QUESTION 4 Existing accounting practice in almost all developing countries was i

Question

QUESTION 4 Existing accounting practice in almost all developing countries was imposed by developed countries initially through colonialism and then through the operations of transnational corporations, professional accounting institutes, and the special conditions in economic aid agreements, rather than in response to the societal needs of those countries,' (Hove, 1986) Explain and critically discuss this statement. Support your discussion with examples from one or more developing, transitional or emerging economies as well as arguments and findings from academic studies. [50 marks]

Explanation / Answer

Many developing nations are in debt and poverty partly due to the policies of international institutions such as the International Monetary Fund (IMF) and the World Bank.

Their programs have been heavily criticized for many years for resulting in poverty. In addition, for developing or third world countries, there has been an increased dependency on the richer nations. This is despite the IMF and World Bank’s claim that they will reduce poverty.

Following an ideology known as neoliberalism, and spearheaded by these and other institutions known as the “Washington Consensus” (for being based in Washington D.C.), Structural Adjustment Policies (SAPs) have been imposed to ensure debt repayment and economic restructuring. But the way it has happened has required poor countries to reduce spending on things like health, education and development, while debt repayment and other economic policies have been made the priority. In effect, the IMF and World Bank have demanded that poor nations lower the standard of living of their people.

A form of globalization and global trading where all nations prosper and develop fairly and equitably is probably what most people would like to see.

It is common to hear of today’s world economic system as being “free trade” or “globalization”. Some describe the historical events leading up to today’s global free trade and the existing system as “inevitable”. The UK’s former Prime Minister, Margaret Thatcher, was famous for her TINA acronym. Yet, as discussed in the Neoliberalism Primer page earlier, the modern world system has hardly been inevitable. Instead, various factors such as political decisions, military might, wars, imperial processes and social changes throughout the last few decades and centuries have pulled the world system in various directions. Today’s world economic system is a result of such processes. Power is always a factor.

Capitalism has been successful in nurturing technological innovation, in promoting initiative, and in creating wealth (and increasing poverty). Many economists are agreed that in general capitalism can be a powerful engine for development. But, political interests and specific forms of capitalism can have different results. The monopoly capitalism of the colonial era for example was very destructive. Likewise, there is growing criticism of the current model of corporate-led neoliberalism and its version of globalization and capitalism that has resulted. This criticism comes from many areas including many, many NGOs, developing nation governments and ordinary citizens.

ACCOUNTING IN DEVELOPING COUNTRIES: A CASE FOR LOCALISED UNIFORMITY M. H. B. PERERA* Massey University, New Zealand 1. INTRODUCTION Accounting is a product of its environment, and a particular environment is unique to its time and locality. The differences in accounting practices’ between countries, as highlighted over the last two decades by academic research [Mueller, 1967; 1968; Zeff, 1972; American Accounting Association (AAA), 1976a; 1976b; 1977; Choi & Mueller, 1984; Gray, Campbell & Shaw, 19841, as well as in other studies carried out by professional organisations [American Institute of Certified Public Accountants (AICPA), 1964; 19751 and international accounting firms (Price Waterhouse, 1973; 1975; 1979), have been attributed, accordingly, to a variety of environmental factors under which these practices take place. While some writers have attempted to link the identified environmental factors to national accounting practices (e.g., Seidler, 1967; Mueller, 1967; 1968; Previts, 1975; Nobes, 1983; 1984), others have sought to analyse the accounting practices of different countries with reference to a variety of economic, social, political and cultural factors (e.g., AAA, 1977; Da Costa, Bourgeois & Lawson, 1978; Frank, 1979; Nair and Frank, 1980). The former is a deductive approach, and the latter is an inductive approach to the international classification of accounting systems (Gray, 1985). Before examining the accounting environments of developing countries it is important to explain the meaning given to the term ‘developing countries’ for the purpose of this discussion, as it is capable of being defined in a variety of different ways. The countries referred to here are those in the so-called Third World. The Third World refers to countries that do not belong to the Western world centred on the US, or the Eastern world with the USSR as a centre. Some writers even distinguish a Fourth world composed of the poorest countries of the world. An examination of the accounting development patterns of most developing countries reveals that they had little chance to evolve accounting systems which would truly reflect the local needs and circumstances.

1

The Role of IFRS in Economic Growth of Developing Countries

Dr.Dritan Fino

Abstract

Accounting plays an important role in the economic affairs of a country such as thecalculation of national and personal income, the administration of taxation and creditfacilities, the costing of government expenditures, and the appraisal of investments andfinancial reporting of corporations to the markets.The quality of accounting information is vital to the functioning of a company, andtherefore to efficient resource allocation. Accurate information about the financial performance of the enterprise is essential for planning and control purposes, and it is crucialto every economic decision. Hence, the accounting rules must be properly designed in orderto not allow the distortion of financial facts, which would then lead to the misallocation ofresources in non productive uses. Nowadays, the world economies are increasingly interlinked. As a result, as McKee andGarner (1992) argue, the accounting services will have to adapt in order to meet the wideningneeds of the business community. Therefore, the international community has been workingtoward establishing international accounting standards that would assist in compiling sound,understandable and comparable financial statements of across borders.The efforts for international accounting standards setting started in 1973 when theInternational Accounting Standards Committee (IASC) was established in London, and theyculminated in 2005 when the European Commission (EC) began requiring all EuropeanUnion (EU) listed companies to prepare their consolidated financial statements according tointernational accounting standards.Many developing countries are trying to adopt IAS/IFRS (hereinafter, referred to asIFRS) issued by IASB and its predecessor IASC that will help companies to prepare usefulaccounting information for domestic and foreign investors. However, the adoption of these

accounting standards faces many difficulties related to these countries’ traditions and

characteristics of economic development.Accounting system in developing countries should be considered as part of the necessaryinfrastructure to achieve economic development. Accounting has a significant role in a

country’s information system, the magnitude and the strength of which can determine in large

part the rate at which the economy will progress. Thus, sound accounting systems need to beestablished with the ultimate objective of providing reliable information support for theeconomic development process.This paper analyzes the applicability of the IFRS in developing countries and their role ineconomic growth. The main topic discussed here is the relationship between accounting andeconomy in these countries

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