ACCOUNTING CERTIFICATION IN CENTRAL ASIA:
A FIVE-COUNTRY STUDY
Robert W. McGee
Florida International University
ABSTRACT
Ever since the fall of the Berlin Wall and the implosion of the Soviet Union, centrally planned economies in Eastern and Central Europe and Central Asia have been struggling to convert their economic systems from central planning to the market. One facet of this transition is accounting certification. Under the old Soviet system there was not much need for accounting certification because Soviet accounting resembled bookkeeping more than the developed accounting systems used in advanced market economies. After the transition began, accounting certifications began to emerge but their quality was questionable, at best. It was possible to purchase accounting certification, which destroyed credibility. A few years ago the United States Agency for International Development started implementing accounting education and certification programs in some of the former Soviet republics. This paper reports on the progress that has been made in the area of accounting certification in the five Central Asian republics.
INTRODUCTION
When the Soviet Union imploded it left a big vacuum. Central planning had failed, as Ludwig von Mises (1920; 1951) and others (Hayek, 1935; Hoff, 1981; Lavoie, 1985; Pierson, 1902) had predicted, but there was nothing to replace it. Well, actually there was something to replace it – the market – but the transformation process could not be accomplished overnight. It would take years before there was visible progress and decades before the transformation from central planning to a market was complete.
Enterprises had to be privatized (Doukas, Murinde, & Wihlborg, 1998; Engerer, 2001; Lieberman, Nestor, & Desai, 1997; Liebereman & Kopf, 2007), new enterprises had to be permitted to come into existence and the entire economic, political and legal systems of more than 20 countries had to be transformed. Property rights, which had been practically nonexistent under the various communist regimes, had to be protected (Engerer, 2001; Hu, 1998; Uvalic, 1992). A strong rule of law had to be established. Corruption had to be vastly reduced so that the new economies could survive and prosper. Foreign investment had to be attracted (Deichmann et al., 2003; Turnock & Carter, 2005). And all of these things had to be accomplished as soon as possible.
Problems in making the shift from central planning to the market became apparent immediately. Nothing like this had ever been attempted on such a grand scale. There were no blueprints or guidelines. Practically no one in any of these formerly socialist countries had a clue as to how to start the process. Very few of the existing bureaucrats or academics understood how market economies worked. Practically none of them had any experience in the West. Those who went to the West to work or to study tended to stay in the West. They seldom returned home.
External assistance was needed. Luckily, there were many organizations, both public and private, that were ready to rush in to fill the void. The World Bank, the International Monetary Fund, the United States Agency for International Development (USAID), TACIS and other institutions provided guidance and funding, as did George Soros and the dozens of foundations he established. After a period of time, the transition process started to take shape. Different countries used different approaches. Some took the shock approach while others took a more gradualist approach (Popov, 2007). The only thing that was certain during the early stages of the transition was that there would be no going back. There would be no return to central planning, although it remained to be seen how the market would replace socialism. The Schumpeterian thesis (Schumpeter, 1942) that socialism would triumph even though it was an inferior economic system was apparently disproved by the events of history. But no one could predict with any degree of certainty how the future would evolve.
Many articles and books have been written about various aspects of reform in transition economies. The studies that have been made of financial system reform have focused mostly on reform of the banking system (Bonin, 1998; Sundararajan, Petersen, & Sensenbrenner, 1997) or the attempts to establish stock markets in the various transition economies (Claessens, Djankov, & Klingebiel, 2000). A few studies have examined various aspects of accounting (Enthoven, et al. 1998; McGee, 2008b; McGee & Preobragenskaya, 2005c, 2006c) or tax (McGee, 2008a) reform. Not much has been written about reforms in the area of accounting education or accounting certification. The present paper is intended to partially fill that void in the literature.
The goal of the present study is rather modest. It is to report on the progress that the USAID accounting certification project has made in five Central Asian republics.
LITERATURE REVIEW
The first substantive work on accounting reform in any of the former Soviet republics was done by Enthoven et al. (1998). This study mostly examined the accounting system, although chapters were also devoted to auditing and taxation. One chapter summarized the then current state of accounting education in Russian universities.
One of the earliest studies of post-Soviet accounting education was done by Grant (1992), who looked at changes in university level accounting education in Poland. McGee and Preobragenskaya (2005a) updated and expanded on the Enthoven et al. study and reported on recent developments in accounting education in Russia (Preobragenskaya & McGee, 2005). Another study focused on just the accounting education in Russia that was being provided by the private sector (Preobragenskaya & McGee, 2004d). A similar methodology was used to examine accounting education in Ukraine (McGee & Preobragenskaya, 2006a). Comparative studies have been done of accounting education in Ukraine and the USA (McGee, 2005f) and Russia and the USA (Preobragenskaya & McGee, 2004b).
McGee (2003; 2005d) reported on the reform of accounting education that was taking place in Armenia. Other studies looked at the reforms that were taking place in university accounting education in Bosnia and Herzegovina (McGee, 2005g) and how professors in Bosnia and Herzegovina were being trained in the new accounting (McGee, 2005e). Preobragenskaya and McGee (2004c) suggested some guidelines for reforming the accounting curriculum in Russia that were based on the experiences in Armenia and Bosnia and Herzegovina.
After the collapse of the Soviet Union, accounting certification went in two different directions. The Association of Chartered Certified Accountants (ACCA), an organization that provides English language certification exams that are recognized in more than 100 countries, started giving its exams in several former Soviet Republics. The advantage of ACCA exams was that they covered the basic principles of western, market-oriented accounting systems, something that was totally lacking in the former Soviet republics. Another major advantage of ACCA certification was that their certifications were not for sale. It was impossible to purchase an ACCA accounting certification, which gave such certifications instant credibility, a feature that the various local certifications lacked.
The problem with giving English language exams in former Soviet republics was that a large percentage of potential certified accountants would not be able to take the exams because of insufficient or nonexistent English language skills. USAID and TACIS, its European equivalent, recognized this fact, and so initiated the introduction of Russian-language equivalent certification exams into some of the former Soviet republics. Teams of translators were hired to translate ACCA exam preparation materials into the Russian language. Other USAID-funded projects translated additional English-language materials into Russian for use in the accounting certification programs it was establishing in some former Soviet republics.
A few studies have been done on various aspects of accounting certification in the various former Soviet republics. McGee (2005b) conducted a general study of the former Soviet Union that examined both accounting education and certification. Another study examined the question of whether accounting certification in Armenia should be based on the U.S. model (McGee, 1999b). Another study announced the arrival of the ACCA’s English language certification exams in Armenia (McGee, 1999b). McGee, Preobragenskaya and Tyler (2004b) examined English language certification in the CIS, Eastern and Central Europe. Another study examined just Russian language certification (McGee, Preobragenskaya, & Tyler, 2004a). Other studies discussed both English and Russian language certification in Russia (Preobragenskaya & McGee, 2004a; McGee & Preobragenskaya, 2005b).
Russian language certification studies were conducted for Russia, Ukraine, Moldova and Central Asia (McGee, 2005a) and Central Asia and the former Soviet Union (McGee & Preobragenskaya, 2006b). One study (McGee, 2005c) focused on the effect that Russian language accounting certification would have on Russia’s energy sector.
ACCOUNTING CERTIFICATION IN CENTRAL ASIA
After the collapse of the Soviet Union there was a need to totally reform the accounting and financial system of each of the 15 former Soviet republics. The accounting system that was used to account for economic activity under a centrally planned system was inadequate for a market economy. Indeed, according to some eminent economists the system in use throughout the Soviet Union was even inadequate for central planning purposes, primarily due to the lack of a pricing system that could allocate resources based on supply and demand (Mises, 1920, 1951). Where true costs were unknown, it was impossible to allocate resources efficiently to their highest uses.
During the early 1990s USAID initiated a series of accounting reform projects in several former Soviet republics. Those projects were similar in some respects to the accounting reform projects that it had been providing in Africa since the 1970s.
Several reasons were given for the need for these certifications. For one, none of the existing certifications in the Russian zone have much credibility. In some countries, certification can be bought outright. In other cases, the exams are not sufficiently challenging to foster much credibility. Foreign investors are not impressed to see financial statements that are certified by accountants or auditors who possess a local certification. Thus, there was a real need for a certification that is perceived to be of high quality. The only truly international accounting certifications, such as the ACCA, CMA and CFM, are only offered in the English language, which greatly limits their accessibility within the Russian zone. The ability to attract foreign capital could be enhanced if a credible certification existed within the Russian zone that was widely accepted across borders. Such certification would be more credible and more valuable than a conglomeration of national certifications of questionable value.
The Russian language accounting certification programs funded by USAID are given at two levels. At the lower level is the Certified Accounting Practitioner (CAP), which consists of three examinations – Financial Accounting 1, Management Accounting 1, and Tax & Law. Candidates must also demonstrate computer literacy and have at least one year of work experience.
At the second level is the Certified International Professional Accountant (CIPA). This certification consists of four exams – Financial Accounting 2, Management Accounting 2, Finance and Auditing. This level of certification requires three years of work experience [www.pragmacorp.com/ar.htm].
The CAP and CIPA exams are given in the Russian language and are modeled after the Canadian Certified General Accountant (CGA) designation. The content of the exams complies with the International Federation of Accountants [IFAC] International Education Guidelines and UNCTAD’s Global Curriculum for Professional Education of Professional Accountants, as do the ACCA exams. According to Sholpan Assangaliyeva, Executive Director of the International Council of Certified Accountants and Auditors (ICCAA) and holder of the American CPA, the CIPA exam “is sufficiently high and not less difficult in some cases than the CPA exam.” The content is different in some cases but in the case of the auditing exam the content is the same as the American CPA (McGee & Preobragenskaya, 2006c: 224).
The first CAP and CIPA exams started in Central Asia in 1997. The first country to introduce the CAP exams was Kyrgyzstan. The exams spread to Kazakhstan, Tajikistan and Uzbekistan in 1999 and to Turkmenistan in 2001. Table 1 shows the number of exams given in each of these five Central Asian republics from 1997 to 2006. The 2007 data were not available as of the writing of this paper. As can be seen, participation in the certification programs started slowly in each country and then shot up rapidly.
Table 1
Candidates by Country
Year / Kazak. / Kyrg. / Tajik. / Turk. / Uzbek. / Totals1997 / 68 / 68
1998 / 283 / 283
1999 / 336 / 489 / 2 / 18 / 845
2000 / 565 / 930 / 20 / 365 / 1880
2001 / 518 / 614 / 32 / 1 / 244 / 1409
2002 / 3083 / 2495 / 681 / 160 / 1958 / 8377
2003 / 9011 / 3190 / 1365 / 231 / 2630 / 16427
2004 / 5830 / 3994 / 1473 / 269 / 2874 / 14440
2005 / 7068 / 1809 / 745 / 297 / 2131 / 12050
2006 / 8321 / 1446 / 433 / 542 / 2788 / 13530
Totals / 34732 / 15318 / 4751 / 1500 / 13008 / 69309
The following five charts show the growth of the exams for each country.
In all cases the rise in the number of exams taken has been rapid. In the countries where the exams were first given there has been somewhat of a decline in recent years. At first thought one might assume the decline was because many of the individuals who are interested in taking the exams had already taken them by the end of 2006. In the case of Turkmenistan, the country that started offering the exams most recently, the number of exam takers has not yet started to decline.
However, that is not the reason for the decline. Correspondence with USAID in Central Asia found that the reason for the decline in the number of people taking the exams was because they started charging a fee to take the exams. When the exams were first offered, individuals could take them for free. Once they started charging a fee, demand for the exams declined. It is a perfect example of price theory, supply and demand. As of this writing the exams are still given free of charge in Turkmenistan. A look at the graph shows that Turkmenistan is the only country that did not register a decline, which makes sense, given the reason for the decline.
The next chart combines the figures of all five Central Asian republics and arranges them by year. As can be seen, the number of exam takers was modest for the first five years, then jumped dramatically in 2002 and doubled again the following year.