RELEVANCE OF INTERNATIONAL ACCOUNTING STANDARDS TO ADEVELOPING COUNTRY – FIJI: AN ARCHIVAL-EMPIRICAL

INVESTIGATION

Pramod Chand

Department of Accounting and Financial ManagementUniversity of the South Pacific

Laucala Campus, Suva, Fiji Islands.Chand_p@usp.ac.fj

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RELEVANCE OF INTERNATIONAL ACCOUNTING STANDARDS TO ADEVELOPING COUNTRY – FIJI: AN ARCHIVAL-EMPIRICAL

INVESTIGATION

ABSTRACT

The quest for the international harmonization of accounting standards and practicesare becoming increasingly important because of the globalization of the worldeconomy. At the same time, investors have broadened their horizons beyond nationalboundaries. The leaders in the business community tend to advocate harmonization inorder to facilitate world trade and economic growth. Even the developing nations arebeing enjoined to apply International Accounting Standards (IASs). The assertionbeing that by adopting IASs they can save themselves the time, effort and moneyrequired to formulate their own standards. However, a closer look at the developmentand application of IASs tends to raise doubts about the validity of such arguments.This paper analyses the relevance of a global system of financial reporting in adeveloping country – Fiji. Keywords: harmonization, globalization, legitimization.

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1.0 INTRODUCTION

The international accounting studies have been contained mainly to the WesternWorld. It was only in the recent decades that interest in the Pacific Asia region hasdeveloped as a result of the economic growth and prosperity in this region (Lau & Ma,1997). This study contributes to the existing literature in this region by examiningand evaluating further the relevance of the IASs to developing countries, using Fiji asa case study. This paper intends to provide a detail analysis of the evolution of Fijianfinancial reporting, highlights significant influences on this evolution, and presents acritical view on the current state of regulation – the move towards internationalharmonization. The internationalization of capital markets demands all aspects of commercialfunctions to be viewed on an international, rather than a national scale. This includesthe accounting function. The process of harmonization portrays an ideal picture aboutthe accounting area, but it may not be appropriate for all countries and societies.Though IASs could be used by every nation, uniqueness of the environment and theassociated economic and social features has led most nations to set their ownstandards. Even the small Island Nations of the Pacific, including Fiji have madesignificant progress towards the development of a set of accounting measurement andfinancial disclosure requirement which will result in the disclosure of financialinformation that is relevant and reasonably comparable across national borders.

In any country, the accounting and financial reporting systems cannot develop inisolation. But are influenced by their environments. Accounting researchers havealways provided an enhanced awareness of the influence of the environmental factorssuch as culture, economic development, political systems and educational approacheson accounting development (e.g. Mueller, 1967; Choi and Mueller, 1984; Arpan andRadebaugh, 1985; Nobes and Parker, 1985 and Gray, 1988). These historical andinstitutional influences are equally relevant for western countries as for the smallIsland Nations of the South Pacific. The IASs are developed in a different social,religious, political and economic system than ours. Thus by adopting IASs countriesdo not develop standards which is necessitated by the needs of their own environment,but end up developing standards to control the variables within their own economicenvironment (Samuels and Oliga, 1982). If this is the case, then IASs may (seeSamuels and Oliga, 1982; Thomas, 1983; Evans et al., 1985; Tondkar et al.; Brunovs& Kirsch, 1991; Peasnell, 1993; Carlson 1997; and EI-Gazzar et al., 1999) or may notbe (see Briston, 1978; Hove, 1986 &1989; and Choi,1998) relevant to Fiji.

This paper examines the factors through which accounting has been influenced in Fiji,explains the differences between Fijian and International accounting needs and thenmoves on to analyze the relevance of the IASs to our country. It addresses thefollowing basic research questions in the Fijian context:

How does IASs interrelate with our social, cultural and economic systems?

Is it appropriate to adopt IASs in Fiji?

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This study has utilized a case study approach based on an archival-empirical researchmethod. The paper is organized in the following manner. The first part of the paperdeals with the relevance of IASs to Fiji, based on the historical and institutionalframework. To addresses the other research question the paper has carried out anempirical investigation, to ascertain the reasons behind the move by the Fiji Instituteof Accountants (FIA) to adopt the IASs. The paper concludes with a critical analysisof the relevance of IASs to small Island Nations, such as Fiji. The subsequent sectionwill lay out the framework used for the paper, followed by the historical overview ofthe standard setting process in Fiji.

2.0 THE HISTORICAL AND INSTITUTIONAL FRAMEWORK

Watts and Zimmerman (1978) pioneered the theory of self-interest, to explain thelobbying behavior of stakeholders in a company. This provided the basis of a theorythat might explain the determination of accounting standards. Similar studies (e.g.Haring, 1979; Watts and Zimmerman, 1978 and 1986) also utilized the ‘rationalchoice/rational actor’ model to reveal the characteristics of the stakeholders lobbyingon specific accounting issues. Drawing on these researchers Susela (1999) hasforwarded the framework to understand the accounting standard setting process. Theconcern in this paper is not to question the merits of these approaches, as theepistemological claims of the writers specially the initial model of Watts andZimmerman (1978) has been subject to heavy criticism (see Chua 1986 and Robson,1993), rather the aim is to utilize this framework to study the standard setting processin Fiji.

The model presented by Susela is based on the premises that analysis of standardsetting must not be restricted to key participants in the standard setting process inisolation, instead an overall understanding of the domestic political economy1 and theglobal political economy2 is pertinent. The following section outlines thedevelopments in the standard setting process in Fiji, with due emphasis on thehistorical and institutional environment of the society in which accounting operates.

3.0 THE REGULATORY DEVELOPMENTS IN FIJI

Accountancy profession in Fiji have long witnessed the professional presence ofAustralian, New Zealand and to some extent British accountants who have, throughtheir industry and professionalism, always made significant contributions to theaccounting development of this country. Notwithstanding these laudablecontributions and the assistance rendered by accounting associations, both nationaland international, the accountancy profession in Fiji is still young and in its

1 For example Stages of Economic Development, Colonial History and Socio-Political EconomicSystems.

2 For example impact of Multinational Corporations (MNCs), International Trade, IASs andInternational Accounting Firms.

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development stage as one would normally expect of any profession in a developingisland country like ours.

The initial stage of development of the accounting profession in Fiji dates back to1940’s, where in 1945 a suggestion was forwarded to the Government of Fiji toprovide legislative measure to register Tax Agents. But no mention was there toregister accountants. The Government did not consider that there was any urgentneed to provide any legislative measure, eventhough the accountancy professionalways felt that there was a need for registration of accountants. At that time therewere a number of practicing accountants in Fiji, of whom only few had recognizedprofessional qualification. This meant that any person could set up an accountancypractice and be a ‘Public Accountant’, irrespective of whether he was academicallyqualified and experienced or not. This was in practice till 1961. However, in late1961, The Fiji Government accepted the notion that there was a need for legislation toregister public accountants. It was not until December 1962, when the LegislativeCouncil enacted the Public Accountants (Registration) Ordinance which came intoforce on 1st of July 1963. On the same day Public Accountants Registration Boardwas constituted by the Governor, which consisted of the Registrar (fromCommissioner of Inland Revenue) and two other members appointed by the Governor(Kapadia, 1980).

The Ordinance laid down the qualifications required for registration – where theprofessional qualifications required were to have passed the examinations and complywith the requirements of practical experience necessary for registration by the NewZealand Society of Accountants or to be a member of in good standing of anyassociation of accountants recognized by the New Zealand Society. It is interesting tonote that even at that time Fiji accountants recognized the need to maintain theprofessional standards that existed in New Zealand, Australia, England and Wales,Scotland, Ireland and Canada.

The Board had very limited vested powers in them to control the conduct of the publicaccountants, and also it found it difficult to develop the accountancy profession in Fiji.The number of registered accountants had been steadily increasing since its inception,from only 13 members in its first year of registration to 40 registered members by theend of December 1970, with a total of about 60 accountants employed in varioussectors of the economy. The need was felt by the practicing accountants to form aprofessional body which could not only control but also develop the profession. Withcontinuous lobbying from the accounting practitioners and at the request of the PublicAccountants Registration Board, the Government in October, 1971 enacted the FijiInstitute of Accountants Act, which then came into force on 11th February 1972 (ibid).

The FIA Act states that the objective of the FIA is to register accountants and regulatethe practice of the accounting profession in Fiji. The FIA, shortly after itsestablishment issued non-mandatory Recommendations on Accounting Practice. Theinstitute is also a member of both the International Accounting Standards Committee(IASC) and the International Federation of Accountants (IFAC). The FIA hascommitted itself to support the standards promulgated by the two governing bodies.

The FIA constitution lays out the procedure for electing members of its council, whoare elected by the members of the institute in the annual general meeting. The council

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has nine members, who have the vested powers to manage and control the affairs ofthe institute. The council then appoints various other committees3, one of them beingthe Accounting and Auditing Standards Committee (Standards Committee fromhereon). The task of this committee is to issue standards in accounting and auditing.Typically the committee is made up of nine members; four from commercialaccounting firms, two from other enterprises, one from academia, one from publicsector and one is a private practitioner. Such a wide representation is designed toensure that as many group as possible are represented in the standard setting process.

Similar to the other accounting bodies, the FIA through its Standards Committeepromulgates accounting standards that serve as the basis for preparing the financialstatements. Since its inception the council of the FIA has so far issued twenty-eightaccounting standards, all of which are extent. These standards are primarily drawnfrom the IASs, but where the committee found Australian and New Zealand standardsmore appropriate compared to the IASs, those have been adapted (Pathik, 2000).These standards have been issued over a period of twenty years, the first in 1979 andthe latest ones in 1999.

4.0 RELEVANCE OF IASs TO FIJI IN CONTEXT OF THE HISTORICALAND INSTITUTIONAL FRAMEWORK

The tremendous growth in international trade and investment has brought to theforefront the problems engendered by differences in accounting reports used in manydifferent countries. However, still differences in financial accounting measurementand reporting do exist, which create problems of misunderstanding, unnecessary costsand uncertainties to the participants in the global economy (Evans and Taylor, 1982;Arpan and Radebaugh, 1985; Purvis et al., 1991; and Chamisa, 2000). Three majorschools of thought4 have been proffered as response to the problems caused byaccounting diversity in different countries, of which international accountingharmonization school has been widely accepted as the most expedient and pragmatic(Chamisa, 2000).

The extant literature on the relevance of the IASC standards to developing countries,is by and large, general and overall (e.g. Perera, 1989; and Cairns, 1990) or case studybased (Briston, 1978; Samuels and Oliga, 1982; Perera, 1985; and Chamisa, 2000).However, the authors who had used case studies of specific developing countries toillustrate their arguments used countries (for example Egypt, Indonesia, Sri Lanka andZimbabwe) which were quite large countries when compared to the small Islandcountries, such as Fiji. Furthermore, the other case studies have basically usedcountries, which were dependent on nationalized foreign-owned enterprises andradically changed from capitalistic to communistic economies, to which the study ofChamisa is an exception.

3 There are thirteen committees altogether: Investigation, Disciplinary, Education and Membership andAwards, Congress Organizing, Accounting and Auditing Standards, Law Review, Act and Rules,Professional Development, Journal, Graduate Professional Programme, Staff and Administration,Professional Centre and Western Division.

4 These are the universal or uniform accounting school, the comparative or multinational accountingthought and the international accounting harmonization school (Weirich et al., 1971).

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Chamisa (2000) asserted that studies of specific and different developing countries areessential if the issue of the relevance of the IASs is to be further exploredmeaningfully. This assertion recognized that: accounting is influenced by theenvironment in which it is embedded and by the ends it is expected to serve (seeMueller, 1967; Zeff, 1972; Nobes, 1983; Choi and Mueller, 1984; Gray et al., 1984;and Peasnell, 1993); national environments and accounting needs of developingcountries differ from country to country (see Choi & Mueller, 1978); and there arelimitations and risks associated with generalizations on issues pertaining todeveloping countries as these countries are not a homogeneous group (see Perera,1989; and Wallace, 1990). Consequently, this is the first study to analyze therelevance of IASs to a very small Island country, utilizing a somewhat differentperspective5 than the other case studies undertaken so far.

Analysis of standard setting must not be restricted to key actors in isolation, insteadsome understanding of the domestic and global economy is necessary. As accountingis seen to affect economic development, accounting itself is also affected by local andglobal environmental factors (Larson, 1993). Most of the recent internationalaccounting texts6 contain at least some discussion of the historical, cultural, social,economic, political and other environmental factors that contribute to the shaping ofaccounting standards in different countries. The factors identified to be influential tothe regulatory development in Fiji and which will be analyzed in relevance to theIASs in this study are colonial history, culture, economic development, businessstructure and MNCs.

Colonial History

It is evidential that in the past there existed many colonial powers.7 Even Fiji wasunder a colonial ruling. It was a British colony for almost a century, from 1874 to1970. Therefore colonial powers (that of Britain) had its influence on Fiji via colonialprocess. Colonialism also resulted in the head of the colony imposing theiraccounting technology on their colonies,8 without considering the needs of the LDCsbut only to the extent of maximizing their own wealth.9

Hove (1986) had identified two conditions whereby accounting technology has beentransferred from the head of the colony to their colonies: the second country had noorganized body of accounting principles in the first place, and secondly large amountsof capital for the first country were invested in business in the second country, with

5 Institutional and historical perspective.

6 For example Arpan and Radebaugh, 1985; Choi & Mueller, 1984; and Ma, 1997.

7 For example British, American, French and Italian colonies.

8 For example Zimbabwe and other Anglophone African countries financial disclosure requirementsand corporate legislation is in line with the British Companies Act of 1948 – as these countries wereunder British empire (Hove, 1986).

9 When Sri Lanka was under British ruling, almost all the stock companies were owned by Britishinvestors and the required personnel for the management – including accountants were from Britain.

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the consequent ability on the part of the investors to impose their own accountingpractices on the business. Consequently, in Fiji most of the accounting practices (inthe past and also currently) are based on the British-American model.10

The large MNCs invested in Fiji, through establishment of subsidiaries. With theabsence of any concrete form of accounting legislature and due to the fact that thesesubsidiaries had to disclose financial information to their parent entities, led Fiji toadopt accounting principles prescribed by the head of the colony. The colonies underthese circumstances were thus forced to adopt an accounting system of their colonialpower even though it may not have been appropriate. The countries that were oncecolonized still continue to follow accounting practices of their rulers, and those stillunder such ruling continue to follow similar practices as their rulers. The Fijianaccounting system is aligned with the Anglo-Saxon accounting model (see Mueller etal., 1997).

Historically IASs also has been seen to be based on Anglo-Saxon accounting (Nobes,1996). Using the classification of Nobes (1996),11 Fiji can be classified as ‘Type BCountry’ – where national rules are generally at least as detailed as IASs, andfollowing the former generally leads to following the latter.

The differences in national reporting standards are being perceived as creatingcompetitive disadvantages that work against the free flow of capital to developingcountries, such as Fiji. The assertion that both Fiji accounting practices and IASs arebased on the Anglo-Saxon model will enhance the process of harmonization in ourcountry. There will be no problem of ‘language’ (see Choi, 1998) which will hinderthe progress of harmonization. This will facilitate the growing demand for a commonreporting ‘language’ in Fiji to accommodate globalization of financial markets.

Cultural influences

Culture can be defined in a variety of ways, but for the purpose of this study ‘culture’is:

“---the collective programming of mind which distinguishes the members ofone human group from another.” (Hofstede, 1980, p. 25).

The word ‘culture’ and ‘subculture’ are distinguished, where the former is reservedfor societies as a whole and the latter being used for the level of an organization,profession or family (ibid). In the accounting literature, the importance of culture hadbeen recently recognized. The works of Harrison & Mckinnon (1986) followed byGray (1988) have proposed a methodological framework which incorporates cultureto analyze changes in corporate financial reporting regulation at national level. Thecultural dimension is an essential element in the framework for understanding howsocial systems change as culture influences the norms and values of such systems, andexplains and predicts the behaviour of groups in their interactions within and across

10 There are four major accounting models identified by Mueller et al. (1997) – British-American model,Continental model, South American model and Mixed Economy model. 11 Nobes classification has been heavily criticized. However, it is only used here to show that the Fijianpractice is similar to the Anglo-Saxon model on which IASs are based.

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these systems (Harrison and Mckinnon, 1986). Utilizing Gray’s (1988)12 approach itis felt that a cultural framework can be used to explain and predict the relevance ofIASs to Fiji. Before an attempt can be made to compare the cultural values of Fiji tothat of the IASC community, it is important to understand the meaning of four valuedimensions identified by Hofstede:

Individualism versus CollectivismIndividualism denotes a loosely knit social framework in society wherein individualsare supposed to take care of themselves and their immediate families only, whereascollectivism relates to a tightly knit social framework in which individuals can expecttheir relatives, clan, or other in-group to look after them in exchange forunquestioning loyalty. The fundamental issue in this being the degree ofinterdependence a society maintains among individuals.

Large versus Small Power DistanceLarge Power Distance societies accept a hierarchical order in which everybody has aplace which requires no further justification, whereas people in Small Power Distancesocieties strive for power equalization and demand justification for power inequalities.The fundamental issue in this dimension is how well a society handles inequalitiesamong people when they occur.

Strong versus Weak Uncertainty AvoidanceThis dimension relates to the degree to which the members of a society feeluncomfortable with uncertainty and ambiguity. The Strong Uncertainty Avoidancesocieties are where rigid codes of belief and behaviour is maintained and members areintolerant towards deviant persons and ideas, whereas Weak Uncertainty Avoidancesocieties have a more relaxed atmosphere where practice overrides principles anddeviance is more easily tolerated. The fundamental issue here is how the society triesto prepare for the future, - control the future or let it happen.

Masculinity versus FemininityThe former stands for a preference in society for achievement, heroism, assertiveness,and material success, whereas the latter denotes a society which prefers forrelationships, modesty, caring for the weak, and the quality of life. The fundamentalissue in this dimension is the way in which a society allocates social roles to the sexes(c.f. Gray, 1988).

Having identified the societal values, let us now identify the related accounting valuesat the level of the accounting subculture on which further analysis will be undertaken.The following are the accounting values derived from a review of accountingliterature:

Professionalism versus Statutory Control

12 His approach is based on Harrison and Mckinnon (1986) and Hofstede (1980 & 1983).

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These relate to a preference for the exercise of individual professional judgment andmaintenance of professional self-regulation, as opposed to compliance withprescriptive legal requirements and statutory control.

Uniformity versus Flexibility This dimension denotes a preference for the enforcement of uniform accountingpractices between companies and for the consistent use of such practices over time asopposed to flexibility in accordance with the perceived circumstances of individualcompanies.

Conservatism versus OptimismWhere there is a preference for a cautious approach to measurement so as to copewith the uncertainty of future events or a more optimistic, laissez-faire, risk takingapproach.

Secrecy versus TransparencyThis dimension relates to a preference for confidentiality and the restriction ofdisclosure of information about the business only to those who are closely relatedwith its management and financing as opposed to a more transparent, open andpublicly accountable approach (ibid).

So much then for the overview of the societal and accounting values, let us now applythese to ascertain the similarities and differences between the IASC (UK/USdominant) and the Fijian accounting practices. Firstly, accounting values include apreference for independent professional judgment as opposed to statutory control. Apreference for exercising professional judgment is consistent with a preference forindividualism and subjectivity. This is what is found in the accounting systems ofcountries listed under British-American model (Mueller et al., 1997). Based on theassertion that the affairs of the IASC are dominated by UK and US, this is also truefor the IASs. Both the IASC and IFAC values the concept of presenting a ‘true andfair view’ of a company’s financial reports, where the auditor is given the right to useprofessional judgment to accomplish this goal. The Fijian practice is somewhatsimilar. The public companies are required to prepare general purpose financialreports accompanied with an independent auditors report (under the Fiji CompaniesAct – 1983). Furthermore the other companies are also required to prepare the annualreports for taxation purpose (for the Inland Revenue Department).

The second set of accounting values which has an impact on financial reporting isuniformity versus flexibility. There is a link between this accounting value and thecultural value of dealing with uncertainty. A society which values uniformity shows apreference for the enforcement of uniform accounting practices, whereas a societythat values flexibility takes into account the individual company circumstances (ibid).The IASs are found to be flexible as it allows for a choice of methods in its standards.This is also the case in Fiji, as FIA allows for differential reporting. The standards(IASs) that are relevant are not relevant in their entirety. This is the reason why theyare modified to suit Fiji’s needs. Even then the FIA finds that some standards are notrelevant to all the organizations in Fiji, such an organization is then exempted fromcomplying with those standards. This has led to the institute to follow the concept ofdifferential reporting, hence those companies fulfilling specified criteria are requiredto comply with the equivalent Fiji Accounting Standards (Pathik, 2000).

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The next accounting value dimension is conservatism as opposed to optimism.Conservatism relates to the measurement of accounting information with preferencefor a cautious approach to measurement, to cope with uncertainty of future eventswhereas optimism tolerates more uncertainty in measurement practices (ibid). TheBritish-American model on which IASs are based, takes on a more optimisticapproach to measurement. This is due to the fact that private investors are the majorcontributors of capital. However, in Fiji the accounting measurement practice is moreconservative, in order to minimize taxes.

The last set of accounting value is secrecy versus transparency. The British-Americanmodel takes a more publicly accountable approach to financial reporting and disclosesmore information, in response to the providers of capital - private investors (ibid).However, in Fiji the approach is somewhat different, there is a preference forconfidentiality and company’s tend to restrict disclosure of information tomanagement and those who provide the corporate finance.

To sum up, the above analysis has shown that eventhough the Fijian accountingpractices are based on the Anglo-Saxon model, but the actual measurement practicesdiffers from that of UK and US. The accounting profession is self regulated and italso allows flexibility while promulgating the standards. But due to the conservativeand secretive nature of the society, the measurement practices and the level offinancial and non-financial information in the financial reports are different whencompared to UK and US reports. The Fijian financial reports are not ascomprehensive as the UK/US reports.

Economic development

The problems of economic development face all countries, but none more so than thedeveloping countries (Radebaugh & Gray, 1993). As such the question arise as to therole of accounting in economic development and the appropriate accounting systemsto use in the context of a variety of local and cultural values. The issue, which needsto be considered is: what is the most appropriate accounting system in Fiji – is itIASs? The economic and enterprise reforms have given rise to significant changes in theaccounting environment in Fiji. To adapt to an outward-development strategy13 and amarket-orientated economy14 reduced the reliance on state funding. Thus theenterprises were given autonomy in operations and finance. This gave rise to variousforms of business combinations, with private enterprises and foreign-investedenterprises expanding their operations across industries. With the increasing complexbusiness activities and less reliance on state fund allocations, the company-specificaccounting practices became incompatible. It was recognized in early 1980’s thatwith the process of economic reform, there is also a need to broaden the accounting

13 This was introduced in Development Program 9 (DP9) in 1985.

14 Fiji had been moving towards privatization and deregulation since mid 1980’s.

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regulatory framework. To facilitate foreign investment and international interactionsin economic activities, accounting reforms were embarked.

Let us now illustrate the differences and/or similarities between the Fijian and theIASs practices in regards to systems of accounting rules used by the businesses.Carsberg had noted that differences among systems of accounting rules are inclined togroup countries into two categories. On one hand, there are countries where businessfinance is provided more by loans than by equity capital, and the other group ofcountries is one in which equity sources of finance are more important. In the formeraccounting rules are dominated by taxation considerations and where legal systemscustomarily incorporate codes with detailed rules on issues such as accounting.Whereas in the latter group, accounting measurements are not dominated by taxationconsiderations, as tax breaks can be enjoyed independently of the way results arereported to shareholders and common law systems prevail.

Fiji certainly falls in the first category, where companies15 have strong incentives totake advantage of taxation concessions. The taxation system here effectively offer taxbreaks for business by allowing somewhat a generous measurement of expenses andmodest measurement of revenues. But on the condition that such measurements areused for general financial reporting purposes, as promulgated by the standards of theFIA. In Fiji, there are many private or the state owned enterprises where the majorproviders of finance are close to the companies in which they have invested andtherefore the general lack of transparency in the accounts does not matter so much.But the modern business pressures and the government’s economic reforms such asprivatization are slowly changing this. Whereas as for the IASC community (US/UK),the role of equity finance is important as the capital market pressures are stronglyadvocating to improve the quality of information available to investors (ibid). Theabove analysis shows that there is a difference between the accounting needs of theFijian community with that of the IASC community.

Business structure

As companies grow, their needs for capital also grow, and with this grew the need toacquire finance from alternative sources. Firstly, the investor/creditor group becamelarge and diverse and companies acquired a widespread ownership. As such theowners became more divorced from the management of the companies, and theprofessional nonowner manager developed. In such an environment, the investorsrequired financial information on how well the company was doing. With the growthin the size of the business, it was impractical for the shareholders to inspect theaccounting records or even to contact the company executives to gather accountinginformation. In such a situation, managers provide the financial reports to investorsand creditors in order to communicate their stewardship over the resources entrustedto them. Financial accounting in UK and US has had such an orientation.Furthermore, these countries have large and developed stock markets, and a great dealof information is disclosed in companies’ financial reports and to determine profit isthe ultimate objective of financial reporting (Mueller et al., 1997). IASs are alsooriented towards the information needs of investors and creditors. The completion of

15 This excludes the multinationals, which reports back to their own countries, and are basically on atax holiday – operating in a Tax Free Zone.

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the IASC/IOSCO project reinforces this, where all the core standards are developed tofacilitate financial reporting needs of the MNCs.

However the situation in Fiji is somewhat different. Here the environment ischaracterized by a few, large banks and the state funding satisfy most of the capitalneeds of the business enterprises.16 The business ownership is concentrated, and assuch the information needs of the resource providers are satisfied in relativelystraightforward way. Since the company has to deal with a few creditors, personalcontacts and direct visits is an efficient way to monitor the financial position of thebusiness enterprise. The financial reports are prepared as the government requiresfinancial disclosure, but it does not contain as much information as the US/UKfinancial reports. The above analysis shows that there is a significant difference in the businessstructures and the means to raise capital in the developed nations as compared to thesituation in Fiji. The drive for harmonization is certainly coming from the top bottom,determined largely by force majeure, driven by the capital markets and MNCs. In thisprocess, little attention has been given to the possible impact on the smaller entities –who may be found to be caught up in an expensive web of regulatory frameworkwhich has been designed to suit the MNCs (McBride & Fearnley, 1999). Similarly,Samuels and Oliga (1982) argued that IASs are:

“—appropriate for industrial countries with a large private sector and a well-developed capital market. The main users of accounting reports in suchcountries are the shareholders, analysts, bankers and other businesses.Accounting reporting and practices and standards are quite rightly designed toprovide these users with the information they require.” (pp. 66-88).

MNCs

The rapid growth of MNCs in the developing countries is another argument which isfrequently advanced to support international harmonization. MNCs are significanteconomic entities, in terms of both, in aggregated worldwide situations and within theindividual countries where they operate. They have distinctive economic, social andpolitical impact, which arises from their power to monitor and move resources acrossnational borders and this has resulted in growing pressures for higher levels ofaccountability (Choi & Mueller, 1985). A number of accounting researchers haveattributed the need for IASs to the increasing significance of MNCs (e.g. Taylor,1987; and Peasnell, 1993). The expansion of the activities of firms into theinternational market certainly increases the number of users of financial reports. Thesituation arises where the users in the host (foreign) and the local country preferfinancial statements and disclosures that are comparable to locally preparedstatements in terms of accounting standards and disclosures. The financial statementprepared in accordance with local GAAP then has to be restated in accordance withthe host country GAAP (EI-Gazzar et al., 1999). Adoption of IASs, provides thesolution to this problem of preparing different sets of financial statements, byproviding a set of accounting rules that are universally accepted.

16 This excludes the MNCs operating in Fiji.

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This, as it is, means that in the absence of IASs – a universal set of accountingstandards and disclosures, a firm willing to list its securities on multiple stockexchanges would have to produce that many sets of financial statements to complywith the securities laws and host country GAAP in which its shares are to be listed.This will be a very costly process to the firm and confusing to the financial markets(ibid). In an empirical study, EI-Gazzar (1999) had shown that MNCs are motivatedto:

“--- voluntary adopt IAS in order to enhance their exposure to foreign markets, toimprove customer recognition, to secure foreign capital, and to reduce political costsof doing business abroad.” (p. 246).

The results of this study are significant as it suggests that MNCs are more likely tovoluntary disclose higher levels of investor-oriented information17. The support forIASC and its standards from this dimension is increasingly apparent around the world.

Given the perception that IASC is dominated by the Anglo-Saxon accountingprinciples and practices (see Briston, 1978; Samuels and Oliga, 1982; Perera, 1985and Hove, 1986) where the major users of the financial reports are investors andcreditors, the process of harmonization becomes a one-sided exercise. IASsessentially facilitates the MNCs financial reporting requirements. The IASC/IOSCOproject reinforces this, where ample amount of resources had been used for well overfive years only to complete the core set of standards. Given the current trend of IASC,to develop standards to satisfy the needs of the so-called developed and developingcountries where the stock markets are developed, the relevance of IASs to Fiji raisesserious doubts. The stock markets here are still in its embryonic stages and given thissituation the new standards which are being developed by the IASC has no relevanceto us at this point in time (e.g. IAS 26, IAS 29, IAS 32 and IAS 38).

To sum up, it was seen in this section that the accounting practice in Fiji are beingimposed by the developed countries (especially UK) initially via colonialism, thenthrough the operations of MNCs, professional accounting institutes, and throughforeign aid and education. These influential factors have given little chance to Fiji, toevolve accounting systems which truly reflect the needs and circumstances of it’s ownsociety.

The existing systems in these developed countries in essence are mere extensions ofthose in developed countries. However, when the needs and the nature of the socialand economic systems of the developed countries were compared to that of Fiji, it wasfound to be significantly different. If this is the case then the relevance of IASs todeveloping countries becomes questionable. It is suggested that the evolution ofaccounting in a developing country, like Fiji, has to take place in a quite differentatmosphere from that which exists in developed countries. It may be necessary toinvent new methods to increase the serviceability of accounting information in theabsence of a developed capital market (Perera, 1989).

The paper has been able to successfully address the first research question, let us nowfurther investigate the relevance of IASs to Fiji, based on an empirical analysis. 17 Another empirical study of a similar nature was undertaken by Taylor and Jones, 1999.

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5.0 RELEVANCE OF IASs TO FIJI – AN EMPIRICAL INVESTIGATION

A case study approach was utilized for this study, which involves field-based researchwhereby the researcher interacts with the phenomena, which are investigated.Accordingly, the case of Fiji is used in this research exercise to review the reasonsbehind the adoption of the IASs and to determine the relevance and the consequencesof IASs on the Fijian economy.

Researchers utilizing a case study approach could either employ a scientific or anaturalistic method or a combination of the two research methods to collect the data.In this case a triangulation of the scientific and naturalistic research methods (Abdel-Khalik and Ajinka, 1983) was utilized. There were two sets of respondent’s (the FIAStandards Committee representatives and the accounting practitioners)18 for whichdifferent methods were appropriate. Accordingly, semi-structured interviews andinformal discussions with the representatives of the FIA Standards Committee wereheld to find out the reasons behind the adoption of IASs. Furthermore, structuredinterview questionnaires (Standard Questionnaire Survey) were sent to the accountingpractitioners (the representatives of the big five accounting firms in Fiji) to ascertainthe impact of the proposed adoption of IASs on them and to assess the practicaldifficulties that may be encountered.

The responses, both from the unstructured interviews and the standard questionnairesurvey, were then analyzed. The empirical evidence on the FIA’s reasons behindadopting the IASs and the impact of adopting the IASs are presented below.Following this, the paper will then critically evaluate the relevance of IASs to Fijibased on the historical and institutional perspective.

5.10 RESULTS

The standard setting process in Fiji is a profession-sponsored arrangement, where theFIA approve the statements of standard accounting practice. The FIA employs apragmatic approach to standard setting, bearing in mind the resources it has. Standardsetting, where there is no prior reference point is a very complicated task as itinvolves a lot of research. The base data has to be collected. So the institution istaking a pragmatic approach towards that problem and adopting what it sees as a costeffective approach. The institution argues that as it has limited resources, thus if aparticular standard developed and established overseas is relevant to us and we canadopt the standard, then there is no need to go and reinvent the wheel. Fiji is a member of the IASC. By virtue of being a member the institute is obliged tofollow the IASs issued unless standards are adopted which are tailored for Fiji but inaccordance with IASs. If there is a matter which the institute has not adopted a

18 For the unstructured personal interviews five members were chosen from the FIA StandardsCommittee, so as to take the views of all the sectors represented on the Committee, and for theStandard Questionnaire Survey – the representatives from the five major accounting firms in Fiji weresent the questionnaire - Arthur Andersen, PriceWaterHouse/Coopers, KPMG, Ernst & Young andBDO Zarin Ali.

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standard on, then automatically it refers to the IASs. The existing Fiji standards are allIAS compliant at the time of adoption. The institute argues that the demand for financial information and accountability isincreasing, thus the profession has the responsibility to ensure that the information isproduced in a consistent and acceptable manner. This is facilitated by the adoption ofthe IASs. The Standards Committee feels that the earlier standards were adopted in aless sophisticated environment. At that time the capital markets were not welldeveloped. Now, with growing investment by the MNCs in Fiji and additional listingof companies on Suva Stock Exchange (SSE), there is a need to broaden the standardsbase to make sure that the reporting is comprehensive. However, in doing so theinstitute is also mindful of the fact that they just do not adopt the standards blindly.They do make assessments of what is appropriate for our situation.

The interview carried out with the representatives of the Standards Committee revealsthe following reasons for the adoption of the IASs:

i) One of the most important aspects would be that the adoption of theIASs will immediately make accountability in Fiji recognized to aninternational benchmark. If we were to develop our own standardsthen we will have trouble making these standards compatible andacceptable internationally. So that is one of the major aspects of thealignment towards the IASs. As a profession, we have a statutoryresponsibility under the Act to maintain certain professional standards.

ii) The globalization of business around the world basically means that wecannot dictate to the world in terms of what generally acceptedaccounting principles should be. We obviously follow what happensoverseas. As we do not have the funds for research, thus one easy wayfor us is to have standards developed by our sister institutes and adopttheirs to start off.

iii) It is a significant saving to us as we do not have to make our own

standards. Fiji being such a small player in the world economy and interms of reporting it’s not really prudent to develop our own standardsso adoption of the IASs save us on the development costs. Byimposing that on the users, basically the cost of disclosure would beminimal,- the only cost being that of making sure that the expertise isthere to report the financials according to the standards. Similarly, oneof the chartered accountants stated that:

"Why we reinvent the wheel basically when you got no money toreinvent the wheel in the first place. So rather than trying to be smartand do all these ourselves we basically use them as a stepping stone.Again we don't see that scenario changing in the short term. It wouldbe foolish for us to think that we can do otherwise because we don'thave the resource capabilities here nor the funds to undertake them andFiji is too small in the market to try and contemplate doing somethinglike that."

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iv) The other reason for the adoption of the IASs is that because Fijigovernment's policy is essentially to reform the economy andderegulate the whole thing we are constantly looking at assessing theperformances of public enterprises. The way in which we can do thatis to measure the performance against those of other countries. It canonly be measured effectively if the measurement is done by using thesame ruler. Therefore, in a lot of sense this international benchmarksand comparability and also the setting of performance targets wouldhave to revolve around the adoption of some consistent measure, that issame/similar standards.

v) A lot of the individual accounting bodies are trying to move in thatdirection, to adopt IASs. Trying to harmonize standards so thatstandards of most countries will be as far as possible compatible toeach other and as globalization of businesses are increasing it will givea clearer framework for reporting if all countries have same type ofstandards. There will be also be few inconsistencies. This in turn willease the supervisory and enforcement roles of the regulatory agencies.

vi) Fiji now, with the adoption of IASs, will definitely have a completeframework of accounting standards. This will now protect our localmarket and we will not lose clients to the overseas firms.

The respondents from the Standards Committee were able to recognize the benefitsthat will flow with the adoption of the IASs.19 The common responses of therespondents, provides some justification for the FIA’s move towards harmonization ofaccounting standards. Trade between countries and investments by companies inforeign countries have indeed started to intensify. Fiji is no exception. This calls forthe need to eliminate or minimize the differences in accounting practices, which areseen to be an obstacle to international trade and business expansion. To cater for thisgrowing need, the FIA is taking on board the IASs, to determine whether thesestandards are appropriate to our economy at this point in time. The major objectivebeing to keep up with the developments overseas, if the institute appears to be laggingbehind.

Let us now reveal the problems that are/maybe encountered by the accountingpractitioners while using the IASs for the preparation of their financial reports. Thedrawbacks associated with the adoption of the IASs as revealed by the interviewees’(both FIA Standards Committee representatives and the accounting practitioners)could be summarized as:

i) It will require qualified people in the system with regards to implementingthe standards. Also there will be costs to train the members so they are up-to-date with the specific requirements of the IASs. Initially there could besome administrative difficulties. It may be administratively onerous toimplement these in terms of the whole mechanism of printing and

19 These views are similar to the views of accounting researchers such as Perera, 1989; Chandler, 1992;White, 1998; El-Gazzar, 1999.

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circulation’s and making sure that people are aware. Furthermore, therecan be some technical problems.

ii) A problem with the standards may be that they are not very specific andrequires judgment by the preparer. Similarly one of the respondent arguedthat:

“Accountants may find difficulty in applying, as in the IASs the wording issomewhat general so it makes it hard for members to apply themparticularly if they are smaller or sole practitioner or the general membersin Fiji themselves.”

At times it is difficult for our members to try and understand exactly howto apply those standards because unless they are associated with aninternational firm or they have continual education courses which do allowthat type of forum to teach the members.

Therefore, we should look at the IASs and decide whether they are usefulto our members or should we provide explanatory notes to the standards.

iii) It should be noted that not all IASs applies to Fiji at this point in time.Therefore, it has to be considered whether a particular IAS is applicable tous. Further to that we need to consider whether it is in line with the otherlegislative requirements of the country, if it breaks any law over here thenof course it needs to be addressed.

iv) Fiji will now have a complete framework of accounting standards but thecost side of it needs to be managed so that it does not result in exorbitantcosts as the FIA does not have a big membership and fund to finance thisarea, so it has to be done with cost in mind definitely. This needs to bedone in such a manner that we do not have to produce standards everymonth, thus the replacing phase should be such that it is done efficientlyand we get some benefit without a lot of loss.

v) IASs are usually designed to suit the multinationals. Thus in the case ofFiji the advantage will not be that significant20.

The survey has revealed that the accounting practitioners are facing difficulties whentrying to use or trying to come to terms with the IASs. This is evident from theresponses received from these accountants where majority of the respondents hadstated that there are practical difficulties associated with the IASs. Whereas the otherrespondent's had argued that the FIA will face administrative difficulties, both in thephase of implementation and also in terms of seeing that the respective firms arecomplying with the new standards. Furthermore, one respondent who also happens tobe the member of the Standards Committee had pointed out that FIA will facedifficulty in keeping pace with the numerous changes that are taking place these dayswith the existing IASs as well as the many new standards which are formulated.

20 The views presented above are similar to the views of accounting researchers such as Samuels andOliga, 1982; Perera, 1989; Hove, 1989; Chandler, 1992 and Ngangan, n.d.

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The IASs are fairly general in the sense that they are permissive, in order toaccommodate the different positions taken by the key members of the IASCcommittee. This may pose some problems. The IASs do not specify a singlegenerally accepted accounting practice because they cater for a lot of countries whichhave adopted different treatments. For example, IAS 2 still makes reference to thelast-in-first-out (LIFO) method of inventory valuation which is still in use in US butnot widely accepted elsewhere. It may give too much freedom to companies toexploit different treatments, which may result in a lack of consistency. It maybecome difficult for the practitioners’ to apply those standards. It should be notedthat when the FIA is adopting IASs, it is setting standards for its members to follow.It is no use to set standards that the members cannot understand. The standardsshould be good standards, which are helpful to our members. In Fiji apart from thebig five accounting firms, others are basically small or sole practitioners. They do nothave a link overseas like the big five accounting firms. They do not have the powerbases, discussion groups, committees, IASC consultancy process, and so on. For thelarger accounting firms, coming to terms with the changes and developments inaccounting standards may not be a problem, but for other members who do not haveaccess to research and training resources, it can become difficult unless the FIA has aprogram to disseminate the information and provide training.

In order to ease the problems associated with the IASs the accounting practitionershad proposed the following ways to overcome these difficulties:

i) FIA should provide adequate training.ii) FIA should give a grace period, that is, implement some of the IASs at

first and not all at once.iii) FIA should provide explanatory notes to the IASs.

The empirical study of the FIA’s harmonization process has revealed that there arewinners and losers in this process. Certainly, there are many advantages which willflow from this process, but it also has a cost factor attached to it. How well theinstitute is able to monitor the process, will determine the success of theharmonization process.

5.11 A CRITICAL ANALYSIS

Having discussed the responses of the business community and the impact on them ofthe harmonization process. Let us critically consider the usefulness of the IASs to thedeveloping nations, such as Fiji. To enable us to do that we need to reveal thephases in the developments of the IASs.

The IASC standard setting process could be divided into four major phases:

Establish (generally accepted accounting principles - Conceptual Framework)

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Rationalise (reduce inconsistency and duplication – formulation of IASs)

Harmonize (to have similar/same standards or that do not contradict -‘comparability/improvements project’, completed in 1993)

Legitimize (new standards – IASC/IOSCO project, completed in 2000)

For the purpose of this study, the phase of harmonization and legitimization seems tobe relevant. These two phases seems to have come from the powerful sectors of theeconomy, the large-scale companies and investors. The MNCs (and the investors)would gain from having a uniform set of financial statements which is based onsimilar systems throughout the world, which will be easier to compare, consolidateand so on.

Consequently in 1995, the IASC undertook a core standards work program, whichwas originally scheduled to be completed by June of 1999. The IASC’s and IOSCOproject was to establish a suite of IASs that could generate generally acceptableaccounting standards on a global scale. The role of the IOSCO was to use itsinfluence on the regulators of the individual securities exchanges to require thecompanies seeking/having a cross border listing to produce their financial reports inaccordance with IASs (Harding, 1999).

To meet the set target, and complete the core standards project, the IASC increasedthe number of yearly Board meetings from its normal schedule of three meetings tofour in 1996 and 1997 and five in 1998. The IASC was rushing, as it was aware thatif the completion of the core standards project would be delayed beyond 1999 andinto the next century may cause major multinational companies to abandon hopes ofusing IASs for cross-border listing and trading (Ruder, 1999). It reached theagreement with the IOSCO on the last major area of core standards in late 1998 –Financial Instruments. However, it was not until middle of 2000, when IOSCOendorsed the IASs. With this significant announcement also came an encouragingstatement from the European Commission, - the decision to require listed companiesthroughout the European union to use the IASs from 2005. This shows that the international accounting profession is not interested whether thisis what the society in general wants, - as consideration is only given to what thefinancial community wants. The profession is driven by a powerful segment of thesociety with lack of consideration being given to the other sectors of the economy.Whether the wider community will get the information, their desire is not beenconsidered. Even if the consideration is there, the issues have yet to be addressed.Thus the overall process of standard setting by IASC is a form of accountingcolonialism, which is being driven by the two larger nations – US and UK (Chandler,1992). The harmonization process thus becomes a means of legitimizing worldwide

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certain values, accounting principles, and practices which may or may not beappropriate to other countries.

To help the developing nations, the IASC had put in place ‘Developing CountriesProject’ in the late 1980’s. The objective being, firstly to provide resources to thesenations, such as training programmes and secondly to develop standards in the areasof importance to countries such as standards for the primary industries, such asmining, sugar and plantations. But this project had just disappeared, as nothingsignificant was done to support the developing nations. However, recently the IASChad again stressed its concern to support these nations. But this time was a slightchange in attitude, as the emphasis is on the East European countries, to come up withstandards such as reporting on dual currency. Again the drive is towards where themoney is, as these areas are seen as considerable market for the investors.

The IASC is a private sector body, as such it does not have a clear mandate fromnational governments or professional accountancy bodies to produce compulsoryaccounting standards. Even though the use of IASs as a basis or guide for the settingof national standards in some developing countries do provide the IASC with a defacto mandate, nowhere does it have a legal or de jure mandate. This limitation ofinsufficient authority is being eased to some extent by the collaboration between theIASC and other regulatory bodies such as IOSCO. More moral and persuasiveinfluence is gained from such collaboration efforts, even though there is an absence oflegislative power (Carlson, 1997).

The influential role of the major countries (especially UK and US) is certainly clear inthe pronouncements of both the IFAC and IASC. Therefore developing countriesmust create their own locally relevant accounting systems before the adverse U.S. andU.K. type systems reached an irreversible state (Briston, 1978). Samuels and Oliga(1982) argued that there is evidence of severe imbalance of power betweendeveloping countries and such dominance, in the process of negotiating forharmonization. They further argued that:

“International standard setting process thus becomes a means of legitimatingworldwide certain values, accounting principles, and practices which may ormay not be appropriate to other countries or societies.” (p. 472).

The analyses show that the pronouncements of the IASC are driven by the majorforces such as the IOSCO. It is further revealed that there is a lack of emphasis givento the developing nations. Thus the question we need to ask is- is it appropriate toadopt IASs in Fiji? Keeping in mind that in Fiji the developments in the capitalmarket is at an embryonic stage.

Let us assume that the IASs are not the relevant standards that FIA should adopt.Then what are the other viable options available? A better way of developingstandards other then adopting the IASs could be where a few (or all) the developingnations can get together and develop standards that are more relevant to them, whichis needed at this stage of development. For example, many developing nations aredependent, to a great extent, on primary industry thus the appropriate standard at thispoint in time is standards for the primary industries, such as how to account forsugarcane/cocoa/pine/hardwood plantations. The individual countries can take up the

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task of developing one-two standards and then swap them with the others. In this wayit will be cost effective, and on the whole most of the developing nations have theexpertise and resources to develop at least one standard. A classic example is that ofPNG, where the PNG Association of Accountants (PNGAA) has issued a standard on‘Accounting for Plantations’. Thus, this shows that other developing nations can alsotake up the task of issuing standards, which are relevant to their economy.Furthermore, it should be noted that the concept of ’harmonization’, andregionalization’ are not mutually exclusive. The two could be achieved together, asfor example the developing nations can adopt the relevant IASs and then where thereis no IAS to suit their needs they formulate their own standards. This could be doneby nations getting together who have similar needs. A good example of this is whereFiji has adopted the standard on VAT from New Zealand, as there is no standard onVAT being issued by the IASC.

The paper has been able to outline the reasons for adopting the IASs and has alsoanalyzed the views presented by the interviewees’. On the whole it was noted that theadoption of IASs will be beneficial to our economy, however, reservations were madeon how to keep in pace with the changes that will take place in the IASs overtime.Further to that concerns were also raised on the usefulness of the IASs to oureconomy.

6.0 LIMITATIONS OF THE PAPER

This study has taken a somewhat narrow perspective, to analyze the reasons foradopting the IASs. The views of the accounting practitioners and the StandardsCommittee representatives were only assessed. However, a broader perspective couldbe utilized, whereby the views of the other regulatory bodies such as SSE could alsobe taken. Furthermore, at this point in time the harmonization process is in itsdevelopment stages, where the FIA is trying to adopt the relevant IASs. Thus the realbenefits that will flow with the adoption of the IAS will be known only after they arefully enforced.

7.0 CONCLUSION

With the adoption of the IASs the institute is able to deliver to the economy aconducive environment to attract foreign investments. The institute in this way isplaying its part, and contributing to the development of the economy. However, it isnot yet known if this has come at the expense of local investors and firms, - only timewill tell whether this move has been able to make significant change in reportingenvironment and whether the accountability in Fiji is indeed recognized to aninternational benchmark. The institute has already made a statement to adopt theIASs. Thus it is pointless to argue now whether it is something that should have beendone. The more relevant issue to consider is how the institute will be able to keep upwith the changes that are going to be made to the IASs overtime. It is evident nowthat the rate of change is significant, as numerous standards are introduced andnumerous existing standards are renewed every year. It is a major exercise to try andkeep in line with the developments internationally. Obviously the FIA has to changetheir standards accordingly as they have already made a commitment to do so.

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Therefore, it is suggested that FIA should consider ways in which this exercise couldbe carried with limited resources, which the institute has on hand. A way of doing thiscould be to ask for grants from the IASC or the major accounting firms.

To sum up, the courage of the institute to take up the huge task of complying with theIASs need to be commended. However, as it was earlier revealed, the institutionshould put in place a proposed plan as to how it is intending to tackle the problem ofkeeping Fiji up-to-date with the IASs in the years to come. Furthermore, it should beconsiderate of the fact that the members of the standards committee are on a part-timebasis. Thus the institute needs to make sure that the in-coming members are able tocontinue with the commitment made by the current members.

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