Strengthen Co-Operation Strategies Needed to Enhance Compliance with International Accounting Standards in a National Context: A Review of Attitudes of Egyptian Experts
American University in Cairo
University of Manchester - Division of Accounting and Finance
Khaled M. Dahawy
The American University in CAiro
University of North Texas - Department of Accounting
Recent empirical work in an Egyptian setting by Samaha (2005) and Samaha and Stapleton (2008) provided evidence about Egyptian convergence to international accounting standards. These studies reported that compliance is low, at just 50% for IASs disclosure indices and 56% for IASs measurement/presentation indices. From a policy perspective 5 issues are evident from these studies. First, poor compliance suggests weak enforcement consistent with the argument of Saudagaran and Diga (1997) that government intervention in developing countries is essential to ensure reliability of financial reports. Second, compliance is higher where preparers were familiar with the regulations consistent with Cairns (2001) argument that effective implementation of new standards requires education and training of accountants. Third, removing adverse tax implications for companies is likely to increase compliance. Fourth, compliance tends to be very low unless the company is connected with a big 5 audit firm. Due to problems associated with the audit profession, it was expected that international audit firms operating in Egypt would be more familiar with IASs leading to an expectation that Egyptian companies audited by one of the international firms will comply more closely with the EASs that are based on IASs as well as non-mandated applicable IASs. This finding is consistent with Chen et al. (2002) who reported that lack of quality audit is an important contributing factor for non-compliance with IASs. Fifth, compliance tends to be very low unless the company is a medium ownership concentration company which is consistent with previous literature which has drawn on agency theory to show that companies with wider ownership diffusion comply more with IASs. Therefore, compliance with EASs as well as non-mandated applicable IASs may thus be adhered to in medium ownership concentration companies in order to reduce agency costs. According to the report by Carana (2000), most of these companies understand the benefits of full disclosure, and have investor relations departments to maintain contact with their shareholders. These companies tend to have little involvement by the state, and a greater or lesser degree of international involvement, and many of these companies are international branches of multinational companies. Also, boards tend to be professional, and dominated by their majority owners.
Building on this empirical work, there is an urgent need to design and implement an all-inclusive development plan for accountancy reform. This paper provides inputs for such reform. The results obtained from conducting 26 semi-structured interviews targeting 26 experts in Egyptian accounting highlight the need for improvements in the legal framework governing accounting and financial reporting to ensure higher degrees of compliance with IASs through setting up convergence arrangements for full adoption of international accounting and auditing standards, strengthening enforcement & corporate governance mechanisms; professional education and training arrangements, strengthening the professional body including implementation of international best practice on auditor qualification examinations and the process of licensing auditors; and establishing an efficient and effective regulatory framework for practicing auditors in line with the IFAC. Experts in the country believe that successful completion of appropriate capacity-building initiatives would help develop accounting and auditing practices and bring about improvements in compliance with the international standards within a period of three to five years.
Keywords: Egyptian accounting standards, International accounting standards, Emerging capital markets, Egypt, compliance, Enforcement, profession, Education and Training, Tax conflicts, corporate governance
JEL Classification: M41, M44, M47, M49, G38working papers series
Date posted: March 19, 2008 ; Last revised: May 25, 2008
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