RESEARCH REPORT
INTRODUCTION
The French accounting had a long way of establishment and development. More so as France was a country with many colonies throughout the whole world. Despite the fact that the metropolis did not really want to develop thee colonies, as only their resources interested the French government, the French accounting system still had an immense influence on the development of the accounting systems in these countries.
French accounting found its origins under the reign of Louis XIV. The first mention and example of an accounting attempt was undertaken when the French wrote an official document named “Ordonnance”. The objective of this document was to set up requirements for “Traders and merchants” in order to keep synchronicity of different accounts and to trace inventories.
Following the French revolution of the 19th century, the accounting system was yet still undeveloped, and the number of financial scandals was still significant. Hence, the French saw the necessity to create a standard method regarding the closure of the balance sheet. In the period following the revolution first, the appearance of income tax and then tax regulations were introduced which allowed to better assess, with a higher level of expertise the profit measurement and asset valuation. Then came war and France was badly shaken by the German invasion. Eugene Schmalenbach was the first to create a standardized accounting chart model designed to bring the information system similar to a data bank and facilitate the decision making. Using this France was the first to implement the “French generally accepted accounting principles” officially called the “Plan Compatible General (PCG)”. Indeed, this was a breakthrough and the whole accounting system in the country was based on it.
The PCG can be defined as the guide and official framework of financial accounting procedure. It is the standard used in any given laws, policies and jurisdiction. The system allows the recording and summarizing of the financial statements preparation. More specifically, it works through a set of accounts which are specifically codes named and adequately classified.
The first version of PCG was presented in 1947, by the State Commission. Unfortunately, the French accountancy was barely involved due to a significant lack of accounting personnel and skills. The 1947 version was made mainly for public businesses and did not facilitate smooth private use. A necessity in order to have access to transparent business data was observed by the government. This was needed for the construction if national income statistics. The improvement has led to a better PCG. The second updated version appeared in 1957. Overall, the structure was the same but it succeeded in covering more broadly the needs of the various French companies. The 1957 PCG version included the following:
• A definition of terminology
• A chart of accounts
• Standard formats for financial reports
• Very brief valuation rules
• A specialized section on cost accounting (optional)
The second version of the PCG became widely used due to different reasons. The first one is because it became the standard for different accounting books, in education and training. People had more chances to find information on it and learn about the “new accounting standard procedure”. The second reason was due to the behavior of the French tax authorities. Indeed, the net profits of companies were now calculated using the rules of the tax code. This was different to an earlier experience when the tax rules were independent of the PCG.
Few years later, the French government started to consider its international status, not only from the European but also from the world perspective; hence, the necessity of setting up International accounting standards became important. This resulted in revising the PGC and led to a new review of it. In 1982, France introduced a new version of the PCG where all companies subject to the Commercial Code had to arrange their financial accounting. The new PCG included new rules and policies regarding international procedures. It evolved as new elements were added. It was finalized in the following form:
1. Equity, provisions and non-current liabilities
2. Non-current assets
3. Inventories
4. Personal accounts
5. Financial accounts
6. Expenses
7. Revenues
8. Special accounts (optional)
9. Management accounts (optional).
Finally, one last important update of the PCG was undertaken. This was the “regulation 1606/ 2002 of The European Union.” Indeed, the new policy required the consolidation of the enlisted French companies be lined up with the IFRS.
It is crucial to note that up until today, France follows the GAAP via the PCG. All the laws are instructed from decrees and ministerial notes found in the Commercial Code, which is the law in France. All enterprises have to follow the same accounting rules provided by the commerce law. Although there are seeming attempts to update the IFRS in order to standardize international procedures, France still remains loyal to the GAAP system. The major difference between GAAP and IFRS is that the latter is consolidated whereas GAAP has a statutory basis. Under the GAAP system, the cost method of accounting is proceeded, whereas, under IFRS, the equity method of accounting is used.
INFLUENCE OF FRENCH ACCOUNTING IN CAMBODIA ACCOUNTING
Between the years of 1887 to 1953, Cambodia was conquered and colonized by France (Jacobs). This course of events made the country adopt the French Continental European accounting model. After France had imposed a protectorate on Cambodia, they developed an education system in Cambodia that was French based. This resulted in Cambodia inheriting the economic management system of the French, which is still being utilized by the Country up to date (Jacobs).
French colonizers were more focused on the exploitation of Cambodia’s resources rather than the development of the country. All the revenues that were collected from Cambodia were channeled back to France through a system of smartly devised accounting techniques. The colonizers thus did not introduce proper accounting system in Cambodia. They utilized single column financial statements that only reflected the revenues and the expenses of the country. Thus, through this system, native Cambodians could not identify which resources were being looted from their country.
The French colonization of Cambodia greatly influenced the accounting system of the country. The French placed the accounting system under the Ordre des Experts-Compatibles (OEC) which were in turn placed under the control of the Ministry of Economy and Finance (MEF) (Jacobs). This made the Ministry of Economy and Finance responsible for all aspects of accounting in Cambodia during the colonial period.
The French accounting standards made it hard for many Khmers to be able to afford and complete their education. This resulted in a slow growth of the Cambodian accounting system thus making it largely dependent on the French accounting system. The French accounting system also introduced structures and accounting principles that are still being utilized in Cambodia even today (Yapa, Jacobs, and Huot 2016).
French accounting also introduced a central planning economic system where all aspects of accounting within the country were planned and handled by one government body (Yapa, Jacobs, and Huot 2016). This resulted in a decrease in the number of accountants within the region as there were no accounting jobs available.
CAMBODIA’S TRANSITION FROM FRENCH ACCOUNTING
After obtaining independence in 1953, Cambodia's national economic policies became shaped by the country’s successive governments. The country opted for unconditional aid either from western or from eastern nations. This forced the country to alter its accounting methods so that they could be able to properly account for the country’s economic output (Diepart, and Schoenberger 2016).
A rogue regime in Khmer was led by President Pol Pot who killed most of the experts in the various fields. This led to all the accountants who were taught and experienced in the French accounting principles were no longer alive (Heuveline 2015). The killing of professionals created a vacuum that could only be filled by professionals from all over the world (Heuveline 2015).
The Vietnamese communist government invaded Cambodia and disposed of the Pol Pot government. It instituted a communist economic system within the country, and both the political and economic systems of the country were controlled by one body. This invasion further served to move the accounting principles of Cambodia further away from the French system as France was a liberal democratic country. Vietnam was a communist country and the accounting ideologies between the two countries were not similar (Ngo 2015). Under the centrally planned system of government instituted by the communists, Cambodia had only one accounts category made of accountants with different grades working in civil service under various ministries.
In this period, Cambodia adopted the socialist accounting system that was used by the Soviet Union. This was an aim of instituting a socialist accounting system throughout Cambodia (Ngo 2015). Soviet accounting experts were used to train Cambodia's accountants. Also unlike the French, the Vietnamese government established an accountancy schools and it took local Cambodians only six months to learn accountancy.
The collapse of the USSR lead to the withdrawal of Vietnamese troops from Cambodia and thus the country embarked on market-oriented reforms (Ngo 2015). The country resumed relations with the international community and with the aid of institutions such as the World Bank, Asian Development Bank and the International Monetary Fund. The new government started up reforms to its accounting structures so that they could be in line with those of the international community.
The promulgation of the new constitution in Cambodia also resulted in massive reforms on the accountancy sector as the new constitution scraped some sections of the Soviet-styled accountancy principles and introduced new accountancy laws that were developed to fit into the Cambodian context.
The new constitution led to the establishment of the Kampuchea Institute of Certified Public Accountants and the National Accounting Council (Diepart, and Schoenberger 2016). The National Accounting Council acts as an accounting regulatory body for the Ministry of Finance, and it is responsible for dealing with the accounting standards, conceptual framework and primarily the analysis and revision of accounting standards utilized in the country.
On 29th November 2013, Cambodia's National Accounting Council adopted the International Financial Reporting Standards (IFRS). This was done with the cooperation of the World Bank and the IMF. By adopting this standard, Cambodia was opened up to trade and started interacting with international markets participants. The IFRS also helped the World Bank prepare Reports on the Observance of Standards and Codes (ROSC) for Cambodia. This served to bolster the credibility of the accounting standards used in Cambodia and legitimize them internationally.
FRANCE AND CAMBODIA AT PRESENT
France and Cambodia each has maintained its own accounting systems standards in recent decades, but through the existence of the International Financial Reporting Standards (IFRS), separate systems present in different countries have now given way to a unified ‘global financial reporting language’ (IFRS Foundation 2016).
Choi & Meek (2011) laid out France’s national accounting system – that as early as 1947, France has come up with its first formal national accounting code (Plan Compatible Général) and later on, five (5) major organizations work together in French accounting standards-setting. Two (2) of those five organizations have then been replaced by what is now called as the Autorité des Normes Comptables (ANC) [National Accounting Authority] run as a state agency. As part of the European Union, which adopted the International Accounting Standards (IAS) Regulation in 2002, France subsequently committed towards IFRS in the same year.
Meanwhile, Cambodia’s highest accounting body at present is the National Accounting Council (NAC) operating under the country’s Ministry of Economy and Finance. Part of NAC’s mandate is the issuance and updating of Cambodian Accounting Standards and Cambodian Standards on Auditing (National Accounting Council 2013). In its proclamation dated 8th January 2009, the National Accounting Council adopted the use of IFRS and IFRS for SMEs without modifications.
We have observed how the world is continuously evolving in meeting the demands of international trade and globalization. The move towards uniformity of accounting standards is a clear manifestation of this movement. At present, 93% (133 out of 143) jurisdictions have embraced the use of IFRS Standards as the single set of global accounting standards (IFRS Foundation 2016). Paul Volcker, Chairman of the IFRS Foundation Trustees from 2000 to 2005, argued about the invaluable need to have global standards in his interview with Robert Bruce:
If we really believe in open international markets and the benefits of global finance, then it can’t make sense to have different accounting rules and practices for companies and investors operating across national borders. That is why we need global standards (Deloitte Global Services Limited 2012).
IMPLICATIONS AND CONCLUSION
In the earlier sections of this report, we have identified the evolution of French accounting and the role it played in influencing the accounting system in Cambodia. We have also seen how Cambodia’s accounting systems moved away from its French colonial influence, together with the rest of its institutions transitioning from colonial to post-colonial independence, to practicing soviet accounting, and now moving towards globalization. To a significant extent, Cambodia’s accounting system and profession have been shaped by historical events. It can be noted that there were instances when professionalization of accounting was left out since there were more pressing concerns to the state especially during war time (Yapa, PWS, Jacobs, K & Huot, BC 2016). There was also a period when accountants, together with other professionals, were regarded as the educated, middle-class people who were getting in the way of achieving a socialist society. Thus, the abrupt cessation of French influence in Cambodian accounting can be observed, as evidenced by the inhumane act of genocide done to accountants remaining in Cambodia and accountants leaving the country during the Khmer Rouge regime. As Yapa, Jacobs & Huot (2010, p.2) puts it, it was an ‘evolutionary extinction event in the accounting profession’. However, modern public and private sector accounting systems and organizations in Cambodia have been set up to respond to the needs of international trade and globalization. They still seem to have French influence embedded within – seeking the help of the French government in setting up these systems in 1993; the creation of the National Accounting Council of Cambodia in 2002 and the Kampuchea Institute of Certified Public Accountants and Auditors (KICPAA) in 2003, were apparently modelled after French accounting frameworks and institutions.
Efforts towards harmonization and uniformity are indeed relevant and important initiatives in today’s globalized society. However, it is also important to analyze accounting systems of different countries from a historical and social perspective. Beneath the standards set by international bodies, its local application will still be shaped and influenced by social, political, historical and cultural forces in society. Sukoharsono (1995, p. 257-258) puts forward the understanding of accounting in a social context by saying that accounting is ‘no longer seen as a mere assembly of calculative techniques’ but more so a ‘cohesive and influential mechanism for economic and social activities.’ Moreover, he concludes with the remark that looking back in the past is necessary for studying the present. Cambodia has jumped in leaps and bounds as to opening itself to a market economy, globalization and integration with the international community, but we cannot discount the fact that all countries have undergone circumstances in its past which have indelibly shaped and developed today’s accounting systems and institutions.
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