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Changes to the accounting standards in Egypt

BUS401 – International Business Module 4 –
Changes to the accounting standards in Egypt

Egypt is officially referred to as the Arab Republic of Egypt and is located in the North Eastern
Africa off South Western Asia. It forms the Northern border of the Mediterranean Sea, Israel and
the Red sea are in the East while Sudan and Libya are in the South and West respectively.
The Geert Hofstede model for Egypt is identical to most Arab countries where the Muslim faith
plays a major role in most of the population’s lives. The power distance and the ultimate
uncertainty avoidance are distinct characteristics for this particular region which indicates that
the leaders are generally expected to isolate themselves from particular groupings and regularly
issue directives which are complete and specific to certain groupings. PDI (Large Power
Director) and the UAI (Uncertainty Avoidance) are distinctly Hofstede Dimension characteristics
for countries in this particular region. Such societies are most likely to adopt a caste system that
discourages upward mobility of its people. The laws in these regions are rule oriented where
rules and regulations control the uncertainty while the inequalities in terms of power and wealth
have been left or even encouraged to grow and widen the gap in the society. These laws, policies
and regulations have been developed and enforced by those people in power to reinforce their
leadership, control and power. New leadership often comes in the form of military armed
insurrections and democratic change has no place in the society. The MAS (Masculinity index) is

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52 in terms of Hofstede models which indicates the limited rights of women in the Muslim world
which is due to religion than the cultural heritage. Egypt has lower individualism rates compared
to the U.S. however the Masculinity rates are almost similar between the two countries. Gray
(1988) extended the use of Hofstede’s concept of societal dimensions to reach a compromised
framework that suggests an accounting system that’s interactive. Gray finally concludes that the
structures of the society influence the social values which also influence the family values,
political systems, organizations and the business ownership. According to Frechner and Kilgore
(1994) the uncertainty avoidance and the individualism are very influential concepts regarding
the accounting subculture theory in Gray’s model. The value orientations and its users who
utilize the financial statements are influenced by cultural and society values.
The Egypt’s accounting system reflects the Egyptian culture on the non disclosure of certain
information which is shrouded under secrecy as they relate to the Egyptian culture. The influence
that culture has on the Egyptian accounting standard is retrogressive as it completely dilutes the
importance and the relevance of the International Accounting Standards. The disclosure of
financial information under the IAS and the IFRS dictates that all material items in financial
matters must be disclosed. Most Egyptian managers and corporate directors’ work in very
secretive environment and a new regulation about full disclosure in their daily schedules may be
a little difficult for them to implement. The propensity of the Egyptians secrecy affects the
ultimate adoption of the International Accounting Standard disclosure concepts and
The Uniform Accounting System regulation issued in the year 1966 was the first step in the
development of the accounting standards in Egypt. It was implemented in the year 1967/1968

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annual reports. Companies in Egypt voluntarily used the IAS (International Accounting
Standards) before the development of the Egyptian Accounting Standards and the eventual
adoption in the year 1997. The move to a market economy by the Egyptian Economy required
significant changes in the accounting system. The move was to assist the investors and other
stakeholders in their financial analysis and it also provided the required financial information
that’s based on reliable and accurate financial reporting standards. The ESAA (Egyptian Society
of Accountants and Auditors) made several proposals that created the initial Nineteen Egyptian
Accounting standards in the year 1997. They were all based on the IAS. There were twenty-two
Egyptians Accounting standards by the end of the year 2002. The entire Egyptian Accounting
system was replaced in the year 2006 which included thirty-five standards whose foundation is
based in the IAS (currently the International Financial Reporting Standards) The Egyptian
Accounting Standards (EAS) differs with the IAS or the IFRS in four different ways. The
different areas were: Egyptian Accounting standards 1, 10, 19 and finally 20. The differences
were in financial presentations of statements, disclosures in banks financial statements,
depreciation of fixed assets and other concepts, policies, general accounting rules and the
standards concerning the finance leases. Egypt faced a major challenge when setting and
adopting its own standards of accounting system as the incompatibilities and the differences
between the secretive culture of the Egyptians and the essential requirements of the disclosures
under the IAS generates conflicts that can only be resolved by selective application and
implementation of the International Accounting Standards. In terms of finance leasing is that the
standards of leasing as set out by the IAS directly contradict the Egyptian law. The affected
sections all have to do with the disclosure requirements.

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Investors in the capital markets authority are encouraged to invest in Egypt where there is a
transparent and secure market. However, the opinion of the investors on the rate of economic
development, the type and nature of the economy, the equity market, the stock ownership and the
variations in disclosure requirements. There is a lot of secrecy surrounding full disclosure of
financial information in Egypt and the investors have a very negative opinion about the non
disclosure or the partial disclosure of information.
IAS has impacted positively on the development of accounting standards in Egypt. However
some laws and rules mostly based on the Muslim faith have had a significant impact on the
application of accounting standards. Some of the cultural values in Egypt have affected the
application and implementation of the Egyptian Accounting standards.
The major advantage Egypt gained by developing its own standards in accounting was mainly a
way of privatizing its state owned enterprises, promoting economic democracy and a justified
way of moving towards capitalism.
For Egypt to develop its standards fully then it has to address all the issues concerning
disclosures. All the relevant sections concerning the IAS concepts of disclosures have to be
implemented as the International financial Reporting standards is clear on what should be
publish for the public to analyzed and what should be kept secret. The Egyptian Government
should support and encourage full adoption of the requirements of the financial statements and
material disclosure concepts in order to streamline its financial reporting standards.

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Gray, S.L. (1988) Towards a Theory of Cultural Influence on the development of Accounting:
systems international. ABACUS 24.
Hofstede, G. (1980) Cultures Consequences. London: Sage publications.
Frechner, H.E and Kilgore, A. (1994) The influence of cultural factors in accounting on practice.
International Journal of accounting. 29: 265-277

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