Accounting Practices in third world countries
The developing or less developed countries are referred to third world countries that have great diversity among them. In this category, some poorest countries of the world (Bangladesh, Ethiopia and Grenada) and some are not-so-poor countries (Qata, Saudi Arabia) are included (Guan and Pourjalali, 2010). For industrialization, some are very poorly industrialized while others have moved to industrialization. So, the culture and political environment of these countries are different to each other that influence the accounting practices of these countries and affect the accounting of companies or branch operations which are US based.
Financial accounting in third world countries is influenced by the environmental and cultural variables as well as political, social and economical variables. Accounting practices is governed by the generally accepted accounting principles (GAAP) with number of laws, rules, customs and conventions (Černe, 2009). There is accounting rule that when profits will never be anticipated, all possible losses must be provided and a profit is not profit until it has been realized. This rule encourages the misrepresentation of profits and hides the profit from shareholders who have right to be informed.
In the third world countries, traditional accounting system has shifted towards modern accounting systems because of environmental and political influence. For example, in Nigeria, the financial accounting operates within a framework that encourages the logical development of principles and practices. These principles are man-made and derived from logical reasoning (Ezejelue, 2004). These principles are different from accounting practices of the USA. So, the differences in accounting can result the difference in amounts reported in the balance sheet and income statement. Thus, the companies which operate in Nigeria and other third world countries may face some differences in accounting practices of local country.
Černe, Ksenija. Influential Factors of Country's Accounting System Development. 2009. Web. 6th Feburary, 2014.
Ezejelue, Austin C. Accounting Problems Of Less Developed Countries. 2004. Web 6th Feburary, 2014.
Guan, Liming and Pourjalali, Hamid. Effect of Cultural Environmental and Accounting Regulation on Earnings Management: A Multiple Year-Country Analysis. Asia-Pacific Journal of Accounting & Economics, Vol. 17. 2010. 99–127. Print.