Third World Challenges in Accounting

Most third world countries lack a lot of resources that most industrialized countries, such as the United States, possess. One of the many things they lack would be the knowledge and practice of efficient accounting standards and systems. These countries are ones that have many other issues in common such low national income per capita, low living standards and high levels of unemployment. Today, third world countries are broken down into different categories: “Newly Industrialized Countries” (NICs), “More Developed Countries” (MDCs) and “Least Developed Countries” (LDCs). NICs describe countries that are somewhere between an industrialized country and a third world country. Countries in this category are normally characterized by rapid economic growth driven by exports and a migration of workers from rural to urban areas. They share many similar traits of underdeveloped countries, but seem to be moving more in direction of developed countries. MDCs would be countries that are above LDCs, but below NICs in terms of gross national income per capita, economic growth and other measures. LDCs refer to countries that are really lacking in all areas that help to build economic growth. These countries account for less than 2% of the world GDP and 1% of global trade in goods (UN-OHRLLS). As previously stated, countries in each of these 3 categories have a lot in common that classify them as a certain type of third world country.

In regards to accounting, these countries face a lot of similar issues such as poor internal control, absence of management accounting, incomplete/inaccurate records and more. One published work breaks down these issues of accounting in developing countries into 4 components: Enterprise, Government, Education and Profession. The enterprise component describes accounting issues for privately owned companies in developing countries. This revolves mainly around the lack of qualified staff to perform accounting tasks such as auditing and bookkeeping. This issue adds on the lack of cost accounting skills needed to properly prepare financial statements and annual reports, which leads these companies to search for outside accounting assistance. The government component ties in the local and national governments of developing countries and their weaknesses in accounting. Their problems stem from the use of obsolete accounting methods, such as the cash-method. Just as the problems with privately owned firms, the governments show a lack of qualified staff to perform financial obligations for the country. This will lead to poor internal control systems, inefficient management and will eventually affect foreign trade if the country’s financial records aren’t properly prepared. Poor records can also attribute to irregular information in terms of the country’s economic standing. The education component explains the lack of resources to properly educate students in developing countries who are pursuing an accounting degree. These resources include textbooks, curriculum content and, once again, lack of qualified staff to teach the students. The last component deals with the overall accounting profession in third world countries. Most of these countries do not have a professional body or standards of doing things. Without proper guidelines and training for the accounting profession, citizens in these countries working in the accounting field will not be suited for any accounting positions. As another result, this contributes to the high lack of qualified staff to teach accounting students and perform efficient accounting duties for private and public firms. (Springer)

Some solutions to these accounting challenges can be defined by first looking at the history of accounting in developing countries. Most of these countries have been using accounting methods that are obsolete. Additionally, we know from the 4 components described above that the main causes of poor accounting practices in developing countries are the lack of qualified accountants and improper internal controls, but another main cause would the lack of importance put on this issue in comparison to other issues the country may be dealing with. In order to find solutions to their problems with proper accounting standards, the developing countries must first put a higher level of importance on solving these issues. Only after that can these countries be willing to seek help from accounting professionals from developed countries. These professionals would have the skills and knowledge required to properly educate third world citizens who are pursuing an accounting degree. Taking these first 2 steps will open up more opportunities for schools and enterprises in developing countries to expand their programs for accounting and finance using more modern and useful accounting standards and techniques.