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History Oil Accounting

Chapter One: Introduction

The Persian-Arab Gulf region has held a significant geopolitical position throughout history. It has been a centre for human affairs beginning with the Sumerian, Babylonian and Assyrian culture periods. The geopolitical importance of the region also extends to recent history.

The Persian-Arabian Gulf countries are the largest suppliers of oil in the world, and the area is closely associated with industrialist countries such as the U.S. and European countries. It is also the location of conflict, such as Arab-Israeli wars, and continuing regional struggles, which increases the focus of Anglo-Saxon countries on the region (Anderson, 1992; Hourani, 1981; Cleveland, 1994; OPEC, 2006).

The region is currently populated by coalition forces, mainly Anglo-Saxon who have invaded Iraq and are threatening Iran. This political and military action is part of Anglo-Saxon plan to reshape the Middle East region through economic reforms and Western-style democracy as announced by the U.S. President (Cirincione , 2003).

Historical Foundations of Accounting

The development of accounting resides within both a social and an historical context (Bakre, 2001; Cooper and Robson, 2006). Academic and professional literature about how Anglo-Saxon countries have influenced developing countries has expanded in recent decades (Annisette,1999, 2000, 2001 & 2003; Wallace, 1990; Wijewardena & Yapa,1998; Yapa, 1999; Bell, et al.,1995; Susela, 1999; Aba-Alkhail, 2001; Chua & Poullaos, 2002; Bakre, 2000, 2001, 2005 & 2006; Neu, 2000; Uche, 2002; Alam, et al., 2004; Davie ,2000, 2007; Dyball, 2007 ).

While accounting practices are perceived to be Anglo-Saxon, they have spread to facilitate global business and the internationalization of capital worldwide. Regardless of the appropriateness or not, Anglo-Saxon accounting practices and regulations are largely operating in almost all developed, as well as developing countries. They are the tool of international economy, liberal economic democracy, capitalism, and secularism. Anglo-Saxon accounting systems enable the accumulation of capital, the continuous expansion of capitalism, and service the interests of the international marketplace (Caliapello & Ding, 2005).

Anglo-Saxon accounting systems, as Sikka and Willmott (1995) argue, are a response to local politics and conflicts in the Anglo-Saxon world, rather than a response to the economic and social development of developing countries. This hegemony of Anglo-Saxon technology may reduce the cost of capital, promote economic development and improve the efficiency with which global resources are allocated, but it prevents the development of local rules and regulations that meet the socio-economic and political needs of individual countries (Bakre, 2005).

Developing countries adopted the Anglo-Saxon accounting systems as a result of Anglo-Saxon colonialism, the operation of international companies, international accounting professional institutions, and international organizations (Hove, 1986). This mixture of influences caused developing countries to adopt the systems, but constrained their ability to advance their own socio-political, economic, and cultural interests and solve their individual social and economic problems.

Currently, however, with the support of international organizations such as the International Monetary Fund (IMF), International Auditing Practices Committee (IAPC), International Accounting Standards Committee (IASC,) and the World Bank (WB) many developing countries, such as Kuwait, are witnessing broad shifts towards accounting reforms (Annisette, 2000). The primary elements in the accounting reform process have been the introduction of the International Accounting Standards (IASs), and changes to companies and capital market regulations that give these standards legal backing.

The view that developing countries accounting practices and regulations are significantly influenced by Anglo-Saxon accounting practices and regulations has been illustrated by accounting research in some developing countries. A number of studies have indicated that there is a strong relationship between the development of accounting in developing countries and the influence of imperialism and globalization.

Prior research has related these adoptions to the colonial accounting system that legitimized colonial rule, including the development of the profession (Annisette (2000); Wallace (1990); Bell et al (1995)and Wijewardena and Yapa (1998)). The literature also shows that, at the dissolution of colonialism, the globalization of the world economy increased pressure to develop a single set of financial reporting standards worldwide.

The globalization of business also requires international organizations, such as international accountancy organizations (such as the International Accounting Standards Committee and the International Auditing Practices Committee) to adopt standard accounting systems as part of their role to assist in the global harmonization of accounting in both developed and developing countries (Chand and White, 2007).

The development of accounting in developing countries is best understood by analyzing the various internal and external forces that shaped the accountancy development in each country, the role of accounting in society and whether the Anglo-Saxon accounting systems were inherited or adopted. The traditional image of accounting reveals that accounting and auditing are neutral and rational calculations.

Accounting decisions are made solely on the basis of considerations of efficiency and growth; however, the 1980s witnessed a shift in the traditional image of accounting (Miller, 1994; Burchell et al.,1980). A well-established body of literature such as Cooper (1995) and Tinker (1991) has drawn attention to the significant role of accounting in social and political context. They found that accounting activities have social, political, and economic consequences that play a significant role in shaping income and wealth distribution, capital market operation, and the flow of investment funds.

Accounting Practices in the GCC States

The accounting literature indicates that, in developing countries, accounting development has a long history of influence from Anglo-Saxon countries that historically reduced their alternative choices (Annisette, 1999, 2000 & 2003; Bakre, 2000, 2001, 2004, 2005, & 2006; Sian, 2006; Davie, 2007, 2005, & 2000; and Neu, 1999, 2000 & 2003). During the colonialism era, all GCC countries, except Saudi Arabia, were subject to British control and influence. Such control and influence shaped their economic development, including accounting practices and the development of regulations. Consequently, the historical environment within which accounting practices were developed is important in understanding their practice.

The Cooperation Council for the Arab States of the Gulf including Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates, known as the GCC, are among the richest countries in the world. The GCC countries have more than 50 % of the world’s proven crude oil (OPEC, 2006). This oil economy has caused Kuwait, as well as other GCC countries, to develop economic relationships with the Western world in general, and the UK and the U.S. in particular. Such economic relationships impact importing goods, technical and professional supports, exporting oil, and funding of investments in the UK and the U.S. Thus, oil as an international commodity, has integrated the GCC countries in an international economy.

It is important to examine these interrelated contextual dimensions that influence accounting regulation and the accounting profession in Kuwait. The particular involvement of the Persian-Arabian Gulf countries in global struggles draws attention to the imperialist process of Anglo-Saxon nations, and suggests that Kuwait is increasingly caught up in global capitalism, which increases the importance of this study in examining the appropriateness of Anglo-Saxon practices and ideologies that have been historically imposed on the Persian-Arabian Gulf countries.

Historical Foundations of the Kuwait Economy

Kuwait was founded in the early 18^th century by various clans of the Anaiza including the Utub, who gradually migrated from Nejd to the shores of the Persian Gulf. In the course of these migrations, different tribal groups with different skills came together who eventually settled in what is now Kuwait.

Trade became the basis of the economy, and the Utub developed new political and social arrangements to organize their settled economy. Tribal traditions were retained, but were placed within a complex occupational and social stratification. Trade became tightly and hierarchically organized. Kuwait’s first contact with Britain occurred in 1775 with the first plague.

Then the Persians struck Basra, after which the East India Company made arrangements to have the Persian Gulf-Aleppo Mail Service diverted through Kuwait. After a number of disruptions in rule between the 17^th and the 20th centuries the Kuwait Government began to exercise legal jurisdiction under new laws drawn up by an Egyptian jurist. On June 19, 1961, Kuwait became a fully independent nation.

From the 7th century, Islam dominated all activities in Islamic countries; however, by World War I, most GCC countries came under British control except Saudi Arabia. During the colonization era, the capitalist system was introduced as a result of the expanding market for the colonial products. However, in the post-independence era, these countries adopted the colonial system in their socio-economic environment, including the rejection of Islamic business values and frameworks for regulation. In the light of the above, therefore, it is significant to evaluate the strong impact of Anglo-Saxon accounting systems in Kuwait in general, and in accounting regulations and profession in particular.

Kuwait has a small, relatively open economy, but it is the third richest country in the Muslin world. Current GDP per capita reached a peak growth of 43% in the 1970s. Proven crude oil reserves are about 96 million barrels, or about 10% of world reserves (OPEC, 2006). Petroleum accounts for nearly half of the economy, 90% of export revenues, and 95% of government income (Ministry of Planning, Various reports).

Kuwait lacks water and Potable water must be distilled. With the exception of fish, Kuwait depends almost entirely on food imports because of the lack of agricultural land. Industry in Kuwait consists of several large export-oriented petrochemical units, oil refineries, and a range of small manufacturers. It also includes large water desalinization, ammonia, desulphurization, fertilizer, brick, block, and cement plants. Because of the above influences, and historical linkages between the developing countries and Anglo-Saxon countries, accounting development in Kuwait has been influenced by Anglo-Saxon accounting systems.

History of Accounting in Kuwait

The focus of this study is to investigate the development of accounting regulations and professional accountancy bodies that have taken place in Kuwait from the British Protection Agreement in 1899 until recent days. At independence, the local government recognized 34 accounting and auditing bodies from Anglo-Saxon countries, which were recognized during the British era. A local professional body, the Kuwait Society for Accountants and Auditors (KSAA), was established in 1972, but the government refused to recognize it until 1981.

This refusal gave Anglo-Saxon accounting and auditing bodies a competitive advantage over local practitioners. In addition, after independence, Kuwaiti accountants and nationalists campaigned to nationalize accounting practices by establishing local accounting bodies, primarily because accounting practices were dominated by the Anglo-Saxon practices and institutions. However, the Government continued to recognize Anglo-Saxon accounting bodies and firms until 1981 due to some local and international factors.

Background of the Study

In the case of the GCC countries in general, and in Kuwait in particular, little effort has been given towards investigating the history of the development of accounting regulations, and the profession, as they reflect independent Kuwaiti. Apart from Aba-Alkhail (2001), there has been no study of the relevance of accounting regulations and professional development in these countries. This lack of research continues to leave a gap in the literature regarding the development of accounting in these countries.

Consequently,the purpose of this study was to explore the development of accounting regulations, and the accounting profession, in Kuwait. The study was designed to examine the issues that influenced accounting in Kuwait such as colonialism, globalization, and the activities of multinational organizations and their accounting practices.

Additionally, the study was intended to examine the influence of oil discovery, international accounting bodies and firms, and multinational company activities. Also, the purpose was to provide insights for other GCC countries and developing nations drawn from the Kuwait experience.

Using the combined methods of interviews and archival documents, this research study investigated local and international issues that have influenced the call for nationalization of the profession, as well as the refusal of the Government to answer this call.The issues of inclusion and exclusion in the accounting profession and regulations have been discussed in many studies. However, most of the studies refer to the exclusion of non-accountants from professional associations.

Few studies have discussed exclusion as a result of race, gender, social class and wealth (Annesette, 2003; Bakre, 2001). Exclusion based on religious background and company size in accounting regulation has not been studied. Thus, it is important to shed light on the exclusion and inclusion in the accounting profession from both religious, and company size perspectives.

This study will contribute to knowledge about accounting regulations and professional literature by providing insights into the influence of Anglo-Saxon countries in Kuwait, an Islamic Arab country. There has been no comprehensive study of the Anglo-Saxon influence on accounting regulation and the profession in the GCC countries in general, and in Kuwait in particular. In addition, it is expected that interviews will assist in the identification of power distribution between members participating in the regulatory space, and their contribution to the regulation process.

Also of significance is that Kuwait's current socio-economic and political context is a phase in Kuwait's history as it is moving from a simple base economy to a more market-oriented economy as a result of Anglo-Saxon influence. This strong influence and its impact on the accounting environment in Kuwait provide significant ground for examining the Kuwait experience, especially because of the lack of literature focusing on the influence of Anglo-Saxon accounting strategies in Kuwait.

Research Design

This study used a qualitative version of survey methodology (Pouzes & Kouzner, 2002). Qualitative methodology has been chosen because richer data can be retrieved through careful implementation of an interview process (Denzin & Lincoln, 2005; Huberman & Miles, 2002; Miles & Huberman, 1994).

In addition, archives were searched to provide details about the development of accounting practices in Kuwait. The research followed a researcher-administered semi-structured method of interview, with follow-up communication with interviewees for clarification as needed. The face-to-face semi-structured interview allowed extensive questioning about multi-aspect concerns.

According to Gillham (2000), “Interview is a conversation, usually between two people. But it is a conversation where one person, the interviewer, is seeking responses for a particular purpose from the other person, the interviewee” (p.1). Al-Motairy (2000) suggests that “Written documents are silent and unable to respond to the researcher.

A reliance on documentary source does not fully capture the relevant discourse.” He also commented that “Interviewing major personalities in the use of open-ended interviews with those who participated in the functioning of the organising and regulating of the auditing profession will greatly add to our understanding of the emergence of the event” (p.97).

Carnegie and Napier (1996) posited that oral history explains the past when there is a lack of writing documenting the situation. Gilbert (1993) claimed that the interview “...has a strong claim to being the most widely-used method of research”(p.13).Al-Sughayer (2002) has mentioned that interviews are used “...as the main vehicle of the research, not merely as an exploratory device that identifies variables and relations, suggests hypotheses and guides research, or as a supplement to other methods of research” (p.136).

This study will use the lens of a socially constructed knowledge researcher (Lincoln & Guba, 1985, 2000; Neuman, 2000; Schwandt, 2000). According to Creswell (2003), socially constructed knowledge claims individuals “...develop subjective meanings of their experiences” (p. 8) and these experiences led this researcher to “look for the complexity of views rather than narrowing meanings into a few categories or ideas” (p.8). This researcher relied as much as possible on participants’ views of the situation being studied to seek understanding of accounting practices and their history in Kuwait.

The study interviews were conducted in Kuwait from August to October 2006. In addition to the interviews, and to study the accounting history of Kuwait, the following archival sources were searched for relevant information:

1. The Ministry of Commerce

2. The Ministry of Finance

3. The Parliament Assembly

4. The Kuwait Society of Accountants and Auditors.

5. Studies about Kuwait and other developing countries were reviewed through public sources.

Participants

All interviewees had experience in accounting or related fields. Twenty percent of the interviewees were senior partners of big audit firms in Kuwait, and 7% were senior officials of small local firms. Thirteen percent were from the public sector. Twenty-seven percent were from the private sector, mainly from the positions of Chairmen, Board of Directors, or CEOs of various organizations, of which 50% were from the real estate sector.

Twenty percent were accounting lecturers in the Accounting Department at Kuwait University, and the Commercial Studies College. The remaining 13% represented the Kuwait Society of Accountants and Auditors (KSAA).

The sample in this research included people who held governmental positions, such as (a) ex-Ministers or high-ranking officers in related departments, (b) regulators such as members in the accounting committees, (c) company directors, (d) senior lecturers in accounting departments in Kuwait University and the Commercial Studies College (CSC), and (e) senior partners in small and big accounting firms.

In most cases, interviewees were divided into two or more of the professional classes. For instance, interviewees could be partners in big accounting firms, while at the same time be in an academic position, or a member of an accounting committee.

This engagement of different professional classes was due to the small number of Kuwaiti people in the accounting and auditing sector. Also, it was related to the closer social link between people, as big accounting firms and academics engage in different accounting activities. For the purposes of this study, it was an advantage to have people with significant experience and knowledge in accounting issues as they could provide comprehensive views about accounting practices and the accounting environment in Kuwait.

Procedure

Conducting semi-structured interviews was a significant method in this study for different reasons. First, it helped to understand interviewees real world and allow the interviewees “...to say what they think and to do so with greater richness and spontaneity” (Arksey & Knight, 1999, p.81). Second, it gave this researcher the chance to follow up and clarify some issues that were difficult to understand. Third, interviewing different groups of individuals who have different thoughts and beliefs provided this researcher with varied information and detailed exploration of how and why questions (Yin, 1989).

Finally, it is expected that the interviews will aid to identify the power and power distribution between members participating in the regulatory space and their contribution in the regulation process.

Following is the step-by-step procedure that was followed.

1. Prospective participant names and contact information was obtained by this researcher from a cross section of significant organizations mentioned in the previous section.

2. The researcher made telephone calls and visits to prospective participants in the study. Ten prospective interviewees agreed to participant.

3. Appointments for a 1 hour interview were made. All the interviews took place in interviewees’ office, with each interview lasting between 1 and 1 1/2 hours. Generally, the interviews took place in a friendly atmosphere. The interviews were carried out in Arabic as it was felt that interviewees would express themselves better in Arabic as opposed to English.

4. Each interviewee was asked if he/she would allow the interview to be tape-recorded. Five refused.

5. Data analysis began once the first interview took place and continued until all participants had been interviewed.

Limitations and Assumptions

Every measure that was reasonably possible was taken to assure objectivity and representation of the field of study. Semi-structured interviews encounter a number of disadvantages. For instance, lack of comparability of one interview with another, bias, and time consumption problems are possible. Patton (1990) has pointed out that interviews are not precise, and therefore, not adequately unbiased.

The lack of rigor in collection, construction, and analysis of the empirical materials attendant to this study may be linked to the problem of bias. Bias is introduced by the selectivity of the research, as well as by the field informants on which the researcher relies to get an understanding of the case under investigation (Guba & Lincoln, 1981, p. 23).

Yin (1984) suggested that “...the case study investigator fails to develop a sufficiently operational set of measures” (p. 37). Consequently, the following limitations and assumptions were inherent in the research design.

1. Participants were guaranteed that any information obtained would remain in strictest confidence, as well as their names or any other details that could expose their identity. This was done to encourage honest responses.

2. This researcher informed the interviewees that there were no ‘right’ or ‘wrong’ answers for the questions.

3. This researcher assumed that all volunteers for this study were unbiased and truthful in all responses

4. Interviews were limited to leaders in the accounting field.

6. The possibility of personality conflicts or problems may have been a factor that could have biased participants.

7. It was assumed that participants would have a common perspective about

accounting, and that the interviews would reveal a common area of knowledge.

8. The uniqueness of the interview approach represents only a small slice of a larger environment. This relatively small sample for research may have been opportunistic and might have yielded a limited research result.

9. Interpretation of the notes and codes from the interviews and analysis might

involve some interviewer conscious or unconscious biases that might interfere with the validity of the results (Guba & Lincoln, 1981; Hamel, (1993).

Definition of Terms

Anglo-Saxon. Anglo-Saxon is used in this thesis to denote a historical and economic construct.

Imperialism. Imperialism is used in this thesis as the practice, the theory, and the attitude of a dominating metropolitan center ruling a distant territory (Bakre, 2000).

Globalization Globalization is used in this thesis as the domination of the economic interests of the periphery nations and governments by the metropolitan governments and giant trading partners.

Summary and Discussion

The previous section introduces the general field of interest and summarizes the background of the problem. The problem was identified, the purpose of the study established, and the research design was chosen. Finally, the limitations of the study and a definition of terms were included to provide the reader with an objective perspective. The following chapters are organizing according to Figure 1 on the following page.

Chapter Two provides a review of the relevant literature to support the study. Previous studies that have been conducted on the emergence of accounting regulation and the profession in ex-colonial countries are summarized. The lack of attention paid to the regulation of accounting regulations and professions in developing countries in general, and in Kuwait in particular, are revealed.

Based on the literature review, Chapter Three summarizes the methodological framework for the study. In line with the effective combination of colonialism, capitalism and globalization process of the Anglo-Saxon in Kuwait, these influential patterns need to be understood in terms of its impact on social, economic, political and ideological worldview of Kuwait including accounting regulations and profession.

In this context, therefore, the chapter argues that the examination of the emergence of accounting regulation and profession in Kuwait requires a methodological framework that recognizes the mixture of influences that relate to colonialism, capitalism and globalization. The two frameworks that illuminate the development of accounting regulations and the profession are ''cultural imperialism'' and ''globalization.”

Chapter Four summarizes the cultural, economic, social and political environments of Kuwait to provide background about the development of accounting. Kuwait was historically under a direct Protection Agreement with the UK and subject to various Western influences as well. The early influence on Kuwait was through technical and financial assistance, and military support. This influence, which has strengthened over the years, has expanded with the globalisation of the economy, and shaped the socio-economic-political settings. Therefore, the chapter examined these issues and their influence on the development of accounting regulations and profession in Kuwait.

Chapter One- Introduction

Chapter Two- Review of Related Literature

Chapter Three- Methodological frameworks

Chapter Four- Socio- Economic & Political Environment in Kuwait.

Chapter Fife- Accounting Profession and Education

Chapter Six- Evolution of Accounting Standards and Regulations in Kuwait

Chapter Seven- Islamization or Westernisation of Knowledge: Consequences for Islamic Values and Ethics

Chapter Eight- Summary and Conclusion

study.tudy.

Chapter Five summarizes the development of the accounting profession in Kuwait. The impact of local and international issues on the nationalization movement during the 1960s is revealed, as well as the Government role in protecting the statue quo for Anglo-Saxon accounting bodies and firms.

In addition, the local financial crises and their role in Government efforts to localize the accounting profession are summarized. By analysing the above factors, the chapter aims to assess the struggle between the various interest groups and obstacles encountered in the localization process. The role of education in advancing the Anglo-Saxon interest is also revealed in this chapter.

Chapter Six summarizes the development of business regulations, including the role played by the British, the Government, multinational companies, and international accounting firms. By examining these roles, the chapter seeks to investigate the progress being made in the business environment as a result of new regulations and obstacles.

The chapter analyses the role of financial crises and scandals in Kuwait in developing accounting regulations, which provides better understanding of the possible local and global influences on the adoption of the International Accounting Standards (IASs).

Chapter Seven summarizes the culture and history of the Anglo-Saxon world and how it has impacted Kuwait with special emphasis on the teaching of Islam. This chapter explores how the contradiction of capitalism, in which Anglo-Saxon accounting is a tool, with Islamic values and concepts, creates a struggle in the country.

The role of the Government in advancing Anglo-Saxon interests by ignoring the need of Islamic institution regulations is revealed.

Chapter Eight concludes the study by discussing the finding of the interviews, and conclusions thereof, and provides commendations for further study and change.

However, the literature review (Chapter Two) examines the available studies analysing the development of accounting regulations and profession in developing countries will be discussed next.

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