, and that’s really hard. It’s almost like the physical sciences, which distil the basic rules that govern the universe.”
The accounting profession has taken steps to establish global standards, even if an alphabet soup has been created in the process.
Many countries have adopted International Financial Reporting Standards (IFRS), developed by the International Accounting Standards Board (IASB). The US Financial Accounting Standards Board has a project to harmonise US Generally Accepted Accounting Principles (GAAP) with IFRS, and it is working with IASB to develop a common conceptual framework for financial reporting.
The International Auditing and Assurance Standards Board (IAASB) develops standards for auditors and provides a “model” for national standard setters to benchmark their country’s rules.
“Many companies raise capital, source inputs and sell their products globally and so there are real benefits if countries can converge on how financial performance should be measured, reported and audited,” says Dennis Caplan of State University of New York Albany’s School of Business.
But given the importance of the US financial system, the particularities of its accounting rules are still relevant. HEC Paris, for example, covers the Sarbanes-Oxley corporate governance legislation in its mandatory financial accounting course for MBAs. US disclosure regulations receive more coverage in an advanced accounting elective for MBAs and in the Masters in accounting.
HEC’s foundation accounting course for MBAs focuses on IFRS, and includes cases from Europe, India, Latin America and Asia. “We try to adopt an a-national approach, with teaching primarily focused on IFRS and then the US GAAP”, says Vedran Capkun, professor of accounting and management control at HEC. “The cases used for teaching, however, are chosen to reflect a wider set of national contexts and regulatory requirements.”
Managerial accounting has also seen a change of focus over the past two decades. Traditionally centred on budgeting, it has moved on to rolling forecasts, predictive analytics and the social and environmental impact of businesses.
All of these give information critical to managing an organisation and its risks. “It’s another major jolt for us, to design incentives that align managers’ incentives with the long-term interests of the firm and stakeholders such as customers and shareholders”, says Afshin Mehrpouya of HEC. “This is especially a challenge for the global firm, with teams that work together across geographical boundaries”.
Management accounting courses have also increased their focus on differences between nations. For example, China has a more consensual approach to management and develops targets more for teams than for individuals.
“You have your strategic goal but implementation of that strategy differs in each market and you identify which risks you are willing to assume and how to address them in ways that are acceptable and not acceptable”, says Raef Lawson, research director for the Institute of Management Accountants. “In an international context, you do things very differently.”
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