The move toward transforming from centrally planned economies to market economies for the last ten years has seen some countries approaching the finish line, other struggling at various stages, and a few barely off the starting line. A number of Central and Eastern European economies are making negotiations with the European Union. On the other hand, majority of economies in the Commonwealth of Independent States, including Ukraine, have remained murky in their prospects and progresses in the transition process.
Romania and Ukraine are among the many countries that are in the verge of transition from a centrally planned economic model to a free market economy. These countries in transition experience accounting and economic issues in implementing these changes. This paper explores the social and economic context of these two countries and the potential challenges that come into view where the increasing significance of global markets, international, and political developments influence the formulation of strategies in matters of accounting1. Strategies emanating from these actions must also take into account the specific needs of various small companies thriving in transition economies. It has come to the attention of transition economies such as Romania that an organized phasing-in of change, accompanied by training, is a perquisite in ensuring the success of the reform process. This has resulted into tensions arising between the governments, who want to retain some level of control to ensure harmony of all elements of the reform, and the professional associations, which demands to become self-regulatory.
The accounting issues facing transitional economies include training in order to develop accounting standards to international standards. The economic and accounting issues that characterize such economies include a large number of state corporations, small number of trained accountants, relatively small value of stock market as a percentage of the economy, and inefficient tax system. Another accounting issue affecting transitional economies is a bias to private sector auditing, places unrealistic demand on limited educational resources. In addition to this, IMF, World Bank and other international financial institutions that provide aid have contributed to mounting pressure on accounting according to British and American standards2. It is evident from previous literature that the state continues to exercise strong control over the development of accounting in transitional economies, due to the previous state control and the reluctance to face off this control. In addition to work in progress on standard testing and legislation, the Department for International Development of the UK government in conjunction with the World Bank initiated work with twelve pilot companies in order to assist in the transition to the new accounting system from the RAS.
The economic issues facing transitional economies include mismatch between supply and demand, high foreign debt, and a mismatch between demand and supply. These imbalances are because of a combination of visible and invisible fiscal deficits, price controls, and financing through printing of money by the central bank that serves as a government agency3. The result of this was a disappearance of commodities from the official market and their trading at higher prices on the black market.
In an attempt to solve some of these problems, Ukraine embarked on a retraining program with audit firms starting training courses on the ‘new’ accounting, ignoring the lack of obvious qualification in IAS4. Internationally monetary bodies initiated projects aimed at training professional with the aim of ensuring that they disseminate their knowledge unselfishly. In Romania, a project dubbed Know-How Fund, funded by the British government came handy to provide to proved assistance to Legislation Department of Finance in Romania to develop the auditing and accounting systems.
The major focus in the early stages of accounting reform in Romania focused on the directives of the EU. In order to implement the change process, The Know-How Fund Project initiated the training process in which the stakeholders received training in International Accounting Standards (IAS). The EU played an important role in ensuring that the EU Company Law Directive was enacted into Romanian law. The EU together with the IMF and the World Bank played an important role in ensuring that both countries adopted IAS, since their failure to adopt that strategy would compromise their ability to access the loan facilities essential to stimulate economic growth.
In conclusion, the developments of accounting in transitional economies circumvented some of the drawbacks initially experienced in other transitional economies and resorted to shortcuts in some of the development processes by making parallel rather than sequential changes. It is therefore important for transitional economies such as Romania to put in place an accounting system that provides users with efficient accounting information to enable them make the desired decision. It is also evident that presence of transparent and credible accounting system is the key to economic recovery in transitional economies.
Beattie, Aileen and Cristescu, A.M. and King, N. and Weetman, Pauline. “Developing Accounting and Audit in a Transition Economy: The Romanian Experience.” European Accounting Review, 10, no. 1 (2001):149-171. ISSN 0963-8180
Fredrick D. Choi and Gary K. Meek. International Accounting. Upper Saddle River, New Jersey: Prentice Hall, 2011.
Solodchenko, Irene and Sucher, Pat. “Accounting in Ukraine Since Independence: Real Politic, Problems and Prospects.” European Accounting Review, 14, no. 3 (2005): 603-633