Egyptian Accounting Standards
International Developments In Accounting
Under the tallest building in the
world there is a foundation that secures that building in place and ensures it
does not fall. This is the same way
accounting works it is the foundation that holds up businesses and financial
markets. Records go back to 400-500bc of the first accounting records with
temples in this era recording all transaction and receipts.
Every country adopts their own
accounting system, they look at the needs of their nation and impacts of the environment
they are surrounded in to come up with regulations the country’s business must
adhere to. This is why we have so many different accounting standards and
systems in place across the globe.
Egypt’s stock exchange dates back
to 1882 being amongst some of the oldest stock exchanges in the world. Egypt in
the 1950’s had the 5th most active market in the world this was when
they 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 30
years forcing the Egyptian government to implement policies that would “liberalize
the national economy” (Dahway. 2007).
Egypt is now one of the largest
economies in the middle east and has undergone massive changes to its
accounting system, this case will look at the Accounting System used by the
Egypt, looking at the nature of the accounting system and comparing it to the
International Financial Reporting Standards (IFRS). As well looking at the
differences and their effects and looking at the possibility of full
convergence with the IFRS.
The governments first
major policy input that changed their accounting situation was in the 1970’s after
continuous years of Egyptian stock market stagnation the government implemented
policy’s that was aimed to liberalize the national economy. The foreign
investment law implemented by the Egyptian government looked to boost foreign investments
by forming business ventures with foreign investors, this policy not only
looked at improving the country’s economy but also was aimed at allowing the Egyptian
market the access to new technologies, industries and businesses. This was the “open
door policy” which “revived the accounting profession in Egypt and continued to
have a role in regulating technical matters, where as previously accountants were
not allowed to have a role in government actions or policies.” (Dahway. 2007). This was the beginning of Egypt’s
development into a market based economy.
1981 saw the Egyptian government
continuing their direction by implementing a Company Act Law that allowed the establishment
of different private companies. As well as implementing regulations that
required private sector companies to audit their financial statements. These audits where less successful then they
wanted when implemented as they failed to record transactions and accounting measures
In 1997 the Egyptian
Accounting Standard was enacted due to the developments in accounting in Egypt as
well as the direction of the economy heading towards a market economy. The Egyptian Accounting Standards helped
investors gain crucial information on the industry. Dahwa explains
that because “Egypt is heavily dependent upon foreign investments after the
increased privatization trends, accounting information tends to play a more
important role in the economy”. (Khaled Dahway 2007)
The first Egyptian Accounting Standards was created by the
Egyptian Society of Accountants and Auditors and in 1997 contained 19 sets of
accounting standards, developed again in 2002 where they were increased to 22
standards. 2006 came with a complete redevelopment of the 1997 and 2002 standards
where 35 standards were created the most recent change was in 2016 where there
are now 39 standards, with many of these standards being based on the
International Financial Reporting Standards.
Many people say that the IFRS has a negative impact on
developing countries as the IFRS was structured around national
laws, economic conditions, and objectives as well as being heavily
influenced by environmental factors such as culture, language and legal systems
and with developing countries being less developed in all of these areas it can
cause an effect that impacts the economy.
As the egyptians were developing a market economy the
economy was widely successful on investment from foreigners, due to this Egypt had
to have an accounting system that allowed foreign investors to understand the
regulations and markets. This is why the Egyptian Accounting Standard had IFRS input
as its accounting measures needed development for them to improve the market.
Differences to IFRS
The Egyptian Accounting standards have 4 differences to the
IFRS. The first is Standard, 1 this Egyptian standard contains information on
the presentation of financial statements and requires the circulation of
profits to employees and directors to be decreased from retained earnings
without decreasing income on the income statement whereas the IFRS charges
these as expenses. EAS 10 is the next standard that differs from the IFRS, this
standard states that unless Egyptian law approves, re-evaluation of a fixed
asset is not allowed. Next Is EAS 19, where the IFRS contrast requires provision
for loans to be deducted from owners’ equity whereas in EAS 19 the provisions
are instead deducted from income off the income statement. The final difference
is the EAS 20, which is the complete opposite to IFRS 17, which looks into the
leasing laws in Egypt this is because the laws are based off the legal codes in
Egypt this means that the lessor records their leased assets in his books and depreciates
it whereas the lessee records the value of payments of leasing contracts in the
profit 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 accounting
quality is what has taken a hit since the adoption of IFRS. This is massively
due to Egyptian culture as well as the laws that they follow. As the accounting system of a country is
supposed to work in tandem with the country’s institutional system there is a
problem where, like Egypt, you introduce an accounting system such as IFRS
without implementing institutional improvements. Therefore, if “IFRS are of higher-quality
standards, the institutional features of Egyptian market could eliminate any
accounting quality arising from adopting IFRS.” (Ebaid 2016). This
links in with the United Nation Review (United Nations Conference on Trade and
Development. 2008) which states that “Merely adopting internationally
accepted accounting and auditing standards cannot ensure improvements in
corporate financial reporting.” And Instead that there are three links in the enforcement
chain that need strengthening. First, Company Directors must ensure that
accounting staff are applying accounting standards properly. Second, auditors
being able to act independently and portray a fair view of a business’s
financial conditions and thirdly both self-regulatory organizations and
statutory regulatory bodies must implement arrangements for efficient monitoring
of regulatory compliance and consistently take action against violators.
Mohammed Yehya the Head of standards committee of The Egyptian
Society of Accountants and Auditors explained how the new standards will “improve the quality of financial
statements and standardized treatments and accounting policies by achieving
more disclosure and transparency which in return will help all parties understand
and examine the financial statements and to take the economic and financial
decisions on a sound basis. (Sherif Samy. 2007).
With so many countries adopting IFRS there is many cases
that have worked and many cases that haven’t achieved convergence with the system
but I believe that the Egyptian Accounting Standard model has come a long way and
with focus on enforcing their standards on companies or looking at their
approach to the implementation of IFRS, making sure that the standards fit with
the countries culture and environment. With Egypt’s current efforts being to
align their own EAS with the IAS I believe that their target is more than possible
and with a few significant improvements the Egyptian Accounting Standard will
be able to achieve close to full convergence with the IFRS.
Inrahim El-Sayed Ebaid (2016). International accounting
standards and accounting quality in code-law countries The case of Egypt. Egypt: Emerald
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