Chapter 2 enrironmental influence on accounting development


The stage of economic development



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The stage of economic development

Stages of economic development may decide the complexity of accounting practice and theory. The higher the level and growth of income, the higher the political and economic freedom and the better the adequacy of reporting and disclosure. This may apply to any economic system, since economic growth in some socialist countries was often followed by an effort to liberalize the regimes”(Belkaoui, 1985:47). “At extremely low levels of economic development, there is few economic activities and correspondingly little financial, tax, or managerial accounting. As the level of economic activity and size of companies increase, there is a corresponding increase in accounting activity. This continues through each successive stage of development, albeit with certain lags.” Although as Lowe (1967: 360) noted that “from a historical point of view, accounting development is an evolutionary process dependent upon and interwoven with economic development,” Elliot stressed the “social function of accounting, to measure and communicate economic data, can not be considered simply as the effect of economic development, but should be considered a valuable tool for promoting the development process.”(Elliot et al 1968: 764).

The developing level of exports and imports may have a positive effect on the development of accounting. “The higher the develop level of exports and imports, the higher the need for better reporting and disclosure. Free-trade policies in general and export promotion in particular increase cooperation with other countries, the flows of human and physical capital and the need for comparable reporting and adequate disclosure” (Belkaoui 1985:47).

Inflation

Inflation is often associated with economic growth and is a major influence on accounting where hyperinflation is rife to the extent that alternative systems to the traditional historical cost approach are preferred. The cumulative effect of inflation over a number of years can render all accounting information meaningless unless it is appropriately adjusted. Therefore inflation affects accounting standards and practices. Thus countries with relatively low levels of inflation have been slower to develop inflation accounting rules than hyperinflationary countries such as Brazil or Argentina.






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