THE NEWLY INDUSTRIALIZED AND
DEVELOPING COUNTRIES
Xiv World Congress Of Accountants
October 11-14-1992
Washington, Dc
INDEX
Political Perspective………………………………………
Geographical Scope………………………………………
Standards Gap ………………………………………
Master Plan ………………………………………
Objectives ……………………………………...
Policies ……………………………………..
Resources …………………………………….
Education …………………………………….
Research …………………………………….
A)University – Based Research……….
B)Profession – Based Research………
C)Areas of Research ………..
Questions ………………………………………….
New Beginnings ……………………………………
I am delighted to be here with you today and there are, of course, many reasons for this. By far the most important, however, is the subject we are addressing. It demonstrates quite clearly that here, on the world stage, we are concerned about “ the accountant’s role in a global economy “ and that within this overall framework there is a determination that, in the newly industrialized and developing countries, the accountancy profession will not be left behind.
Let me start by being slightly political. I know that in the past I have sometimes been accused of being too political, with, of course, a small “p”. Let me elaborate. You cannot have an organization which has as its prime objective the development and implementation of standards on a worldwide basis without a policy (s) that seeks to achieve that objective. IFAC therefore, is in fact a political organization.
Indeed, it is not far fetched to argue that IFAC is the United Nations of the accountancy profession. It should be recognized as such, as it is part of the developing world and should act accordingly. Our assembly is about the security structure and about re – examining our role. After all, the Security Council of the UN has made my views and my opinion clear, and I am satisfied that I have had and will continue to have a fair hearing.
Nevertheless, this view of IFAC imposes a tremendous responsibility. The eyes of the world will always be upon us, judging not only what we do, but also that in doing so, we act fair.The idea of truth and fairness applies in lifemuch more than in reported financial statements. It imposes, in particular, a special responsibility and obligation that the leading nations have to accept, and today, we are of course, the guests of one of the most important of these, the United States of America. The world looks to such countries for leadership, not only in principle, but in action as well. I know that we will not be disappointed. Within IFAC’s constitution and administration, we have already developed the mechanisms for adopting this United Nations mantel with respect to the developing world. A great deal of good work has been done in recognizing that world’s needs, and contacts have been established with international agencies, such as the ISAR and the World Bank, who share the IFAC’s concerns. This session today is founded on such progress, so let us build upon it. But,in what way?
GEOGRAPHICAL SCOPE
I am well aware that the phrases“newly industrialized” and “developing countries”, do not cover a homogeneous group in which all members are identical. Of course, there are many similarities, but there are also many differences and each country must be viewed in light of these differences, particularly when considering and planning the implementation of detailed plans. I will return to this point because part of my theme is going to be the need to do, as well as to talk. It is also important to realize that what we were discussing today is not only of interest and concern to the developing countries. It has much wider political and social implications that affect the economic and political lives of the developed nations as well.
Although I represent Jordanin the IFAC, the interests and concern of my professional society, the Arab Society of Certified Accountants, and my own, extend throughout the entire Arab world, and it is throughthis background that my views are expressed and my assumptions are made. I have often spoken and written about the infrastructure needed for the development of the accounting profession in the Arab world and the path that we should followto achieve it, and about how we should both anticipate and follow in the setting of international accounting and auditing standards, as that would be the best way to harmonize such standards in the Middle East. This, I believe,also applies to all the newly developed and developing countries.
I am inclined to make two assumptions:
That first, an inventory of accounting practices, accounting and auditing standards, and the state of the profession can always be made for any particular country. Such a task is not free of difficulties because, among other things, the situation is rarely stable. Nevertheless, it can be done and international agencies, such as IFAC alongwithits regional accountancy organizations and committees and ISAR, have accomplished a great amount through their new works, conferences, and questionnaire surveys, and so on to build a body of knowledge in this respect.
Secondly, that such practices and standards need improvement in both an absolute and, probably more importantly, a comparative sense.
Weare able, therefore, to construct a database that would help identify the major weaknesses and the major strengths of individual countries with respect to their accounting standards.
Standards Gap
We have to acknowledge that there exists a standards gap. There is a gap in the practices by the accounting or auditing standards, or whatever it may be, between what takes place in the developed nations and those developing, and this gap is growing despite all of our efforts.It is growing because of two closely related factors: resources and technology. All of us appreciate that one does not have to be an economist to know that growth is a function of investment.The more resources you have, the more you can invest; this in turn leads to the generation of more resources and so on. Much of this investment in recent years has been in technology, especially information technology. These developments have often required a reappraisal and sometimes a revision of accounting practices in which the end result has been to widen the standards gap.
There is nothing new about this standards gap.Indeed, it has been the subject of discussion for many years, but what can be done about it? Its continuance is almost a symbol of the failure of many international agencies to achieve their desired goals, and it creates problems for all nations in terms of international capital markets, investments, harmonization of financial statements, and so on. It also has led to feelings of resentment in many nations, as they find themselves always running on a treadmill, destined to be forever trying to catch up, but never quite getting there.
I know that the standards gap is a difficult problem, but we cannot, indeed we must not, assume or accept that it will exist forever. What, then, can we do about it?
MASTER PLAN
We need a master plan.What is it that I mean by this? I presented a paper recently at another conference in the USA on the subject of the Arab economic recovery in the after – math of the gulf war. In it,I drew a parallel between the need for such a recovery and the dramatic and significant plan that generated the economic recovery of the European nations after World War II. What emerged from this European economic recovery was a Marshall Plan, named after USSecretary of State George Marshall, which laid the foundation for Europe’s economic recovery. Today, we need the same type of bold initiative from IFAC if we are to have progress in closing the Standards Gap.
IFAC’s master plan would haveas its objective, the creation of a mechanism for assessing the need for aid and for coordination and for judging requests for the allocation of such aid. It is essential that this mechanism should foster cooperation not only between the west and the developing countries, but also among the developing countries themselves. Under this master pan, the countries must submit plans to one of the organizations of European Economic Cooperation (OEEC), IFAC, or a joint IFAC/ISAR/ World Bank initiative. These organizations will have to assume the role of co – op bodies, and, thus, achieve a measure of agreement on priorities that would not have been recognized had each country been operating in its own national program. Each national society would insist onpreparing its own national program;an indication that purposeful cooperation could take place on a regional basis. Such a program would aim to bring every country up to the standards laid down by the IFAC at a specified time, optimistically by the end of this century. This is not an easy task, but very little that is worth doing is easy in life, and this cannot be a valid reason for not trying.
OBJECTIVES
The master plan would have as its objective one that is fairly easy to state, but, nevertheless, quite significant and complex in its application. The objective would be to progressively narrow the standards gap between the developed and the developing nations down to an acceptable level by the year 2000.
You will note that I have said narrow down to an acceptable level rather than eliminate. There will always be a gap, perhapsin general and, certainly, in specific areas, of the range and quality of accounting and auditing standards in various countries. However, the gap between the top group and the bottom group of countries must be confined to certain limits.
POLICIES
Having established our objective, we would next set the policies for those applications that would hopefully achieve this objective. A number of policies would be required, depending on the particular standards we are addressing – accounting standards, auditing standards, the state of the profession, continuing professional education, and so on. Policies would revolve around the answers we give to the questions that arise once we examine the data – base of information I referred to earlier, and from which we would derive the current position in a particular country or conveniently located group of countries.
RESOURCES
We must look for tangible assistance from the developed world. The involvement of the developing nations in the policy – making bodies of IFAC and IASC, for which I have long campaigned and the advisability of which I hope will soon be accepted, is necessary but not sufficient condition for closing the Standards Gap. Neither is the preparation of more and more guidelines and standards, regardless to whether they are suitably amended or not. Although both guidelines and standards are important, they do not tackle the fundamental problem of the Standards Gap and resource deficiency. We need help at the resource level and we should not be too proud to ask for it, given that it will also benefit those who provide it. Accounting and development go hand – in – hand. We cannot examine either in isolationPolitical stability is a stated aim of all industrialized nations upon which they recognize that their own economic growth is dependent on itself and is a function of economic and social stability.
The most significant factor in the success of the Marshall Plan was the ability of President Truman to persuade Congress to allocate the necessary funds and authorization to enable the program’s implementation. This was also not an easy task, but it did actually benefit the US economy; and now, in the world of accounting, IFAC should work to persuade the richer nations and the international funding agencies that it is in their interest as well to fund the closing of the standards gap.
EDUCATION
It is important for us to concentrate resources in the most important areas. As there will never be enough resources available for what we want to do, selectivity will have to play a role. This means weneed to determine priorities. If I may make use of a common phrase, “physician, heal thyself”, then I suggest that we apply to ourselves the advice we as accountants often give out clients: priority budgeting must be the order of the day.
Where should our priorities lie in developing the master plan? No doubt, we all have our own, perhaps different, views. Let me briefly give you my opinion: the top priority must be education.
Education is the foundation upon which any accounting capability is to be built, and for accounting, this means education at all levels – basic education, university education and professional education. Many of you know that I was one of the foundersand, currently, the president, of the Arab Society of Certified Accountants. One of the reasons for establishing this pan–Arab professional accounting society is my belief that a major reason for the Standards Gap in the Middle East is the lack of professional education and examination at an appropriated level. This gap, I think, will never close while we lack a society that would organize such examinations.
We should set about developing a master plan for education.Such a plan would not only identify the specific needs of individual considered. As the background to all accounting standards, research cannot be ignored.
Obviously, the scope and extent of what we do has to be governed in light of our culpabilities, and perhaps this is an area where through cooperation, we can get some agreed optimization of resources. But we must do something. Our input and contribution to the development of international accounting practices and standards must be based on our research in our countries, otherwise, such contribution will neither have the impact it should nor will these results and standards that have been formulated against a proper background be of relevant knowledge and information.
A) UNIVERSITY – BASED RESEARCH
The word research is used by many people to mean different things and I do not want to get involved in a discussion of definitionstoday. I will leave that to my academic colleagues. Perhaps I should, however, simply state that as far as I am concerned, research is the systematic critical or scientific inquiry. In my country we would call it “ alabhath”.
I am not concerned with the difference between pure research and fundamental research and who should do what. I am happy, for example,to let the universities do what the individuals in these universities are best in doing. In many of the Arab countries, for example, university teachers have been educated, trained, and qualified by the best western universities and, as such, are capable of carrying out research at a comparable level to their colleagues in those western universities. Often, of course, they do have the difficulty of getting access to appropriate information, and there is definitely a need for assistance to develop and build – up information data – banks, rather than have to rely on USA or European – based information. Indeed this is an area where international agencies such as IFAC and ISAR could play an important role by providing resources and drawing on the expertise of the academic community.
B)PROFESSION – BASED RESEARCH
In addition to university – based research, there is also a need for what is called professionally – based research. This is likely to be more applied than university – based research, but the difference is likely to be one of degree and motivation, rather than anything else. The principle sources of such research in the west have traditionally been the large national and international accounting firms and professional accounting societies. In the developing world, I do not think we can rely on the large national and international accounting firms – though, excellenttheir work may be- and ought, thus, to develop this capability within properly structured professional societies.
In many parts of the developing world, there are often no more than one or two national firms of any size and substancewhich are able to invest substantially in this type of research. The local offices of the large international firms are often quite small and, while they have access to the firm, the orientation of the firm’s research is bound to be towards the needs of the firm’s large national and transitional clients, not necessarily towards the country in which the firm operates.
The home of professionally – based research, i.e. the systematic and careful study into a particular accounting problem or standard, has to be the Professional Accounting Society. This is another reason why we formed the Arab Society of Certified Accountant (ASCA). We are fortunate because ASCA is a pan – Arab society covering all of the Arab world in general and, for IFAC purposes, forJordanin particular, and so the work we do crosses national boundaries,. It may be that regional associations of accounting societies and/or academic associations wouldbe convenient vehicles for the organization in carrying – out this type of research. Not only would they give such research a cross – boundary flavor, but they would foster international cooperation. We must acknowledge that each of us can’t do every thing, and that some planned sub – division of work, perhaps under the auspices of one of the international agencies, would make sense. We have many problems in common, so why not work jointly to solve them?
C) AREAS OF RESEARCH
If we are to carry – out research and if we have developed the infrastructure capable of doing so, then we need to spend some time identifying the areas that should be considered and put them in some sort of order of priority also, especially if trans- regional projects are to be undertaken. In the past, we have tended to be too reactive and not sufficiently pro – active in this respect. Should our priority be foreign currency translation or consolidated financial statements which always report on the real contribution made to a country or region by a trans – national corporation?