Egyptian Accounting StandardsTitleJaiden GrantInternational Developments In Accounting ACFI321711.01.2018Word Count:1362 Introduction Under the tallest building in theworld there is a foundation that secures that building in place and ensures itdoes not fall.
This is the same wayaccounting works it is the foundation that holds up businesses and financialmarkets. Records go back to 400-500bc of the first accounting records withtemples in this era recording all transaction and receipts.Every country adopts their ownaccounting system, they look at the needs of their nation and impacts of the environmentthey are surrounded in to come up with regulations the country’s business mustadhere to. This is why we have so many different accounting standards andsystems in place across the globe.
Egypt’s stock exchange dates backto 1882 being amongst some of the oldest stock exchanges in the world. Egypt inthe 1950’s had the 5th most active market in the world this was whenthey had a centrally planned economy with the spreading out of the public sector.This then gradually decreased the stock market until it was inactive for 30years forcing the Egyptian government to implement policies that would “liberalizethe national economy” (Dahway. 2007). Egypt is now one of the largesteconomies in the middle east and has undergone massive changes to itsaccounting system, this case will look at the Accounting System used by theEgypt, looking at the nature of the accounting system and comparing it to theInternational Financial Reporting Standards (IFRS). As well looking at thedifferences and their effects and looking at the possibility of fullconvergence with the IFRS. Main BodyThe governments firstmajor policy input that changed their accounting situation was in the 1970’s aftercontinuous years of Egyptian stock market stagnation the government implementedpolicy’s that was aimed to liberalize the national economy.
The foreigninvestment law implemented by the Egyptian government looked to boost foreign investmentsby forming business ventures with foreign investors, this policy not onlylooked at improving the country’s economy but also was aimed at allowing the Egyptianmarket the access to new technologies, industries and businesses. This was the “opendoor policy” which “revived the accounting profession in Egypt and continued tohave a role in regulating technical matters, where as previously accountants werenot allowed to have a role in government actions or policies.” (Dahway. 2007). This was the beginning of Egypt’sdevelopment into a market based economy.
1981 saw the Egyptian governmentcontinuing their direction by implementing a Company Act Law that allowed the establishmentof different private companies. As well as implementing regulations thatrequired private sector companies to audit their financial statements. These audits where less successful then theywanted when implemented as they failed to record transactions and accounting measuresused. In 1997 the EgyptianAccounting Standard was enacted due to the developments in accounting in Egypt aswell as the direction of the economy heading towards a market economy. The Egyptian Accounting Standards helpedinvestors gain crucial information on the industry. Dahwa explainsthat because “Egypt is heavily dependent upon foreign investments after theincreased privatization trends, accounting information tends to play a moreimportant role in the economy”. (Khaled Dahway 2007)The first Egyptian Accounting Standards was created by theEgyptian Society of Accountants and Auditors and in 1997 contained 19 sets ofaccounting standards, developed again in 2002 where they were increased to 22standards.
2006 came with a complete redevelopment of the 1997 and 2002 standardswhere 35 standards were created the most recent change was in 2016 where thereare now 39 standards, with many of these standards being based on theInternational Financial Reporting Standards. Many people say that the IFRS has a negative impact ondeveloping countries as the IFRS was structured around nationallaws, economic conditions, and objectives as well as being heavilyinfluenced by environmental factors such as culture, language and legal systemsand with developing countries being less developed in all of these areas it cancause an effect that impacts the economy. As the egyptians were developing a market economy theeconomy was widely successful on investment from foreigners, due to this Egypt hadto have an accounting system that allowed foreign investors to understand theregulations and markets. This is why the Egyptian Accounting Standard had IFRS inputas its accounting measures needed development for them to improve the market.Differences to IFRSThe Egyptian Accounting standards have 4 differences to theIFRS. The first is Standard, 1 this Egyptian standard contains information onthe presentation of financial statements and requires the circulation ofprofits to employees and directors to be decreased from retained earningswithout decreasing income on the income statement whereas the IFRS chargesthese as expenses.
EAS 10 is the next standard that differs from the IFRS, thisstandard states that unless Egyptian law approves, re-evaluation of a fixedasset is not allowed. Next Is EAS 19, where the IFRS contrast requires provisionfor loans to be deducted from owners’ equity whereas in EAS 19 the provisionsare instead deducted from income off the income statement. The final differenceis the EAS 20, which is the complete opposite to IFRS 17, which looks into theleasing laws in Egypt this is because the laws are based off the legal codes inEgypt this means that the lessor records their leased assets in his books and depreciatesit whereas the lessee records the value of payments of leasing contracts in theprofit and losses expenses.Stake Holders potential issues The Egyptian accounting system has been on a long and bumpy path,and still today has its problems. With the EAS implementing the IFRS the accountingquality is what has taken a hit since the adoption of IFRS. This is massivelydue to Egyptian culture as well as the laws that they follow. As the accounting system of a country issupposed to work in tandem with the country’s institutional system there is aproblem where, like Egypt, you introduce an accounting system such as IFRSwithout implementing institutional improvements. Therefore, if “IFRS are of higher-qualitystandards, the institutional features of Egyptian market could eliminate anyimprovement inaccounting quality arising from adopting IFRS.
” (Ebaid 2016). Thislinks in with the United Nation Review (United Nations Conference on Trade andDevelopment. 2008) which states that “Merely adopting internationallyaccepted accounting and auditing standards cannot ensure improvements incorporate financial reporting.” And Instead that there are three links in the enforcementchain that need strengthening. First, Company Directors must ensure thataccounting staff are applying accounting standards properly. Second, auditorsbeing able to act independently and portray a fair view of a business’sfinancial conditions and thirdly both self-regulatory organizations andstatutory regulatory bodies must implement arrangements for efficient monitoringof regulatory compliance and consistently take action against violators. Mohammed Yehya the Head of standards committee of The EgyptianSociety of Accountants and Auditors explained how the new standards will “improve the quality of financialstatements and standardized treatments and accounting policies by achievingmore disclosure and transparency which in return will help all parties understandand examine the financial statements and to take the economic and financialdecisions on a sound basis.
(Sherif Samy. 2007). With so many countries adopting IFRS there is many casesthat have worked and many cases that haven’t achieved convergence with the systembut I believe that the Egyptian Accounting Standard model has come a long way andwith focus on enforcing their standards on companies or looking at theirapproach to the implementation of IFRS, making sure that the standards fit withthe countries culture and environment. With Egypt’s current efforts being toalign their own EAS with the IAS I believe that their target is more than possibleand with a few significant improvements the Egyptian Accounting Standard willbe able to achieve close to full convergence with the IFRS. References Inrahim El-Sayed Ebaid (2016). International accountingstandards and accounting quality in code-law countries The case of Egypt.
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