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).
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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.
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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 18th 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 17th 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).
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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.