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Accounting standards and their
systems have been mutating for years right from the initial discovery of
accounting, which originated in the Middle East. Considering the earliest
records of accounting were discovered in the Middle East, analysing and
evaluating the accounting systems and standards of Egypt is crucial as the
country has one of the biggest economies in the Middle East as well as
undergoing major development. Egypt has also developed its own Egyptian
accounting standard known as the Egyptian Financial Supervisory Authority

Many factors are
responsible for the viability of an accounting system where changes may have to
be made over a course of years to reassure efficiency. The nature of an
accounting system consists of and manages expenses, invoices and funding. By
implementing a secure and efficient accounting system, the ability to monitor
income, invoices, expenses, funding and accounts payable is increased. This
simultaneously enables the efficiency of the statistical reports for the
management and stakeholders to make any sort of decision regarding the
organisation or even a country. Accounting systems are highly crucial for
monitoring; however, it plays a part in profits which is the purpose of an
organisation. By enabling an efficient and secure monitoring system, the
managers and stakeholders will be able to decide whether any aspect of the
organisation will be profitable so that external factors such as tax can be

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Having said that, the
importance of an accounting system relies on culture also. The culture as a
nation and type of society within a nation will most definitely have either a
negative or positive impact on the accounting systems, affecting the decisions
which are made entirely due to values which may be sentimental subconsciously
as they may have been passed down for generations. This highlights many
accounting risks and implications, however as a nation it will not matter until
accounts are having to be globalised due to partnerships or coalitions.

Regarding Egypt,
Hofstede focuses on five cultural values by implementing the ideas of the four
dimensions of cultural values on Egypt, where it scored 80 for uncertainty
avoidance, 26 for individualism, 72 for power distance and 46 for masculinity
(1983). High uncertainty avoidance, large power distance, low individualism in
Egypt are features of a collectivist society and high masculinity where
traditional gender roles are still the norm. Having high uncertainty avoidance
highlights that the people of Egypt tend to avoid risk rather than figure out
how to solve them if they are met with such issues, which could be identified
as an issue in regard to accounting as it may affect the ethics as well as the

Although Egypt has its own Egyptian Accounting Standards
(EAS), over the course of years it has been influenced by the International
Financial Reporting Standards (IFRS) in accordance to the International
Accounting Standards Board (IASB) as Egypt has attempted to implement IFRS
regulations as well as its own. The process of Egypt developing new standards in
regard to IAS and IFRS has taken a number of years due to many problems Egypt
had to overcome whilst creating their own standards. Adapting to a IAS and IFRS
would have made the most sense as they are used globally, so the adaptation to
this would benefit them internationally alongside stakeholders, rather than
solemnly in the Middle East even though they are one of the biggest economies
in that sector of the world. One major issue preventing a much rapid and easier
adaptation to IAS was due to the language barrier (World Bank, 2002), as the
IAS was developed in English whilst the language spoken in Egypt widely was
Arabic; where no translations of the IAS could be found in Arabic. Eventually in
the past century it has been possible to translate these standards due to the
development in knowledge and ability to translate. Even though translation was
a hurdle, a complete conversion was not possible as there were cultural values
which must be taken into consideration as Egypt to this day, is still a country
developing into modernity. Therefore, it is understandable as to why a complete
revised set of standards are still not available (Dahawy et al., 2002).

In 2006 a replacement for the 2002 EAS were revised, creating
a new set of thirty-five standards which are solely reflective of the IASB. However,
four Egyptian Accounting Standards (1,10,19 and 20) were a part of the new set
of standards of 2006 so that cultural values are not affected.

EAS 1 – Presentation of financial statements.

Under this Egyptian standard the profits from shares which are
for the employees and the directors are to be subtracted from retained earnings
per share without decreasing the income figure on the income statement. However,
by decreasing the income figure from the statement, the earnings per share which
are due to be distributed as dividends will be affected as they will
simultaneously be decreased; decreasing the worth of each share for
stakeholders. However, the IAS would have charged these distributions as expenses
which would be wiser, and management of expenses will be reasonable. However,
when taking a sum from the retained earnings which will be useful in the future
for any debts incurred or reinvestments, the company is put in a position of
high risk of becoming bankrupt, as the reserve has decreased. Whereas charging
these payments as expenses allows the management of these payments to become

EAS 10 – Fixed assets and depreciation.

Deprecation is incurred over many years allowing assets to be
revalued. However, under this Egyptian standard re-evaluation of the assets
which may need to be depreciated are not allowed unless there are special
circumstances that law and regulations approve, which is completely contrary to
the equivalent standard of IAS 16. This discontinues the depreciation for fixed
assets which can lead to tax savings as well as maintaining residual value of
the assets.

EAS 19 – Disclosure in financial institutions.

General provision for loans are created by decreasing the
income of the income statement, similarly to EAS 10 where the reserve for
expected liability or for the depreciated decreasing value of a fixed asset.
However, according to the IFRS 7, the general provisions are to be decreased
from the owner’s equity which decreases the capital as an expense, which would
be more efficient as the capital may be decreased, but the reserve for expected
and unexpected liabilities will remain untouched. This also comes down to the
difference between poor and good management of funds to keep the business
viable and profitable.  

EAS 20 – Leasing.

The party who owns the property which is being leased keeps
the asset in books and depreciates it whereas the party leasing the property
considers the rental payment as an expense. This is also once again the
complete opposite to IFRS 17. 

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