Exploring the global marketplace: succeeding locally involves thinking globally.

Walking through the spice markets of Tashkent or down the Champs-Elysees in search of something unique that I can't find at home, I am struck by two things:

* Nothing has changed in hundreds of years. Marco Polo, Christopher Columbus and other explorers couldn't resist the urge to trade in goods that they could not find at home, such as precious metals, spices and silks.

* Everything has changed. The world has become a much smaller place. It is more and more difficult to find things that are unique. I can explore the world's offerings and gather my trinkets via the Internet without ever leaving my living room.

The globalization of the markets is not limited to trinkets. Multinational corporations of all sizes take advantage of the availability of raw materials and lower labor costs overseas to provide us with a wide array of goods and services at lower cost. Foreign companies in growing numbers routinely raise money in U.S. financial markets, and U.S. investors increasingly seek to diversify through foreign investments. As of April the 48 major world stock exchanges listed 39,152 companies, of which 2,648 were cross-border listings.

The clients we serve, the companies we work for and the students we educate are all affected by the world economy. They will increasingly take advantage of the international opportunities that await them. There is no doubt this globalization of the world's markets has been enabled by technology, which allows us to reach millions of people around the world in a matter of seconds. That has created new opportunities for businesses and investors and new sources of capital for issuers.

Is this a good thing? My answer is "yes." We need to embrace the world economy. It is a powerful force for raising living standards around the globe. The free flow of goods, labor and capital lowers costs as it increases investment and provides jobs. Higher living standards around the world would contribute to economic, political and social stability. Whether we like it or not, globalization is happening. The real question is: How can we take advantage of the opportunities?

DISPELLING MYTHS

It is a misconception that international opportunities are available only to large, multinational organizations or that access to large amounts of capital and global reach are necessary to be successful. In fact, smaller and more nimble organizations can do quite well in the international markets. They can act quickly and focus on niche markets--such as specialized computer software or equipment or one-of-a-kind consumer goods--that larger companies may overlook or not be interested in serving. Furthermore, the financing needed is often less than anticipated.

We also need to remember that not all exports are physical goods. In fact, companies in the service industries make up the fastest-growing sector of the global economy, and the United States is the largest exporter of services. CPAs in public practice can advise clients interested in exporting the services they offer--and also can export their own services.

The advantages to exporting are many, including increased profits and the chance to take advantage of idle capacity and certain tax incentives, as well as expand the company's market. But, of course, there are risks. Small and midsize businesses or practices considering going international need to hire advisers familiar with laws and regulations, trade restrictions, distribution requirements and other business practices and standards in the countries where they will be working. Depending on the country, the business environment can be quite different From our own.

CONVERGENCE OF STANDARDS

Here in the United States, we are accustomed to an infrastructure with national rules that reduce risks--giving us the confidence to enter into transactions--and contribute to a smoothly functioning economy within our borders. The global markets require a similar set of international rules to achieve a smooth functioning of the market economy. These rules should protect things such as physical and intellectual property rights and privacy and ensure trustworthy digital transactions and ethical advertising.

In addition, globalization of the capital markets has increased the need for high-quality financial information. It is widely agreed, for example, that doubts about the reliability of corporate financial statements contributed to the breadth and depth of the financial crises in the 1990s affecting Asia, Latin America and Russia. Businesses, auditors, regulators and investors also would benefit from a common set of accounting standards characterized by consistency, coherence and ease of implementation and understanding.

Progress in this area has been made. In fact, the European Union has passed a regulation that requires listed European companies to comply with international financial reporting standards (IFRSs) in 2005 for their group financial statements. This EU regulation is an important step toward a single set of global accounting standards. For now, there are two major sets of standards being applied globally: U.S. GAAP and IFRSs. Regulators in other countries--Canada, Australia, Hong Kong and India, to name a few--also are working toward adoption of the IFRSs.

What does this mean for the U.S. accounting profession?

In the near term, it may appear that only large, multinational corporations and entities listed on stock exchanges in other countries are affected by IFRSs. However, this is not the case. For example, European parent companies may require their American subsidiaries to adopt international accounting polices. More important, any business that is engaged in transactions with entities that have already adopted IFRSs will need to understand the implications of international accounting. For example, a business in Iowa can access capital in Europe as easily as it can in Chicago. However, if differences in accounting standards create uncertainty about the Iowa business, a German bank will charge the company higher interest rates or origination costs to cover its risk. Variations in accounting standards raise the costs of capital for both U.S. and international companies by creating barriers to market entry.

In the longer term, global accounting will transition to a single platform. This may be several years away. However, in October 2002, FASB and the IASB issued a memorandum of understanding (the Norwalk Agreement) marking their commitment to the convergence of U.S. and international accounting standards. Further, FASB has undertaken several key initiatives to make convergence of U.S. GAAP with the IFRSs possible.

The SEC has affirmed its support for the convergence program and has developed a "roadmap" that highlights the steps needed to eliminate the U.S. GAAP reconciliation requirement for foreign private issuers that use IFRSs. The goal is to eliminate the requirement, possibly as soon as 2007, but in any case by 2009. This means that U.S. investors, even those that limit their investments to the U.S. capital markets, soon will have to understand the implications of international accounting standards.

Along with the accounting standards, international standards for audit and attest services are becoming more and more accepted worldwide. They commonly are used in cross-border operations and financing. As a result, U.S. CPAs, including small firm practitioners, are being asked to perform engagements in accordance with international standards to serve international businesses.

The AICPA's Auditing Standards Board is aligning its standard-setting process with that of the International Auditing and Assurance Standards Board (IAASB--an independent standard-setting body under the auspices of the International Federation of Accountants). The IAASB mission is to establish high-quality auditing, assurance, quality control and related service standards and to improve the uniformity of practice by professional accountants throughout the world, thereby strengthening public confidence in the global auditing profession and serving the public interest.

PREPARING FOR THE FUTURE

There are opportunities today for U.S. CPAs to increase their knowledge of international accounting and auditing issues in order to advise their clients and the companies they work for as those entities engage in more international business and consider greater international investment. The world is spinning faster and faster. Accountants overseas are becoming experts on the financial reporting standards that will be in effect in the United States before we know it. With continuing improvements in technology, they won't even have to leave the continent to serve our clients. For us to wait until tomorrow might be just too late.

Susan Jones, CPA, is partner in charge of auditing standards at Grant Thornton LLP. She was previously director, international, at the AICPA.