Introduction

Accounting methods vary throughout the world. The environments that allow prominent methods such as US GAAP and IFRS to flourish tend to be in First World countries such as the United States, European nations and Russia, or nations that closely use these areas as business models. The First World has the resources available to investigate the best options and continuous innovation in financial information. They have the money, the manpower, the intelligence, and a significant number of government connections to apply and enforce their chosen guidelines.

This is not the case in developing countries. They face several problems related to accounting principles. The Third World does not always have access to these privileges. It’s not just limited resources that prevent proper reporting; a force that must be recognized is local culture and governments.

The main objective of accounting, anywhere in the world, is clear: to present a company’s financial information clearly and honestly to investors and creditors in a timely manner (Zahirul 2009). If the Third World wants to keep up, each of its accounting branches must take the above statement seriously, then unite under it, and then under IFRS. This will “produce an improvement in the quality of accounting through a uniform set of standards (Zahirul 2009).” They need to educate accountants and auditors to become IFRS experts so that they can have global representation and be taken seriously in the accounting and business world.

Development and Solidarity

The biggest problem facing these developing countries in the business world is precisely that, they are developing. These countries face major obstacles such as a lack of infrastructure, volatile governments, and corruption. In addition, the lack of established standards in accounting practices can lead to more corruption and a disincentive for foreign investors to move capital and resources to these countries. When foreign investors are in the process of planning their investments, an important step is to study the accounting system in the country of interest. They look for a uniform set of accounting standards like IFRS. Using a consistent set reduces confusion, error, and fraud, leading to greater transparency and, most importantly, investment confidence. Developing regions need this growth to continue to survive and eventually prosper.

However, most are not united by established standards, or have no standards to call their own. The Third World is extremely impressionable by “Western Influence (United States, Europe) or Eastern Influence (Russia)”. The First World has developed its own principles in its own nations, by its own people, for its own businesses. Through colonial influence, or the influence of large investors and corporations, First World accounting systems have reached Third World countries (Perera 1989). The Third World concern is that foreign influence will not benefit or reflect the needs of specific localities. In the case of Bangladesh, accountants and academics believed that “highly sophisticated rules like IAS are not suitable for Bangladesh’s less sophisticated economic and regulatory structure (Zahirul 2009).” Middle Eastern countries are also having difficulty making IFRS “workable” within their national standards (Razik).

Ultimately, it is not IFRS itself that does not work for the Third World. Hidden behind the facade is the fear of losing control. That fear is completely justified for these small nations that don’t have much to trade with. For a set of standards as broad as IFRS to work in developing countries, adequate representation must be established. These nations need a voice of their own to speak about their concerns. In the Middle East, where the local Islamic culture plays a very important role in daily life and in the business world, representation is extremely valuable. They currently don’t have it. From 2001 to 2005, the Middle East was only represented by two members on the Standard Advisory Council and was not represented at all on the IASB (Razik). Municipalities and local governments should work hand in hand with the IASB and SEC for the ability to customize in favor of developing localities while remaining compliant with IFRS.

In reality, to achieve all this, the Third World needs access to the most valuable resource of education. Qualified accountants who have the knowledge of the proper construction and use of financial statements and the policies that must be followed are at the core of success. Nigeria is another example of a developing country trying to fix the accounting situation at home. Nigeria faces a shortage of qualified accountants and auditors competent enough to implement and continue to use IFRS (Madawaki 2012). To ensure an acceptable amount of quality in financial reporting, Third World governments should implement an initiative for adequate training in the academic and practical parts of IFRS.

Conclusion

The Third World is struggling to use modern accounting methods that investors would rather see than localized forms. They have many setbacks, including a lack of funding, knowledge, and government support. Solving the lack of proper bookkeeping will first require education. Education is the foundation that holds the accounting structure together. When accountants and auditors from developing countries demonstrate expertise in IFRS, this will lead to greater representation in large groups such as the IASB. From there, they can try to implement some localized methods and help their countries succeed with IFRS. Financing from investors, large corporations and wealthier nations will soon arrive. Success will not be easy and it will take time, but it is essential for national growth.

References

Amged Abd El Razik. Scientific Bulletin-Economic Sciences. Challenges of the International Financial Reporting Standards (IFRS) in the Islamic Accounting World, Case of the Middle East Countries. Flight. 8.

Bhattacharjee, Sumon; Zahirul Islam, Muhammad. International Business and Management Magazine. Issues of Adoption and Application of International Financial Reporting Standards (IFRS) in Bangladesh. December 2009, Vol. 4, no. 12.

Madawaki, Abdulkadir. International Business and Management Magazine. Adoption of International Financial Reporting Standards in Developing Countries: The Case of Nigeria. Flight. 7, no. 3, p. 152-161. Canadian Center for Science and Education. February 2012.

Perera, M. The British Accounting Review. Accounting in developing countries: a case of localized uniformity. Flight. 21, number 2, p. 141-157. Elsevier Ltd. 1989.