RELEVANCE OF INTERNATIONAL ACCOUNTING STANDARDS TO A

DEVELOPING COUNTRY FIJI: AN ARCHIVAL-EMPIRICAL

INVESTIGATION

Pramod Chand
Department of Accounting and Financial Management
University of the South Pacific
Laucala Campus, Suva, Fiji Islands.
Chand_p@usp.ac.fj

RELEVANCE OF INTERNATIONAL ACCOUNTING STANDARDS TO A

DEVELOPING COUNTRY FIJI: AN ARCHIVAL-EMPIRICAL
INVESTIGATION

ABSTRACT
The quest for the international harmonization of accounting standards and practices
are becoming increasingly important because of the globalization of the world
economy. At the same time, investors have broadened their horizons beyond national
boundaries. The leaders in the business community tend to advocate harmonization in
order to facilitate world trade and economic growth. Even the developing nations are
being enjoined to apply International Accounting Standards (IASs). The assertion
being that by adopting IASs they can save themselves the time, effort and money
required to formulate their own standards. However, a closer look at the development
and application of IASs tends to raise doubts about the validity of such arguments.
This paper analyses the relevance of a global system of financial reporting in a
developing country Fiji.
Keywords: harmonization, globalization, legitimization.

1.0

INTRODUCTION

The international accounting studies have been contained mainly to the Western
World. It was only in the recent decades that interest in the Pacific Asia region has
developed as a result of the economic growth and prosperity in this region (Lau & Ma,
1997). This study contributes to the existing literature in this region by examining
and evaluating further the relevance of the IASs to developing countries, using Fiji as
a case study. This paper intends to provide a detail analysis of the evolution of Fijian
financial reporting, highlights significant influences on this evolution, and presents a
critical view on the current state of regulation the move towards international
harmonization.
The internationalization of capital markets demands all aspects of commercial
functions to be viewed on an international, rather than a national scale. This includes
the accounting function. The process of harmonization portrays an ideal picture about
the accounting area, but it may not be appropriate for all countries and societies.
Though IASs could be used by every nation, uniqueness of the environment and the
associated economic and social features has led most nations to set their own
standards. Even the small Island Nations of the Pacific, including Fiji have made
significant progress towards the development of a set of accounting measurement and
financial disclosure requirement which will result in the disclosure of financial
information that is relevant and reasonably comparable across national borders.

In any country, the accounting and financial reporting systems cannot develop in
isolation. But are influenced by their environments. Accounting researchers have
always provided an enhanced awareness of the influence of the environmental factors
such as culture, economic development, political systems and educational approaches
on accounting development (e.g. Mueller, 1967; Choi and Mueller, 1984; Arpan and
Radebaugh, 1985; Nobes and Parker, 1985 and Gray, 1988). These historical and
institutional influences are equally relevant for western countries as for the small
Island Nations of the South Pacific. The IASs are developed in a different social,
religious, political and economic system than ours. Thus by adopting IASs countries
do not develop standards which is necessitated by the needs of their own environment,
but end up developing standards to control the variables within their own economic
environment (Samuels and Oliga, 1982). If this is the case, then IASs may (see
Samuels and Oliga, 1982; Thomas, 1983; Evans et al., 1985; Tondkar et al.; Brunovs
& Kirsch, 1991; Peasnell, 1993; Carlson 1997; and EI-Gazzar et al., 1999) or may not
be (see Briston, 1978; Hove, 1986 &1989; and Choi,1998) relevant to Fiji.
This paper examines the factors through which accounting has been influenced in Fiji,
explains the differences between Fijian and International accounting needs and then
moves on to analyze the relevance of the IASs to our country. It addresses the
following basic research questions in the Fijian context:
How does IASs interrelate with our social, cultural and economic systems?
Is it appropriate to adopt IASs in Fiji?

This study has utilized a case study approach based on an archival-empirical research
method. The paper is organized in the following manner. The first part of the paper
deals with the relevance of IASs to Fiji, based on the historical and institutional
framework. To addresses the other research question the paper has carried out an
empirical investigation, to ascertain the reasons behind the move by the Fiji Institute
of Accountants (FIA) to adopt the IASs. The paper concludes with a critical analysis
of the relevance of IASs to small Island Nations, such as Fiji. The subsequent section
will lay out the framework used for the paper, followed by the historical overview of
the standard setting process in Fiji.

2.0

THE HISTORICAL AND INSTITUTIONAL FRAMEWORK

Watts and Zimmerman (1978) pioneered the theory of self-interest, to explain the
lobbying behavior of stakeholders in a company. This provided the basis of a theory
that might explain the determination of accounting standards. Similar studies (e.g.
Haring, 1979; Watts and Zimmerman, 1978 and 1986) also utilized the rational
choice/rational actor model to reveal the characteristics of the stakeholders lobbying
on specific accounting issues. Drawing on these researchers Susela (1999) has
forwarded the framework to understand the accounting standard setting process. The
concern in this paper is not to question the merits of these approaches, as the
epistemological claims of the writers specially the initial model of Watts and
Zimmerman (1978) has been subject to heavy criticism (see Chua 1986 and Robson,
1993), rather the aim is to utilize this framework to study the standard setting process
in Fiji.
The model presented by Susela is based on the premises that analysis of standard
setting must not be restricted to key participants in the standard setting process in
isolation, instead an overall understanding of the domestic political economy1 and the
global political economy2 is pertinent. The following section outlines the
developments in the standard setting process in Fiji, with due emphasis on the
historical and institutional environment of the society in which accounting operates.

3.0

THE REGULATORY DEVELOPMENTS IN FIJI

Accountancy profession in Fiji have long witnessed the professional presence of

Australian, New Zealand and to some extent British accountants who have, through
their industry and professionalism, always made significant contributions to the
accounting development of this country.
Notwithstanding these laudable
contributions and the assistance rendered by accounting associations, both national
and international, the accountancy profession in Fiji is still young and in its

For example Stages of Economic Development, Colonial History and Socio-Political Economic
Systems.
2

For example impact of Multinational Corporations (MNCs), International Trade, IASs and
International Accounting Firms.

development stage as one would normally expect of any profession in a developing

island country like ours.
The initial stage of development of the accounting profession in Fiji dates back to
1940s, where in 1945 a suggestion was forwarded to the Government of Fiji to
provide legislative measure to register Tax Agents. But no mention was there to
register accountants. The Government did not consider that there was any urgent
need to provide any legislative measure, eventhough the accountancy profession
always felt that there was a need for registration of accountants. At that time there
were a number of practicing accountants in Fiji, of whom only few had recognized
professional qualification. This meant that any person could set up an accountancy
practice and be a Public Accountant, irrespective of whether he was academically
qualified and experienced or not. This was in practice till 1961. However, in late
1961, The Fiji Government accepted the notion that there was a need for legislation to
register public accountants. It was not until December 1962, when the Legislative
Council enacted the Public Accountants (Registration) Ordinance which came into
force on 1st of July 1963. On the same day Public Accountants Registration Board
was constituted by the Governor, which consisted of the Registrar (from
Commissioner of Inland Revenue) and two other members appointed by the Governor
(Kapadia, 1980).
The Ordinance laid down the qualifications required for registration where the
professional qualifications required were to have passed the examinations and comply
with the requirements of practical experience necessary for registration by the New
Zealand Society of Accountants or to be a member of in good standing of any
association of accountants recognized by the New Zealand Society. It is interesting to
note that even at that time Fiji accountants recognized the need to maintain the
professional standards that existed in New Zealand, Australia, England and Wales,
Scotland, Ireland and Canada.
The Board had very limited vested powers in them to control the conduct of the public
accountants, and also it found it difficult to develop the accountancy profession in Fiji.
The number of registered accountants had been steadily increasing since its inception,
from only 13 members in its first year of registration to 40 registered members by the
end of December 1970, with a total of about 60 accountants employed in various
sectors of the economy. The need was felt by the practicing accountants to form a
professional body which could not only control but also develop the profession. With
continuous lobbying from the accounting practitioners and at the request of the Public
Accountants Registration Board, the Government in October, 1971 enacted the Fiji
Institute of Accountants Act, which then came into force on 11th February 1972 (ibid).
The FIA Act states that the objective of the FIA is to register accountants and regulate
the practice of the accounting profession in Fiji. The FIA, shortly after its
establishment issued non-mandatory Recommendations on Accounting Practice. The
institute is also a member of both the International Accounting Standards Committee
(IASC) and the International Federation of Accountants (IFAC). The FIA has
committed itself to support the standards promulgated by the two governing bodies.
The FIA constitution lays out the procedure for electing members of its council, who
are elected by the members of the institute in the annual general meeting. The council

has nine members, who have the vested powers to manage and control the affairs of
the institute. The council then appoints various other committees3, one of them being
the Accounting and Auditing Standards Committee (Standards Committee from
hereon). The task of this committee is to issue standards in accounting and auditing.
Typically the committee is made up of nine members; four from commercial
accounting firms, two from other enterprises, one from academia, one from public
sector and one is a private practitioner. Such a wide representation is designed to
ensure that as many group as possible are represented in the standard setting process.
Similar to the other accounting bodies, the FIA through its Standards Committee
promulgates accounting standards that serve as the basis for preparing the financial
statements. Since its inception the council of the FIA has so far issued twenty-eight
accounting standards, all of which are extent. These standards are primarily drawn
from the IASs, but where the committee found Australian and New Zealand standards
more appropriate compared to the IASs, those have been adapted (Pathik, 2000).
These standards have been issued over a period of twenty years, the first in 1979 and
the latest ones in 1999.

4.0

RELEVANCE OF IASs TO FIJI IN CONTEXT OF THE HISTORICAL

AND INSTITUTIONAL FRAMEWORK

The tremendous growth in international trade and investment has brought to the
forefront the problems engendered by differences in accounting reports used in many
different countries. However, still differences in financial accounting measurement
and reporting do exist, which create problems of misunderstanding, unnecessary costs
and uncertainties to the participants in the global economy (Evans and Taylor, 1982;
Arpan and Radebaugh, 1985; Purvis et al., 1991; and Chamisa, 2000). Three major
schools of thought4 have been proffered as response to the problems caused by
accounting diversity in different countries, of which international accounting
harmonization school has been widely accepted as the most expedient and pragmatic
(Chamisa, 2000).
The extant literature on the relevance of the IASC standards to developing countries,
is by and large, general and overall (e.g. Perera, 1989; and Cairns, 1990) or case study
based (Briston, 1978; Samuels and Oliga, 1982; Perera, 1985; and Chamisa, 2000).
However, the authors who had used case studies of specific developing countries to
illustrate their arguments used countries (for example Egypt, Indonesia, Sri Lanka and
Zimbabwe) which were quite large countries when compared to the small Island
countries, such as Fiji. Furthermore, the other case studies have basically used
countries, which were dependent on nationalized foreign-owned enterprises and
radically changed from capitalistic to communistic economies, to which the study of
Chamisa is an exception.
3

There are thirteen committees altogether: Investigation, Disciplinary, Education and Membership and
Awards, Congress Organizing, Accounting and Auditing Standards, Law Review, Act and Rules,
Professional Development, Journal, Graduate Professional Programme, Staff and Administration,
Professional Centre and Western Division.
4

These are the universal or uniform accounting school, the comparative or multinational accounting
thought and the international accounting harmonization school (Weirich et al., 1971).

Chamisa (2000) asserted that studies of specific and different developing countries are
essential if the issue of the relevance of the IASs is to be further explored
meaningfully. This assertion recognized that: accounting is influenced by the
environment in which it is embedded and by the ends it is expected to serve (see
Mueller, 1967; Zeff, 1972; Nobes, 1983; Choi and Mueller, 1984; Gray et al., 1984;
and Peasnell, 1993); national environments and accounting needs of developing
countries differ from country to country (see Choi & Mueller, 1978); and there are
limitations and risks associated with generalizations on issues pertaining to
developing countries as these countries are not a homogeneous group (see Perera,
1989; and Wallace, 1990). Consequently, this is the first study to analyze the
relevance of IASs to a very small Island country, utilizing a somewhat different
perspective5 than the other case studies undertaken so far.
Analysis of standard setting must not be restricted to key actors in isolation, instead
some understanding of the domestic and global economy is necessary. As accounting
is seen to affect economic development, accounting itself is also affected by local and
global environmental factors (Larson, 1993). Most of the recent international
accounting texts6 contain at least some discussion of the historical, cultural, social,
economic, political and other environmental factors that contribute to the shaping of
accounting standards in different countries. The factors identified to be influential to
the regulatory development in Fiji and which will be analyzed in relevance to the
IASs in this study are colonial history, culture, economic development, business
structure and MNCs.
Colonial History
It is evidential that in the past there existed many colonial powers.7 Even Fiji was
under a colonial ruling. It was a British colony for almost a century, from 1874 to
1970. Therefore colonial powers (that of Britain) had its influence on Fiji via colonial
process. Colonialism also resulted in the head of the colony imposing their
accounting technology on their colonies,8 without considering the needs of the LDCs
but only to the extent of maximizing their own wealth.9
Hove (1986) had identified two conditions whereby accounting technology has been
transferred from the head of the colony to their colonies: the second country had no
organized body of accounting principles in the first place, and secondly large amounts
of capital for the first country were invested in business in the second country, with
5

Institutional and historical perspective.

For example Arpan and Radebaugh, 1985; Choi & Mueller, 1984; and Ma, 1997.

For example British, American, French and Italian colonies.

For example Zimbabwe and other Anglophone African countries financial disclosure requirements
and corporate legislation is in line with the British Companies Act of 1948 as these countries were
under British empire (Hove, 1986).
9
When Sri Lanka was under British ruling, almost all the stock companies were owned by British
investors and the required personnel for the management including accountants were from Britain.

the consequent ability on the part of the investors to impose their own accounting
practices on the business. Consequently, in Fiji most of the accounting practices (in
the past and also currently) are based on the British-American model.10
The large MNCs invested in Fiji, through establishment of subsidiaries. With the
absence of any concrete form of accounting legislature and due to the fact that these
subsidiaries had to disclose financial information to their parent entities, led Fiji to
adopt accounting principles prescribed by the head of the colony. The colonies under
these circumstances were thus forced to adopt an accounting system of their colonial
power even though it may not have been appropriate. The countries that were once
colonized still continue to follow accounting practices of their rulers, and those still
under such ruling continue to follow similar practices as their rulers. The Fijian
accounting system is aligned with the Anglo-Saxon accounting model (see Mueller et
al., 1997).
Historically IASs also has been seen to be based on Anglo-Saxon accounting (Nobes,
1996). Using the classification of Nobes (1996),11 Fiji can be classified as Type B
Country where national rules are generally at least as detailed as IASs, and
following the former generally leads to following the latter.
The differences in national reporting standards are being perceived as creating
competitive disadvantages that work against the free flow of capital to developing
countries, such as Fiji. The assertion that both Fiji accounting practices and IASs are
based on the Anglo-Saxon model will enhance the process of harmonization in our
country. There will be no problem of language (see Choi, 1998) which will hinder
the progress of harmonization. This will facilitate the growing demand for a common
reporting language in Fiji to accommodate globalization of financial markets.
Cultural influences
Culture can be defined in a variety of ways, but for the purpose of this study culture
is:
---the collective programming of mind which distinguishes the members of
one human group from another. (Hofstede, 1980, p. 25).
The word culture and subculture are distinguished, where the former is reserved
for societies as a whole and the latter being used for the level of an organization,
profession or family (ibid). In the accounting literature, the importance of culture had
been recently recognized. The works of Harrison & Mckinnon (1986) followed by
Gray (1988) have proposed a methodological framework which incorporates culture
to analyze changes in corporate financial reporting regulation at national level. The
cultural dimension is an essential element in the framework for understanding how
social systems change as culture influences the norms and values of such systems, and
explains and predicts the behaviour of groups in their interactions within and across
10

There are four major accounting models identified by Mueller et al. (1997) British-American model,
Continental model, South American model and Mixed Economy model.

11

Nobes classification has been heavily criticized. However, it is only used here to show that the Fijian
practice is similar to the Anglo-Saxon model on which IASs are based.

these systems (Harrison and Mckinnon, 1986). Utilizing Grays (1988)12 approach it
is felt that a cultural framework can be used to explain and predict the relevance of
IASs to Fiji. Before an attempt can be made to compare the cultural values of Fiji to
that of the IASC community, it is important to understand the meaning of four value
dimensions identified by Hofstede:
Individualism versus Collectivism
Individualism denotes a loosely knit social framework in society wherein individuals
are supposed to take care of themselves and their immediate families only, whereas
collectivism relates to a tightly knit social framework in which individuals can expect
their relatives, clan, or other in-group to look after them in exchange for
unquestioning loyalty. The fundamental issue in this being the degree of
interdependence a society maintains among individuals.

Large versus Small Power Distance

Large Power Distance societies accept a hierarchical order in which everybody has a
place which requires no further justification, whereas people in Small Power Distance
societies strive for power equalization and demand justification for power inequalities.
The fundamental issue in this dimension is how well a society handles inequalities
among people when they occur.
Strong versus Weak Uncertainty Avoidance
This dimension relates to the degree to which the members of a society feel
uncomfortable with uncertainty and ambiguity. The Strong Uncertainty Avoidance
societies are where rigid codes of belief and behaviour is maintained and members are
intolerant towards deviant persons and ideas, whereas Weak Uncertainty Avoidance
societies have a more relaxed atmosphere where practice overrides principles and
deviance is more easily tolerated. The fundamental issue here is how the society tries
to prepare for the future, - control the future or let it happen.

Masculinity versus Femininity

The former stands for a preference in society for achievement, heroism, assertiveness,
and material success, whereas the latter denotes a society which prefers for
relationships, modesty, caring for the weak, and the quality of life. The fundamental
issue in this dimension is the way in which a society allocates social roles to the sexes
(c.f. Gray, 1988).
Having identified the societal values, let us now identify the related accounting values
at the level of the accounting subculture on which further analysis will be undertaken.
The following are the accounting values derived from a review of accounting
literature:
Professionalism versus Statutory Control

12

His approach is based on Harrison and Mckinnon (1986) and Hofstede (1980 & 1983).

These relate to a preference for the exercise of individual professional judgment and
maintenance of professional self-regulation, as opposed to compliance with
prescriptive legal requirements and statutory control.
Uniformity versus Flexibility
This dimension denotes a preference for the enforcement of uniform accounting
practices between companies and for the consistent use of such practices over time as
opposed to flexibility in accordance with the perceived circumstances of individual
companies.
Conservatism versus Optimism
Where there is a preference for a cautious approach to measurement so as to cope
with the uncertainty of future events or a more optimistic, laissez-faire, risk taking
approach.
Secrecy versus Transparency
This dimension relates to a preference for confidentiality and the restriction of
disclosure of information about the business only to those who are closely related
with its management and financing as opposed to a more transparent, open and
publicly accountable approach (ibid).
So much then for the overview of the societal and accounting values, let us now apply
these to ascertain the similarities and differences between the IASC (UK/US
dominant) and the Fijian accounting practices. Firstly, accounting values include a
preference for independent professional judgment as opposed to statutory control. A
preference for exercising professional judgment is consistent with a preference for
individualism and subjectivity. This is what is found in the accounting systems of
countries listed under British-American model (Mueller et al., 1997). Based on the
assertion that the affairs of the IASC are dominated by UK and US, this is also true
for the IASs. Both the IASC and IFAC values the concept of presenting a true and
fair view of a companys financial reports, where the auditor is given the right to use
professional judgment to accomplish this goal. The Fijian practice is somewhat
similar. The public companies are required to prepare general purpose financial
reports accompanied with an independent auditors report (under the Fiji Companies
Act 1983). Furthermore the other companies are also required to prepare the annual
reports for taxation purpose (for the Inland Revenue Department).
The second set of accounting values which has an impact on financial reporting is
uniformity versus flexibility. There is a link between this accounting value and the
cultural value of dealing with uncertainty. A society which values uniformity shows a
preference for the enforcement of uniform accounting practices, whereas a society
that values flexibility takes into account the individual company circumstances (ibid).
The IASs are found to be flexible as it allows for a choice of methods in its standards.
This is also the case in Fiji, as FIA allows for differential reporting. The standards
(IASs) that are relevant are not relevant in their entirety. This is the reason why they
are modified to suit Fijis needs. Even then the FIA finds that some standards are not
relevant to all the organizations in Fiji, such an organization is then exempted from
complying with those standards. This has led to the institute to follow the concept of
differential reporting, hence those companies fulfilling specified criteria are required
to comply with the equivalent Fiji Accounting Standards (Pathik, 2000).

10

The next accounting value dimension is conservatism as opposed to optimism.

Conservatism relates to the measurement of accounting information with preference
for a cautious approach to measurement, to cope with uncertainty of future events
whereas optimism tolerates more uncertainty in measurement practices (ibid). The
British-American model on which IASs are based, takes on a more optimistic
approach to measurement. This is due to the fact that private investors are the major
contributors of capital. However, in Fiji the accounting measurement practice is more
conservative, in order to minimize taxes.
The last set of accounting value is secrecy versus transparency. The British-American
model takes a more publicly accountable approach to financial reporting and discloses
more information, in response to the providers of capital - private investors (ibid).
However, in Fiji the approach is somewhat different, there is a preference for
confidentiality and companys tend to restrict disclosure of information to
management and those who provide the corporate finance.
To sum up, the above analysis has shown that eventhough the Fijian accounting
practices are based on the Anglo-Saxon model, but the actual measurement practices
differs from that of UK and US. The accounting profession is self regulated and it
also allows flexibility while promulgating the standards. But due to the conservative
and secretive nature of the society, the measurement practices and the level of
financial and non-financial information in the financial reports are different when
compared to UK and US reports. The Fijian financial reports are not as
comprehensive as the UK/US reports.
Economic development
The problems of economic development face all countries, but none more so than the
developing countries (Radebaugh & Gray, 1993). As such the question arise as to the
role of accounting in economic development and the appropriate accounting systems
to use in the context of a variety of local and cultural values. The issue, which needs
to be considered is: what is the most appropriate accounting system in Fiji is it
IASs?
The economic and enterprise reforms have given rise to significant changes in the
accounting environment in Fiji. To adapt to an outward-development strategy13 and a
market-orientated economy14 reduced the reliance on state funding. Thus the
enterprises were given autonomy in operations and finance. This gave rise to various
forms of business combinations, with private enterprises and foreign-invested
enterprises expanding their operations across industries. With the increasing complex
business activities and less reliance on state fund allocations, the company-specific
accounting practices became incompatible. It was recognized in early 1980s that
with the process of economic reform, there is also a need to broaden the accounting

13

This was introduced in Development Program 9 (DP9) in 1985.

14

Fiji had been moving towards privatization and deregulation since mid 1980s.

11

regulatory framework. To facilitate foreign investment and international interactions

in economic activities, accounting reforms were embarked.
Let us now illustrate the differences and/or similarities between the Fijian and the
IASs practices in regards to systems of accounting rules used by the businesses.
Carsberg had noted that differences among systems of accounting rules are inclined to
group countries into two categories. On one hand, there are countries where business
finance is provided more by loans than by equity capital, and the other group of
countries is one in which equity sources of finance are more important. In the former
accounting rules are dominated by taxation considerations and where legal systems
customarily incorporate codes with detailed rules on issues such as accounting.
Whereas in the latter group, accounting measurements are not dominated by taxation
considerations, as tax breaks can be enjoyed independently of the way results are
reported to shareholders and common law systems prevail.
Fiji certainly falls in the first category, where companies15 have strong incentives to
take advantage of taxation concessions. The taxation system here effectively offer tax
breaks for business by allowing somewhat a generous measurement of expenses and
modest measurement of revenues. But on the condition that such measurements are
used for general financial reporting purposes, as promulgated by the standards of the
FIA. In Fiji, there are many private or the state owned enterprises where the major
providers of finance are close to the companies in which they have invested and
therefore the general lack of transparency in the accounts does not matter so much.
But the modern business pressures and the governments economic reforms such as
privatization are slowly changing this. Whereas as for the IASC community (US/UK),
the role of equity finance is important as the capital market pressures are strongly
advocating to improve the quality of information available to investors (ibid). The
above analysis shows that there is a difference between the accounting needs of the
Fijian community with that of the IASC community.
Business structure
As companies grow, their needs for capital also grow, and with this grew the need to
acquire finance from alternative sources. Firstly, the investor/creditor group became
large and diverse and companies acquired a widespread ownership. As such the
owners became more divorced from the management of the companies, and the
professional nonowner manager developed. In such an environment, the investors
required financial information on how well the company was doing. With the growth
in the size of the business, it was impractical for the shareholders to inspect the
accounting records or even to contact the company executives to gather accounting
information. In such a situation, managers provide the financial reports to investors
and creditors in order to communicate their stewardship over the resources entrusted
to them. Financial accounting in UK and US has had such an orientation.
Furthermore, these countries have large and developed stock markets, and a great deal
of information is disclosed in companies financial reports and to determine profit is
the ultimate objective of financial reporting (Mueller et al., 1997). IASs are also
oriented towards the information needs of investors and creditors. The completion of
15

This excludes the multinationals, which reports back to their own countries, and are basically on a
tax holiday operating in a Tax Free Zone.

12

the IASC/IOSCO project reinforces this, where all the core standards are developed to
facilitate financial reporting needs of the MNCs.
However the situation in Fiji is somewhat different. Here the environment is
characterized by a few, large banks and the state funding satisfy most of the capital
needs of the business enterprises.16 The business ownership is concentrated, and as
such the information needs of the resource providers are satisfied in relatively
straightforward way. Since the company has to deal with a few creditors, personal
contacts and direct visits is an efficient way to monitor the financial position of the
business enterprise. The financial reports are prepared as the government requires
financial disclosure, but it does not contain as much information as the US/UK
financial reports.
The above analysis shows that there is a significant difference in the business
structures and the means to raise capital in the developed nations as compared to the
situation in Fiji. The drive for harmonization is certainly coming from the top bottom,
determined largely by force majeure, driven by the capital markets and MNCs. In this
process, little attention has been given to the possible impact on the smaller entities
who may be found to be caught up in an expensive web of regulatory framework
which has been designed to suit the MNCs (McBride & Fearnley, 1999). Similarly,
Samuels and Oliga (1982) argued that IASs are:
appropriate for industrial countries with a large private sector and a welldeveloped capital market. The main users of accounting reports in such
countries are the shareholders, analysts, bankers and other businesses.
Accounting reporting and practices and standards are quite rightly designed to
provide these users with the information they require. (pp. 66-88).
MNCs
The rapid growth of MNCs in the developing countries is another argument which is
frequently advanced to support international harmonization. MNCs are significant
economic entities, in terms of both, in aggregated worldwide situations and within the
individual countries where they operate. They have distinctive economic, social and
political impact, which arises from their power to monitor and move resources across
national borders and this has resulted in growing pressures for higher levels of
accountability (Choi & Mueller, 1985). A number of accounting researchers have
attributed the need for IASs to the increasing significance of MNCs (e.g. Taylor,
1987; and Peasnell, 1993).
The expansion of the activities of firms into the
international market certainly increases the number of users of financial reports. The
situation arises where the users in the host (foreign) and the local country prefer
financial statements and disclosures that are comparable to locally prepared
statements in terms of accounting standards and disclosures. The financial statement
prepared in accordance with local GAAP then has to be restated in accordance with
the host country GAAP (EI-Gazzar et al., 1999). Adoption of IASs, provides the
solution to this problem of preparing different sets of financial statements, by
providing a set of accounting rules that are universally accepted.

16

This excludes the MNCs operating in Fiji.

13

This, as it is, means that in the absence of IASs a universal set of accounting
standards and disclosures, a firm willing to list its securities on multiple stock
exchanges would have to produce that many sets of financial statements to comply
with the securities laws and host country GAAP in which its shares are to be listed.
This will be a very costly process to the firm and confusing to the financial markets
(ibid). In an empirical study, EI-Gazzar (1999) had shown that MNCs are motivated
to:
--- voluntary adopt IAS in order to enhance their exposure to foreign markets, to
improve customer recognition, to secure foreign capital, and to reduce political costs
of doing business abroad. (p. 246).
The results of this study are significant as it suggests that MNCs are more likely to
voluntary disclose higher levels of investor-oriented information17. The support for
IASC and its standards from this dimension is increasingly apparent around the world.
Given the perception that IASC is dominated by the Anglo-Saxon accounting
principles and practices (see Briston, 1978; Samuels and Oliga, 1982; Perera, 1985
and Hove, 1986) where the major users of the financial reports are investors and
creditors, the process of harmonization becomes a one-sided exercise. IASs
essentially facilitates the MNCs financial reporting requirements. The IASC/IOSCO
project reinforces this, where ample amount of resources had been used for well over
five years only to complete the core set of standards. Given the current trend of IASC,
to develop standards to satisfy the needs of the so-called developed and developing
countries where the stock markets are developed, the relevance of IASs to Fiji raises
serious doubts. The stock markets here are still in its embryonic stages and given this
situation the new standards which are being developed by the IASC has no relevance
to us at this point in time (e.g. IAS 26, IAS 29, IAS 32 and IAS 38).
To sum up, it was seen in this section that the accounting practice in Fiji are being
imposed by the developed countries (especially UK) initially via colonialism, then
through the operations of MNCs, professional accounting institutes, and through
foreign aid and education. These influential factors have given little chance to Fiji, to
evolve accounting systems which truly reflect the needs and circumstances of its own
society.
The existing systems in these developed countries in essence are mere extensions of
those in developed countries. However, when the needs and the nature of the social
and economic systems of the developed countries were compared to that of Fiji, it was
found to be significantly different. If this is the case then the relevance of IASs to
developing countries becomes questionable. It is suggested that the evolution of
accounting in a developing country, like Fiji, has to take place in a quite different
atmosphere from that which exists in developed countries. It may be necessary to
invent new methods to increase the serviceability of accounting information in the
absence of a developed capital market (Perera, 1989).
The paper has been able to successfully address the first research question, let us now
further investigate the relevance of IASs to Fiji, based on an empirical analysis.
17

Another empirical study of a similar nature was undertaken by Taylor and Jones, 1999.

14

5.0

RELEVANCE OF IASs TO FIJI AN EMPIRICAL INVESTIGATION

A case study approach was utilized for this study, which involves field-based research
whereby the researcher interacts with the phenomena, which are investigated.
Accordingly, the case of Fiji is used in this research exercise to review the reasons
behind the adoption of the IASs and to determine the relevance and the consequences
of IASs on the Fijian economy.
Researchers utilizing a case study approach could either employ a scientific or a
naturalistic method or a combination of the two research methods to collect the data.
In this case a triangulation of the scientific and naturalistic research methods (AbdelKhalik and Ajinka, 1983) was utilized. There were two sets of respondents (the FIA
Standards Committee representatives and the accounting practitioners)18 for which
different methods were appropriate. Accordingly, semi-structured interviews and
informal discussions with the representatives of the FIA Standards Committee were
held to find out the reasons behind the adoption of IASs. Furthermore, structured
interview questionnaires (Standard Questionnaire Survey) were sent to the accounting
practitioners (the representatives of the big five accounting firms in Fiji) to ascertain
the impact of the proposed adoption of IASs on them and to assess the practical
difficulties that may be encountered.
The responses, both from the unstructured interviews and the standard questionnaire
survey, were then analyzed. The empirical evidence on the FIAs reasons behind
adopting the IASs and the impact of adopting the IASs are presented below.
Following this, the paper will then critically evaluate the relevance of IASs to Fiji
based on the historical and institutional perspective.
5.10

RESULTS

The standard setting process in Fiji is a profession-sponsored arrangement, where the

FIA approve the statements of standard accounting practice. The FIA employs a
pragmatic approach to standard setting, bearing in mind the resources it has. Standard
setting, where there is no prior reference point is a very complicated task as it
involves a lot of research. The base data has to be collected. So the institution is
taking a pragmatic approach towards that problem and adopting what it sees as a cost
effective approach. The institution argues that as it has limited resources, thus if a
particular standard developed and established overseas is relevant to us and we can
adopt the standard, then there is no need to go and reinvent the wheel.
Fiji is a member of the IASC. By virtue of being a member the institute is obliged to
follow the IASs issued unless standards are adopted which are tailored for Fiji but in
accordance with IASs. If there is a matter which the institute has not adopted a

18

For the unstructured personal interviews five members were chosen from the FIA Standards
Committee, so as to take the views of all the sectors represented on the Committee, and for the
Standard Questionnaire Survey the representatives from the five major accounting firms in Fiji were
sent the questionnaire - Arthur Andersen, PriceWaterHouse/Coopers, KPMG, Ernst & Young and
BDO Zarin Ali.

15

standard on, then automatically it refers to the IASs. The existing Fiji standards are all
IAS compliant at the time of adoption.
The institute argues that the demand for financial information and accountability is
increasing, thus the profession has the responsibility to ensure that the information is
produced in a consistent and acceptable manner. This is facilitated by the adoption of
the IASs. The Standards Committee feels that the earlier standards were adopted in a
less sophisticated environment. At that time the capital markets were not well
developed. Now, with growing investment by the MNCs in Fiji and additional listing
of companies on Suva Stock Exchange (SSE), there is a need to broaden the standards
base to make sure that the reporting is comprehensive. However, in doing so the
institute is also mindful of the fact that they just do not adopt the standards blindly.
They do make assessments of what is appropriate for our situation.
The interview carried out with the representatives of the Standards Committee reveals
the following reasons for the adoption of the IASs:
i)

One of the most important aspects would be that the adoption of the
IASs will immediately make accountability in Fiji recognized to an
international benchmark. If we were to develop our own standards
then we will have trouble making these standards compatible and
acceptable internationally. So that is one of the major aspects of the
alignment towards the IASs. As a profession, we have a statutory
responsibility under the Act to maintain certain professional standards.

ii)

The globalization of business around the world basically means that we

cannot dictate to the world in terms of what generally accepted
accounting principles should be. We obviously follow what happens
overseas. As we do not have the funds for research, thus one easy way
for us is to have standards developed by our sister institutes and adopt
theirs to start off.

iii)

It is a significant saving to us as we do not have to make our own

standards. Fiji being such a small player in the world economy and in
terms of reporting its not really prudent to develop our own standards
so adoption of the IASs save us on the development costs. By
imposing that on the users, basically the cost of disclosure would be
minimal,- the only cost being that of making sure that the expertise is
there to report the financials according to the standards. Similarly, one
of the chartered accountants stated that:
"Why we reinvent the wheel basically when you got no money to
reinvent the wheel in the first place. So rather than trying to be smart
and do all these ourselves we basically use them as a stepping stone.
Again we don't see that scenario changing in the short term. It would
be foolish for us to think that we can do otherwise because we don't
have the resource capabilities here nor the funds to undertake them and
Fiji is too small in the market to try and contemplate doing something
like that."

16

iv)

The other reason for the adoption of the IASs is that because Fiji
government's policy is essentially to reform the economy and
deregulate the whole thing we are constantly looking at assessing the
performances of public enterprises. The way in which we can do that
is to measure the performance against those of other countries. It can
only be measured effectively if the measurement is done by using the
same ruler. Therefore, in a lot of sense this international benchmarks
and comparability and also the setting of performance targets would
have to revolve around the adoption of some consistent measure, that is
same/similar standards.

v)

A lot of the individual accounting bodies are trying to move in that

direction, to adopt IASs. Trying to harmonize standards so that
standards of most countries will be as far as possible compatible to
each other and as globalization of businesses are increasing it will give
a clearer framework for reporting if all countries have same type of
standards. There will be also be few inconsistencies. This in turn will
ease the supervisory and enforcement roles of the regulatory agencies.

vi)

Fiji now, with the adoption of IASs, will definitely have a complete
framework of accounting standards. This will now protect our local
market and we will not lose clients to the overseas firms.

The respondents from the Standards Committee were able to recognize the benefits
that will flow with the adoption of the IASs.19 The common responses of the
respondents, provides some justification for the FIAs move towards harmonization of
accounting standards. Trade between countries and investments by companies in
foreign countries have indeed started to intensify. Fiji is no exception. This calls for
the need to eliminate or minimize the differences in accounting practices, which are
seen to be an obstacle to international trade and business expansion. To cater for this
growing need, the FIA is taking on board the IASs, to determine whether these
standards are appropriate to our economy at this point in time. The major objective
being to keep up with the developments overseas, if the institute appears to be lagging
behind.
Let us now reveal the problems that are/maybe encountered by the accounting
practitioners while using the IASs for the preparation of their financial reports. The
drawbacks associated with the adoption of the IASs as revealed by the interviewees
(both FIA Standards Committee representatives and the accounting practitioners)
could be summarized as:
i)

It will require qualified people in the system with regards to implementing

the standards. Also there will be costs to train the members so they are upto-date with the specific requirements of the IASs. Initially there could be
some administrative difficulties. It may be administratively onerous to
implement these in terms of the whole mechanism of printing and

19

These views are similar to the views of accounting researchers such as Perera, 1989; Chandler, 1992;
White, 1998; El-Gazzar, 1999.

17

circulations and making sure that people are aware. Furthermore, there
can be some technical problems.
ii)

A problem with the standards may be that they are not very specific and
requires judgment by the preparer. Similarly one of the respondent argued
that:
Accountants may find difficulty in applying, as in the IASs the wording is
somewhat general so it makes it hard for members to apply them
particularly if they are smaller or sole practitioner or the general members
in Fiji themselves.
At times it is difficult for our members to try and understand exactly how
to apply those standards because unless they are associated with an
international firm or they have continual education courses which do allow
that type of forum to teach the members.
Therefore, we should look at the IASs and decide whether they are useful
to our members or should we provide explanatory notes to the standards.

iii)

It should be noted that not all IASs applies to Fiji at this point in time.
Therefore, it has to be considered whether a particular IAS is applicable to
us. Further to that we need to consider whether it is in line with the other
legislative requirements of the country, if it breaks any law over here then
of course it needs to be addressed.

iv)

Fiji will now have a complete framework of accounting standards but the
cost side of it needs to be managed so that it does not result in exorbitant
costs as the FIA does not have a big membership and fund to finance this
area, so it has to be done with cost in mind definitely. This needs to be
done in such a manner that we do not have to produce standards every
month, thus the replacing phase should be such that it is done efficiently
and we get some benefit without a lot of loss.

v)

IASs are usually designed to suit the multinationals. Thus in the case of
Fiji the advantage will not be that significant20.

The survey has revealed that the accounting practitioners are facing difficulties when
trying to use or trying to come to terms with the IASs. This is evident from the
responses received from these accountants where majority of the respondents had
stated that there are practical difficulties associated with the IASs. Whereas the other
respondent's had argued that the FIA will face administrative difficulties, both in the
phase of implementation and also in terms of seeing that the respective firms are
complying with the new standards. Furthermore, one respondent who also happens to
be the member of the Standards Committee had pointed out that FIA will face
difficulty in keeping pace with the numerous changes that are taking place these days
with the existing IASs as well as the many new standards which are formulated.
20

The views presented above are similar to the views of accounting researchers such as Samuels and
Oliga, 1982; Perera, 1989; Hove, 1989; Chandler, 1992 and Ngangan, n.d.

18

The IASs are fairly general in the sense that they are permissive, in order to
accommodate the different positions taken by the key members of the IASC
committee. This may pose some problems. The IASs do not specify a single
generally accepted accounting practice because they cater for a lot of countries which
have adopted different treatments. For example, IAS 2 still makes reference to the
last-in-first-out (LIFO) method of inventory valuation which is still in use in US but
not widely accepted elsewhere. It may give too much freedom to companies to
exploit different treatments, which may result in a lack of consistency. It may
become difficult for the practitioners to apply those standards. It should be noted
that when the FIA is adopting IASs, it is setting standards for its members to follow.
It is no use to set standards that the members cannot understand. The standards
should be good standards, which are helpful to our members. In Fiji apart from the
big five accounting firms, others are basically small or sole practitioners. They do not
have a link overseas like the big five accounting firms. They do not have the power
bases, discussion groups, committees, IASC consultancy process, and so on. For the
larger accounting firms, coming to terms with the changes and developments in
accounting standards may not be a problem, but for other members who do not have
access to research and training resources, it can become difficult unless the FIA has a
program to disseminate the information and provide training.
In order to ease the problems associated with the IASs the accounting practitioners
had proposed the following ways to overcome these difficulties:
i)
ii)
iii)

FIA should provide adequate training.

FIA should give a grace period, that is, implement some of the IASs at
first and not all at once.
FIA should provide explanatory notes to the IASs.

The empirical study of the FIAs harmonization process has revealed that there are
winners and losers in this process. Certainly, there are many advantages which will
flow from this process, but it also has a cost factor attached to it. How well the
institute is able to monitor the process, will determine the success of the
harmonization process.
5.11

A CRITICAL ANALYSIS

Having discussed the responses of the business community and the impact on them of
the harmonization process. Let us critically consider the usefulness of the IASs to the
developing nations, such as Fiji.
To enable us to do that we need to reveal the
phases in the developments of the IASs.

The IASC standard setting process could be divided into four major phases:
Establish

(generally accepted accounting principles

- Conceptual Framework)

19

Rationalise

(reduce inconsistency and duplication formulation of IASs)

Harmonize

(to have similar/same standards or that do not contradict comparability/improvements project, completed in 1993)

Legitimize

(new standards IASC/IOSCO project, completed in 2000)

For the purpose of this study, the phase of harmonization and legitimization seems to
be relevant. These two phases seems to have come from the powerful sectors of the
economy, the large-scale companies and investors. The MNCs (and the investors)
would gain from having a uniform set of financial statements which is based on
similar systems throughout the world, which will be easier to compare, consolidate
and so on.
Consequently in 1995, the IASC undertook a core standards work program, which
was originally scheduled to be completed by June of 1999. The IASCs and IOSCO
project was to establish a suite of IASs that could generate generally acceptable
accounting standards on a global scale. The role of the IOSCO was to use its
influence on the regulators of the individual securities exchanges to require the
companies seeking/having a cross border listing to produce their financial reports in
accordance with IASs (Harding, 1999).
To meet the set target, and complete the core standards project, the IASC increased
the number of yearly Board meetings from its normal schedule of three meetings to
four in 1996 and 1997 and five in 1998. The IASC was rushing, as it was aware that
if the completion of the core standards project would be delayed beyond 1999 and
into the next century may cause major multinational companies to abandon hopes of
using IASs for cross-border listing and trading (Ruder, 1999). It reached the
agreement with the IOSCO on the last major area of core standards in late 1998
Financial Instruments. However, it was not until middle of 2000, when IOSCO
endorsed the IASs. With this significant announcement also came an encouraging
statement from the European Commission, - the decision to require listed companies
throughout the European union to use the IASs from 2005.
This shows that the international accounting profession is not interested whether this
is what the society in general wants, - as consideration is only given to what the
financial community wants. The profession is driven by a powerful segment of the
society with lack of consideration being given to the other sectors of the economy.
Whether the wider community will get the information, their desire is not been
considered. Even if the consideration is there, the issues have yet to be addressed.
Thus the overall process of standard setting by IASC is a form of accounting
colonialism, which is being driven by the two larger nations US and UK (Chandler,
1992). The harmonization process thus becomes a means of legitimizing worldwide

20

certain values, accounting principles, and practices which may or may not be
appropriate to other countries.
To help the developing nations, the IASC had put in place Developing Countries
Project in the late 1980s. The objective being, firstly to provide resources to these
nations, such as training programmes and secondly to develop standards in the areas
of importance to countries such as standards for the primary industries, such as
mining, sugar and plantations. But this project had just disappeared, as nothing
significant was done to support the developing nations. However, recently the IASC
had again stressed its concern to support these nations. But this time was a slight
change in attitude, as the emphasis is on the East European countries, to come up with
standards such as reporting on dual currency. Again the drive is towards where the
money is, as these areas are seen as considerable market for the investors.
The IASC is a private sector body, as such it does not have a clear mandate from
national governments or professional accountancy bodies to produce compulsory
accounting standards. Even though the use of IASs as a basis or guide for the setting
of national standards in some developing countries do provide the IASC with a de
facto mandate, nowhere does it have a legal or de jure mandate. This limitation of
insufficient authority is being eased to some extent by the collaboration between the
IASC and other regulatory bodies such as IOSCO. More moral and persuasive
influence is gained from such collaboration efforts, even though there is an absence of
legislative power (Carlson, 1997).
The influential role of the major countries (especially UK and US) is certainly clear in
the pronouncements of both the IFAC and IASC. Therefore developing countries
must create their own locally relevant accounting systems before the adverse U.S. and
U.K. type systems reached an irreversible state (Briston, 1978). Samuels and Oliga
(1982) argued that there is evidence of severe imbalance of power between
developing countries and such dominance, in the process of negotiating for
harmonization. They further argued that:
International standard setting process thus becomes a means of legitimating
worldwide certain values, accounting principles, and practices which may or
may not be appropriate to other countries or societies. (p. 472).
The analyses show that the pronouncements of the IASC are driven by the major
forces such as the IOSCO. It is further revealed that there is a lack of emphasis given
to the developing nations. Thus the question we need to ask is- is it appropriate to
adopt IASs in Fiji? Keeping in mind that in Fiji the developments in the capital
market is at an embryonic stage.
Let us assume that the IASs are not the relevant standards that FIA should adopt.
Then what are the other viable options available? A better way of developing
standards other then adopting the IASs could be where a few (or all) the developing
nations can get together and develop standards that are more relevant to them, which
is needed at this stage of development. For example, many developing nations are
dependent, to a great extent, on primary industry thus the appropriate standard at this
point in time is standards for the primary industries, such as how to account for
sugarcane/cocoa/pine/hardwood plantations. The individual countries can take up the

21

task of developing one-two standards and then swap them with the others. In this way
it will be cost effective, and on the whole most of the developing nations have the
expertise and resources to develop at least one standard. A classic example is that of
PNG, where the PNG Association of Accountants (PNGAA) has issued a standard on
Accounting for Plantations. Thus, this shows that other developing nations can also
take up the task of issuing standards, which are relevant to their economy.
Furthermore, it should be noted that the concept of harmonization, and
regionalization are not mutually exclusive. The two could be achieved together, as
for example the developing nations can adopt the relevant IASs and then where there
is no IAS to suit their needs they formulate their own standards. This could be done
by nations getting together who have similar needs. A good example of this is where
Fiji has adopted the standard on VAT from New Zealand, as there is no standard on
VAT being issued by the IASC.
The paper has been able to outline the reasons for adopting the IASs and has also
analyzed the views presented by the interviewees. On the whole it was noted that the
adoption of IASs will be beneficial to our economy, however, reservations were made
on how to keep in pace with the changes that will take place in the IASs overtime.
Further to that concerns were also raised on the usefulness of the IASs to our
economy.

6.0

LIMITATIONS OF THE PAPER

This study has taken a somewhat narrow perspective, to analyze the reasons for
adopting the IASs. The views of the accounting practitioners and the Standards
Committee representatives were only assessed. However, a broader perspective could
be utilized, whereby the views of the other regulatory bodies such as SSE could also
be taken. Furthermore, at this point in time the harmonization process is in its
development stages, where the FIA is trying to adopt the relevant IASs. Thus the real
benefits that will flow with the adoption of the IAS will be known only after they are
fully enforced.

7.0

CONCLUSION

With the adoption of the IASs the institute is able to deliver to the economy a
conducive environment to attract foreign investments. The institute in this way is
playing its part, and contributing to the development of the economy. However, it is
not yet known if this has come at the expense of local investors and firms, - only time
will tell whether this move has been able to make significant change in reporting
environment and whether the accountability in Fiji is indeed recognized to an
international benchmark. The institute has already made a statement to adopt the
IASs. Thus it is pointless to argue now whether it is something that should have been
done. The more relevant issue to consider is how the institute will be able to keep up
with the changes that are going to be made to the IASs overtime. It is evident now
that the rate of change is significant, as numerous standards are introduced and
numerous existing standards are renewed every year. It is a major exercise to try and
keep in line with the developments internationally. Obviously the FIA has to change
their standards accordingly as they have already made a commitment to do so.

22

Therefore, it is suggested that FIA should consider ways in which this exercise could
be carried with limited resources, which the institute has on hand. A way of doing this
could be to ask for grants from the IASC or the major accounting firms.
To sum up, the courage of the institute to take up the huge task of complying with the
IASs need to be commended. However, as it was earlier revealed, the institution
should put in place a proposed plan as to how it is intending to tackle the problem of
keeping Fiji up-to-date with the IASs in the years to come. Furthermore, it should be
considerate of the fact that the members of the standards committee are on a part-time
basis. Thus the institute needs to make sure that the in-coming members are able to
continue with the commitment made by the current members.

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