Chapter 2 enrironmental influence on accounting development


Basic economic orientation and degree of government involvement



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Basic economic orientation and degree of government involvement

The types of economic systems may decide one country’s basic orientation of the economic system and the degree of government involvement in the economic sector, and decide the objectives of accounting.

In Communist countries, for example, the state owns all production facilities, makes most of the economic and business decisions, and controls virtually all operations through a central planning and control system. These countries have a highly standardized and uniform accounting system to facilitate the government’s planning and control function, and there are few users of accounting information other than the government. In market-capitalist economies, there is predominantly private ownership. With greater individual freedom in economic activity and decision-making, a correspondingly greater diversity in accounting practices is permitted and practice. There are also more users of accounting information— stockholders, auditors, suppliers, and creditors—in addition to the government (Arpen and Radebaugh, 1985:21).

Concerning the relationship between government expenditures and accounting, Belkaoui (1985:67) declared that “the higher the level of government expenditures, the higher the level of government intervention and the better the adequacy of reporting and disclosure.” Because government is assumed to be accountable to the people, its intervention may be followed by an effort to report and disclose, and may be favorable to the development of an accounting program and a reporting and disclosure tradition. This is applicable to any economic system.




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