Accounting Certification in Central Asia: An Empirical Study

Abstract

After the collapse of the Soviet Union, the 15 former Soviet republics all started converting their inherited Soviet bookkeeping system to a market-oriented accounting system. They encountered several problems along the way. No one knew what a market oriented accounting system was all about. There were no books either in Russian or in any of the national languages on which might be termed western accounting, which made it difficult to learn the new system. Terminology was often a problem. As books began to be translated into Russian it became apparent that there were terminology problems. Russian words simply did not exist for many English terms. Perhaps the most interesting word that does not exist in the Russian language is accountant. They use the German word for bookkeeper. The Soviet mentality also considered accounting to be no more than bookkeeping. There was a certain logic for equating the two terms. In the Soviet era, accounting consisted mostly of bookkeeping. There was a chart of accounts that came out of Moscow in 1930 and it was adopted in all 15 Soviet republics. University students who studied bookkeeping took a course in bookkeeping that did not go beyond making journal entries. There was no such thing as financial statement analysis. Cost accounting was practically nonexistent. All prices are set centrally and have little or nothing to do with supply and demand. Calculating profit margins under such conditions becomes a meaningless exercise. It eventually became apparent that the recently privatized businesses had to convert to some internationally recognized accounting system. In most cases that system was International Financial Reporting Standards (IFRS) and International Standards on Auditing (ISA). Any business that wanted to attract badly needed international capital had to be able to present financial statements that were based on an accounting system that could be understood and trusted internationally. But the companies that wanted to attract foreign investment were mostly the large companies. Small companies saw no need to adopt IFRS, since the old Soviet bookkeeping system seemed good enough for their purposes. Furthermore, national tax officials had no use for IFRS, since their tax systems were usually based on the cash method. Where there is no demand, there will be no supply. So there was not much grass roots support for changing to a system that was internationally recognized. Demand eventually began to increase as international investors and bankers demanded financial statements that used either IFRS or U.S. GAAP and many of them demanded annual audits conducted by the Big-4 accounting firms.