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Journal of Islamic Accounting and Business ResearchEmerald Article: Understanding the dominance of Western accounting and neglect of Islamic accounting in Islamic countriesGhada Altarawneh, Mike Lucas

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To cite this document: Ghada Altarawneh, Mike Lucas, (2012),"Understanding the dominance of Western accounting and neglect of Islamic accounting in Islamic countries", Journal of Islamic Accounting and Business Research, Vol. 3 Iss: 2 pp. 99 - 120

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Understanding the dominance ofWestern accounting and neglectof Islamic accounting in Islamic

countriesGhada Altarawneh

Department of Accounting, Faculty of Business Administration,Mutah University, Mutah, Jordan, and

Mike LucasCentre for Accounting and Finance, The Open University Business School,

Open University, Milton Keynes, UK

Abstract

Purpose – This paper seeks to explore the reasons for the dominance of Western accounting andneglect of Islamic accounting in Islamic countries, using Jordan as a case study.

Design/methodology/approach – The paper reports the results of a series of interviews, using asemi-structured questionnaire, with senior members of the accounting regulatory regime in Jordan.The interview data are supplemented by relevant secondary (documentary) data.

Findings – The paper concludes that economic dependency on developed Western nations andtheir international agencies is the major factor determining accounting policy and practice inJordan.

Research limitations/implications – The main limitations of this study are the uncertaintyconcerning the extent to which the respondents’ views are representative of accounting policy makersin Jordan, and the inevitable degree of subjectivity involved in evaluating the relative impact ofeconomic dependency and other factors on accounting policy in Jordan.

Originality/value – The paper enhances understanding of the neglect of Islamic accounting inIslamic countries and provides insights into the prospects for and barriers to wider adoption of Islamicaccounting in future.

Keywords Islamic accounting, Western accounting, Developing countries, Colonialism,Economic dependency, Jordan, Accounting

Paper type Case study

1. IntroductionThe idea that accounting is a neutral unbiased technology has long been rejected byscholars (Scott, 1931) because accounting is influenced by various factors including thepolitical and economic interests of particular groups in society (Lehman and Tinker,1987; Cooper, 1980; Susela, 1999). Hopwood and Miller (1994, p. 1) state:

[. . .] accounting is no longer to be regarded as a neutral device that merely documents andreports “the facts” of economic activity. Accounting can now be seen as a set of practices thataffects the type of world we live in, the type of social reality we inhabit, the way in whichwe understand the choices open to business undertakings and individuals, the way in whichwe manage and organize activities and processes of diverse types, and the way in which weadminister the lives of others and ourselves.

The current issue and full text archive of this journal is available at

www.emeraldinsight.com/1759-0817.htm

Dominanceof Westernaccounting

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Journal of Islamic Accounting andBusiness ResearchVol. 3 No. 2, 2012

pp. 99-120q Emerald Group Publishing Limited

1759-0817DOI 10.1108/17590811211265920

In other words, accounting is an important economic tool reflecting the interests andviewpoints of many interested parties. Many studies (Cooper, 1980; Susela, 1999) haveprovided evidence of various interests in different contexts. Accounting derives itsusefulness from its ability to reflect the social, cultural, and economic aspects of theorganizations on which it reports. Each country (society) has its own political, economicand cultural values, which requires the economic goals and the information needed toachieve them to be different in different societies. Thus, transferring accounting thatreflects the socio-economic and cultural values of developed nations to developing nationshas been criticized by various scholars as being unsuitable and irrelevant for developingnations (Briston, 1978, 1990; Hove, 1986; Samuels and Oliga, 1982; Wallace, 1990) andparticularly to those whose societies are bounded by specific religious principles in theireveryday life, such as Muslim societies in Islamic countries.

From an examination of the relevant literature, including the Islamicaccounting and economics literature, it is clear that Islamic societies do need anaccounting system that suits the ideology and values of Muslims, to assist them inmeeting their religious obligations (Hameed, 2001). However, despite recognising thatWestern accounting is inconsistent with the values and principles of Islam, it is stillfound to dominate accounting practice and education in Islamic countries. The literaturesuggests a number of possible reasons for the adoption of the Western (in particular theAnglo-American) accounting system in these countries, including the impact ofcolonialism, the needs of multinational corporations and the demands attached to theprovision of financial aid (Hove, 1986; Briston, 1978; Cooke and Wallace, 1990). In short,accounting that has been employed in these nations is intended to serve the needs ofvarious external parties rather than the needs of local and indigenous people (Hove, 1986;Samuels and Oliga, 1982).

Case studies undertaken by Poullaos and Sian (2010) indicate that the demands ofBritish capital in all instances had a profound impact on the requirements of accountingpractice in developing countries (Verhoef, 2011). These writers however, acknowledgethat there is significant variation among countries, implying the need for country specifichistories/studies of the ways in which the imperial legacy interfaced with the domesticpeople and cultures. Country specific studies are therefore necessary to establish theimpact of colonial authority and answer the question of whose interests have beenparamount in determining accounting policy and practice and what was the balancebetween imperial interests, commercial interests and those of the indigenous population(Verhoef, 2011).

Although economic dependency on the west has been emphasised by manywriters as the primary reason for developing countries adopting Western economic andaccounting policies, there would seem, logically, to be a number of possible reasonsfor Jordan’s adoption of Western accounting and consequent neglect of Islamicaccounting:

. Ignorance of alternatives, i.e. Western accounting is accounting!

. In a world of uncertainty and ambiguity, do what everybody else (or at least anexemplar organization/country) does.

. The cost-benefit calculus, i.e. the costs of developing and implementing its ownaccounting system/standards are prohibitive for a small, relatively poor countryand the limited benefits do not justify the costs involved.

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. Adherence to a widely accepted set of high quality accounting standards (whichcost millions of dollars to produce) reduces the risks for investors and therebyreduces the cost of capital for Jordanian companies.

. Jordan is economically dependent on the west and must therefore adopt economicand accounting policies that best serve Western interests.

As the literature review which follows this introduction indicates, a number of writershave suggested that economic dependency is self evidently the explanation for theadoption and continued use of Western accounting in developing countries. However,there are as, indicated above, a number of competing explanations, none of which havebeen conclusively supported or refuted by previous research and this is the justificationfor the current study.

This paper is structured as follows. The next section presents the literature review,followed by a description of the country context in Section 3. Section 4 describes theresearch methodology employed in the current study. Section 5 discusses the researchfindings and Section 6 draws conclusions and indicates some limitations of the currentstudy and future research directions.

2. Literature reviewMany efforts have been made to explain the reasons for international differences inaccounting practices and regulation and the factors that influenced the accountingapproach in a particular country (Nobes, 1998; Gray, 1988; McKinnon, 1986; Cooke andWallace, 1990, and others). These writers argue that accounting in a country isinfluenced by various external and internal factors. Internal variables include the stageof economic development, goals of society, legal rules, economic systems, and culturalvariables. External factors are “those factors that are likely to make accountingregulators in a country ignore or give less emphasis to internal factors” (Cooke andWallace, 1990, p. 82), such as colonial history, the influence of multinational corporations,and the impact of regional economic communities such as international tradecommunities, membership and participation in international organizations as well as theeffects of international governing and globalizing of accounting around the world.

A number of researchers have also suggested that accounting regulations indeveloping countries are more likely to be a result of the demands of foreign corporationsthat attempt to invest in these countries. This may be because of the exclusivedependency of these developing countries on external financial sources and assistancefor survival by organizations such as the World Bank (WB, 2004) and the InternationalMonetary Fund (IMF). In contrast, countries with plenty of resources, advancedtechnologies and professional experience in the accounting field are more likely to developtheir own accounting regulation.

In short, there is a consensus among researchers that accounting in developingcountries is an outcome of various external and internal factors, which have also beenidentified as hindrances/obstacles that limit the opportunity for developing countries todevelop or improve their own accounting approach, and consequently contributed to thedominance of Anglo-American accounting worldwide.

Some researchers argue that imperial legacies are a major barrier to the process oflocalizing accounting professional bodies (Annisette, 2000; Bakre, 2005, 2006; Carnegie andParker, 1999). Annisette (1996) investigated the circumstances surrounding the localization


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of the accounting profession and training in Trinidad and Tobago. She observes that thetraditional ways of qualification have been criticized by both the business community andthe government as being irrelevant and unsuitable for Trinidad and Tobago’senvironment. She concluded that the influence of imperialism and the dominance ofWestern accounting continue to be the major obstacles facing any localization plans inmany former colonies. Further, the study indicates that the Western accounting frameworkis inappropriate for the country’s socio-political and economic environment.

Briston (1978) illustrates how accounting systems in Nigeria and Sri Lanka have beenformed by colonialism (British colonization). Accounting in these countries still copiesthe British accounting principles and systems even after independence. Briston criticizesthe adoption of “British” accounting (as he refers to it) by other nations that havedifferent economies, cultures and even values. He points out that British accounting hasbeen criticized by its own society (Western nations, Western scholars) for not being freeof bias and of causing many problems (Briloff, 1990; Miller and O’Leary, 1987). He addsthat if this accounting creates problems for the economy that it is supposed to serve andwhose values it represents, how can it be employed to serve different socio-economiccontexts. Similarly, Balachandran (2007) provides further evidence on the influence ofimperialism and the colonization legacy on accounting system (particularly managementaccounting) adopted in the country even after Sri Lanka achieved its independence.

Some studies, such as that by Loft and Aggestam (2007), are concerned withunderstanding the role of certain international organizations in attempting to globalizeand govern accounting around the world. In the colonialist age, accounting techniquesand practices were one of the significant capitalist instruments that had been employedby the colonizers to support the procedures of accumulating profit by imperialist nations(Neu, 1999). In order to continue to protect the interests of imperialists after theindependence of many developing countries, different mechanisms are needed and theformation of international institutions such as the World Trade Organization (WTO), WBand IMF serve the purpose. These international institutions have insisted that theMember States (particularly developing countries) employ the International FinancialReporting Standards (IFRS) as a benchmark for their accounting system. Thus,developing nations are obliged to adopt this sort of accounting, ignoring its suitability fortheir particular socio – economic situation (Loft and Aggestam, 2007).

Ashraf and Ghani (2005) consider the factors that influenced the origins, developmentand growth of accounting practices and disclosures in Pakistan. These researchersdiscuss how the colonial epoch and more recently, some international financialinstitutions, have influenced and shaped the country’s accounting and reportingpractices. They found that besides the colonial milieu of the country, accountingpractices in Pakistan have been influenced by international financial institutions, suchas the WB and IMF, essentially because of Pakistan’s political relationship with the USAand the Western world. Consequently, as demonstrated by Ashraf and Ghani (2005), theimpact of Pakistan’s cultural values on the accounting system cannot be identifiedclearly because of Pakistan’s colonial past and its need for Western financial assistance.

Essentially then, previous studies have tended to suggest the significant impact ofvarious international capitalist institutions on the accounting policy of developing countries.

However, what is missing in the literature are the possible reasons for Islamicaccounting not being adopted by developing Islamic countries, despite the growth andglobal acceptance of Islamic financial instruments.

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There are a number of other logical possibilities for the continued dominanceof Western accounting. First, it may be attributed to ignorance of the alternatives,including the existence of Islamic accounting. It may be that, for many people, Westernaccounting is accounting. Haniffa and Hudaib (2010) are acutely aware of this possibilityin writing the editorial for the launch of the inaugural issue of the Journal of IslamicAccounting andBusinessResearch. The rationale for their editorial paper (and indeed thenew journal itself) is that “it is useful to new readers of the journal around the world, whoare interested but have limited knowledge in the area”.

A variation on the ignorance of alternatives theme, is that the situation may beexplicable in sociological rather than economic terms, in particular, in terms of the“institutional isomorphism” proposed by advocates of New Institutional Sociology (NIS)such as DiMaggio and Powell (1983). These authors identify what they describe as“mimetic processes”. Uncertainty is a powerful force that encourages imitation. Facedwith uncertainty and ambiguity in our interpretation of the world around us, it isdifficult to know what to do. Consequently, it is best to do whatever everybody else does(or at least what a model or exemplar entity or country does).

Forrester (1996) has discussed how this occurs in the field of financial accounting.There has, for example, been a strong tradition within continental Europe of looking atwhat the neighbours are doing and adopting their solutions for one’s own use.DiMaggio and Powell (1983) also identify what they call “normative processes”. Thisisomorphism stems primarily from “professionalization”: the collective struggle ofmembers of an occupation to define the conditions and methods of their work and toestablish a cognitive base (i.e. way of looking at the world) and legitimation for theiroccupational autonomy. Two aspects of professionalization are important sources ofisomorphism. One is the resting of formal education and of legitimation in a cognitivebase produced by university specialists or professional associations. The second is thegrowth and elaboration of professional networks that span organizations and countriesand across which new models diffuse rapidly.

Universities and professional training institutions are important centres forthe development of organisational norms among professional managers and theirstaff. Professional and trade associations are another vehicle for the definition andpromulgation of normative rules about organisational and professional behaviour. Suchmechanisms create a pool of almost interchangeable individuals who occupy similarpositions across a range of organizations and possess a similarity of orientation anddisposition (Lucas, 2005). Could this explain the adoption of IFRS by Islamic developingcountries? In 1997, the Arab Society of Certified Accountants called for all of its 22 membercountries to adopt international accounting standards (then IAS, now IFRS) as theirnational GAAP, in the “Dubai Declaration”. This would seem to be an example of“normative processes and/professionalization” in action. Conversely, the Accounting andAuditing Organisation for Islamic Accounting Institutions (AAOIFI), has not wieldedmuch influence.

Another possible reason is the rational choice theory or the cost-benefit calculus. It isprohibitively expensive for a small developing country with limited resources to developits own accounting standards, when a set of internationally recognised, high qualitystandards already exists (i.e. IFRS) (Allingham, 2002). An example is the AAOIFI’sdecision to adopt existing (IFRS) standards and only address aspects that are not shariahcompliant, rather than to start from scratch, based on the shariah.


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The third reason may be attributed to the cost of capital minimisation argument. It ispossible that using an internationally recognised set of high quality accountingstandards, such as IFRS, may help reduce investor risk and thereby lowers the cost ofcapital for companies (Leuz and Verrecchia, 2000). Globalisation of corporations meansthat shares are traded on international capital markets (Dos Santos, 1971) and investorswill choose to invest in countries deemed to have low risk. It is widely accepted thatdeveloping countries pose higher risk to investors due to a variety of national differencesin economic structures, policies, socio-political institutions, geography, and currencies.

Since Islamic finance and banking is a relatively new phenomenon, with strictreligious rules, investors are more cautious of the additional risks involved. Hence,adopting an established accounting system and accounting standards will help gaininvestors confidence to invest in the country.

Closely related (although not identical) to the third reason is economic dependency ofdeveloping countries on former Western colonial powers. The need to attract foreigndirect investments (FDIs) and to seek international funds to help finance thedevelopment and growth of developing countries means that developed nations canexert pressure on developing countries to employ an accounting system that suitsWestern interests. The conditional assistance and aid given by international institutionsto the less developed nations depends on the willingness of these countries to undertakea range of social, cultural, economic and political changes including accounting ones.This contributed to strengthening the domination of conventional accounting in thesecountries, preserving the interests of international financial institutions, such as theIMF, WB, and developed nations, even if this sort of accounting is not appropriate fordeveloping countries’ culture, values, economy and environment.

There have been studies concluding that colonialism is the reason for the dominanceof Western accounting, but not studies of Jordan. Verhoef (2011) argue that there issignificant variation among countries in terms of their history and institutionalframework; this implies the need for country specific studies to explain the situation withrespect to a particular country.

In short, the literature review demonstrates that there have been a number ofcompeting explanations for the dominance of Western accounting and neglect ofindigenous alternatives such as Islamic accounting in Muslim countries. However, theevidence adduced is inconclusive, necessitating further, country specific research. Aseach country has a different history, circumstances and institutions, there is a need for anaccumulation of country specific studies. The current study is one such.

Since Jordan established one of the earliest Islamic banks, it is surprising that Islamicaccounting has not been developed by nor adopted in Jordan. What are the possiblereasons for lack of commitment by those with authority to adopt an accounting systemthat corresponds to the principles and values of their own culture and religion? To helpunderstand the reasons, it is first important to understand the Jordanian environment.

3. The Jordanian contextThe Hashemite Kingdom of Jordan is a small developing Arab country located in theheart of the Middle East. Islam is the state religion and about 98 percent of Jordanians areMuslims. Jordan is classified by the WB and IMF, as a “lower middle income country”.According to Jordan’s Department of Statistics, 13 percent (30 percent accordingto unofficial estimation) of the Jordanian workforce is unemployed. Jordan has quite

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an advanced health care system (World Health Statistics, 2009), education and the adultliteracy rate are very high (92 percent). Net outstanding public debt (domestic andexternal) increased to reach JD 9,432.8 million or 58.2 percent of estimated GDP for 2009.Total external debt service (government and government-guaranteed) on a cashand commitment basis amounted to JD 436.2 million at the end of 2008, of which JD291.3 million were principal payments and JD 144.9 million were interest payments(Table I). In 2009, the overall budget deficit excluding foreign grants, amounted to$1.975.26 (JD 1,410.9) million (the Ministry of Finance, Jordan, 2009).

As Table I illustrates, Jordan’s debt and foreign aid receipts are extremely large andincreasing, making the country totally reliant on foreign (predominantly Western)financial aid and assistance.

4. Research methodIn order to carry out this research, a number of senior members of the variousorganizations constituting the accounting regulatory regime in Jordan were interviewed.The primary research instrument employed was a semi-structured questionnaire,constructed using the implied testable propositions of dependency theory/neocolonialism.

Dependency theory has two aspects. First it asserts the fact of economic dependency of“periphery” (i.e. relatively poor, developing) countries on “core” (i.e. developed, Western)countries, in particular former colonial powers. Second, it asserts that the “core” countriesintentionally pursue policies to keep “periphery” countries poor and dependent, inorder to continue economic exploitation of them, even after the notional grantingof “independence”.

In this research, we are not considering the second aspect of dependency theory; weare focusing instead on the first aspect: the fact of economic dependency and whetherthis provides the most cogent explanation for Jordan’s adoption of Western accountingand relative neglect of Islamic accounting.

Consequently, the semi-structured questionnaire used for data collection wasdesigned to capture the requisite information concerning the testable propositionsimplied by the first aspect of dependency theory. The main categories of questions asked(reflecting the testable propositions implied by dependency theory) are shown in theAppendix. Data collected by using this questionnaire was supplemented by documentaldata (using documents and web sites of the selected case studies (organizations).Employing multiple data collection methods or data sources facilitates triangulation,which increases the validity of the findings ( Janesick, 1998). The combination ofdifferent methods, including semi-structured interviews and use of documentary data,allowed the researchers to match the interviewees’ responses with the documentaryevidence, as well as looking for any contradiction between what the researchers weretold and what was revealed by other publicly obtainable resources.

Semi-structured interviews are conducted within a fairly open framework, thus, thequestions that have to be asked are not always prepared in advance. Many of thequestions are generated during the interview, which gives both the interviewer andthe participant the flexibility to investigate and discuss further details or other issues,unlike the structured interview, where all questions are compiled and planned ahead oftime. Nevertheless, sometimes the interviews take the form of a conversation rather thana question and answer technique.


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Time

Series

Total debt service(percentage of exports of goods,

services and income)

External debtstocks, total

(current US$)

Official development assistanceand official aid(current US$)

1960 – – 88,290,0001961 – – 91,790,0001962 – – 81,730,0001963 – – 82,650,0001964 – – 75,550,0001965 – – 68,950,0001966 – – 73,840,0001967 – – 53,500,0001968 – – 45,730,0001969 – – 48,530,0001970 – 119,092,000 80,080,0001971 – 153,349,000 57,300,0001972 7 180,465,000 103,040,0001973 8 214,802,000 188,860,0001974 5 270,699,000 273,500,0001975 4 342,815,000 424,220,0001976 3 432,464,000 482,220,0001977 5 796,334,000 368,290,0001978 6 1,111,303,000 431,760,0001979 8 1,417,948,000 1,299,800,0001980 8 1,866,842,000 1,275,370,0001981 10 2,186,349,000 1,064,470,0001982 9 2,648,432,000 798,130,0001983 12 3,021,412,000 786,650,0001984 13 3,286,370,000 686,360,0001985 17 3,943,827,000 537,270,0001986 19 4,831,644,000 562,920,0001987 24 6,261,594,000 576,490,0001988 31 5,918,248,000 415,680,0001989 20 7,316,082,000 275,460,0001990 20 8,332,910,000 885,970,0001991 24 9,700,260,000 938,320,0001992 20 7,966,938,000 424,390,0001993 15 7,644,546,000 309,480,0001994 14 7,553,124,000 372,030,0001995 12 7,660,562,000 539,130,0001996 18 7,385,455,000 506,580,0001997 16 7,313,840,000 462,380,0001998 16 7,560,998,000 411,360,0001999 10 8,083,091,000 432,050,0002000 13 7,354,865,000 552,450,0002001 11 7,534,261,000 449,020,0002002 8 8,108,224,000 536,810,0002003 16 8,337,366,000 1,247,760,0002004 8 8,066,184,000 601,510,0002005 6 7,696,176,000 668,060,0002006 6 8,000,140,000 579,980,000

(continued )

Table I.Jordan’s external debtand aid

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4.1 The selection of the case studiesEach country has its own accounting regulatory body, which regulates the preparationand publishing of financial statements, according to the country’s rules and regulations.In the UK, for instance, regulation has traditionally been based on the accountingprofession; the Accounting Standards Board (ASB), which requires use of the IFRS. Thisapproach is indirectly supported by the government via Company Law requiringcompliance with the rules set by the ASB. In some other countries, a governmentdepartment has the responsibility of determining accounting policy in the country. InJordan, the government has the responsibility of deciding accounting policy. Jordan’saccounting regulatory regime (regulators) consists of the following:

. Jordan Securities Commission (JSC);

. Central Bank of Jordan (CBJ); and

. the Insurance Commission (IC).

all of which mandate the use of IFRSs.The researchers tried to ensure that the selected case studies would consist of all

institutions that influence accounting practices and regulations in Jordan either directly( JSC, CBJ, etc.), or indirectly, by those governmental institutions that influence theeconomic and financial policy of Jordan which in turn influences its accounting policy,such as the Ministry of Industry and Trade, and this was the main factor that influencedthe researchers’ choice of appropriate cases. However, the researchers also ensuredtaking into account the opinion of other parties that are involved in affecting accountingin Jordan, such as universities and professional bodies ( JACPA). Consequently, theresearch case studies can be considered to be to some extent representative and providereliable information. Table II shows the profile of respondents representing the partiesdetermining accounting regulation, education and practice in Jordan.

4.2 Pilot studyEarly on in the research, the researchers undertook two exploratory interviews as a pilotstudy, prior to conducting the major empirical research (semi-structured interviews).The process began in May 2009 when prominent accounting professors who aremembers of the Applied Science University\Department of Accounting andThe Hashemite University were interviewed over the phone and face to face,respectively.

In addition, the researchers conducted brief interviews with some members of theJordan Islamic bank. These interviews concentrated on whether or not Islamic banks and

Time

Series

Total debt service(percentage of exports of goods,

services and income)

External debtstocks, total

(current US$)

Official development assistanceand official aid(current US$)

2007 6 8,367,733,000 504,460,0002008 16.9 6,794,000,000 742,220,0002009 18.2 9,432,800,000 780,435,000

Source: 2009 The World Bank Group, Global Development Finance Table I.


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other Islamic financial institutions in Jordan need personnel that are qualified andprepared by academic institutions to work in such institutions. The pilot study revealedthat there is a significant need for developing Islamic accounting, particularly for Islamicfinancial institutions. Also, it revealed that the Islamic sector in Jordan representingbanking and insurance companies, does pay a high cost to train and teach its new

Interviewcode Institution Job title/department

Aca.A.1 The Applied Science University Full professor/head of departmentAca.A.2 The Applied Science University Full professorAca.A.3 The Applied Science University Full professorAca.A.4 The Applied Science University Associate professorAca.A.5 The Applied Science University Associate professorAca.H.6 The Hashemite University Assistant professor/head of departmentAca.H.7 The Hashemite University Associate professorAca.H.8 The Hashemite University Associate professorAca.H.9 The Hashemite University Associate professorAca.H.10 The Hashemite University Full professorAca.H.11 The Hashemite University Assistant professorAca.H.12 The Hashemite University Full professorGov.MOF.1 The Ministry of Finance Senior accountant/treasury departmentGov.MOF.2 The Ministry of Finance Director/directorate of study and economic

policiesGov.MOF.3 The Ministry of Finance Head of revenue/directorate of public revenueGov.MOF.4 The Ministry of Finance Senior accountant/government financial

management information systemGov.CBJ.5 The Central Bank of Jordan Senior managementGov.CBJ.6 The Central Bank of Jordan Executive manager/banking supervision

departmentGov.CBJ.7 The Central Bank of Jordan Executive manager/domestic payment

& banking operations departmentGov.CBJ.8 The Central Bank of Jordan Executive manager/currency issue departmentGov.MIT.9 The Ministry of Industry and Trade Senior management/finance and commercial

accounts directorGov.MIT.10 The Ministry of Industry and Trade Executive manager/economic policy and

consultation directorGov.MIT.11 The Ministry of Industry and Trade Executive manager/foreign trade policy and

relationsGov.MIT.12 The Ministry of Industry and Trade Director/industrial developmentGov.JSC.13 Jordan Securities Commissions Senior management/national financial centreGov.JSC.14 Jordan Securities Commissions Senior management/mutual fund and

investmentGov.JSC.15 Jordan Securities Commissions Head/Amman Stock ExchangeInd.JACPA.1 The Jordanian Association of

Certified Public AccountantsChairman/the board of directors

Notes: Clarification: Aca. – academic case; Gov. – government case; H – The Hashemite University;A – Applied Science University; CBJ – The Central Bank of Jordan; MOF – The Ministry of Finance;MIT – The Ministry of Industry and Trade; JSC – The Jordan Securities Commission; JACPA – TheJordanian Association of Certified Public Accountants; numbers (1,2,3,4,. . .11,13, etc.): are used as itrelates to the interviewee of the case studies, for instance, CBJ.5 means that the interviewee is seniormanagement/from the Central Bank of Jordan

Table II.List of interviews

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employees to work in such an Islamic system, and this difficulty could be resolved ifpolicymakers, accounting academics and professionals in Jordan were to take this issuemore seriously.

4.3 Carrying out the main interviewsDuring the period of six months from August 2009 to February 2010, 28 semi-structuredinterviews were conducted, lasting between one and one and a half hours each. All theinterviews were carried out face to face. Most of the interviews were tape recorded and allwere transcribed, translated from Arabic to English and then coded using the Nvivo-7software package for qualitative data analysis.

Following initial contacts by telephone to determine the willingness of therespondents to participate, a letter of introduction was provided, outlining the purposesand objectives of the research study. In general, the researchers started the interviews bythanking the interviewee for taking part in this study. Permission to record theinterviews was sought and received. The researchers also assured the interviewees ofcomplete confidentiality and that no single identity would be identified if they so wished;however, the organizations whose members were interviewed were identified. All theinterviews were carried out in the offices of the interviewees.

At the end of the interviews, most of the interviewees asked the researchers about thepossibility of providing them with the results of the study, which the researchers werevery happy to do. The researchers ended the interviews by asking the interviewees ifthere was anything they wanted to discuss, or if there was any document which wouldenhance the validity and reliability of the data and later the research findings, as well asasking them whether they accepted the idea of being sent texts of their interviews tocheck whether or not the researchers had correctly understood their point of view. Theinterviews were concluded by the researchers expressing appreciation and thanking theinterviewees for their help.

Besides conducting interviews, a review of relevant documents and official web sitesof the institutions involved was also undertaken in order to provide triangulation andthereby increase the validity of the findings. The results of the interviews were analyzedusing Nvivo software in order to identify any patterns emerging both within and acrosscases.

4.4 Data management and the analysis processAccording to a number of influential qualitative researchers (Miles and Huberman, 1994;Yin, 1994), data management and qualitative analysis are based on three elements:

(1) data reduction;

(2) data display; and

(3) conclusion drawing/verification.

Naturally, after finishing any empirical field study, a large amount of data will have beenobtained. This fact made it necessary for the researchers to be well organized in dealingwith the data obtained, in order to keep track of the data and make it easier and moremanageable to work with. This was the first step in the data analysis. The transcriptionand initial analysis of the interview data was carried out directly after each interview,which allowed the researchers to engage with the data provided by the respondents, linkthat to other documental data obtained from different sources and, importantly,


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enhance the ability of the researchers to concentrate on some issues that needed moreclarification in the next interviews, which would fill the gaps and resolve anyambiguities that might be found in the data collected previously.

A significant step in data reduction after the transcription stage was to code the data.Miles and Huberman (1994, p. 58) recommend the following:

One method of creating codes – the one we prefer – is that of creating a provisional “start list”of codes prior to fieldwork. That list comes from the conceptual framework, list ofresearch questions, hypotheses, problem areas, and/or key variables that the researcher bringsto the study.

The interview transcripts and documentary data were analysed using a qualitativeanalysis method of coding and re-coding using the Nvivo 7 software package.A deductive analytical approach using the dependency theory framework generated aset of codes and helped in the identification of themes/important ideas from the data.A relevant theory is one whose (predicted) categories fit or come to match the datawhich can be employed to clarify, predict, and interpret what is going on (Glaser, 1978;Yin, 1994).

4.5 Within-case analysis and cross-case analysis approachesThe main aim of this study was to gain a deeper understanding of the particular situationin Jordan rather than statistical generalisation. Thus, the researchers investigated andanalysed each case very deeply, using an iterative procedure of reading, coding andnoting of patterns and themes. For instance, the transcription texts and documental datathat emerged from the CBJ were examined against the testable categories implied by thedependency theory framework, in order to understand what was being revealed, as wellas to evaluate the compatibility between the data and the categories of the theoreticalframework. This has been applied to all case studies, of course, using the Nvivo 7 software(Figure 1).

After examining each case against the theoretical framework, theprimary conclusions were drawn. The second strategy of the research analysis wasbegun using cross-case analysis. In the cross-case analysis process, there is a need forcomparable data using common codes, common pattern codes, and common displayformats (reporting formats) for each case, as suggested by Miles and Huberman (1994).Thus, the result of each within-case analysis was compared to the results of othercases, to look for comparable and common themes and ideas that cut across cases. “Incross-case studies, replication is an important part of the basic data collection effort.Emerging patterns from one case need to be tested in others” (Miles and Huberman,1994, p. 274).

This sort of analysis, which combines a replication strategy (case-oriented strategy),that uses the theoretical framework to study each case in depth, and a variable-orientedstrategy, that aims to look for similarities and differences between results, is called“Mixed strategies” (Miles and Huberman, 1994). These processes can be appliedstraightforwardly using Nvivo 7.

5. The empirical findingsThe research findings were analysed with respect to their conformity to the competingpossible explanations for the situation in Jordan. This analysis revealed the following.

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5.1 Ignorance of alternative approaches/isomorphic processes (i.e. copying others due touncertainty)Our empirical findings suggest that all respondents were aware that alternativeapproaches were available, including Islamic accounting:

It would be nice if we had our own accounting system, but this is a very difficult task, particularlyfor the developing nations with restricted resources and experience (Aca.H.8).

In fact, a number of respondents were sympathetic to the need for an alternativeaccounting:

In my opinion, the western accounting approach does not suit our values and society. I mean,accounting is a social science; it was created to serve societies. But the question is, is theaccounting we use serving our communities? I don’t think so. From my point of view, it hasbeen applied to suit the capitalist people and economy, to serve a few groups and the newopen economy not the whole community. Thus, we cannot say that accounting in Jordan isappropriate for general Muslims, it is appropriate for those who believe in the capitalist ideas,and who concentrate on how to maximise their wealth (Aca.A.3).

We would expect to find accounting that fits the nature of the economy or business which itrepresents. Thus, in Jordan, how can you expect to find Islamic accounting or accountingthat’s based on Islamic principles either in the academic, professional and government fieldwhile our economy is reflecting the philosophy of capitalism, not because of our choice but

Figure 1.Strategies of the research

analysis processNote: n is the number of case studies


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because we found ourselves in this situation as a result of various historical, economic andpolitical reasons (Aca.H.9).

None of the respondents suggested that adoption of IFRS was due to copying others as aresult of uncertainty. There was no evidence of IFRS adoption in Jordan being theoutcome of the sort of isomorphic processes suggested in the NIS literature.

5.2 Minimisation of cost of capitalNot a single respondent mentioned the possible advantages to Jordan’s companies of areduced cost of capital resulting from their adoption of IFRS. This possible explanationcan, therefore, seemingly be discounted.

5.3 Rational choice theoryA couple of respondents mentioned the cost-benefit calculus argument:

If we want to create a new accounting system, Jordanian or Islamic accounting no matterwhat you call it, there are a lot of barriers and difficulties. Who will bear the very high cost ofthis task, taking into account the limited financial resources, who will design it? Promote it?And approve it? And how can we convince everyone, such as the foreign investors anddonors, that this is the appropriate system? And how can we deal with other parties whosehelp and assistance we need, while we are using different systems or principles!! It would benice if we had our own accounting system, but this is a very difficult task, particularly for thedeveloping nations with restricted resources and experience (Aca.H.8).

The adoption of western accounting is to save cost and efforts that should be spent in order todevelop Jordan’s own accounting system, considering the limited financial resources and pooreconomy of Jordan. This application of IASs (i.e. IFRS) will benefit the Jordanian economy andpeople in general, by making Jordan’s economic and financial system more reliable andattractive. It will enhance the integration of Jordan into the global economy and encourage theinternational financial institutions/donors to provide Jordan with the required fund[s] andassistance (Gov.MOF.4).

This case (interview) appears to be very limited in support of the economic dependencyargument, by apparently emphasising the cost-benefit calculus argument. However, thisinterview produced a clear contradiction and inconsistency. In the beginning the intervieweedenied the impact of international aid and the donors on accounting policy, but later, therespondent stated that the adoption of a Western accounting approach would help Jordan toget international loans/aid; he said: “this application will [. . .] encourage the internationalfinancial institutions/donors to provide Jordan with the required fund[s] and assistance”.

Moreover, the rational choice theory, or cost-benefit calculus argument, presumesthat individuals have a certain amount of freedom to choose/decide a particular course ofaction. The question is, was this the case when Jordan adopted a Western accountingapproach? Had the policymakers who are responsible for setting accounting policy inJordan, a freedom/alternative to choose/decide which sort of accounting should beadopted and would reflect Jordan’s economy and needs? According to the researchevidence, the accounting and financial system in Jordan had been formulated by Britishcolonisers, and this still affects the essence of current Jordanian accounting policy. Thismeans that policymakers did not decide to choose which accounting should be put intopractice as they had no freedom to do so. Therefore, this case has not provideda convincing argument or a strong explanation in support of any one of the competingexplanations of the situation in Jordan, identified earlier in this paper.

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5.4 Economic dependencyThe findings from these case studies indicated predominantly that the most significantfactor influencing accounting regulators in their mandating of IFRS was economicdependency on the west. All respondents confirmed the need to employ an accountingand financial system that is acceptable to donor countries and their agencies (the WB,IMF, WTO and USAID). These organizations all require adoption of IFRS as a conditionof aid/assistance. All respondents (except as indicated above, Gov. MoF.4, which wascontradictory) insisted that this was by far the most important factor influencingaccounting policy in Jordan:

“Jordan in hard economic circumstances has no choice but to ask international institutions anddeveloped nations for their assistance and help (loans and aid), which in turn, means that theyimpose different obligations and conditions to be satisfied by Jordan, such as the adoption ofIAS, privatization, global economic policy, etc. Jordan has no choice but to accept these policiesto get the necessary funding”. He added “as I said, we are an economically weak country; weneed foreign funding and loans, so we have to accept the conditions of powerful parties andtheir policies” (Aca.A.5).

In general, to get foreign aid and required funding, Jordan does need to adopt the financial andeconomic approaches of international financial institutions and donors, to convince the globaleconomy and international parties of the reliability of its financial and economic policy, thus,Jordan has adopted the IAS as its accounting system in addition to other international policieswhich already have been developed and employed by those developed states and donor parties(Gov.JSC.13).

Jordan is a heavy beneficiary of foreign aid and dependent on it to cover, for instance,governmental budget deficits. This crucial need forced Jordan to meet the internationalrequirements of the international organizations and countries. Thus, Jordan must correspondwith and adopt different international policies and criteria, in order to encourage the donors tohelp Jordan through financial aid and assistance. For instance, the World Bank andInternational Monetary Fund have required all their members and those countries that askedthem for assistance to adopt the International Accounting System besides many otherobligations (Gov.MOF.2).

Jordan, like many developing poor nations, has to obey the international institutions, suchas the WB, IMF and WTO, and adopt a number of strategies to accomplish its commitmenttowards these global organizations, to get the necessary funds and to follow its dream ofimproving and developing the Jordanian economy and people’s lives (Aca.H.12).

As the above quotes indicate, the provision of assistance and aid given byinternational institutions to the less developed nations relies on the willingness ofthese countries to undertake various social, cultural, economic and political changes. In1999, the WB and IMF instigated the mutual “Reports of the Observance of Standardsand Codes” initiative. This covers 12 areas and associated standards that need to beadopted by countries receiving aid, including the area of “Accounting and Auditing”.This mandates the adoption of the IASB’s accounting standards’ and the InternationalFederation of Accountants’ International “Standards on Auditing”. The WTO also“encourages” the adoption of IFRS (1996). Effectively, the WTO works with the WB andIMF to enforce adoption of IFRS by its members:

Different organizations and institutions, such as the IMF, WB, WTO and USAID, have playeda significant financial and technical role in deepening and enhancing Jordan’s adoption of


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international economic and financial policies. Normally, for example, the IMF and WB sendsome groups to member states, to review, monitor and observe their financial and accountingsystem and annual economic developments (Gov.CBJ.7).

Thus, Jordan has been guided by various international institutions that workcomplementarily, in reforming its economic, legal and financial system to suit the plansand agendas of a global economy. For instance, Jordan is obliged to integrate the arenaof the global economy and open market and adopt the structural-adjustment program(SAP) specified by the IMF and WB. This has a great impact on the way accounting isregulated and operated in Jordan:

In Jordan, the World Bank is concerned with reforming the public sector. Thus, the PublicSector Reform Loan II (PSRL II) has been designed by the World Bank, which specified asignificant amount of its financial assistance, which concentrated on programming andbudget preparation, civil service and administrative reform, expenditure and judicial reform(Gov.JSC.14).

To fully and properly implement privatization and the policy of an open economy, andguarantee its accomplishment, Jordan renovated and created different laws and regulations,such as the 1997 Company Law, the 2002 Securities Law and established three institutions( Jordan Securities Commission, the Amman Stock Exchange, and the Securities DepositoryCommission) which are responsible for several tasks, one of them being the setting andenforcing of accounting regulations, which in turn has led fully to the adoption of theInternational Accounting Standards (Gov.JSC.13).

Furthermore, USAID has assisted the Government of Jordan to satisfy therequirements of the WTO, US-Jordan FTA and foreign investments, through[1]:

. assisting with the reform of laws, policies, and institutions to fully support theobjectives of Jordan’s membership in the WTO and its trade agreement with theUSA;

. providing technical assistance and training to the GOJ, particularly the CentralBank, Ministry of Finance, and trade and investment institutions, to meet marketand framework demands;

. creating new laws and institutions that can provide efficient and effective publicservices for investors;

. encouraging the continued development of laws, policies, and institutions thatare responsive to private sector issues, particularly those of the financial andcapital markets;

. providing technical assistance and training to support GOJ efforts to modernizeits infrastructure and service efficiency;

. working with key financial and capital market institutions to introduce moreadvanced financial instruments to the market, including tradable mortgages,securitization tools, various securities mechanisms (e.g. mutual funds, futures,swaps), and tradable debt portfolios;

. developing strong systems for financial market regulation, including(anti-)money laundering; and

. maintaining support for the GOJ’s Executive Privatization Unit’s efforts toprivatize state-owned companies.

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In summary, the adoption and persistence of a Western accounting approach (andspecifically IFRS), and the failure to detect a significant impact of Islam on accountingpractices/education in Jordan, even after independence, is a consequence of Jordan’sdependency relationship with Western capitalist countries, and Jordan’s integration intothe global economy, in the interests of those capitalist countries. Jordan’s significantneed for international aid and loans has been exploited by developed Western nationsand their agencies to compel Jordan to integrate into the global economy and adopt/fulfilldifferent international policies/obligations, such as the policy of open economy,privatization and so on as a strategy for serving/securing the capitalist and geopoliticalinterests of Western capitalist nations. This has been achieved by various mechanisms(the “stick and carrot” strategy) such as international aid, loans, trade agreements, debtamnesty, open economy and foreign investment, which are created and developed byWestern nations as part of their geopolitical and capitalist exploitation and interests:

Jordan has adopted or rather has been compelled to apply different economic and politicalchanges as a result of the insistence of international organizations, such as the World Bankand the International Monetary Fund on furthering and demanding the use of such policies.These policies have done more damage to our society instead of enhancing and developing itscircumstances. From my point of view, if developing countries, such as our country, haddeveloped their own programmes and policies depending on their national circumstances,I think the result would be much better than now, and ensure we would have kept our dignityand freedom, which we have lost owing to international institutions (Aca.A.4).

The WB, IMF, WTO, etc. have been founded to serve the interests of specific capitalistgroups, to draw the world economy into becoming a promoter of some countries to thedisadvantage of others. This fact has contributed to controlling the choices and capacities ofJordan and limiting its alternatives for developing or adopting the relevant accounting andeconomic policy that reflects the values of Muslims in this country (Aca.A.4).

Jordan’s forced integration into the global economy has influenced accounting policy inJordan in two ways:

(1) Directly: the adoption of Western accounting is considered an important step toaccomplish Jordan’s integration into the global economy and satisfy therequirements of the international financial institutions such as the WB, IMF, WTO,MNCs and dominant partners (such as the USA).

(2) Indirectly, Jordan is still unable to develop or adopt its own economic andaccounting policy that reflects the indigenous values and demands of Jordanianpeople, as a result of the negative outcomes of this integration, which hasstrengthened Jordan’s dependency on the Western agencies, and impactednegatively on its economic and financial circumstances. Jordan’s economy and itslimited natural resources are now under the control of Western multinationalcorporations and international financial institutions. As a result, accounting andeconomic policies in Jordan symbolize the values and principles of the capitalistsystem and the objectives of dominant nations and their agencies.

5.5 Colonial legacyAll respondents in both the governmental and academic case studies agreed thatthe origin of the dominance of Western accounting in Jordan is to be found in thecolonialism era:


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Talking about accounting in Jordan is the same as talking about accounting in the Arab MiddleEastern countries that shared the same history and circumstances. Jordan, like many otherdeveloping and Islamic countries, was under the control of western colonial powers. Thosecolonizers did employ their accounting approach in their colonies, which affected and influencedaccounting in these nations, and even after independence, the colonial experience still affects theaccounting system and other systems such as economy and politics (Gov.MIT.9).

The long-lasting Western colonial control and power in the region has formed accountingsystems in this area as well as the financial system and company law. Nowadays, theaccounting system in these countries still continues to represent and symbolize westernaccounting values and principles. On the other hand, colonial history and its impact onJordan, as well as other developing countries, has formulated the type of politics, economy,education, etc. (even after independence) which also participated in strengthening thedomination and superiority of western accounting in these regions, up to today, and restrictedthe opportunity of Jordan and other developing countries to develop their own accountingsystem that suits and represents their cultural, economic and social values (Aca.H.9).

6. Conclusions and future research directionsThe empirical findings of this research suggest that the adoption and persistence of aWestern accounting approach and the failure to detect a significant impact of Islam onaccounting (professional or academic) in Jordan is a consequence of Jordan’s integrationinto the international capitalist economic system, which has been enforced by Westerncountries and their agencies (the WB, IMF, WTO and USAID).

The fact of economic dependency on the west has forced Jordan, or rather has leftJordan with no alternative but to take certain steps (such as an open economy, free trade,privatization and foreign investment) favorable to the interests of international financialinstitutions, such as the IMF, WB, WTO and multinational corporations, even if thesesteps are not appropriate for Jordan’s culture and values, economy and environment. Asa result, Jordan is still unable to develop or adopt its own economic and accounting policythat reflects the indigenous values and demands of Jordanian people. On the contrary,Jordan’s economic and accounting policy is reflecting and meeting the demands andpriorities of the agencies of Western developed nations.

This study, although providing valuable insights, has of course its limitations. Onesignificant limitation is the uncertainty concerning the extent to which the viewsexpressed by the respondents in interviews, are representative of the accountingregulators in Jordan as a whole. Another is an inevitable degree of subjectivity ininterpreting the findings, particularly with respect to evaluating the relative impact ofeconomic dependency and other factors (for example the cost-benefit calculus) onaccounting policy in Jordan.

There are several areas for future research that are suggested by the current study.First, it would be interesting to investigate further the mindsets of those people whoinfluence the accounting system in Jordan, such as the respondents of the governmentand academic case studies, regarding their enthusiasm or apathy towards the adoptionof Islamic accounting. This could contribute to an exploration of potential prospects forand barriers to developing Islamic accounting professionally and academically.

Second, it could be beneficial to investigate the possible impact of the adoption ofIslamic accounting, economy and financial products such as Islamic bonds,mudarabah,murabaha,musharakah, on Jordan’s economic performance, by comparing the results ofthe adoption of a conventional approach and an Islamic one. This future study may

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advance and encourage the attempts to develop Islamic accounting in particular and theeconomy in general.

Third, the case findings indicate that economic dependency on the west is the mostsignificant factor determining accounting in Jordan and thereby provide a platform for afuture research agenda. Using the research design employed by this study, replicationand extension of the findings may be sought in other developing countries as part of theprocess of theory development.

As a matter of fact, Jordan’s economic situation has deteriorated, rather thanimproved, during the period during which the Western demands concerning economyand accounting have been implemented. Is this evidence of a cause and effect relationshipand hence evidence of a deliberate policy by Western countries to keep developingcountries poor in order to continue, post independence, economic exploitation ofthese countries? Future research could explore whether neocolonialism/dependencytheory can explain the current situation in Jordan.

Note

1. USAID/Jordan Strategy 2004-2009: USAID Mission to the Hashemite Kingdom of JordanStrategic Direction of the US Foreign Assistance Program Gateway to the Future 2004-2009.

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Appendix. The interview guideThe main issues to be discussed:

(1) The economic and historical aspects, as well as the importance of Jordan’s geographicallocation in the Middle East to the core countries.

(2) The extent of Jordan’s dependency on international financial institutions, such as theWorld Bank and IMF (Jordan’s relationship with the agencies of dependency).

(3) The extent of Jordan’s dependency on and relationship with imperialist countries such asthe USA in different aspects, such as financial aid and technological assistance ( Jordan’srelationship with developed countries).

(4) The impact of Jordan’s integration into the global economy on the economic and financialpolicies and affairs of Jordan, mainly their impact on accounting practices. This can beinvestigated by looking at:. Jordan’s economy, financial and accounting obligations and duties towards IFIs and

the global economy and the results of these commitments, for example, issuingspecific laws or regulations regarding the adoption of international accountingstandards, privatization, investment regulations, financial liberalization and tradeliberalization.

. The methodology, process or projects of these institutions (WB, IMF, WTO) tomonitor and assess the compliance of Jordan with their (WB, IMF, etc.) criteria orrequirements, for instance, the Report on the Observance of Standards and Codes(ROSC).

(5) Exploring the potentiality for and obstacles to developing or adopting Islamicaccounting into the accounting system in Jordan (professionally, academically and in thegovernment).

Corresponding authorMike Lucas can be contacted at: [email protected]

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