Question

Critically examine factors that influence contemporary accounting practices or standard setting in transition countries.

1.5k words

Answer 1

Accounting is affected by the environment in which it operates, but at the same time, it is one of the factors impacting on this same environment. This is a fact that points to the interdependency of accounting and its environment. A country’s accounting system is affected by a variety of historical, economic, socio – cultural, institutional, and other non – accounting factors, so it is highly unlikely for the influential factors of any two countries to be exactly the same. Therefore, it can be logically assumed that the factors affecting the development of a country’s accounting system are also the generators of special national traits and, thus, the generators of differences between accounting systems at the international level. After all, just as countries have different histories and political and legal order or even value systems, so will their accounting systems have more or less differing development and operating model.

Several comments on influential factors can be singled out from the literature. For example: For example, Saudagaran (Saudagaran, 2004, 3 – 7) lists ten influential factors, while pointing out that this is not an exhaustive list, and that the intensity of differences in accounting at the international level depends upon the intensity of dissimilarities of individual factors between countries. In this case, he lists the factors that affect a country’s accounting development . In addition to the above, influential factors can also be classified as (Choi, Mueller, 1992, 39 – 43).

Based on the above classification of influential factors, the factors that certain authors particularly emphasise, several influential factors have been singled out and are explained in detail in the following section.

1. CAPITAL MARKET : The term “capital market” encompasses both the level of development of financial instruments and the globalisation level of a given capital market. t primarily depends on who are the investors or creditors (individuals, banks, a state), who are the information users and what are their information needs, as well as how many of them there are and what is their association to business entities.

For example, in countries whose businesses raise funds by issuing securities, investors see financial reports as a very important source of information about the performance of these businesses because investors have limited access to alternative sources of information. Hence reporting is directed towards and focused at their information need, regardless of whether they are investors in stocks or bonds, as countries with this type of system also have developed proprietary securities markets as well as debt securities markets.

2. LEGAL SYSTEM : In accounting systems, which are under the influence of Anglo – Saxon rules and in which rules are set based on individual decisions, accounting rules and policies are set by professional organisations operating in the private sector. This type of legal system is more adaptable, more innovative and more topical than the system described above, and it focuses on transparent and timely financial reports, as well as on the information needs and protection of investors.

3.POLITICAL AND ECONOMIC RELATIONS AMONGT COUNTRIES : The impact of this factor is also evident through history, with invading countries imposing their political, as well as their accounting system on the countries they have conquered and colonised. It is also a fact that many countries, upon gaining independence, have continued to use the same political and accounting system even though it no longer suits their current needs and economic situation, whereas others have opted for a different political and accounting system. The influence of a political system is reflected in the strong effect of other cultures on certain countries because of their size (small), low level of their development or their previous colonial status.

4. INFLATION : accounting for inflation is required, and is therefore more developed and pronounced in economies with high inflation levels, consequently leading to differences in accounting systems as a result of different inflation levels. Regardless of this, there are opinions that the level of inflation is not a crucial influential factor in elucidating the differences between accounting systems, although it could possibly be the cause for differences in accounting practices of those accounting system belonging to the same category (Nobes, 1998, 175). According to this perspective, a certain level of inflation will trigger a reaction in every accounting system, and procedures for accounting inflation will be applied. In this, it is crucial to know who will react and how: will it be the professional accountants or the state within the framework of the tax system.

5. Size and Forms of business ownership : The accounting system of developed countries with complex forms of business enterprises will differ from the accounting system of developing countries. The head offices of large and complex businesses producing and selling beyond the borders of their home country and generating profits greater than the gross domestic product of less developed countries, are generally located in developed countries. Accordingly, accounting and financial reporting will be more complex and demanding than in less developed and developing countries, whose economies are characterised by many smaller business enterprises with less complex operations and, in turn, with simpler accounting coverage and monitoring, as well as financial reporting. In other words, different accounting systems are generated.

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