The economies of developing countries have been experiencing a downfall for quite some time. In 2014, the growth rate for the least developed countries fell to 5.1%. Recently in 2015, that rate fell to 4.5%. Their economic growth rate will continue to fall for many reasons. Some of those reasons include poor investment growth, poor export demand, military issues and low commodity prices. Another important reason is the lack of accounting controls. Poor accounting controls cause many accounting inaccuracies, which leads to a deterioration economy (United Nations).
In these countries, there are a variety of accounting errors that contribute to serious consequences for companies and government organizations. Some of these mistakes include weak internal controls such as auditing errors, inaccurate record keeping, lack of on time account closings and no accounting guidelines for managers. Although these critical conditions that must be fixed, the most predominant hardships that these countries face are the lack of qualified accounting personnel and the lack of a proper accounting system. Companies, as well as their government organizations, face harsh consequences from these issues.
The absence of qualified accounting personnel is due to the fact that there are almost no accounting programs offered at universities in developing countries. This is partly because there are not enough educators trained in the accounting profession. Also, there are not enough students who are qualified to learn accounting in those countries. The illiteracy rate is high in these countries (Holzer and Chandler). Some developing countries do not even have accounting terminology in their languages. For example, in the country of Tonga, the word "bookkeeping" does have its own word in the Tongan language. However, other simple accounting terms such as "assets" and "liabilities" can not be found in the Tongan language (Taufui).
As a result, qualified accounting applicants are rare in developing countries. Therefore, there are not enough skilled accountsants to carry out proper procedures. As a result, there is a shortage of accounting trainers for new hires. Without skilled accounting professionals, some essential tasks will not be completed. For example, companies may not be able to produce a skilled auditor to thoroughly analyze their financial statements.
The source of the problem comes from the accounting curriculum that is reached to the limited number of students. The accounting curriculum in developing countries teachers the type of accounting that is from developed countries because that is where the training material and most of the limited amount of educators come from. Accounting students are learning how to run an accounting system for the incorrect type of environment. Therefore, they are going into the work expecting the accounting system to already be in place. Instead, they find an improper system with many internal control errors. For example, accounting systems lack suitable documentation procedures. There are incorrect invoice forms and no accounting manuals. As a result, annual financial statements are either produced extremely late or not at all.
The consequences of these accounting problems severely affect government organizations and companies in these developing countries. For example, management does not know how to efficiently run their organization in order to be profitable. Without proper auditing procedures, fraud can easily occur. Without accurate financial statements, a company's current financial status can not be known. This also means that government organizations have no idea of how much they will need to tax or if they are growing at a steady rate. All of these consequences negatively affect the economies of developing countries (Holzer and Chandler).
Fortunately, the International Federation of Accountants (IFAC) and the UK Department for International Development (DFID) are working together to address these accounting issues in order to improve the economic conditions in developing countries. They plan on providing $ 8 million dollars in funding to strengthen financial and administrative accounting procedures in those countries (Cohn).
It is unfortunate that so many developing countries are experiencing these accounting dilemmas. The impact that these issues have on their economies has a devastating effect not only on the companies and government organizations, but also on the citizens of those countries. Accounting is meant to help businesses and governments be organized and run efficiently, not the other way around. Therefore, solutions, such as the International Federation of Accountants and the UK Department for International Development project, need to be made available so that citizens do not have to suffer from the drastic conditions that improper accounting procedures create.
Cohn, Michael. "Strengthening Accounting Organizations in Developing Countries." Accounting Today. SourceMedia, 3 Oct. 2014. Web.
Holzer, H. Peter, and John S. Chandler. "A Systems Approach to Accounting in Developing Countries". Management International Review 21.4 (1981): 23-32. Web.
Taufui, Sione Leimoni. "The Role of Accounting in the Developing Economy of the Kingdom of Tonga". Doctor of Philosophy Thesis. Department of Accounting and Finance. University of Wollongong, 1996. Web.
United Nations. "World Economic Situation and Prospects". United Nations, 2016. Web.