Accounting in Developing Countries
Accounting is positioned well to make a major contribution to thesustained development in the economy. By definition, accounting isthe whole process of recording transactions, preparing the financialstatements and reporting the financial performance of an entity tothe stakeholders in a true and fair way. The disciplines that areincludes in the accounting are auditing, financial accounting, taxand managerial accounting, The participants in the economicdevelopment of the country, rate the performance of the economicsectors based on the accounting reports that have been prepared bythe plays in these sectors. Information is a very vital tool infostering economic development. This is because investors rely onthe financial information to make an investment in the economy(McGee, 2007). As such, accounting has played a major role indeveloping the economies of countries around the world.
Accounting techniques and concepts have been changing with time. Thechanges come from a change in the environment within which thebusiness is run. The business surrounding factors that have led to achange in accounting practice include regulatory, conceptual,technological, social and cultural factors, legal and politicalenvironment. Changes are embraced differently in different economies.The state of the economic development that the country is in affectsthe accounting practice, that is, the accounting practices in thedeveloping countries and developed countries differ slightly (Dunning& Lundan, 2008). This paper will look at the state of theaccounting in the developing countries, and the way it has helpedthese countries to develop their economies. The paper shall also lookat the advancement in the accounting practices, in the developingcountries. This study endeavours to show the centrality of theaccounting in the development of the country’s economy.
State of Accounting in the Developing Countries
The accounting system of the country is affected by institutional,social, cultural, economic, and historical as well as othernon-accounting factors. This makes the accounting system of everycountry to differ from other countries because affecting factors aredifferent. Accounting system diversity has caused a lack ofcomparability between one country and another and has increased thecost as well as causing the diseconomy of scale. In order toharmonise the accounting system between different countries aroundthe world, IASB has formulated quality accounting standards whichoffer high quality and transparent accounting standards. Manycountries, especially in the developed countries have adopted thestandards of financial reporting while other countries especially inthe developing countries are considering implementing theinternational financial reporting standards (Uddin & Tsamenyi,2010).
Many economies of the developing countries are characterized by SME(Small and medium, enterprises). The economy still relies heavily onthe agricultural production. In the political arena, most of thedeveloping economies are recovering from colonization, internalwrangles or political hostilities. This has affected the level ofbusiness and investment in these countries (McGee, 2009). Before theyear 2000, many developing economies were reliant on the simpleeconomy. This overruled the importance of establishing a formalaccounting system to report on the functioning of the entities. Muchof the revenue of the governments was coming from donation andgrants. Managerial accounting was the most developed accounting(Dunning & Lundan, 2008). This is because it does not need muchregulation and it is carried out as per the need of the company. Theessence of the managerial accounting is to inform the management ofthe company on the state of the business.
Financial accounting standards were not much adhered to in manydeveloping countries by the year 2000. The small and medium, businessenterprises are excluded from remitting tax. The exclusion fromremission of tax makes it optional for the businesses to carry outformal financial accounting and reporting. Most of the businessemphasised much on bookkeeping and data entry. In the legalframework, most of the developing countries did not have the requiredlaws to ensure that proper and modern accounting standards are put inplace. The developing economies lagged behind in incorporating newaccounting concepts as part of their development agenda (McGee,2007).
After the year 2000, the financial accounting standards required allthe countries to ensure that their accounting system is per thestandards to enhance internal business. Internal business started toboom in the developing countries from the year 2000. Theinternational development of the business led to the integration ofthe formal way of doing business to the traditional way. Mostinternational firms started to enter the developing market economyand to expand their operations. The entrance of the internationalcorporations was led by the maturity of the economy in the developedcountries. Emergence of many multinational organizations has led tothe developing of the accounting system in the developing economy(McGee, 2009).
The most advanced development in the accounting is the embracing ofthe computerized accoutring system. After the year 2005, mostcountries have started to advocate for the computerized accountingsystem. This is helping the government to collect tax and helping theauditing of the firms to be time saving and cheap. The financialaccounting in the developing countries is done according to theinternational required standards, auditing has also become part ofthe growth in the economy. Many laws have been formulated in variousdeveloping economies of ensuring that each company reports their,performance in a fair and truthful manner (McGee, 2009). Computerizedaccounting system allows for the integration of tax, auditing andgeneral accounting system. The stem provides the information to theauditor, the tax authority and to the company. This ensurestransparency and truthfulness in reporting and preparation of thefinancial statements.
Impact of Economy
Accounting is very imperative for the growth of the economy. Theexcellent quality of the financial infrastructure is very essentialto the growth of the developing economies. This is because it offersthe investors a high degree of assurance that acts as an incentive toinvest in these economies. Accounting for the costs in all the smalland medium enterprise help the government to know the productivity ofdifferent areas and thus determine the extent of infrastructure thatshall be put in place. Accounting helps to create transparency in themanner in which business is done. Doing accounting in line with theinternational standards helps in the comparability of thetransactions in different countries. This helps the local companiesto expand to other economies (McGee, 2009).
Proper financial reporting helps to pool together a large number ofinvestors in the firm. This provides enough capital for investment.It also drives down the cost of capital to the firms and helps toreduce the regulatory arbitrage. The recent trend in accounting hasbeen the focusing on accoutring for sustainability. This accountingtakes into consideration the value of the projects that the companyhas indulged in that aim at helping the community, ensuring ethicalbusiness and catering for the environment. Accounting forsustainability will go the extra mile in boosting the rural economyin the developing countries (McGee, 2007).
Changes in and Expected Statein The Future
According to ACCA (2014), only one hundred states in the world haveused accounting standards that are accepted internationally. Most ofthese countries are from developed economies. Most developingeconomies have not embraced the international accoutring standards.The countries use locally based standards that commensurate withtheir small economies and small businesses that characterize theeconomy. The backbone of many developing economies is agriculture.This is in contrary to many developing countries that areindustrialized thus having a well-established accounting system(McGee, 2009). Although, the developing economies have created lawsto regulate accounting, the laws in existence are not efficient inensuring standard accounting practices are observed. Manualaccounting is dominant in the developing economies. Most of theorganizations keep manual records of transactions.
As the economy of the developing countries grow the need for a moreefficient and comparable accounting system and standards is rising.The world economy has grown into one big global economy. Integrationof the economy will bring about the infiltration of the accountingtechnology advancement in the developing economies. In the future,all the developing economies will have computerized accountingsystem. The practice shall also be conducted as per the internationalreporting and accounting standards. In the future also, theregulation of the accounting profession and practice in thedeveloping economy will be more efficient. This will ensure that allthe local and internal firms observe the set standards. This willcreate harmony in the accounting field and help to develop theeconomy more (McGee, 2009).
Accounting in Australia and Its Impact in Country’s Development
Accounting in Australia is heavily regulated industry. Theregulations are to ensure that the practice is done in a transparentway and in-line with the international standards. Strictly,regulating the reporting and accounting in Australia has contributedto a high growth in the economy. The government can obtain enoughrevenue to sustain expenditures. This is because the government usestax systems that are easily integrated with the auditing andaccounting systems of both the corporations’ nada the auditingfirms. This ensures that the government and the regulatoryauthorities get the true and transparent financial reports on thefinancial performance of the organizations (Cooper & Sherer,2012).
The corporate laws set by the government regulate accounting inAustralia. Three major bodies, that is, ASIC, TPB and ITSA, regulatethe practice. The commission in charge of investments and securities(ASIC) is in charge of regulating the liquidators, auditors, companydirectors and financial planners. The Tax Practitioners Board (TPB)is in charge of the tax practitioners to ensure that they conducttheir business as per the law and the set standards (McGee, 2009). Onthe other hand, the trustee service in charge of Insolvency dealswith trustees who are in charge of the bankruptcy. These three bodiesand other small boards ensure that all the stakeholders in thefinancial sectors play their role.
Strict regulation of the accounting in Australia has ensured thestandardization of tax, auditing and financial accounting. Financialaccounting deals mainly in giving the information to theshareholders. The Australian law requires all the publicly listedcompanies to release their financial statement at the annual meetingwith shareholders that are held at the end of each financial year(McGee, 2007). During the AGM, the management account to theshareholders of how they have used their wealth in a transparent way.Good accounting practices in Australia have played a major role inluring many investors into the country pushing its economy atmaturity. Australia has many international firms and, therefore,standardization of the accounting helps the companies to comparetheir performance with the performance of their peers located inaround the world. They also them to analyse their branches located onother countries.
Accounting plays a major role in the development of the country’seconomy. Developing countries accounting system is not standardizedas per the international accounting and reporting standards. This islocking out the countries from the pool of potential investors whowant to invest in the economies that are transparent and wellmonitored. Various jurisdictions have formulated various laws toregulate the accounting practice, but they not very effective.Currently, many countries in the developing economies have notembraced the computerized accounting system. It is projected that, inthe near future, many countries will embrace computerized accoutringsystem as their economies continue to develop the countries are alsoexpected to embrace IFRS. Australia has many international firms and,therefore, standardization of the accounting helps the companies tocompare their performance with the performance of their peers locatedin around the world.
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