TANZANIA INSTITUTE OF ACCOUNTANCY

COURSE: BACHELOR DEGREE IN ACCOUNTANCY ( BAC II ) SUBJECT: INTERMIDEATE FINANCIAL ACCOUNTING CODE: ACU 07417 FACILITATOR: W.KILASARA TASK: GROUP ASSIGNMENT

GROUP MEMBERS:

1. 2. 3. 4. 5. 6. 7. 8. 9.

RAJABU RAHIM N.....................................TIA/DSM/BAC/2011/2012/205 TARIMO HILTRUDA..................................TIA/DSM/BAC/2011/2012/236 MMBAGA LINA N.A..................................TIA/DSM/BAC/2011/2012/144 GERVAS FLORA..........................................TIA/DSM/BAC/2011/2012/044 SAMWEL ZACHARIA..................................TIA/DSM/BAC/2011/2012/247 SONGA PAULINA........................................TIA/DSM/BAC/2011/2012/233 SEMBEYE EMMY.........................................TIA/DSM/BAC/2011/2012/228 NDUNYA ELIAS............................................TIA/DSM/BAC/2011/2012/183 TEMISONI ROSE..........................................TIA/DSM/BAC/2011/2012/237

Assignment question: The historical background of Accounting professional in Tanzania.

ACCOUNTING HISTORICAL BACKGROUND. Accounting is concerned with collecting, analyzing and communicating economic information ( Atrill & McLaney, 2004, p1). However in order to develop a broader understanding of accounting and the central role it plays in society, we need to consider it from a social perspective. Individuals in society coexist by establishing relationships with each other. Another way of viewing society is by segmenting it into different groups or arenas, for example the social, economic, organizational and political arenas (Kyriacou, 2007, Lecture 1, p4). In order to function effectively, these different arenas need to communicate and it is accounting information that facilitates this communication. According to Kyriacou (2007, Lecture 1, p5) accounting information serves many important purposes, for example assisting users in making informed decisions, in relation to the effective allocation of scarce resources. Therefore accounting information can be seen to be a potent influence in society, which affects everybody. This is illustrated by the National Coal Board case (Cooper et al, 1985, p10) were the measurement of accounting profit was used to justify the closure of coal pits, causing an impact on electricity prices, jobs and taxes. Accounting has a long history and as demonstrated by Hines (1988, p251-261) it is seen as being socially constructed i.e. it is practiced by people for people and therefore it is more of an art rather than a science. Unlike other professions, which have a body of theoretical knowledge to depend on to make decisions, accounting has evolved as a craft with few rules and little to no theoretical knowledge underpinning its practice and function. Accounting traditionally has played a stewardship role as depicted by Morgan (Morgan et al, 1982, p309) when he uses the image of accounting as a historical record to demonstrate accounting as an extension of the owners personal memory. However society and business practices have changed. The growth of global business and the emergence of new sectors such as ecommerce have lead to complex transactions being undertaken. This in turn has unearthed problems of subjectivity and inconsistency in the application of traditional accounting techniques. For example, changes in the nature of business assets to include intellectual property or the use of leasing have lead to the question of how to account for these types of transactions? This fundamental change has resulted in loopholes in accounting and lead to manipulation and scandals. In order to minimize loopholes the accounting profession has invested a huge amount of time and money in injecting theory into accounting, in a bid to provide a framework for the application of accounting techniques as well as provide meaning to traditional accounting practices. However as mentioned earlier accounting is an art not a science and so the development of theory though beneficial is problematic in practice.

In this essay I will address more specifically how loopholes in accounting are attributable to the lack of theoretical knowledge and critically evaluate methods used by the accounting profession to implement theory into accounting. In doing so I will be exploring, in particular the development of the conceptual framework, the contributions made by modern accounting theorist and the developments in accounting concepts. As mentioned previously, accounting has evolved as a craft during a time when society was simplistic. Due to changes in social and economic activity, accounting has been exposed to criticism for failing to be more responsive and adaptable. As a result the profession has moved forward to restore accountings position in society by taking a number of initiatives to implement theory. So what is theory? According to Wikipedia: (http:/wikipedia.org/wiki/theory, 2007) Humans construct theories in order to explain, predict and master phenomena Therefore by developing accounting theory it should provide guidance for accountants on how to apply certain accounting practices in certain circumstances. This leads to the question of how theory is developed? Science is widely considered to have a solid knowledge based on facts. The scientific formulation of theory is derived through the process of inductive reasoning. This process is based on observation and generalizing upon a single observation to derive a law or theory. Once the law or theory is established it can be used to explain and predict through the process of deductive reasoning. Accounting theories such as stock valuation and depreciation have been derived on the basis of inductive reasoning. However according to Chalmers (1999, p4-5) there are loopholes in developing theory through observation, for example observations can be bias as one may not accurately depict what one actually sees. Also Chalmers argues that our brain interprets what we observe, which depends on knowledge, experience and expectation. This leads us to believe that accounting theories developed in this way are subjective and further reinforces Ruth Hiness point that In communicating reality we construct reality (1988, p251261) One of the major attempts by the accounting profession to minimize loopholes is with the development of the conceptual framework. According to ORegan (2006, p35) the conceptual framework can be defined as: A unified and generally accepted set of theories and principles that provide a foundation from which specific practices and methods can be deduced. In other words a conceptual framework can be considered a religious holy book for accounting, containing definitions and concepts that are central to its practice.

The pioneers of the conceptual framework have been the (FASB) Financial accounting standards board. Their progress has encouraged and generated further interest in the conceptual framework, which has lead to the IASC and ASB commissioning there own projects and developing their own version. However all three conceptual framework publications broadly cover similar ground, which include:

The objectives of financial statements/reporting The qualitative characteristics of financial information The definition of elements in the financial statements The recognition and measurement of an element

Although the conceptual framework project has been a lengthy and expensive process, in my opinion it is a step in the right direction as it provides a foundation for some kind of knowledge base and also reduces loopholes in certain areas. For instance in the elements section key concepts have been defined for example, what constitutes an asset or liability. Although there are positives that have come from the conceptual framework, in my opinion there are many loopholes still present that enable significant judgement to be exercised. For instance the framework isnt a standard, so will accountants adhere to it? The true and fair view is considered to be a fundamental aspect of all accounting information, however there is a lack of coverage of issues relating to it. In addition some of the issues covered are too board and nonspecific, such as how to measure an element, weather through the historic or cost method? The loopholes in conceptual framework can be illustrated by the collapse of Kmart, where the blame was partly placed upon problems with FASBs conceptual framework (ORegan, 2006, p45). Prior to the development of the conceptual framework, accounting only had SSAP2 Disclosure of accounting principles to depend on. Developed in 1971 SSAP2 has historically played an integral role in accounting in the absence of other standards (Barden, 2000, p80). Out of the 10 accounting conventions SSAP2 considered the going concern, accruals, consistency and prudence as the fundamental concepts. Although SSAP2 was beneficial to the accounting profession in providing much needed guidance and explanation, there were problems with contradictory concepts. For example, prudence requires judgment and opinion, which conflicts with neutrality (Paterson, 2002, p105). Also the going concern requires accountants to make fundamental assumptions about the future viability of an entity, which contradicts with prudence. However with the publication of the ASBs statement of principles the SSAP2 was revised and replaced by FRS18 Accounting policies in 2000. FRS18 still emphasizes the importance on accruals and going concern concepts however prudence and consistency are now considered to be less important. Instead greater importance is given to comparability and relevance, which has largely been driven by the need for users to be provided with relevant information, which is easily comparable. In addition FRS18 goes to some

detail in explaining the appropriate application of accounting policies and estimation techniques. However again little attempt is made to define the true and fair view, all FRS18 says that the overriding criteria for applying a certain accounting policy is to ensure that the policy gives a true and fair view (Alexander & Britton, 1993, p238) This is again a matter of judgment and is really based on what ones interpretation of the true and fair view is. FRS18 has been an improvement on SSAP2, but inconsistencies and gaps remain. The corporate report was another initiative used to address the needs of other stakeholders and move away from the stewardship function of accounting. Published in 1975 the report recommended additional information to be published with the annual report in order to describe a complete picture of an entitys performance. Some of the suggested statements include a value added statement, employment report and a statement of future prospects. However as suggested by Davis (Davis et al. 1982, p313) when he uses the image of accounting as a commodity, is all this information useful enough to outweigh the cost of producing it? Additionally the proposal to include such statements on future prospects would lead to a vast amount of speculative judgement and opinion. Accounting theorist and researchers have also played a role in attempting to apply theory into accounting. The use of imagery has enabled theorist to explore the nature of accounting practices, by applying the characteristics of the image in the context of accounting. Two contributors to the development of accounting theory, through the use of imagery have been David Solomon and Tony Tinker. Solomon was a strong advocate of neutrality in accounting and used images of journalist, speedometer, telephone and cartography to illustrate his way of thinking (Tinker, 1991, p297). He suggests that accountants should be like journalist, reporting the news not making it. Accountants should function like a speedometer, in capturing the real economic speed of an entity. In addition accountants should convey information impartially like a telephone. Solomon further suggests accounting should function like cartography in producing maps of economic reality. These images give us greater insight into how accounting should function in an ideal world. Tony Tinker however argues against Solomons use of metaphors, as being unsuitable and problematic. Tinker suggests that journalists portray reality by disregarding some of the facts and uses the example of the director of Israel broadcasting failing to comply with the journalists code of practice (Tinker, 1991, p300). Also according to Tinker (1991, p299): Solomons automotive speedometer analogy poorly reflects financial reporting and suggests drivers are likely to tamper with the speedometer to avoid being caught out. He also argues that the telephone doesnt convey thoughts but what people say, which leads to intentional and unintentional bias, as the telephone is selective. Tinker goes on further to criticize Solomons cartography metaphor and argues that maps dont represent facts as there are distortions that affect our behavior e.g. color and size (Tinker, 1991, p300). As demonstrated by Solomon and Tinker no one image captures fully what accounting is all about. In my opinion the different images in the debate provide different perspectives of accounting practices and further introduce newer images to try to overcome contradictions and

influence future accounting developments. The existence of such debates also represents the problematic nature of accounting and the loopholes in its theoretical development. In conclusion, accounting has evolved as a craft with no theoretical base, during a time when society and business activity were less complex. However the technological and globalization induced changes that have occurred have resulted in loopholes in accounting being exploited. Much interest in developing a theoretical knowledge base for accounting has gathered pace. The conceptual framework has been an important milestone that provides accountants with basic tools needed to understand and apply different accounting policies in appropriate circumstances. However the framework lacks in consistency and there is still much room for interpretation and opinion, for example little to know attention is given to the underlying concept of the true and fair view, which is a fundamental loophole. In addition the transition from SSAP2 to FRS18 has lead to clarification on accounting polices and estimation techniques, however inconsistencies and subjectivity still remains. Accounting theorists have also provided useful insights into accounting through the use of images. However the Tinker and Solomon debate represents in its self a loophole in accounting, as there is a lack of agreement of what function it should play and how accounting practices should be employed. Overall in my opinion the accounting profession has made significant progress in developing a theoretical base for accounting. Also due to the function of accounting being dependent on the needs of users and their needs being responsive to constant changes in society and economic activity, the accounting theoretical jigsaw is never likely to be complete as when one problem is resolved another appears. Also the need for an independent auditor to verify weather accounting information gives a true and fair view partly demonstrates the subjective nature of the profession and the presence of loopholes. Additionally examples of major corporate collapses such as Refco who concealed millions in debts through related party transactions, had drawn up accounts in the presence of accounting rules and the conceptual framework, which goes some way in reinforcing the fact that many loopholes still exist and are still being exploited.

The role of accounting in society are as follows; - Source of employment since the accounting professionals are of high imperative in any institution progress. - Accounting is Language of business where social-economic activities are basic dependant on its functions. - Accounting largely contributes in planning process of some social institution initiatives. - Economic maintenance in day to day actives eg. During economic depression etc- Efficiency proliferation in societal activities, eg. TPS system in supermarkets, measuring the actual value of some society properties eg land, buildings, etc.

The following are different definition views of Accounting. Accounting is the most important aspect on earth, to individuals, businesses both big and small..in the parliaments, politics and so forth they depend on accounting..Without accounting there no proper life..whatever decision made one should be accountable Accounting is a life on itself in terms of references in both past and present and even in future, therefore accounting is unavoidable in mans life. Accounting is a discipline which involves collection {book-keeping7} ,classifying,analysing,summarising and reporting in a significant manner business transactions and events which could be in part at least financial and the interpretation of the result.

IN TANZANIA In Tanzania, Accounting profession is governed by different Boards. Those Boards are; 1. Tanzania Association of Accountants (TAA) 2. National Board Of Accountant and Auditors (NBAA) THE ASSOCIATION OF ACCOUNTANTS (TAA) The Tanzania Association of Accountants (TAA) is an accountancy professional organization for accountants. TAA was established in 1983 under the Friendly Societies Act of 1954, as a members representative body of all professional accountants and aspiring accountants registered and working in Tanzania. The Institute is governed by a Board of Directors consisting of members elected by Chartered Accountants on regional registers, and up to four Board appointed members. The Directors and Regional Councilors are elected for a three-year term. A third of the positions held on the Board and Regional Councils are up for election each year. The President and Deputy President are elected annually by the Board. TAAs mission is to provide services to and on behalf of its members in public accounting , industry, education and government aimed at facilitating their professional and social development and promote public confidence in their services. Membership of the Association is open to professionally qualified accountants, accounting firms, accountancy training institutions and students associations who are registered with National Board of Accountants and Auditors.

Accounting standards However, there has been resistance to implementing this compromise.[4] All non-government business entities in Tanzania have been required to use International Financial Reporting Standards (IFRS) since 2004, while until May 2010 government business entities were required to use International Public Sector Accounting Standards. As of May 2010, the NBAA clarified that some government-owned entities was now required to use full IFRS and others were allowed to use IFRS for SMEs. When using the IFRS standards, the entities had to use them in full and without modification from the form issued by the International Accounting Standards Board (IASB).[2] 2.THE NATIONAL BOARDS OF ACCOUNTANTS AND AUDITORS (NBAA) The National Board of Accountants and Auditors (NBAA) is a Tanzanian accountancy professional body established under the Auditors and Accountants (Registration) Act. No. 33 of 1972, as amended by Act No. 2 of 1995. It is an accountancy regulatory professional body, operating under the Ministry of Finance (MIF).The Board started carrying out its activities from 15th January 1973. Professional qualifications The NBAA is an examining body for professional accountancy qualifications, but does not train candidates seeking to qualify as accountants. Instead, it works with various public and private training institutions.[3] The NBAA serves both the public and the private sectors, although there have been weaknesses in its support for public financial managers. To address this, the NBAA worked with the Eastern and Southern Africa Association of Accountants General, the Federation of Accountants and Auditors General of West Africa and the English Speaking African Association of Supreme Audit Institutions to develop a PFM Qualifications Framework for Tanzania, which would be used as a pilot for the region. After evaluating and rejecting several options, the NBAA appeared to be leaning towards a mixed public/private sector curriculum Associated bodies The NBAA is a member body of the International Federation of Accountants (IFAC).[5] It was a charter member of the Pan African Federation of Accountants (PAFA). Dr. Mussa J. Assad of the NBAA was named vice president of PAFA at its inaugural meeting on 5 May 2011.