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Egypt's Complications in Changing Their Accounting Systems

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Using the material from The State of Accounting in Egypt: a case from the Journal of Business Cases and Applications, discuss the problem of cultural mistakes and cultural challenges faced by Egypt in changing its accounting systems and standards.

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Solution Summary

This solution explains weaknesses of the Egyptian system of accounting. The sources used are also included in the solution.

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The Egyptian government in 1981 issued a Company Act law. This law allowed for setting up of different companies such as the joint stock companies, limited liability, and partnerships limited by shares. The Company Act required audits of financial statements of private sector companies. The requirement that external audit was required did not go well with Egyptian businesses. At the same time the financial reports of private sector companies was doubted. The Company Act Law prescribed the types of reports that were required. The formats and audit procedures were prescribed but matters such as recording of transactions and implemented accounting measures were not included. The socialist regime in Egypt issued the Uniform Accounting System in 1966. However, the cultural mistake was that annual reports of public sector companies were not publicized (The World Bank. 1997, March 15). The greatest cultural challenge in Egypt was the culture of secrecy. There were very logical reasons given for the secrecy. The first reason given for not publicizing annual reports of public companies was that the reports were considered to be national secrets. The financial reports were considered to be related to national security. The second argument was that public companies incurred losses and if these were publicized there would be economic disturbance. Under the influence of socialism, the purpose of the Uniform Accounting System was to plan and control economic activity. One of the cultural challenges was that accounting as a profession was not able to influence financial reporting standards or laws. It was the development of the Company Law that the significance of the International Accounting Standards became apparent. At that time several Companies used the International Accounting Standard. An important cultural barrier relating to ...

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