Being the largest Middle East economies, Egypt is starting its changes in the market economy. It has experienced significant changes in its accounting system in the last two decades. The evolution of accounting in Egypt demonstrates its capability to adapt in response to changing conditions. Meanwhile, various cultural aspects have greatly influenced accounting practices in Egypt. Although Egypt is leading Middle East economies, it has experienced cultural mistakes and challenges in transforming its accounting systems and standards. Thus, this paper will discuss cultural challenges and mistakes that Egypt has encountered in the process of changing its accounting systems and standards.
Hofestede and Gray has done research on the cultural dimensions and values that have contributed to a culture of the accounting practices and standards. The national culture has broad impact because it affects the least aspects of society including accounting. Thus, the accounting practices in Egypt are influenced by organizational culture, which is entire environment where corporate works.
According to Hofestede (1980), the individualism verse collectivism, and strong uncertainty avoidance verses weak uncertainty avoidance are two significant dimensions that influences organizational culture. Egypt has an individualistic culture because employees are considered merely as labor and the employer to employee relationship is created on mutual benefits. In Egypt, the employer has right to terminate the working contract and the employee has also right to comply if it is to the benefit of either individual. Thus, this culture prefers professionalism where all people should be treated equally and implemented a strict policy against personal preferences in decision-making (Hofestede ,1980). However, this is challenging because jobs are viewed as a higher priority over the individuals and relationship involved.
Meanwhile, in the collectivist culture, the relationship between employer and employee have a moral component. It is the responsibility of both parties to be loyal to each other. In Egypt, personal relationships are significantly valued and receive better deals in business transactions than strangers receive. However, any manager from an individualistic culture encounters challenges in a collectivist culture. Egypt faces strongly uncertainty avoidant challenges because it is not socially acceptable to show emotions in the workplace (Wade, 2004). In Egypt, people are differently appreciated because of their creativity in which they bring into the country.
Similarly, according to gray’s studies, the four manifestations are the roots in understanding the culture’s influences on accounting and its practices. Professionalism verse statutory control advocates for complying with strict legal requirements and control within organizations (Gray, 1988). This is extremely vital in accounting as it is an accountant’s work to make independent legal and ethical decisions in any practice. This is easily accepted in the Egypt because it has a culture of small power distance because they have less fear of authority’s reprimands. Although statutory control can be vital in situations where it is necessary to follow the law accordingly, this could challenge an accountant’s development of professional judgment.
The accounting practices require uniformity verse flexibility (Gray, 1988).This allows uniform and consistent accounting practices between companies rather than accepting different practices deemed important in Egypt. The desire for uniformity can be seen in the Egyptian accounting standards via the accounting principles of consistency and comparability. However, Egypt faces challenges in retaining some room for flexibility in adjusting to varying cultural dimensions. Egyptians has a culture that leans towards weak uncertainty avoidance. Thus, it faces challenges in eliminating any possibility of diversity in employing standardized accounts and policies. According to Gray (1988), conservatism verses optimism suggests a preference for remaining cautions in accounting practices when dealing with uncertain environments. Since Egyptians have conservative culture, they face challenges in coping with the uncertainty surrounding accounting practices. Gray also suggested the importance of secrecy versus transparency. This is challenging in accounting as a business wants to keep their security from competitors, but needs to remain transparent and accountable to the public. Thus, according to Gray accounting, practices are the result of the culture in which it is found and its various practices are equally formed.
The accounting works in a socioeconomic framework as a service function and policies have bearing on accountancy (Carlo, 2006). Culture has been evaluated to be a main factor affecting the structure of business and society and accounting. Therefore, it is vivid that the accounting system of Egypt reflects its culture. Egypt is a collectivist society, with huge power distance and strong uncertainty avoidance. Depending on the Gray’s model, Egyptian accounting should reflect statutory control, uniformity, secrecy, and conservatism. The Egyptians accounting system is based on secrecy. This preference in the accounting subculture would impact the extent of information disclosed in the accounting reports (Abdelsalam and Weetman, 2003). It is looking for increased privatization where private ownership needs that owners and shareholders are given enough financial reporting to assess corporate performance. Therefore, the significant shift in emotions of Egyptian entrepreneurs is needed to change from secrecy to transparency.
The Egyptian society of accountants and auditors put huge efforts that resulted in the first set of nineteen Egyptian accounting standards in 1997. This was mainly based on the international accounting standards. By the lapse of 2002, there were 32 Egyptian accounting standards that were implemented by listed organizations. The entire set of Egyptian accounting standards was introduced to replace those of 1997 and 2002 in 2006. Therefore, the complete set of the new accounting standards has 35 standards that depend on the international accounting standards. However, there are four exceptions to the standards which include EAS1, 10, 19 and 20 that reflect financial statement presentation, fixed assets and depreciation, disclosure in the financial statements of banks and financial entities, and rules and accounting standards related to finance lease transactions respectively (Dahawy, Shehata and Ransopher, 2000).
The Egyptians have faced language challenges in setting its own accounting standards. This arose because the international accounting standards are issued in English while the recognized language in Egypt is Arabic. Similarly, in the process of implementation, , no official Arabic translation was available in public records. Thus, it was a challenge for corporations to understand the English language version of international accounting standards.
In order for Egypt to develop its own accounting system, the regulators should implement laws and regulations to authorize full compliance with the accounting requirements. This will maintain a high quality of financial reporting. This will happen if the accounting staff will properly apply accounting standards when preparing the financial statements. Meanwhile, there should be punishment for those who violate the laws. The capital market authority should put effort to encourage the top management of listed companies to adhere to the needed accounting and financial reporting standards (Gibson, 2006). It can present international developments on improving transparency of company financial reporting weakness and strength in Egypt. Thus, should ensure there is proper ethical dimensions in the business management and accounting environments.
References
Abdelsalam, O.H., and Weetman, P. (2003). “Introducing International Accounting Standards to an emerging capital market: relative familiarity and language effect in Egypt.” Journal of International Accounting, Auditing and Taxation, 12: 63-84
Carlo, M. (2006). “Overseas Adjustment", Home Channel News, Volume 32, Issue 13, P. 26-28.
Dahawy, K., Shehata, F., Ransopher, t. (2000). “The state of accounting in Egypt: a case.” Journal of Business Cases and Applications, p.1-12.
Gray, S. (1988). “The impact of culture on accounting disclosures: some international evidence.” Asia-Pacific Journal of Accounting, 2(3): 33-43.
Gibson, R. (2006), “Small Business (A Special Report); Foreign Flavors: When going abroad, you should think of franchising as a cookie-cutter business; Unless, of course, you want to succeed.” Wall Street Journal, September 25, 2006.
Hofstede, G. 1980. Culture’s consequences: international differences in work-related values.
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Wade, J. (2004),"The Pitfalls of Cross-Cultural Business", Risk Management, v. 51, P. 38-43.
