Financial Reporting in Developing Countries: A Review of Related Issues

Dr. Monirul Alam Hossain Assistant Professor in Accounting

Department of Accounting and MIS University of Hail

P.O. Box 2440 Hail, Kingdom of Saudi Arabia.

Tel: +966-6-5345382 (Residence) FAX: +966-6-531-0500

E-mail: monirulhossain@yahoo.com or mahossain108@hotmail.com,

hossain@uoh.edu.sa

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Financial Reporting in Developing Countries: A Review of Related Issues

Abstract

Issues concerning developing countries in relation to accounting, and in particular international

accounting, have generated considerable interest among accounting scholars and practitioners in

developed and developing countries, and authors have examined them from different standpoints.

In recent years, research work has been undertaken relating to developing countries which deals

with the accounting and reporting practices of academics, professional accounting organisations

and international accounting firms. The accounting systems of developed countries have been

claimed to be unsuitable to meet the needs of developing economies. This paper has focused on

the development of accounting, the need for a financial accounting system, the development of

accounting standards and the British accounting influence with regard to developing countries. It

has been found from the discussion that developing countries attach much importance to IASs

often without considering their socio-economic, cultural and environmental differences.

Furthermore, the British influence is prevalent on the accounting systems of many developing

countries and other colonial powers (e.g. American, Dutch, French etc.) have also influenced

certain developing countries. Developing countries should consider the social, cultural,

economic, political and environmental factors to determine the accounting systems which suit

their needs individually because their need is different from that of developed countries.

Harmonization of international accounting standard is mainly driven by the needs of developed

countries. The standards used by developed countries hardly consider the needs and requirements

of the investors and other users of accounting information in developing economics. This can

create great anomalies in using the IASs in the financial reporting of developing countries. There

are researchers who advocate a uniform accounting system for the developing countries.

However, uniform accounting practice requires thorough and an in-depth research on the

economies of developing countries.

Key Words: Developing Countries, Accounting Systems, Accounting Standards, Financial

Reporting, Colonial Power.

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Financial Reporting in Developing Countries: A Review of Related Issues

1.1 Introduction

The term “developing country” has been used in conjunction with “third world country”, “less-

developed country” and “underdeveloped country” by researchers. Issues concerning developing

countries in relation to accounting, and in particular international accounting, have generated

considerable interest among accounting scholars and practitioners in developed and developing

countries, and authors have examined them from different standpoints (Jaggi, 1973). In recent

years, research work has been undertaken relating to developing countries which deals with the

accounting and reporting practices of academics, professional accounting organisations and

international accounting firms (Ahmed and Nicholls, 1994).

It has been argued that most of the developing countries‟ industrialization, political institutions

and cultures are largely influenced by the socio-political traditions and philosophy of the colonial

powers by which they were ruled (Perera, 1989). The development of accounting standards in

developing countries is no exception to this. Here, Perera's comment is worthy of mention:

" 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. Their existing systems are largely extensions of those developed

in other countries, particularly the western capitalist countries such as the UK and USA.".

(Perera, 1989; p.141)

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These systems are either imposed through colonial influence or by powerful investor or

multinational companies (Perera, 1980; Chandler and Holzer, 1984; Belkaoui, 1985; and Hove,

1986). Hove (1986) identified that (1) colonial rule; (2) operations of transnational corporations;

(3) professional accounting institutions; and (4) the special conditions in foreign aid agreements

are the vehicles by which accounting technology was imposed by developed countries on the

developing countries.

The accounting systems of developed countries have been claimed to be unsuitable to meet the

needs of developing economies (Lawrence, 1996 and Hove, 1986). Lawrence (1996) opined that

“it is likely that inappropriate external financial reporting systems result from historical ties with

developed countries” (p.195). There are several reasons for this. For example, in many

developing countries the accounting system and system of professional accounting education are

the legacy of the former colonial power and have not been developed indigenously; and many of

developing countries are members of the IASC and have adopted the IASs with or without

modifications. Also, the influence of multinational companies is strong in less developed

countries. However, it has been argued that if developing countries replace their old and

inappropriate accounting systems by new ones, it might do more harm than good for them

(Solomons, 1980, Samuels and Oliga, 1982). Again, Belkaoui (1988) argued that international

harmonization attempts which are currently dominated by Anglo-American accounting principles

and practices are merely legitimising certain values world-wide and may be harmful to

developing countries.

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The organisation of this paper is as follows: Section 2.2 describes how accounting evolved in

developing countries; Section 2.3 relates to the need for a financial accounting system in

developing countries; Section 2.4 focuses on the development of accounting standards in

developing countries and Section 2.5 describes the likely influence of the British accounting

profession, and accounting and reporting system and the system of regulation on financial

reporting and regulations in developing countries followed by the conclusion of the paper in

Section 2.6.

1.2 Development of Financial Reporting Practices in Developing Countries

Each developing country is “different in terms of GNP, population, culture, degree of literacy,

economic and political systems- factors which invariably have an impact on the nature and extent

of financial reporting” (Wallace, 1993; p.3-4). There is a considerable diversity in the stage of

development achieved by developing countries (as classified by the United Nations) and a

considerable difference in the amount of development, particularly industrial development, that

can be realistically achieved by each of them (Lawrence, 1996). Development of accounting in

developing countries is very important for the evolution of a meaningful international accounting

structure. It is difficult to ignore the need for suitable financial accounting systems in the

emerging nations in which two-thirds of the world's population are living. Developing countries

cannot afford to wait for accounting to evolve as it has in developed countries because the

influences that shaped accounting in developed countries are most unlikely to occur in the

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developing countries by the same degree. The main reasons for differences in accounting

systems between developed and developing countries may be as follows:

(a) The cultural differences between the developed and the developing countries;

(b) differences in social, political and institutional system;

(c) differences in economic development; and

(d) technological gaps between the two groups of countries.

The extent of information disclosure, its adequacy, relevance and reliability are important

characteristics of financial reporting practices prevalent in a country. The financial reporting

practices of a country depend on several factors- the legal, economic, political, cultural and

historical factors which form the basis of financial reporting environment of a country.

Accordingly, practices in developing countries remained more or less the same as they were

when they imposed on them initially by the western countries which colonised them. Developed

countries make continuous efforts to improve the quality of financial reporting and try to ensure

that financial reports contain reliable and adequate but not excessive information for decision

making. In recent decades, the changes in the financial reporting frameworks in many developed

countries have been significant. However, in developing countries such efforts to improve or

reconstruct financial reporting remain negligible.

There are studies dealing with many different dimensions of financial reporting and corporate

information disclosure in the western capitalist market economics. There is a constant review of

the financial reporting practices followed by these industrialised countries leading to regular

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promulgation of legislation dealing with corporate disclosure and reporting practices1. But there

is a dearth of research dealing with the financial practices of the developing countries in general

and the adequacy and reliability of published financial reports in particular. Not many studies

can be found that deal specifically with the question of whether the available financial

information of financial reports in developing countries are able to meet the user's needs.

It is very difficult for a developing country to have its own indigenously determined accounting

system. Many developing countries' corporate legislation, including financial disclosure

requirements, are based on the British Companies Acts of 1948 or earlier, and often such

countries adopted British legislation as their own companies acts with little or no modifications.

India, Pakistan, Bangladesh are examples of former British colonies which followed the British

accounting system without taking into consideration their domestic social, cultural, and

environmental factors. In many developing countries corporate legislation remained unchanged

over many years although the United Kingdom has had several amendments to the original acts

to respond to changing requirements in the corporate environment (Hove, 1986; pp.82-83).

Wallace (1993), after reviewing the literature regarding accounting systems, accounting

professions, education systems and regulations in relation to developing countries found the

following hindrances blocking the path of the further development of accounting systems in

developing countries:

1 This is evident from the host of amendments in the British Company Law (in the UK), the

Securities and Exchange Commission (SEC) promulgation in the USA, IAFC releases, new IASs,

new FASB statements and SSAPs, FRSs and so on.

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„(i) only few of these countries have accounting professions;

(ii) an accounting perspective has been neglected in the development plans of many countries;

(iii) very little sustained accounting, and development research has been undertaken;

(iv) there are many structural, cultural and historical obstacles to the healthy growth of

accounting; and

(v) because of the limitation of funds and other resources, difficult questions of priorities

cannot be tackled‟.

(Wallace, 1993; p.18)

Juchan (1978) observed that there was a tremendous influence of Australian and New Zealand

accounting and financial reporting practices in two developing countries (Fiji and Papua New

Guinea) which he studied. He found that both the countries had shortages of qualified

accountants and that accounting information for operational decisions was often unavailable,

untimely and/or incomplete. He also observed a lack of adequate accounting in government and

government agencies. Parry and Groves (1990) suggest that there is a pressing need for further

research to make accountants more effective at improving the quality of accounting, to specify

accounting manpower needs, to develop proper training policies and to improve management

education and awareness for the quality accounting information in developing countries.

A key question facing researchers and policy makers is how can developing countries develop

their existing accounting frameworks satisfactorily? Researchers like Enthoven (1981) suggest

that developed countries can assist in providing consultancy services for adapting existing

accounting practice to suit the needs of other developing countries. Enthoven (1981) suggests

that transferring accounting knowledge from a developed country to a developing country may be

through international and regional development banks, training service corporations and

multinational firms in collaboration with the government of the respective developing countries.

8

However, Enthoven argued that where developing countries are in need of assistance for

accounting education from a developed country, the donor country should be aware of the needs

of the developing country before such assistance is given. Again, the diversity of environment in

both developing countries and developed countries means that it is difficult to say which

developed countries‟ accounting systems should be considered by which developing countries.

The respective levels of the influential factors that shape a nation‟s accounting systems need to

be considered (e.g., the level of government control, the extent and ability of the accounting

profession, the influence of the tax system on commercial accounting, the social objectives of the

country and any cultural trait that influence the acceptability of an accounting system, etc.)

(Lawrence, 1996; p.206-207). In another study Enthoven (1985) commented that the profession

of accountancy in many developing countries is poorly organised and accounting practices tend

to be inadequate. He suggested more technical assistance to local accountancy professions and

more training facilities, and that accounting principles should be carefully evaluated within the

whole economic structure. Further, increased uniformity of accounting principle in the world

should be a long-range aim.

1.3 The Need for a Financial Accounting System in Developing Countries

Historically, the rate of growth and the development of a nation‟s economy in both the private

and public sector are tied to a certain extent to the adequacy of accounting systems and the

accounting development process in a country. Financial reports must be designed to meet local

information need. The economic conditions and the needs of developing countries demand the

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improvement of all components of the accounting establishment. Just as the needs of the

developing countries are different from developed countries, so are the needs of different

developing countries (Chandler and Holzer, 1984). Although developing countries are by no

means homogeneous, they share a number of political and economic problems, leading to many

problems in accounting (Radebough and Gray, 1993). It is argued that accounting can play an

important role in the economic development process of the developing countries (e.g., Enthoven,

1981). However, there is a lack of significant awareness in such countries regarding this.

Subsequently, many development economists are not aware of the potential importance of

accounting to economic development (Scott, 1970), despite its importance in the evaluation of

aggregate economic performance, development programming, private enterprise development,

and the establishment of capital markets (Needles, 1976). Lawrence (1996) suggested that

particular forms of statement be developed along with the profit and loss account and balance

sheet and advocated that “value added statements, employment reports, education and training

reports, analysis of shareholders, cash flow statements or sources and application of funds

statements and long form audit reports may all prove useful, even if they have to be produced in

simplified form to meet local conditions” (Lawrence, 1996: p.203).

The objectives of accounting in developing countries are not identical to those of developed

countries (Briston, 1984). Each national accounting and business environment is different and

may require an accounting system with a different approach from that used in other countries

(Jagetia and Nwadike, 1983).

Accounting in most developing countries is still in an embryonic stage (Jaggi, 1973).

Accounting systems of a developing country should be relevant to the country‟s needs rather than

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imitating a developed country‟s accounting system (Briston, 1978; and Samuels and Oliga,

1982). There are several studies where the researchers cast serious doubts about the relevance of

the western accounting principles and practices that developing countries adopt (e.g., Briston,

1978; Samuels Oliga, 1982; Perera, 1975) and argue for the creation of a system for each

developing country which is appropriate to its own requirements (Briston, 1978).

The main drawbacks of the financial accounting and reporting systems of developing countries

have been summarised from the previous studies by Wallace (1993) in the follow manner:

“poor internal control, lack of management accounting concepts, incomplete, inaccurate

and late reports as well as unauditable systems and shortage of staff (Holzer and Chandler,

1981, pp. 23, 24); unreliability (Mahon, 1965, pp. 34, 35 and Singhvi, 1968); inadequacy

(Seidler, 1967); and rudimentary and offering management little or no vital information (Seidler,

1966, p.653); and irrelevant and deficient reporting”.

(Jagetia and Nwadike, 1983, p. 73)

As already noted accounting technology has not only been exported through colonialism but also

has imposed on developing countries without careful examination of local conditions and

suitability. It is essential for developing countries to consider „the ever-changing needs of society

and (the accounting system) must reflect the social, political, and economic conditions within

which it operates‟ (Hove, 1986). Jagetia and Nwadike (1983) advocate the need for more

relevant and useful accounting systems which consider the environmental variables in operation

and the level of sophistication of users of financial information in developing countries and state

that developing countries need systematic and carefully planned accounting systems designed to

meet the unique requirements of the individual country‟s accounting and business environments.

Again, Briston (1978; p.109) suggests that instead of blindly embracing colonial systems,

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developing countries should concentrate upon an assessment of their information needs in the

enterprise, government, and national accounting sectors and should seek to establish training

programmes to produce the staff for the provision and use of that information.

There is limited evidence that developing countries are attempting to utilise accounting in their

development programmes as far as is possible (Jaggi, 1975). There is also little evidence of

proper adoption of accounting practices in developed countries to suit local situations. So far, no

developing country has been able to construct a system of accounting designed primarily to meet

its own information needs (Briston, 1978; p.116). In Zimbabwe, for example, the Companies Act

is still based on the British Act of 1948 and there is general application of all international

accounting standards with modification. The impact of this situation can be clearly seen from the

following comments of Seilder:

„... ... in a number of the less developed countries, information systems which provide

reliable financial data are few in number … … each time a production, pricing or investment

decision is made without adequate knowledge of its consequences, the probability of misdirected

efforts, wasted resources and economic loss is increased.‟

(Seilder, 1966, p. 653)

As a result developing countries suffer problems. For example, the present accounting system

practised in developing countries may be incapable of disclosing information that may enable the

government to find out the use of transfer pricing techniques for tax avoidance or evasion

purpose. The developing countries must ensure that their accounting practices mirror their social

needs.

12

We have noted the importance of economic, cultural, political, and social conditions, and the

arguments of several authors that each developing country should create an appropriate

accounting system to its own needs (Belkaoui, 1985). However, Perera (1989) argued that

accounting practices based on a uniform approach for developing countries might be appropriate

and opined that it may be the only practical alternative available to many developing countries.

The IASC, the United Nations, and the OECD have undertaken attempts to standardise financial

reporting practices across the world, including developing countries. However, it may be argued

that there is greater difficulty in developing uniform accounting practices in developing countries

than in developed countries. Despite this, there are proponents who believe that an integrated

macro-based accounting system should be adopted by the developing countries (e.g., Enthoven,

1973, Mirgani, 1982, Shuaib, 1980; and Abdeen, 1980)2. The capital markets in most of the

developing countries are underdeveloped. In developed countries (e.g., UK and USA) capital

market and financial reporting are closely related. The improvement of the quality of accounting

in any developing country requires proper research to accurately determine a country‟s particular

accounting needs, and the role of accounting in the countries economic development process.

1.4 Development of Accounting System and Standards in Developing Countries

As noted above, many international and regional organizations (e.g., the IASC, the IFAC, the

United Nations and OECD) are engaged in the problem of national and international

harmonization of financial reporting and they need to consider the above mentioned issues in

2 See Wallace, 1993, p.21-22 for a detailed discussion.

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designing uniform accounting practices for developing countries. There are many developing

countries whose accountancy professions are the members of the IASC. As noted, many of the

developing countries adopt IASs with or without modifications. For example, the Government of

Pakistan issued in 1986 an ordinance requiring compliance with IASC standards. Also, Cyprus

and Zimbabwe adopt international accounting standards (IASs) after reviewing process as

national accounting standards, whereas Pakistan, Malaysia, Malawi and Trinidad and Tobago

adopt IASs without any modifications (Wallace, 1990).

The IASC was formed in 1973 to bring about harmonisation in the accounting and reporting

practices of individual countries. By the end of 1991 more than 100 accounting bodies

representing some 80 countries had become members of the IASC. It has so far issued 32 IASs

(IASC, 1996) covering most important accounting issues. The IASC does not have any legal

power to enforce its standards. It is argued that the IASs have done a great deal to improve and to

some extent, harmonise financial statements of different companies from different countries so

that they can be readily compared and understood by users throughout the world.

There are researchers who favour the adoption of IASs by developing countries. Developing

countries which are unable to mount their own standard-setting process can adopt IASs (Mason,

1978, p.124). Those developing countries having inadequate or weak professional accounting

bodies or regulatory agencies and incapable of producing indigenous accounting standards can

adopt IASC pronouncements at negligible costs (Peasnell, 1993). Reasons for such wholesale

adoption may be to:

“.... ...a) reduce the setup and production costs of accounting standards,

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b) join the international harmonization drive,

c) facilitate the growth of foreign investment which may be needed,

d) to enable its profession to emulate well-established professional standards of

behaviour and conduct; and

e) legitimise the countries status as a full fledged member of the international

community”.

(Belkaoui, 1985)

However, the adoption of IASs by a developing country may have no impact on the accounting

system of the developing country unless they are mandatory. Some researchers are opposed to the

adoption for IASs by developing countries. For example, Samuels and Oliga (1982,p.72) warn

that international harmonization may do more harm than good for the Third World if it pre-empts

the possibility of changing the old, inappropriate accounting systems and evolving new ones

which are better suited to their development needs.

International accounting standards, which may result from the internationalisation of accounting,

may be designed to assist users to make decisions at an international level, which may be for

different from the needs of users from developing countries. As Belkaoui argues:

“The international accounting standards for various transactions occurring in the

advanced countries may be totally irrelevant to some of the developing countries as these

transactions have little chance of occurring or may be occurring in a fashion more specific to the

context of the developing countries. The particular situation occurring in the developing

countries call for specific and local standard setting”.

(Belkaoui, 1985)

Thus, Belkaoui argues that the IASC has failed to fulfil the needs of developing countries in

preparing its accounting standards. To meet the needs of developing countries, IASs may have to

be revised (Peasnell, 1993). The IASs should be modified by the respective developing countries

15

keeping in mind the economic, social, political and environmental needs of the country. In this

way, the IASC can assist in improving the financial reporting practices in developing countries.

It is argued that there is a close relationship between accounting and economic growth. Larson

(1993) tried to identify a relationship between the adoption of the IASC's standards and

economic growth in developing countries. His study of 35 African countries revealed that those

countries that have adopted and modified IASC's standards have experienced significantly higher

rates of economic growth than those countries that either have not adopted IASs or have adopted

them without modification (Larson, 1993). Whilst on the other hand, India, Kenya, Nigeria,

Bangladesh, Sri Lanka and several other countries use IASs as bases to develop their national

accounting standards. Briston and Wallace (1990) observed that Tanzania has made much greater

progress than those developing nations which have blindly adopted the IASs without any concern

for their relevance to their own environment.

Gray, Shaw, and McSweeny (1981) state that the problem of developing accounting standards of

disclosure and measurement for MNCs in LDC is complex, multi-dimensional and dynamic.

Significant disclosure and measurement issues in the context of the development of accounting

standards for multinational companies are concerned with both financial and non financial

information relating to:

(a) employment conditions and prospects, organisation, production, investment and the

environment;

(b) segment information particularly on geographical basis or multi-analysis by activity and

country;

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(c) transfer pricing and their impact; and

(d) foreign currency translations, etc.

Many developing countries do not have the economic and technological capacity and capability

to develop their accounting and reporting standards. They have therefore, accounting standards

issued by a developed country or the accounting standards issued by the IASC. The desire to

ensure a smooth flow of international investment may also be a factor for such adoption or

adaptation.

In most of the developing countries, compliance with accounting standards is not legally

required. Such practices of voluntary compliance has not always worked well even in developed

countries. In most developed countries, compliance with accounting standards now has a legal

basis for at least some categories of companies. Developing countries should see that at least the

large companies and multinationals are legally required to prepare their financial statements in

accordance with national accounting standards. This can be done through amendments to

companies acts of individual developing countries. Unless the compliance is made at the national

level, there is little scope for effective global harmonisation of accounting standards.

1.5 The Influence of the British Accounting System on Financial Reporting and Regulations in Developing Countries

17

Almost all developing countries inherit their accounting system from western accounting and

their influences have a great impact on most of the developing countries‟ accounting systems3.

Hove (1986, p.82) in finding out the mechanisms for the transfer of developed country

accounting practice to developing countries, observed that existing accounting practice in almost

all developing countries was imposed by developed countries initially through colonialism, and

then 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. A similar view has been taken by Belkaoui (1985) who opined that accounting

in developing countries has for a long time been result of the spread of western accounting which

in turn results from colonialism, or powerful foreign investors, or through the influence of

multinational companies, foreign aid, and education.

Among the various influences, colonialism can be said to be the most effective way by which the

accounting techniques of developed countries were imposed on their former colonies and in

developing countries, it can be observed that their is a strong colonial influence of accounting

system on them by the former colonial powers (Chandler and Holzer, 1984; Briston, 1984 and

Hove, 1986). As observed by Chandler and Holzer (1984):

"... ... we find that most countries that were formerly British colonies have been greatly

influenced by British model of accountancy education, financial reporting, the accountancy

profession, and governmental accounting. A similar influence can be found in countries that

were formerly part of the French colonial empire."

(Chandler and Holzer, 1984)

3 American, British, French and Dutch influences can be found in most of the developing countries.

18

During the British colonial period, British accounting traditions were spread to many countries

which were under British rule by a system of training local people in those traditions so that they

could be employed in managing British business interests (Perera, 1975). It has been argued

previously that Britain has been directly or indirectly a model for most Commonwealth in states

which UK companies acts have adopted (Briston, 1978). The British model has been criticised

for over-emphasizing external reporting (Briston, 1978) and as being inappropriate to the

information needs of developing countries (Hove, 1986).

In India, Pakistan and Bangladesh, it can be observed that there is a strong influence on their

accounting and financial reporting systems of the former British colonial power. These countries

have been greatly influenced by the British model of accountancy education, financial reporting

and the accounting profession. The British professional accountancy bodies succeeded in

exporting their culture, associated accounting techniques and examinations to India, Pakistan and

Bangladesh through economic, political and cultural influences. These countries adopted British

legislation without regard to local conditions in the first place and as a result, their corporate

legislation and requirements for financial reporting practices followed the British accounting and

financial reporting model and this legislation remained unchanged over many years in these three

countries. In addition, there is a great influence of the British accounting system on the

accounting education system in India, Pakistan and Bangladesh. Since these countries have been

independent for many years and are developing countries one may expect that divergence from

the UK model would begin to occur as financial reporting practices adapt to the needs of the

changing environment and an underlying similarity resulting from the strong British influence

before and possibly after their independence.

19

In the case of many developing countries the domestic accountancy profession has not developed

so as to have its own model and it is not a surprise that they follow their colonial master for their

model for professionalisation. A number of developing countries ruled under the British regime

developed accounting professions after the British model. Similarly, it can be found that former

French colonies tried to develop their accounting profession after French model. The British

accounting system and the associated accounting profession was consequently prevalent in the

then British India as a result of 180 years of colonial rule. The impact of British colonial rule on

the legal and political systems of India can be very clearly seen in the Indian companies acts

regarding requirements relating to accounting and reporting (Jaggi, 1973). Subsequently,

Pakistan and Bangladesh have inherited the British accounting system and accounting profession.

The British influence on the accounting systems of former colonies has been referred to as the

most strong compared to other colonial regimes in the world. As observed by Briston (1984; pp.

107-108)

"In a number of countries, of course, the British influence is very long standing, and

almost all of the colonial territories in which any substantial degree of industrial development

took place under British rule will have had imported upon them a British Companies Act within

the usual reporting and auditing requirement's".

(Briston, 1984; pp. 107-108)

Parker observed that

20

„the British professional accountancy bodies succeeded in exporting their culture,

associate accounting techniques and examinations to the British Empire and Commonwealth

through economic, political and cultural influence‟.

(Parker, 1989)

The British model of professional accountancy and accounting qualifications was exported from

the second-half of the 18th century and by the end of the 19th century, the British Empire

covered Canada, the Australian continent and New Zealand, much of Southern, Central, East and

West Africa, India, Ceylon (Sri Lanka), part of East Asia, and numerous islands in

Mediterranean, Caribbean, Atlantic, Indian and Pacific Ocean (Parker, 1989).

The role of British professional accountancy institutes in imposing their accounting practices on

less developed countries is significant (Hove, 1986). Chaderton and Taylor (1993) cite that in

the case of West Indies:

„… … … the role of the professional accountancy bodies of developing countries in

establishing the accountancy professions and accounting systems of other countries is well

known and, the initial influence came clearly and strongly from colonial power, Britain‟.

(Chaderton and Taylor, 1993)

Similarly, the Nigerian accountancy profession has indiscriminately applied the accounting

practices of its former colonial master without proper modification to meet its needs (Jagetia and

Nwadike, 1983). The professional accounting institutes in India were established and were

empowered to impart theoretical education as well as on-the-job training to accounting

profession aspirants. (Jaggi, 1973). In the same way, in the former British colonies in Africa,

tradition in the universities and the influence of the companies acts still operating in the countries

rather pervasively dictate the choice of the English accounting model (Seidler, 1967). However,

21

the accounting professional model of the UK has been criticised for a reliance on self-regulation

which may be inappropriate for a third world country (Parry and Groves, 1990).

1.3 Conclusion

This paper has focused on the development of accounting, the need for a financial accounting

system, the development of accounting standards and the British accounting influence with

regard to developing countries. It has been found from the discussion that developing countries

attach much importance to IASs often without considering their socio-economic, cultural and

environmental differences. Furthermore, the British influence is prevalent on the accounting

systems of many developing countries and other colonial powers (e.g. American, Dutch, French

etc.) have also influenced certain developing countries. Developing countries should consider the

social, cultural, economic, political and environmental factors to determine the accounting

systems which suit their needs individually because their need is different from that of developed

countries. Harmonization of international accounting standard is mainly driven by the needs of

developed countries. The standards used by developed countries hardly consider the needs and

requirements of the investors and other users of accounting information in developing

economics. This can create great anomalies in using the IASs in the financial reporting of

developing countries. There are researchers who advocate a uniform accounting system for the

developing countries. However, uniform accounting practice requires thorough and an in-depth

research on the economies of developing countries.

22

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