Academy of Economic Studies

Faculty of Accounting and Management Information

Systems






Doctorate Thesis





Scientific supervisor Doctorate student,
Prof.Univ.Dr. Ana Morariu Tamer Moustafa Mohamed Saad







Bucharest
1

-2009-


Academy of Economic Studies from Bucharest
Faculty of Accounting and Management Information
Systems






Accounting Policies Used for the
Presentation and Reporting of Financial
Statements






Scientific supervisor Doctorate student,
Prof.Univ.Dr. Ana Morariu Tamer Moustafa Mohamed Saa





2

Bucharest
-2009-



Summary of thesis Accounting policies used for the
presentation and reporting of financial statements

Author: Tamer Moustafa Mohamed Saad


This thesis called Accounting policies used for the presentation and
reporting of financial statements prepared by Tamer Moustafa Mohamed
Saad, researcher, supervised by Prof. Univ. Dr .Ana Morariu, is structured
on four chapters, containing the table of contents, introduction, objectives of
research, conclusions, bibliography and appendixes

A. Table of contents:

Introduction --------------------------------------------------------
Chapter 1: Accounting policies, theories of measurement
and disclosure of financial information in the financial
statements of the Egyptian companies analysis and
interpretation
Introduction -------------------------------------------------------------
1.1 Financial statements preparation environment-------------
1.2 Experience in setting financial statements framework --
1.2.1 the American Experience --------------------------------
1.2.1.1 The Pre (FASB) Stage --------------------------
1.2.1.2 The Post-FASB Stage -----------------------------
1.2.2. the French Experience -----------------------------------
1.2.3. the International Experience ----------------------------
1.3 Importance of the framework for preparation of
financial statements
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1.3.1 Relationship between the framework of
financial accounting & its standards ---------------------
1.3.2 Importance of the objectives in financial accounting
1.3.3 The influence of the environment in specifying the
objectives
1.4 The Egyptian framework for preparation and disclosure of
financial statements
1.4.1 Objectives of Egyptian framework for preparation
and disclosure of financial statements
1.4.2 Scope of the financial statement preparation &
disclosure
1.4.2.1 Objectives and uses of financial statements
1.4.2.2 Components of financial statements
1.4.2.3 The Concepts of Capital and its preservation
1.4.2.4 A reorganization of the elements of financial
statements
1.4.2.5 Measurement of the elements of financial
statements
1.4.2.6 Accounting information disclosure
1.4.2.6.1 Types of accounting disclosure models
1.4.2.6.2 The qualitative features of financial
statements
1.4.2.6.3 Reflections on the quality of accounting
information on the stock markets in the light of
Corporate Governance
Chapter 2: Analytical study regarding the national and
international accounting standards, the disclosure and
reporting of information in the financial statements of the
Egyptian Companies
Introduction
2.1 The importance of accounting standards
2.2 Differences among the accounting standards around the
world
2.3 The importance of setting standards for the preparation
of financial statements in Egypt
2.3.1 Difficult decision-making processes
2.3.2 Errors in the decision- making process
2.2.3 Complication of the decision- making process
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2.4 The International Accounting Standards
2.4.1 The need to provide a mechanism for the
development of accountancy itself
2.4.2 Stock markets worldwide
2.4.3 Benefits of applying the international accounting
standards
2.4.4 The spread of the application of international
accounting standards
2.5 Setting accounting standards in Egypt
2.5.1 The phases through which accounting standards
were settled with a view to preparing financial statements in
Egypt
2.5.1.1 first phase from 1992 to 1996
2.5.1.2 second phase from 1997 to 2005
2.5.1.3 third phase, 2006 to the present
2.5.2 New Egyptian accounting standards

Chapter 3
Empirical study on recommendations of improvement of
accounting standards regarding disclosure and reporting of
financial statements by companies from Egypt.

Introduction
3.1 Accounting standards setting and their relationship with
the methods used in the development of accounting theory
3.2 Legal and economic determinants of the decision
regarding the setting of accounting standards
3.3. The impact of determinants of legal and economic
models of accounting disclosure
3.4 The model of the determinants of the effects of
proposal for making the decision to erect on the model
of accounting standards and accounting disclosure
3.4.1 Influence of the field of determinants
3.4.2 Determinants influencing the scope of the
Sub determinants
3.4.3 The sphere of impact of legal and economic
determinants
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3.4.4 The impact of legal and economic determinants
3.5 Case study of the model proposed for the preparation of
financial statements of the Egyptian companies
3.5.1 Case study hypotheses
3.5.2 Data needed to test hypothesis
3.5.3 Community research and model
3.5.4 Methods of data collection
3.5.5 Methods of data analysis
3.5.6 Study of analysis of field data and testing
hypotheses.
3.5.6.1 Analysis of data related to the first hypothesis --
3.5.6.2 Analysis of the data associated with the second
hypothesis -------------------------------------------
3.5.6.3 Analysis of the data associated with the
third hypothesis
3.5.6.4 analysis of the data associated with the fourth
hypothesis

Chapter 4:
Application of Egyptian accounting standards for
measurement and disclosure of financial statements
valences and limits, case study- Al Ezz Dekheila Steel
company

4.1 Background information and activities--------------------
4.2 Basis of preparation------------------------------------------
4.3 Significant accounting policies----------------------
4.4 Segment reporting-------------------------------------
4.5 Projects under construction
4.6 Inventories-----------------------------------------------------
4.7 Long term loans -----------------------------
4.8 Non- taxable assets and liabilities --------------------------
4.9 Stocks -----------------------------------------------------
4.10 Trade and other receivables --------------------------
4.11 Cash and cash equivalents..
4.12 Bank overdraft ------------------------------------------
4.13 Loans and borrowings ------------------------
4.14 Trade and other payables -----------------------------
4.15 Financial instruments-------------------------------------
4.16 Share capital and reserves---------------------------------
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6

4.17 Interim dividends through the year
4.18 Operating revenues ---------------------
4.19 Cost of sale --------------------------------------------
4.20 Other operating revenues-------------------------------
4.21 Selling and distribution expenses ---------------------
4.22 Administrative expenses ---------------------------------
4.24 Financial revenue--------------------------------------------
4.25 Financial expenses---------------------------------------
4.26 Revenue tax expense--------------------------------
4.27 Earnings per share ---------------------------------------
4.28 Pension and Other Post-Retirement Plans ------
4.29 Related parties ----------------------------------------------
4.30 Capital commitments----------------------------------
4.31 Contingencies---------------------------------
Conclusions and recommendations--------------------------------
Bibliography -----------------------------------------------------------
Appendix---------------------------------------------------------------
Appendix (1) : List of questionnaires--------------------------------
Index (2) : Financial Statements of Al Ezz Dekheila Steel
Company Alexandria (An Egyptian Joint Stock company) --
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184
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7







B. Key terms
Accounting measurement
Accounting disclosure
The International Accounting Standards
The International Financial Reporting Standards
The Egyptian Accounting Standards
Egyptian Framework for preparation and disclosure of Financial Statements
The Historical Costs
The Current Costs
The Recoverable Value
The present value
Financial Accounting Standards Board (FASB)
International Financial Reporting Standards (IFRS )
Company Law
Segment reporting
Corporate Governance
Al Ezz Dekheila Steel Company


C. Thesis Main Parts Synthesis

Introduction
Accounting policies and options, assumed and adopted by the
management of the company, for financial statements represent a distinct
component, a decisive element, in preparing and presenting them, especially
if we keep in mind that recognizing the elements presented in the financial
statements represents the moment of incorporation of that respective element
in the balance sheet and the profit and loss statement, point from which the
reality regarding the information on the position and/or financial
performance of the company starts to act.
8

With a view to selecting and applying accounting policies, IAS 8
revised1, states that, in the absence of a standard, or an interpretation that
specifically applies to a transaction, event or situation, management shall use
its judgment in developing and applying an accounting policy. Accounting
is affected by the social, legal or economic characteristics or attributes of the
society. As regards the accounting reports, these practices are linked to
different factors.
For example, the size of the company is an important factor which
determines the width of voluntary reporting in most of the areas. Bigger
firms are more likely to disclose more information. Moreover, it is assumed
that subsequent improvements in disclosure of information by the trade
companies and disclosure of intellectual capital information will more likely
come from bigger and foreign owned companies, as a result, the importance
of disclosure of information to the financial community should not be
underestimated.
Theoretically, when capital markets are efficient, the information is
immediately expressed in shares quotations. The form of the information is
irrelevant, meaning that capital market participants will be indifferent if one
transaction is recognized in the financial statements or disclosed in the notes
of the accounts. The disclosure may actually be preferable to recognition
when uniform accounting practices do not report substantial differences. For
example, a uniform rule for establishing a cost can hide differences between
the companies regarding their capacity to profit from these expenses.
Moreover, the harmonization of the accounting principles can lead to
deceiving similarities among the accounting practices of different
companies. Additional disclosure may be needed to improve the comparison
among them and/ or quality.
9

The financial report is a key element, necessary for the running of the
corporate governance mechanism. The accountants and auditors are the main
suppliers of information to capital markets participants. The companys
directors should be entitled to expect from the management to prepare the
financial report in accordance with the statutory and ethical duties and to
rely on the auditors competence.
Current accounting practice allows a certain freedom in choosing the
way of determination of the measurement method, recognition criteria and
even defining the accounting entity. The exercise of this choice in order to
improve the apparent performance (apparent information), known as
creative accounting, assumes an additional cost for informing the users. At
the other extreme, one can choose to hide information.
At present, Egypt encourages local and foreign investments in order to
create a more opened and accessible economy, offering more profitable and
attainable business opportunities. Egypt has tried to map out its own national
accounting standards (35) which take into consideration the environment and
cultural factors. The benefits resulting from this research refer to an interest
in the availability of comparable financial information so that opportunities
can be estimated and evaluated.
In order to examine the practical part, seven methods of evaluation are
chosen. These are: methods of measurement and recognition of inventories,
research and development costs, methods of measurement of fixed assets,
depreciation, investment in securities and foreign exchange translation.
These variables were chosen because they can significantly affect the
measurement of assets and profits, depending on the choice of treatment
made by the company.
Research methodology
10

The weak mechanism of applying the law allows the existence of
major differences among the official standards of accounting and the
accounting practices. The lack of precise guidelines for the practical
implementation of these requests in accordance with both the Egyptian
accounting standards and the international ones, leads to differences between
theory and practice. The review of 2007 financial statements of 30 top
companies, together with interviews of experienced accountants, public
practice auditors, financial executors, investment analysts, university
analysts revealed data about the nature of these discrepancies, such as:
-Accounting disclosure: certain companies avoid the full reporting of
information in the published financial statements, ignoring the disclosure
requirements set by the applicable accounting standards.
-Statement of changes in equity. Despite the applicable standards, the
financial statements of many companies do not include the statement of
changes in equity.
-Segment reporting. Very few companies comply with all requirements on
segment reporting. Where segment information is presented, there is a
tendency to avoid disclosure of key information such as revenues and
expenses of segments.
-Related party transactions. Required disclosures are rarely fully provided.
The financial statements of many companies that seem to have related
parties, do not disclose information on either the existence of related parties
or related-party transactions
-Impairment of assets. Egyptian companies do not comply with the
requests regarding the adjustment of impairment of material and immaterial
assets on the balance sheet. As a fact, many Egyptian accountants are not up
11

to date with the requests or impairment tests of assets and the way to
approach such issues.
-Gains or losses due to foreign exchange conversion. Some companies do
not adhere to the requirement that foreign currency exchange gains and
losses arising from balance sheet date revaluations should be shown in the
income statement. Some companies show currency exchange gains under a
special account in the liability section of the balance sheet. Some companies
capitalize the currency exchange losses as part of fixed assets, even if all the
required conditions for such capitalization are not met.
-Inventory valuation. Very few companies comply with all the legal
requirements on measurement and reporting of inventory at the lowest price
between entry cost and net realizable value. It is common practice to
understate the figure for loss due to obsolete and slow-moving inventory
-Consolidated financial statements. Many companies do not consolidate
all the subsidiaries and special purpose entities in accordance with the
requests of The International Financial Statements and the related
guidelines. The review of published financial statements shows that more
companies that should have drafted consolidated financial statements failed
to do so.
- Assets pledged as securities. In many cases it is a practice not to disclose
in the financial statements the assets pledged for securing loans
-Leases. All the finance leases are treated as operating leases, although this
fact infringes the International Standards of Accounting regulations. Local
standards allow this practice because they comply with the legal requirement
regarding leases.
-Risk exposure and supplying data regarding loan loss provisions. Banks
and other lending institutions do not present the analysis of risk exposures
12

required under IAS in the financial statements of those who expose
themselves when applying to loans. The provision of inadequate loan loss
data distorts reported profits of financially troubled financial institutions
-The system of classification of assets and liabilities. The Egyptian
Accounting Standards require presentation of working capital on the face of
the balance sheet. To avoid the appearance of negative working capital,
some companies resort to incorrect balance-sheet classification of assets and
liabilities.
-Financial Instruments. The requirements in IAS32, Financial Instruments:
Disclosure and Presentation, and IAS39, Financial Instruments: Recognition
and Measurement are not fully complied in drafting the financial statements
of corporations and institutions.
-Non compliance with legal deadlines for financial statements:
Companies are required by law to present their annual financial statements
within three months of the fiscal year-end. In addition, listed companies
must present their financial statements 45 days after the end of each quarter.
However, many companies fail to meet these requirements.
-Distorted reporting of earnings per share and understated operating
expenses. . Company Law and Tax Law grant employees the right to receive
extra financial benefits in the year when profit is distributed. Total benefits
should not exceed whichever figure is lowerthe ten percent of reported
profit or annual employee salaries of the company. These payments to
employees are not included in the income statement and are required to be
shown as distribution of profit after calculation of companys net income. As
a result, the earnings per share calculation based on a companys reported
net income provides a distorted image of earnings per share and the
operating expenses shown on the face of the income statement are too small.
13

- Events after the balance sheet date Companies usually do not disclose
information on events after the balance-sheet date. Noncompliance with the
relevant accounting standards can be found even in the case of many
companies that present financial statements three to four months after the
balance sheet date.

Research objective
The aim of this research is to make an analysis of the financial
policies, theories and models which have as a result financial statements
drafted according to Egyptian Accounting Standards and the current
problems faced by financial measurement and disclosure. In order to
improve the financial reporting in Egyptian companies the following
objectives are outlined.
1. Identifying the disclosure of accounting models, as a result of
accounting policies;
2. Identifying the economical, social, political factors in order to make
relevant decisions with a view to erect accounting standards on
disclosure of financial information;
3. The opportunity to build on the experiences of issued accounting
standards, new accounting standards in Egypt.
4. The role and the importance of decisions to build on the experiences
of issued accounting standards, new accounting standards in Egypt.
5. To establish if, the proofs for erecting Accounting Standards in Egypt,
are trustworthy or not.
6. To identify the paths in organizing the groups which have an
accounting policy in Egypt, in order to draft relevant accounting
14

standards and their impact of the accounting disclosure model on
financial information that evolves.
7. Establishing a model of fiscal disclosure in the light of the
determinants (decisive factors) of making the decision to build
accounting standards in Egypt.


Hypotheses of the research
This research is organized in such a manner as to treat first general
aspects and later more specific ones. For one thing, the research will
establish the measure in which accounting policies are convergent, this being
the general level of the analysis.
To be continued, the analysis of some variables which should
establish the level of convergence or divergence of accounting practices, this
representing the particular level of the analysis. Four variables will be
introduced in as independent elements which could have influence over the
conformities or differences regarding accounting practices in Egypt. This
variables are: the size of the companies, their involvement in overseas
operations, the industry they belong to and debt ratio. As a result, this
section presents the hypothesis of the research which lays down the concerns
of the research.
The hypothesis derived here are:
H 1: Egypts experiences in drafting accounting standards, a set of
parameters which shall influence the decision to build accounting
standards for organizing the accounting policy in the community.
15

H 2: The determinants, the decisive factors in making the decision to
draft accounting standards, which regulate the accounting policy in
the community regarding the decision elements to develop accounting
standards models and financial reporting models applicable in Egypt
H 3: There are significant statistical moral differences among the
interested parties in organizing the accounting policy in Egypt. The
multitude of factors of interest is relevant in making a decision to
build or improve accounting standards in Egypt.
H 4: There are significant statistical differences among the interested
parties in organizing the accounting policy in Egypt. Some elements
of the determinants of the impact to make a decision, to draft
accounting standards, trigger the need to regulate the accounts policies
in disclosing financial information;
The plan of the research:
The research provides as proof of argumentation, annual reports; thus
data that is needed in order to prove the demands of the research will be
provided, such as applied accounting standards, accounting conventions,
specific practices and accounting measurements. All these are motivated by
the analysis of financial statements and disclosure of information in order to
make efficient economic decisions in the future. The most recently available
data provided were financial statements from year 2007. The companies
under research belong to different industries, being banks, insurance
companies, hotels, cement companies, food factories, investors in real estate
and financial estate.

Chapter 1
16

Accounting policies, theories of measurement and reporting of financial
information in financial statements of Egyptian companies- analysis and
interpretation.
1) According to nowadays financial accounting practices, the disclosure
of accounting policies represents the interaction among some entries
which mirror the economic conditions; harmonizes some political
factors with the economic thinking represented by intellectuals,
university professors and institutes of research. International
experiences in The United States of America, France and the Shared
International Model reflect models from the international accounting
environment. However, the Egyptian experience has not reached yet
that point in which to embrace the practices of the international
accounting environment.
2) On the other hand, the results of the American experience in the area
of financial accounting mirrors efforts of coordination between the
private sector and the public one, the private sector making the most
efforts in this way. The French experience mirrors efforts of
coordination between the state and the private sector, with the state
making most efforts. The Egyptian experience in the accounting field
reflects the lack of coordination between the private sector and the
state, which would raise the standard of thinking and working in the
accounting area. Our research shows the absence of a social awareness
regarding the role of financial accounting in making decisions. This
thing has lead to a weaker institutional thinking.
3) Despite the three international experiences, which have proven the
importance of the link between law and accounting, the Egyptian
experience in the area of accounting reflects a conflict between law
17

and conceptualization, on one hand, and law and accounting practice
on the other hand.
4) In the last six decades, Egypt was influenced by the following three
intellectual models in the financial accounting area:
a) The continental model through the Commercial Law;
b) The Anglo- Saxon model through schemes of accounting
education;
c) The international model through the influence had by the Auditors
and Accountants Union;
These reports reflect the absence of a general policy in the accounting
field area in Egypt- an area which suffers accounting gaps and one of
the Egypt specializations is to deal with these conditions;
5) The absence of transparency in accounting information of enterprises
from Egypt represents a source of administrative, economic,
accounting instability which aggravates the development in all the
economic and administrative areas.
6) The International Accounting Model (The Shared International
Accounting Pattern), is not suitable to become an accounting model
for a developing country, according to United Nations reports without
a regulation process.
Additional lessons from the American experiences are presented
in the followings:
1) Despite the fact that audit has developed in the private sector, the
state had a supporting role, with some exceptions in the path of this
development through The International Accounting Model.
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2) A social awareness has been registered regarding the importance of
audit, due to economical, social and political factors. This thing has
led to the proliferation of rationalization on the institutional level
of the categories of the American society preoccupied by the legal
regulation of audit and accounting work.
3) The audit has developed as an independent knowledge
methodology, in the American experience. This thing has
contributed to a reliance on the logical conclusion, depicted from
the approved studies and research in the field of audit.
The American experience has been characterized by a professional
and intellectual presence which works in controlled environment conditions
in the individual dimension which depends on the capital market as a source
of financing.
Our research has lead to a resume of the following groups
of theories and practices given by the International Experience
in the financial accounting field, of accounting policies which
apply in the financial reporting and as:
1) The International Common Sample is represented by a large
succession of success to put into agreement the two models
(Anglo- Saxon and continental) in the area of financial
accounting or at least at the theoretical level.
2) The Common International Sample is represented by an
additional example of convergence between law and accounting
in order to deal with the problem of International Commitment
in applying international standards.
19

3) The International Sample and its application, represent a clear
additional example of differentiation in the accounting practice
between specialized economic entities in financial investments
on capital markets, on one part and between economic entities
and private companies which are not specialized on the other
part.
4) Trade and Development Organization subordinated to the
United Nations has brought up the problem of small economic
entities in developing countries and of low available potential,
in order to allow developing countries the application of
International Financial Reporting Standards.
The objectives of reported financial information shall be
presented below:
1) Financial statements aim to offer information regarding the
financial position, the performance and changes in the financial position of
the entity, information that can help different users in efficient decision
making. It is remarkable the fact that the main objective of accounting is
that, to analyze the past, present and to estimate the future of the entity
through its capacity, to attract cash , cash equivalents, safety and ongoing
activity. In other words, the financial information through applied
accounting policies must lead the performing management to efficient
economic decisions.
1. Financial statements prepared in this purpose cover the general
needs of most of the users. But they do not always provide all
the information that the users need in order to make economic
decisions, because the reports reflect the financial effects of
20

previous events and do not necessarily provide non- financial
information.
2. Financial reports show the results of financial accountability
and verify the accountability of local resources management.
The users make decisions based on them, such as decisions
linked to keeping and selling bearer titles or naming and
replacing the managerial team.




Chapter 2
Analytical study regarding the national and international accounting
standards, the disclosure and reporting information in the financial
statements of Egyptian companies

The presentation of the experiences of Egypt in the construction of
accounting standards so far affected more than the legal parameters of the
other key factors, but also the impact between these parameters on the
decision to develop accounting standards. The decisions were resigned due
to lack of appropriate studies to ensure the validity of pre- test frame which
contains a list of key factors, which are part of the process of drafting
accounting standards. This process results from the component parts of the
resolution which will be build in order to benefit from this experience, as
well as the reference to other tests made in order to draft Egyptian
Accounting Standards. The aim of this process is that of insuring the
21

conformity between the key internal and external factors, which aid at
making the decision to build accounting standards with all the amendments
comprised in the resolution. From our research, we have reached the
conclusion that not all the legal requirements were tested in order to draft
accounting standards, which means that there is a very big difference
between the legal texts which regulate the decision to draft component parts
of standards from Egypt and predominant legal parameters and that there is
no absorption of the direct impact of decisive economic factors in the
decision of establishing the components of the accounting standards
associated to them. As a result, our vision on Egypts experiences in the
process of building accounting standards is marked by the regularity of the
relation between the legal parameters and the source of accounting
standards, by erecting- as an element of the decision to draft standards. The
researcher has criticized the following aspects:
1) The absence of a context which would ensure the parameters of the
process of developing standards which follows the decision to draft
components of these accounting standards, dispersed in principles,
rules, measurement basis, conventions, specific practices necessary to
present and report financial situations.
2) A lack of transparency and of asymmetric relationship between the
legal parameters of making a decision to erect the methodology of
accounting standards and the accounting policy in organizing the
society.
3) An asymmetric relationship between the legal parameters of making a
decision to build the system of accounting standards and to form
accounting standards.
22

4) An asymmetric relationship between the legal parameters of making a
decision to erect accounting standards and the methodology to
approach a work of erecting accounting standards.
5) A lack of transparency between the key economic factors in making a
decision to build up accounting standards and the priorities in the
construction of these standards.
6) New accounting standards must be adopted so that they are aligned to
international accounting standards.
The researcher, After examining the realistic parameters of the
decision-making in the construction of accounting standards testing the
Egyptian Accounting Standards in the following sections in order to reach
proposed accounting standards, the construction of key factors is need in
order to make decisions and to organize an accounting policy in the society.
This has an effect on the disclosure model of information applied, in order to
clarify the relation. Once the factors are enunciated, the disclosure model of
information is applied when there are parameters and associated conditions
with the experiences of drafting financial standards.

Chapter 3
Empirical study on recommendations of improvement of accounting
standards regarding disclosure and reporting of financial statements by
companies from Egypt.

There are moral differences which are from the statistical point of
view decisive for stakeholders in organizing the accounting policy in Egypt.
It is not easy to change an accounting model and the form of financial
reporting, as long as, there are internal and external factors with
23

contradicting interests in establishing the harmonization elements, elements
of regulation and conformity regarding the accounting policies of enterprises
in Egypt. The issue raised by the questionnaire is solved by analyzing the
moral difference among the groups we have referred to, issue that is linked
to the impact of legal parameters of some decision elements in establishing
accounting standards. Another problem is linked to the impact of decisions
to establish unique accounting norms for companies from Egypt. Moreover,
our study raises also the issue of the model of economic determinants
regarding financial statements which come off from the proposed accounting
model. Our study focused on the analysis of answers of two groups of
companies, regarding the probing of imposing a fair accounting on
community groups in order to answer the above issue. The probing elements
consisted of discharging the answers to a table which contains the values of
P (parameters) computed at the level of 5% of answers to questions, the first
P is less than the q computed (1.96) to all questions, which means the
acceptance of imposition of equal mathematical community regarding the
two groups, meaning that there is no moral significant difference between
the two groups, which points out that there is no significant difference
among answers. Thus, we rejected the fourth hypotheses, which means that
there is no difference among the groups of interest regarding the
management of accounting policy in Egypt, some elements of the
determinants of making the decision to establish accounting standards in
order to regulate the policy of accounts over the elements of the decision to
establish a model of accounting standards and of disclosure of applied
accounting.

Table
24

Values (P) computed at 5%
Problem No. F (calculated) Question No. F (Calculated)
1 -1.254 9 0.055
2 0.433 10 0.792
3 -0.229 11 0.541
4 -0.170 12 0.128
5 -0.168 13 -0.150
6 -1.087 14 -0.352
7 0.405 15 -0.154
8 -0.982

We have audited the balance sheet of Al Ezz Dekheila Steel
Company Alexandria (S.A.E) dated December 31, 2006 and the revenue
statements, the statement of changes in equity and the cash flow statement of
the respective year. Management of the company is accountable for these
financial statements. Our responsibility is limited to expressing an opinion
on these financial statements that are the basis of our audit.
We conducted our audit in accordance with Egyptian Audit Standards
and in the light of applicable Egyptian laws and regulations. Those standards
require to plan and perform the audit to obtain reasonable assurance whether
the financial statements are free from material misstatement. An audit
involves an examination, or existence of proofs, evidence that come to
sustain the amounts and disclosures in the financial statements.
An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made by the
25

management, as well as evaluating the overall presentation of the financial
statements.
We have obtained the necessary data and justifications for our audit.
We believe that the audit conducted provides a reasonable basis for our audit
opinion.
In our opinion the Financial Statement and the notes we referred to
give a true and fair view, in all material respects, the financial position of the
company as of December 31, 2006, and the financial performance of its
financial transactions, the changes in equity and cash flows for the year then
ended in accordance with Egyptian Accounting Standards and complying
with applicable egyptian laws and regulations.
The company drafts the accounting statements that include all that is
required by the law and company statutes, the financial reports that
accompany them are in accordance with national legislation. The company
keeps also reports regarding the accounting costs which reach the objectives
and the management control of material and financial resources by stock
management conducted in accordance with methods in force.
The financial information from the Board of Directors Report was
drafted in accordance with Law 159 from 1981 and the provisions of this
law are in accordance with the financial reports of the company.
Chapter 4 : Application of Egyptian Accounting Standards for
Measurement and Disclosure of Financial Statements
valences and limits, case study- Al Ezz Dekheila Steel
Company

The Company Al Ezz Dekheila Steel - Alexandria S.A.E. is an
Egyptian joint stock company, incorporated under the Investment Incentives
and Guarantees Law no. 43 from 1974 amended by Law 230 from 1989 and
26

replaced by the Law no 8 from 1997. It was registered at the Trade Register
under number 104918 on July 17, 1982. The Companys purpose is to
produce, forming and manufacturing of iron and steel in all its genres and
forms.

The Extraordinary General Assembly from January 2, 2006 agreed to
amend the second article of the internal regulation of the company and
according to the General Authority for Investment and the Free Areas
Decree no. 405/2 from 2006, thus changing the name of the company to Al
Ezz Dekheila Steel Alexandria (stock company).
The formalities for the amendment of the internal regulation of the
company and for the registration at the Trade Register were buttoned up in
February 2006. This amendment was published in article no 1407 from May
18, 2006.
The company was established 50 years ago according to the registration date
at the Trade Register.

Basis of preparation
1) Declaration of conformity
These financial statements have been prepared according to the Egyptian
Accounting Standards- EAS and in accordance with the Egyptian
relevant laws and regulations.
2) Basis of evaluation
The financial statements were prepared under the historical cost
convention.
3) Functional currency and presentation currency
27

The statements are drafted in Egyptian pounds, called LE, which is the
Companys functional currency.
4) Uses of estimates and judgments.
The drafting of financial statements is in accordance with the Egyptian
Accounting Standards which require for the management to make
judgments, estimates and adjustments regarding the assets and the
liabilities declared the revenues and expenses.
The estimates and their assumptions are based on a historical experience
and other different factors that are believed to be reasonable under the
circumstances, factors which form the basis of erecting judgments on
values of assets and liabilities which are obvious from other sources. The
fair results of these estimates may be different.
The estimates and the underlined adjustments are frequently analyzed.
The revisions made to accounting estimates are recognized in the period
they take place, if this affects only, that period or the respective period or
in the future, if the revision affects the current and future period.
Significant accounting policies
The accounting policies set out below have been applied consistently to
all periods presented in these financial Statements.
Foreign currency translations
Transactions in foreign currency are conducted at the exchange rate of
the date of the transaction. Monetary assets and liabilities denominated in
foreign currency from the balance sheet are converted in Egyptian Pounds at
the rates prevailing at the balance sheet date. Non- monetary assets and
liabilities that are carried at a historical cost in foreign currency are
28

converted at the rates prevailing at the date of transaction, except the
followings:
- Monetary assets and liabilities in foreign currencies agreed to be
collected or paid at a pre-determined exchange rate.
-monetary assets and liabilities expressed in foreign currency that do not
have an equivalent in Egyptian Pounds, the rate of exchange being
established by reference to the American Dollar as an intermediary rate
of exchange between those monetary units and the Egyptian Pound.
Differences coming from the reevaluation of monetary assets and
liabilities during the balance sheet period are recognized in the income
statement.


Property, plant and equipment
Costs include expenditure directly attributable to the acquisition of
items. The cost of self constructed assets include material costs and
manufacturing costs and any other costs that can be attributable to bringing
the item to working condition for its intended use and the cost of dismantling
and removing the asset.
We conducted our audit in accordance with Egyptian Audit Standards
and in the light of applicable Egyptian laws and regulations. Those standards
require to plan and perform the audit to obtain reasonable assurance whether
the financial statements are free from material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation.
29

We have obtained the necessary data and justifications for our audit.
We believe that the audit conducted provides a reasonable basis for our audit
opinion.
In our opinion the Financial Statements referred to above together
with the notes attached thereto present fairly, in all material respects, the
financial position of the company as of December 31, 2006 and the results of
its operations and its statement of changes in the equity and cash flows for
the financial year then ended, in accordance with Egyptian Accounting
Standards and in compliance with applicable Egyptian laws and regulations.

The company keeps proper accounting records which include all that
is required by law and the statutes of the company, and the accompanying
financial statements are in agreement therewith. The company also maintains
cost accounting records that meet the purposes thereof and the inventories
count was performed by the companys management in accordance with
methods in practice.
The financial information from the Board of Directs Report was
drafted in accordance with Law 159 from 1981 and the provisions of this
law are in accordance with the financial reports of the company, at least as
regarding the information recorded there.

Conclusions of the research

The decision to conduct a study in accordance with the standards of
the community and to choose a model of disclosure of accounting policy
drafted according to legal parameters and economic conditions, making the
connection with the model of key factors in decision making, to build on
30

economic standards that are in agreement in all the decisive elements and
with the model of disclosure of accounting policy. The study was organized
in four chapters, the researcher being able to enunciate in the first part the
objectives of the research, that have been presented in the context of trying
to reach the accounting standards needed for building key factors in decision
making. They include drafting accounting standards associated with the
management of an accounting policy in the environment. The accounting
policy has an impact on disclosing accounting models and reaching the
following sub-objectives:
1) Identifying the disclosure models of accounting
2) Identifying the determinants of the effects of decision making in order
to build accounting standards with a view to disclosing accounting
models
3) Identifying the determinants of the role of decision making to build
based on experience of issued accounting standards, accounting
standards in Egypt.
4) To decide whether the evidence of building Egyptian Accounting
Standards are not random.
5) To identify the paths in organizing the groups that have an accounting
policy in Egypt in regard to determinants in decision making to draft
accounting standards as well as their impact on the accounting
disclosure model applied.
6) The creation of a model of accounting policy disclosure in the light of
the key factors determinant in the decision making process to build on
accounting standards in Egypt.
The researcher has drawn some hypotheses of the research, as follows:
31

The first hypotheses: Egypts experience in shaping accounting
standards, a set of parameters which influence the decision to build up
accounting standards for the management of the accounting policy in the
community.
The second hypotheses: the key factors influence the decision
making in drafting accounting standards in order to regulate the accounting
policy in the community regarding the construction of models of accounting
standards and disclosure applied in Egypt.
The third hypotheses: there are significant statistical moral
differences between interested parties in organizing the policy of accounts in
Egypt regarding the determinants of the importance to make a decision to
draft accounting standards that regulate the accounting policy in Egypt.
The fourth hypotheses: there are significant statistical differences
among the interest parties in organizing the accounting policy in Egypt,
some elements of the determinants of the impact to make a decision to build
accounting standards in order to regulate the policies of accounts over the
elements of the decision to build a model of accounting standards and a
model of disclosure of applied accounting.
The second chapter analyses the key factors in decision making to
build a relation with the accounting standards and the methods used in the
conceptual scheme of accounting and the relation with the key factors of
decision making to build the elements of the accounting standards. It
analyses Egypt experiences in building up accounting standards and the
parameters associated with them. The researcher of the study shows in this
part the relationship between the parameters of the legal and economic
determinants in making the decision to build the elements of the accounting
standards- it may be criteria for the studies that approach the relation among
32

the processes of building the background determinants of accounting
standards. We have reached the conclusion that Egypts experiences in
drafting accounting standards is clearly marked by Egyptians and the
regularity of relations between the legal parameters which erect the
accounting standards, being a component of the decision to develop
standards. Our research discloses the following barriers of actual accounting
standards in Egypt:
1. The absence of a frame to insure the parameters of the process of
building standards in the decision to define clearly, coherently the
elements of the standards.
2. A lack of clarity and an irregular relation between the legal parameters
of decision making, to build and to normalize a proper accounting
system in organizing the society.
3. An irregular relation between the legal parameters of decision making
to build accounting standards and the methods of approach in the
work of developing accounting standards.
4. A lack of clarity in the relation between the determinants of decision
making to build up accounting standards and the priorities in
developing accounting standards.
The third chapter presents the feature of disclosure in the accounting
policy and its relation to build the determinants of accounting standards and
the models of approach of these types of accounting disclosures associated
with the most important studies. It approaches the impact of legal and
economic determinants and of forms of accounting disclosure, as well as the
presentation of main characteristics of the model of disclosure in force in
Egypt in the light of the legal parameters and the economic determinants that
accompany them. The researcher clarifies that in this section the relation
33

between the legal parameters and the economic determinants of the model of
applied accounting disclosure, the model containing the followings:
1) The determinants that affect the legal and economic
determinants in identifying the disclosure of the applied
accounting model
2) The legal parameters that build up a model of presentation and
of financial reporting which can be incentive in case the impact
of legal determinants is taken into consideration.
3) Building the legal parameters of the model of accounting
disclosure takes the form, in case of optional reporting of legal
texts which do not bind, of supplemental comments for all the
list attached to basic elements in those reports.
4) The creation of legal determinants of the model of accounting
disclosure, which are efficient if the financial indicators have
reached a high degree of efficiency.
5) The creation of legal determinants of the model of accounting
disclosure which are stimulated if the economic parameters
associated with the capital market are efficient.
The third chapter tackles with the model proposed by the effects to
the determinants of decision making to build up the model of standards and
accounting reporting. The large area of users, the sphere and the form of
impact of legal and economic representatives of the decision to build
elements of accounting standards and to disclose the accounting model are
also dealt with in this chapter.
The fourth chapter of the research probes on field the efficiency of
the model of effects of legal representatives in decision making to build the
model of accounting standards and of financial reporting and includes a field
34

objective of the study, the data that is needed to prove the hypotheses, the
methods of data collection and analysis and the probing of hypotheses. In
this part, the researcher unfolds the following;
1)-Accepts the hypothesis, that offer the proof that Egypt is in the
phase of developing new standards, a set of parameters that
influence the decision to build accounting standards for organizing
the accounting policy in the community;
2) Accepts the second hypothesis, that shows the factors that
influence the determinants in decision making to develop
accounting standards in order to regulate the accounting policy in
the community, over the elements of decision of developing
models of accounting standards and disclosure models of
accounting information applied in Egypt.
3) The third hypotheses relates to the fact that there is no moral
significant difference from the statistical point of view among the
groups of interest in the accounting policy organization in Egypt
regarding the determinants of the importance of decision making to
develop accounting standards which regulate the accounting policy
in Egypt.
4) The fourth hypotheses relates to the fact that there is no moral
significant difference from the statistical point of view between the
groups of interest in the accounting policy organization in Egypt
regarding the elements of the decision to develop a model of
accounting standards and on disclosure of applied accounting
policy.


35






Recommendations

The results of the research have brought forward a set of recommendations
and succession of useful ideas for a future research:
1) a recommendation that the impact of the economic interest
determinants to make a decision to develop accounting standards and,
in particular, to determine the quality of standards and priorities.
2) It is recommended to observe the legal effect of parameters chosen on
the basis of accounting standards and, in particular, in determining the
method used in organizing and construction of mechanism, in its
functioning and subordination towards the mechanism..
3) The recommendation to build on a reporting model of information in
the accounting system before the development of accounting
standards, which should comply with the determinants and economic
parameters, mostly with legal ones.
4) The recommendation of identifying some already build in standards,
of reference terms, composition and methods of work, to identify the
style and the images of these standards which are in conformity with
The Capital Market Authority, Minister of Investments, The Egyptian
Institute of Accountants and Auditors, The Association of
Accountants and Auditors and other stakeholders.
36

5) The recommendation to develop some independent accounting
standards established by a committee which can be named The
Egyptian Committee of Accounting Standards or the Egyptian
Council for developing standards in the light of economic and legal
parameters in conformity with a clear approach.
6) To suggest other research that deal with the outlining of legal effects
of parameters and of sub-economic determinants of each element of
decision to develop elements of accounting standards and of
disclosure of accounting model.
7) Proposing that the further studies addressing the impact of
determinants other than the determinants of economic and legal
limitations on the elements of the decision to build the accounting
standards are conducted.
8) To suggest future studies that tackle with the impact of other
determinants than the economic and legal ones on the model of
accounting disclosure.
9) To propose further studies to probe the efficiency of the model
proposed by the researcher by other techniques than the list of
personal interviews and questionnaires proposed by the researcher.








37






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