Accounting standards for Developing Countries


We live in a dynamic society whereby everything changes with time. Globalization has taken full charge on the global society and has brought along loads of requirements. Globalization demands many of the aspects of all societies be synchronized so that the whole global society reads from the same script. One of the major aspects of globalization is the synchronization of the economic and financial institutions and this has led to the need for invention and implementation of a global accounting system that will ensure the whole global society harmonize their way of dealing with accounts and financial issues. In this article an argument is made on why international accounting standards do not fit well for the developing well.

A detailed argument is made touching on various aspects which differentiate between finance systems in developed and developing countries. The article touches on other aspects apart from finance aspects which have an effect on the accounting systems of a region. The article brings out and discusses aspects which make it hard for the developing countries to adopt the international accounting systems which are seemingly developed to suit developed countries.

In general, this article tries to show that it is not possible for the developing countries to adopt the international accounting system and that there will be a need to have a starting point which will be upgraded to the international accounting system. The article gives a suggestion that the developing countries should have their own accounting systems which will better address the financial needs for such countries.

Background Information

The concept of international accounting standard (IAS) began in the western community in 1966 and up to date many accounting standards have been added and others revised. However, it is worth noting that this concept originated from the same communities that brought about globalization and as such the concept was more favorable to the developed countries. The implementation of the same to the developing countries has been faced with both support and criticism owing to the fact that there is much difference between the developed and the developing countries in a variety of aspects.

It is therefore imperative to study and understand the differences in these two different setups in terms of political and legal frameworks, economic differences, social factors as well as cultural and religion issues and their influence on the harmonization and implementation of international standards in developing countries. This will enable us to support the argument that. Developing countries should produce accounting standards which meet their own particular needs.

International Accounting Standards

A developing country is defined as a “country seeking to advance to a higher state of economic well-being. This term would therefore include a wide range of countries mostly found in Africa, Asia and Latin America” (Oberholster, 1999, p.8). Hossain (2003) defined accounting standards as “norms of accounting policies and practices issued by the accounting bodies, national and international, for the guidance of their members regarding the treatment of the item which made the financial statements and their disclosure therein” (Hossain, 2003, p. 3).

The year 1973 marked the formation of International Accounting Standards Committee (IASC) whose role was to oversee the harmonisation of accounting and reporting procedures of member countries and by the year 1991 the membership had risen to 80 countries albeit most of them from developed countries (Saudaqaran, 2009, p. 3). Acceptance of this concept hardly materialised in the developing countries due to the following factors discussed below

Cultural Factors

It is evident that culture plays a very important role in almost all aspects of the society. Culture is believed to be one of the strongest influences on international accounting system. A report by Wiley (n.d.) argued that “culture is considered an essential element in the framework for understanding how social systems change because culture influences norms and values and group behavior within and across systems”(Wiley, n.d., p. 8).

Hofstede (1980) did a great job in analyzing the cross-culture psychology. He developed the cultural architecture and the different patterns that distinguish the various cultures in the global society. He developed the four classifications of societal values namely individualism versus collectivism, large versus small power distance, strong versus weak uncertainty avoidance and finally masculinity versus femininity. His studies and analysis indicated that there is a great difference in the power distance index between the developing and the developed countries. This means that developing countries are much more likely to prefer hierarchical governance systems, strong uncertainty avoidance, and lower individualism as compared to the developed countries (Hofstede, 1980, p. 6).

Gray (1988) worked on these concepts and developed models of how culture correlates to accounting. He came up with societal values namely professionalism versus statutory control, uniform versus flexibility, conservatism versus optimism, and finally secrecy versus transparency. These values are said to be the core drivers of the accounting culture of any society and thus understanding them helps us to understand the cultural differences in the two setups that is, where international accounting standards originated and the developing countries and hence deduce the reasons why the cultural differences demand a different accounting system for these developing countries (Gray, 1988, p. 5).

Generally, accountants do more than technical accounting tasks; they are driven by the cultural demands of the society for which they work for. According to the models, most of the developing countries such as Egypt are “collectivistic societies with large power distance and strong uncertainty avoidance” (Dahawy, 2007, p. 6). These countries are thus more likely to have a culture of government control, uniformity conservatism, and they are also likely to appreciate secrecy over their financial information this is in contrast with the most of the developed countries which are more likely to appreciate openness and transparency in their financial information , individualism (Notis & Bert, 2003, p. 1).

The best example is the conflict that arose in Egypt as a developing country when they were trying to adopt these international standards. It is reported that “international standards conversely require Egyptian accountants to exercise professional judgment increasing uncertainty and conflicting with risk aversion inherent in Egyptian culture; in addition IASS switch the focus of accounting from taxes and measurement of communal well-being to profit measurement with more extensive disclosures” (Dahawy, 2007, p. 7).

Since the international accounting standards are based on openness then introducing them to the society of developing countries without certain changes to reflect their accounting and financial information culture will only result to crisis and resistance. The best way to navigate through this cultural accounting problem will be to adopt the international standards piece wise or better still develop own standards that reflect the culture of the society. Dahawy (2007) suggested a possible solution to such a crisis in Egypt “the incompatibilities between the secretive Egyptian culture and the required disclosures by imported IASS will generate conflicts that will be resolved by selective implementation of IASS” (Dahawy, 2007, p. 8).

Language barrier could be one of the biggest drawbacks in the implementation of international standards in developing countries. Most of the developing countries still use their native languages as the national languages and this may bring problems in the interpretation and implementation of this concept. Developed countries may have an undue advantage in that they use the widely used communication languages such as English and French (Notis & Bert, 2003, p. 1).

This suggests that developing countries should be allowed to develop their own accounting systems based on the languages that they understand best in the same way developed countries used their native languages in the formulation of these international accounting standards. A report by GCA raised the issue that “there are translation and linguistic concerns; the translation of IFRS into other languages poses a very significant challenge — one we shouldn’t underestimate” (CGA, 2006, P.1)

Politics affect virtually all activities and operations of any country and as such political influence on how developing countries perceive and interpret the concept of international accounting standards cannot be ignored. Sawani (n.d.) shared the same sentiments in his claim that “the political environment naturally segues from the legal environment; accounting literature is in agreement that the political environment specifically stability and extent of freedom can and does influence accounting doctrine” (Sawani, n.d., p. 3).

Since the political arena in developing countries is arguably totally different from the developing countries then they should be allowed to have their own accounting standards which best fit their political perspectives. A good example is in the case of Zimbabwe whereby their political stand on western interference with their state does not favor any interference with their internal accounting affairs.

Sawani (n.d.) also argued that “freedom can and does influence accounting doctrine for example; the level of freedom and civil liberties in a country has a direct influence on the extent of financial information disclosure” (Sawani, n.d., p. 4).

If the international accounting standards conflict with the legal structures and framework of a given country, then we expect incompatibility and in such a case adoption may never materialize. This prompts us to think about the general legal structures of the developing countries and their influence on the accounting systems of those countries. It can generally be argued that most of the developing countries have a common denominator in that the government structures and the legal systems governing accounting and financial issues aim at addressing common social problems such as poverty and economic imbalances in their countries. Legal requirements take the first priority and as such adoption of the international standards becomes a conflict of interest.

It is reported that in Egypt, tax codes forbids consolidated reporting and it is a mandatory requirement that companies present their accounting reports independently. This is in conflict with the requirements of the international standards which on contrary demand consolidated reporting. The companies find themselves in the center of a conflict as they try to comply with both sides. Either way the companies will have to lose.

Presenting consolidated report becomes illegal in a regime where tax compliance is the first priority. Presenting two reports is still not a legal option. The only viable option available is to do away with the international accounting standards. Such a gridlock can only be solved by locally engineered accounting standards that will be based on the legal structures among other factors (Hadawy, 2007, p. 11).

Economic Factors

Perhaps the greatest difference between the developing and the developed countries is in the financial power. Most of developed countries have very strong economies with representatives such as the Unites states and the European Union countries. It is worth noting that the international accounting standards was developed and is also used in these strong economies. It may arise from the same assumption that some of the transactions supported in the international standards may be totally irrelevant to the developing countries. As a matter of fact Belkaoui (2004) argued that:

Indeed the international standards for accounting for various transactions occurring in the advanced countries may be totally irrelevant to some of the developing countries, as those transactions have little chance of occurring or may be occurring in a fashion more specific to the context of the developing countries. (Belkaoui, 2004, p. 152)

This may be best understood by taking the case of Zimbabwe which has been hit hard by inflation and the United States which is developed. While Zimbabwe may be willing to enter into the membership of ISAC and share the same accounting platform with mighty economies such as U.S. it may not be practical due to the large differences in the economic status. It thus comes out automatically that such situations would require the developing countries to formulate their own accounting systems depending on financial abilities. The same sentiments are shared by Samani “it comes as no surprise that Australia, with a well-developed economy, has well developed accounting practices whereas Libya, with a stagnant ill-defined economy has little accounting regulations or Guidelines” (Sawani, n.d., p.4).

On a different economic perspective, international accounting standards try to standardize the structure of capital markets. But different countries have different sources of their accounting data depending on the nature of their economic structures. Germany represents countries which rely on creditors and banks for financing of capital markets and would thus focuses its international accounting standards to protecting creditors and maintaining capital unlike U.S whose capital markets is equity oriented and thus aims at shielding their investors.

But when it comes to the case of developing countries most of the developing countries obtain part of their finances for capital markets from institutions which are likely to originate from developed countries and at the same time their economies may have been boosted by the developed countries a situation that demands separate accounting standards (White, n.d., p. 7).

Another economic factor is the differences in the market forces. The two set ups respond differently to the prevailing market forces. Whereas financial decisions and resource allocation in developed countries are made according to reflect the changes in the market forces the case is different in developing countries where financial and accounting decisions are specially tailored to meet their situations such as the need to mitigate economic imbalances in the country.

It is also worth noting that most crucial economic and financial decisions in developing countries are mostly influenced by the government unlike in the developed countries where such decisions lie in the hands of private investors (Bernan & U.N., 2008, p.14). This, it may be safe to argue, is due to such differences the international standards may not be the best for developing countries and thus they should be allowed to make their own standards (Oberholster, 1999, p. 8).

Oberholster (1999) gave a case of government influence on market forces in developing countries giving an example of South Africa whereby it is claimed that the government has the upper hand in regulating prices of pharmaceuticals and other resources.

He argued on and warned that “if the problems associated with the status of South Africa as a developing country are taken into account, the acceptance of the lASs without any attempt at making these more acceptable to unschooled users, could create even bigger problems” (Oberholster, 1999, p. 9).

Social Factors

The developed countries have a rich history of excellent accounting professionalism. Most of these countries are also the pioneers of these international accounting standards may seem to have an upper hand in accounting experience and expertise. This can be seen as a contrast with some of the developing countries which might even be struggling with their domestic accounting arrangements due to lack of enough excellent and experienced accounting framework. A research done by Hossain (2003) on international accounting standards in Bangladesh, a developing country, revealed that some of the companies failed to comply with disclosure requirements due to:

Difficulties in interpreting disclosure requirements and auditing guidelines; insufficient awareness of general accounting concepts; lack of proficiency of staff; management intention to “improve” the appearance of the companies’ financial position and results of operation; and lack of resources to keep abreast of the changes in the disclosure requirements. (Hossain, 2003, p. 11)

It is also believed that the number of accounting experts especially in Francophone countries is so small; getting the right number might take a lot of time. To understand the seriousness of this matter it is believed that “Even with a simplified version of IFRSs they will not be able to comply with, in the next 10 years; by 2020 they would struggle to comply” (Bruce, 2011, 1). Applying the international accounting standards which requires even more expertise in such a set up may make matters even worse and thus it may seem advisable to let such developing countries develop their own accounting standards which they can manage and perhaps introduce international standards when their accounting structures have fully developed as in the case of the developed countries.

Perhaps we should ask ourselves whether the two setups have the same reasons for preparation and presentation of their financial statements. Due to the differences in their priorities adoption of the accounting standards in developing countries may not work. While U.K may be concerned with their financial institutions reporting on their performance the case may be different in developing countries where they may need reporting that will enable them make national economic decisions that will enable them solve their own internal challenges.

One of the characteristics of developing countries is their big variation in the economic status within a country. Such countries are characterized by presence of large poor population and small rich population. In this case adoption of international accounting standards may result to resistance since the poor may see this as discrimination by the rich.

South Africa offers the best example whereby the adopted standards are seen to apply only to the first world section of the country’s corporate fraternity while remaining rather irrelevant to the larger population which is not economically strong. a report by Oberholster (1999) claims that “this is not an ideal situation seeing that a large part of the South African population, including the workers who are becoming a force to be reckoned with, do not understand or accept it as their own” (Oberholster,1999, p. 11). It thus becomes justifiable to argue that developing countries such as South Africa should adopt their own accounting standards that reflect the interests of the whole population (Oberholster, 1999, p. 11).

We may not be justified to discuss the issue of international accounting standards without discussing the impact it has on the corporations that have invested in either of the economies. Whereas developed countries have well established economically strong corporations some of which have international presence developing countries have a different class of corporations which may not be as well established and strong and also have an added burden of dealing with social economic challenges dominant in the developing countries.

Before we add yet another complex and costly obligation of meeting the requirements of these international standards we need to consider how well they can handle such a move. Diaconu and Coman (2007) shared the same views “This implies that corporation that have to deal with the national, social, political and economic pressure will be more hard pressed to comply with additional complex and costly international requirements” (Diaconu & Coman, 2006, p. 5).

One factor that we can’t fail to acknowledge is the fact that there has been a continual change in the international accounting standards as more revisions are put in place making both IAS and IFRS more complex with time at a rate that even the developing countries that have tried adopting the international standards fail to keep up with. The accounting standards have been undergoing technical revision and new improvements have been added especially to keep abreast with the convergence concept.

It is reported that more than 10 amendments have been made. One of the concepts that are believed to have affected the implementation of these standards is the concept of fair value model especially in the financial services sector. The worthiness of a given asset (fair value) is arguably a relative quantity in financial terms and determination of its exactness becomes extremely tricky and difficult if the standards are not specially tailored to accommodate the economic status of the given country (Basu & Saha, 2011, p. 20).

Kenya serves as an excellent example of a developing country that has failed to comply with the changes that have been introduced in the international standards despite being willing to adapt to them. U.N. (2007) claims that “the move towards the fair value model has also introduced complications; it is a subjective concept and is difficult to implement particularly in developing countries like Kenya” (U.N., 2007, p. 95).

The report continues to claim that “Kenya capital markets is still in its infancy stage and cannot be relied on to determine fair value for the financial instruments; auditors in Kenya lack reliable accurate reference points for some instruments” (U.N., 2007, p. 95). This evidence is clear enough to validate the need to have the developing countries engineer their own accounting standards which can best suit their financial and accounting development pace.

Do the international standards accommodate all classes and levels of investment structures? A general answer to this question may be argued about. The international accounting standards do favor large multinational companies that have huge profits and presence in almost all parts of the world. It doesn’t come by surprise that most of these multinational companies and corporations come from the developed countries where implementation of the international standards is not a major problem owing to the fact that these companies have the technical, financial and goodwill to comply with these requirements (Walton, Haller & Raffournier, 2003, p. 20). But what happens to the small and medium enterprises (SMEs) which arguably dominate the economic structures of most of the developing countries?

Such SMEs are usually owner controlled and their accounting and financial statements are usually for tax compliance and bank use. The SMEs unlike their well-endowed multinational corporations have little or no ability to lay down the accounting structures and supportive accounting expertise in accordance to the international accounting standards (Sale, 2007, p. 76). As a matter of fact U.N. (2007) admits that “due consideration should be made of the fact that SMEs are defined differently in developed countries than they are in developing countries; perhaps we need a very simplified set of standards for SMEs in developing countries” (U.N., 2007, p. 99).

Another social factor is the religion influence. It can generally be argued that international accounting standards originated from Judaic Christian western nations some of which happen to be developed. Their religious traditions and core beliefs are most likely to have an influence on the accounting principles and as such these standards may not be totally applicable to most of the developing countries which are believed to hold cultural beliefs dear. A good representation is that of the developing Islamic countries. These countries have a totally different view on financial and accounting concepts some of which conflict those stipulated in the international standards.

The Islamic faith emphasizes the obligations of the individual to society and not the rights of the individual. In contrast to the focus being on the owners of an entity as in Western accounting systems, the focus in Islam is on the Unity of God. Given this focus, the entire community and the affected environment require accounting information that focuses on social accountability rather than the more narrowly focused personal accountability found in Western accounting (Bruce, 2011, p. 1).

Islamic beliefs focus more on the obligations of people to the community and less on personal rights unlike the western idea of focusing on individual rights in the accounting systems. Islamic focus is more oriented to togetherness and thus their accounting systems will focus more on the accountability of the society as a whole as compared to the western model which is more focused on individual accountability. Such and many more major differences justify the need for a personal tailored accounting system for these Islamic developing nations to accommodate their religious perspectives (White, n.d., p. 8).


One major aspect of globalization is synchronization of the economic and financial institutions and this led to invention and implementation of a global accounting system in the name of international accounting standards. The international accounting standards have its benefits as well as weaknesses and its applicability in the developing countries has been questioned. Much evidence validates the need to have specially engineered accounting system for the developing countries. some of the issues that have been raised as pointers to the need for a separate accounting system for developing countries include political and legal frameworks, economic differences, social factors as well as cultural and religion issues.

Culture has been observed to be one of the strongest influences on international accounting system. Accountants do more than technical accounting tasks; they are driven by the cultural demands of the society for which they work for. Hofstede’s (1980) and Gray’s (1988) work correlating the cultural fabric and accounting was generally highlighted and it became evident that developing countries have a cultural characteristic nature that demands a different accounting system.

Language was one of the factors that hinder implementation of international standards as most developing countries use their native languages as the national languages and this may bring problems in the interpretation and implementation of this concept. Political influence on how developing countries perceive and interpret the concept of international accounting standards was discussed and it was observed that the international accounting standards sometimes do conflict with the legal structures and framework of some developing countries causing incompatibility a situation that demands compatible accounting standards.

Other factors included; difference between the developing and the developed countries is in the financial power differences, nature and source of accounting data differences in the market forces, influence of financial decisions by governments, inadequate financial, technical and goodwill to fit into the international standards, continual change and complexity of the accounting standards. Religious traditions and core beliefs are most likely to have an influence on the accounting principles and as such these standards may not be totally applicable to most of the developing countries which are believed to hold cultural beliefs dear


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