The development of accounting practices [625089]

The development of accounting practices
and the adoption of IFRS in selected
MENA countries

Pran Boolaky, Kamil Omoteso, Masud Ibrahim , Ismail
Adelopo

Accepted manuscript PDF deposited in Coventry University ’s Repository

Original citation: Boolaky, Pran Krishansing, et al. "The development of accounting
practices and the adoption of IFRS in selected MENA countries." Journal of Accounting in
Emerging Economies 8.3 (2018): 327- 351.

https://doi.org/10.1108/JAEE -07-2015 -0052

ISSN: 2042- 1168

Publisher: Emerald

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1 The a ccounting development and IFRS adoption in selected MENA countries

1.0 Introduction
This paper examine s accounting development in four Middle East and North Africa ( MENA )
countries with a view to explaining the need for adoption and sustenance of IFRS . Although a
strand of the previous literature argued that accounting practices in a country are affected by
its level of economic development and the dynamics of its accounting needs (Radebaugh,
1975; Nobes, 1998, 2008), another strand contend ed that accounting systems and practices
among countries differ because of differences in their legal systems, past history, colonial
influences, economic systems and culture (D’Arcy, 2001, Boolaky, 2004; Ding et al., 2005;
Cieslewicz, 2014). As such, it has been widely argued that countries with similar cultural
background and colonial influences are more likely to use similar accounting systems and
standards (Nobes, 1983; Gra y, 1988; Cieslewicz, 2014 ). However, this argument is gradually
losing ground because emerging evidence suggests that, countries with different colonial
influences and cultural backgrounds are harmonising their accounting systems and standards
with the international financial reporting standards ( IFRS ) (see Liu et al. , 2011 ).
The current wave of globalisation favour s the adoption of IFRS in most countries. Evidence
from the literature suggests that IFRS adoption improve s market developments and
constitutes a key strateg y used in stimulat ing investments and economic growth in developing
economies (Perera and Baydoun, 2007 ; Hassan, 2008; Ramanna and Sletten, 2009; Assenso –
Okofo et al., 2011; Ben Othman and Kossentini, 2015 ). Furthermore , code -law countries an d
Islamic jurisdictions such as Jordan, Kazakhstan, Egypt and UAE (United Arab Emirate) are
moving toward adoption or adaptation of IFRS (Zeghal and Mhedhbi, 2006; Boolaky, 2007 ;
Irving, 2008; Nobes, 2008; and Al-Akra et al., 2009). Hence, it is imp ortant to understand the
pattern of accounting environment for these countries particularly accounting development,
IFRS adoption and sustenance given the regional or country-specific differences .
Despite th e upward trend in IFRS adoption across different region s of the world, the benefits
of a uniform set of accounting standards remain debatable. For example, in the context of
Central and Eastern European (CEE) countries, Chau et al. (2013) conclude d that IFRS
adoption enhances quality and stability of the finan cial markets. In the same direction, the
introduction o f mandatory adoption of IFRS is said to enhance comparability (De Fond et al.,
2011; Brochet et al., 2013). However, Sunder (2011) argued that a mandatory IFRS regime

2 will prevent the opportunity to make comparison of alternative practices and potential
learning arising there from . Also , Fifield et al.’s (2011: 26) finding that “the impact of
individual IFRS varies in importance from one country to another” has led to a call for a
multi -country perspective for future IFRS studies – a call being heeded by our study.
Although some pr evious studies have highlighted the relevance of IFRS to financial markets
and economies (see Melgarejo et al., 2016; Ben Othman and Kossentini ; and Mardini et al.,
2012 ), there has been little evidence in support of accounting development towards IFRS
adoption and implementation in a summarised quantitative format for understanding of
various regions .
As such, b ased on the mapping of the politi cal-economic development of four MENA
countries and the impact the y have on their accounting practices, this study adopts some
unique accounting development indices (as opposed to the use of classical economic indices
as prevalent in the current body of li terature) . Within the context of institutional theory , the
study assess es the four MENA countries’ levels of accounting development and their
readiness to adopt IFRS. The study is important because MENA countries continue to
develop their potentials at a time when majority of W estern countries – most of whom
constitute the principal trading partners of the MENA countries – decided to harmonise their
accounting practices by adopti ng IFRS.
Furthermore , MENA countries continue to attract a large number of in vestors across the globe
due to the strategic position they occupy in the world economic equilibrium (Yu and Hassan,
2008 ). Therefore , reporting their level of accounting development and adoption of IFRS will be
an interesting topic to investors, businessm en, auditors, regulators, trading partners and
academic s. Moreover, MENA countries operate under unique economic, political, legal and
cultural environments underpinned by different levels of Islamic principles . Besides , Islamic
culture and religion are al so reflected within their education al and financial reporting systems
(Haniffa and Hudaib, 2002). Hence, religious ethos and norms play a major role in influencing
managerial decision -making at institutional levels including those relating to accounting and
financial reporting.
Considering that previous effort to understand IFRS adoption in developing economies
mainly focused on country -level economic determinants (see Castro-Gonzalez and Rios –
Figueroa, 2014 ), qualitative analysis of historical development of certain events (see El –
Firjani et al., 2014) and environmental factors specific to countries ( Nobes and Parker, 2004;

3 Gray and Morris, 2007; Al-Akra et al., 2009) , we argue that certain accounting -based indices
can explain country’s accounting environment in terms of need1 for the adoption and
sustenance of IFRS. In addition , none of the previous studies on accounting development
focus ed on more than one MENA country using a comparative approach to understand
differences in their accounting practices. Although in a pilot study, Phelps (2011) attempted
to develop accounting development index (ADI) as a tool to measure a country ’s accounting
performance a nd achievement, the study suffers from the main limitation on relying on
survey data from self-assessed questionnaire that may be highly biased. Add ed to this , the
study did not cover any of the countries used in our sample and the indices developed in the
study were not intended to explain the need for IFRS .
In this regard, our study propose s additional useful determinants with much focus on
accounting -related indices to answer the following research question s, namely: (i) is there a
need for IFRS adoption among the selected MENA countries? (ii) are the selected MENA
countries sufficiently developed in the accounting sense to sustain IFRS? It analyses the
similarities and differences in the pace and level of the development of financial reporting in
these countries and places the influence these developments may have on other countries (in
the region) within the context of institutional isomorphism as most of the MENA countries
attempt to seek legitimacy and success in the realm of financial reportin g in a bid to woo
foreign investors.
Consequently, two objectives are set : to establish key accounting development indicators for
assessing the need of IFRS in the MENA countries , and to examine whether the MENA
countries are ready for/sufficiently develo ped (in the accounting sense ) to sustain IFRS
requirements . Therefore, our study has potential benefit s to stakeholders such as market
participants, professional bodies, regulators and academics by decomposing the country -level
development to institutional -level and providing some easy -to-compute accounting
development indices for achieving the research objectives . The rest of the paper provide s a
review of related studies including a brief background of the selected four MENA countries ,
the link between re gulatory framework, institutional culture and IFRS adoption and a review
of the theoretical framework for the study . Section 3 discusses the data and research

1 Need for IFRS adoption is defined as the desire for a country to adopt IFRS vis -à-vis the institutional pressures
for change from within or outside the country (Boolaky, 2010). This need is justified based on certain evidence
relating to economic, financial, political and sometimes social reasons that collectively define the accounting
environment (see Al-Akra et al., 2009).

4 methodology adopted in th e study . Analysis and discussion s are presented in section s 4 and 5,
while conclusion an d implications of the study are discussed in section 6 .
2.0. Literature review
2.1. A brief background to the selected four MENA countries
This study focuses on four economies in the MENA region , namely: Egypt, J ordan, Libya
and UAE . The focus on these countries is mainly because of the size of their economies and
the availability of relevant data. Additionally, data is limited to periods between 2003 and
2015 as this was the countries’ most vibrant economic moments, although it captur es the
onset of the Arab Spring which would have affected the economies and their datasets,
particularly in Egypt and Libya.
Arguably, MENA countries share a common heritage : including religious belief, language
and geography , which underpin their social, cultural and economic lives (see Yu and Hassan,
2008) . Nevertheless, the countries differ slightly in terms of colonisation . This impacts on
their subsequent economic development and accounting systems and practices (Nobes, 1998;
Guerreiro et al., 2008; Al -Akra et al., 2009). Although Egypt and Jordan had experienced
foreign domination at different stages of their political development, Britain remained their
last colonial ruler and gained independence in 1936 and 1946 respectively. Similarly, Libya
was at different times under the domination of different powers . However, it gained
independence from Italy (its last colonial ruler) in 1951. UAE also experienced foreign
domination until 1971 when it gained independence from Britain.
Although the countries in MENA region possess varying degrees of natural resources,
evidence suggests a stable annual growth rate in major economic indices (such as the annual
GDP growth, GNI per capita and merchandise trade) in these countries with UAE showing
the highest (see Ta ble 2 of the Appendix). This may be due to the countr ies’ abundant oil
wealth coupled with aggressive economic policies (for some members) that continue to
attract a high -level foreign direct investment (FDI) mainly from western countries (see Sbia
et al., 2014 ). The major trading partners of the selected MENA countries include some key
economies from Europe, America and Asia. For example, most of the MENA countries
engage in trade with the UK, US, Italy, Germany, China, India and France. Many of these
trading partners now use IFRS s in the preparation and presentations of their financial
statements. For example, listed companies in Europe have started using IFRS for

5 consolidated accounts since 2005 while China has already adapted IFRS . India plans to adopt
IFRS fully by 2017 (Srivats, 2013).
The principal reasons for transiting to IFRS are : (i) to align with the global trend and (ii) to
have a similar reporting standard with their trading partners. Transiting to IFRS is therefore
important for the MENA cou ntries in order to demonstrate commitments to their trading
partners towards improved and transparent reporting standards fostered by adopting/adapting
IFRS. In this context, we argue that the accounting systems and standards used by the trading
partners of these four MENA countries would influence their accounting development and
move towards IFRS. A list of the trading partners and their accounting standards is presented
in appendix 1 of World fact book (2008).
Reflecting about MENA region , vis-à-vis IFR S adoption, Mwaura and Nyaboga (2009)
highlighted certain obstacles that hindered total IFRS integration . These are associated with
unique features of the region such as diversity and individuality in comparison to the rest of
the world. These differences are often reflected in the challenges around “culture, legal
systems and tax” that must be addressed consistent with the practices of the companies
(Mwaura and Nyaboga, 2009:37). In this connection, Haidar ( 2008 ) advocated a higher level
of inclusion and representation of the MENA countries on the International Accounting
Standards Board (IASB) , as doing so, will e nsure that future accounting standards ( i.e. IFRS)
and amendments to current ones are useful to the region. Based on country -level panel data
from 14 MENA countries, Klibi and Kossentini (2014) assessed the effects of IFRS adoption
on MENA's emerging stock -markets and found that IFRS adoption has had positive and
significant impact on the region’s stock -market development. Similarly, Apergis (2015:182)
concluded that the adoption of IFRS enhance d financial reporting quality although
differences were observe d across MENA countries, perhaps because of “institutional,
economic and regulatory environments”.
Many reforms have taken place within MENA countries that seemed to have impacted on the
regulatory framework and development of IFRS (see Table 3 of the Appe ndix for summary).
However, there were three main economic reforms in Egypt, namely: (i) l iberalisation of
national economy in 1970, (ii) comprehensive economic r eform and IAS in 1991 and (iii)
macro-economic and structural reform and modernisation in 2004 that have collectively
explained a shift from state -ownership to more private -equity based accounting environment.
For example, between 2001 and 2007, private investment rose by 13% and FDI by nearly 9%

6 (UNCTAD Report, 2006 and 2008 ). The government liberalised financial services, which
means foreign investors were free to trade on the Cairo Stock Exchange. Although Jordan has
faced episode of unrest that seemingly affected development of its financial institutions .
Reforms in the country were consist ent with Egypt except for its large dependence on
external aid as a result of non -sufficient revenue to sustain the economy during the early
years (Marashdeh, 1996). By agreeing to structural -adjustment program (SAP) with IMF,
open -market oriented economy created a number of opportunities and market growth that
produced some important and strong institutions such as Jordan Securities Commission, the
Amman Stock Exchange and Securities Deposit Commission.
Unlike Egypt and Jordan, Libya’s political and e conomic history has been dominated by
uncertainty and ‘fantasy’ of self -styled mega -socialism of the ‘Jamahiriya’. Economic
reforms have followed this ideological route that seeks to distance the country as much as
possible from the West. It is therefore n ot surprising that Libya did not have a stock -exchange
until late 2006. However, the country has one of the largest deposits of oil and natural
resources in Africa. This makes it s economy stronger, although it faced major isolation from
the West. The few f irms with concession agreements, mainly UK and US, influenced the
reporting and auditing practices in the country which made some links to the Western
practices. In 1970, Libya started a strenuous nationalisation exercise (Ahmad and Gao, 2004;
Ritchie and Khorwatt, 2007). In 2002, the Libyan Accountants and Auditors Association
(LAAA ) had 1369 members (Ahmad and Gao, 2004), 500 of who m were registered auditors
(Ritchie and Khorwatt, 2007). In 2006, the Libyan stock -exchange was established with
substantial and ongoing supports from both the UK and the US.
Similarly, UAE is another resource -rich nation that started its commercialisation agenda in
1969. However, its economy was well-diversified economy with non -oil sector’s contribution
to GDP rising from 35.4 % in 1973 to 70% in 2003 (Kawach, 2003). A liberalised economic
system ma de it attractive to multinational organisation s. As in any country, t he Central Bank
regulates financial and banking activities . The Ministry of Economy and Planning are
responsible for setting financial reporting requirements for companies in the country. The
Commercial Companies Law (UAE Federal Law No. 8 of 1984) provides the legal
framework for companies in the country . The Emirates Securities and Commodities Market
Authority reg ulate the activities of participants in the capital market . One of the requirements
for listing on the Dubai International Foreign Exchange is compliance with International

7 Financial Reporting Standards (Hussain et al., 2002). Additionally, the presence o f a
professional accounting association; the Accou ntants and Auditors Association created the
need for compliance with IFRS .
2.2. Stock -exchange, regulatory framework , institutional cultures and IFRS adoption
Stock -exchange , as an institution, is important in transforming accounting practices. This is
because , the listing rules for companies pave way in raising a stronger capital . This helps
towards a successful embracement of subsequent regulations. Listing rules in most MENA
stock -exchanges c ontain requirements of accounting and auditing standards as well as
disclosure rules2 (OECD , 2012). The rationale for setting rules ( either on mandatory or
voluntary basis ) for market institutions is very clear in improving the behavioural practices of
the player institutions. Using firm -year and country -month analyses of 26 countries , Daske et
al. (2008) explored the economic consequences of mandatory IFRS on stock -market liquidity
and cost of capital during the initial year of adoption. They found that , introduction of IFRS
had led to increased market liquidity, decreased firms’ cost of capital and increased equity
valuation particularly in countries with high level of transparency and strong legal
enforcement mechanisms. In addition, the study noted that the capital market ’s effects were
more apparent in firms that voluntarily adopted IFRS before they became mandatory.
Similarly, Cascino and Gassen (2015) investigated impact of mandatory IFRS adoption on
the comparability of financial accounting informat ion, based on firm -level data obtained from
Germany and Italy . They concluded that the impact was marginal , and the region al and
country -level incentives were found to drive compliance . While they established that the
incentives enhance d comparability , they noted that firms from countries with tighter reporting
enforcement , seemed to have experience d higher comparability effects. Other studies have
focused on culture and prevailing economic factors relative to the adoption and
implementation of IFRS. For example, Cardona, Castro -Gonzalez and Rios -Figueroa (2014)
examined such effects of culture and a country’s prevailing economic factors on its IFRS
implementation decision based on a sample of 69 countries . The concluded that, useful
associations existed between the variables . Additionally, w ithin the frame of Hoftede’s
(1980) cultural dimensions and some world economic forum ( WEF )’s economic indices, they
highlighted that “countries with better protection of minority shareholders' interests and a

2 These include rules relating to material events, risk management related party transactions and insider trading .

8 larger f oreign market size are less inclined to implement IFRS” and that “highly
individualistic countries will have lower implementation scores”.
Moreover , Borker (2012) adopted Hoftede’s (1980) cultural dimensions and Gray’s (1988)
derived accounting values ( i.e. four hypotheses) to assess the culturally derived accounting
orientations of the BRIC countries. The results indicate d that, in relation to accounting
disclosures, Russia and Brazil were more similar when compared to India and China. “Russia
and Brazil e xhibit cultural values associated with the development of accounting systems
characterized by statutory control, uniformity, conservatism, and secrecy” as opposed to
“values proposed to represent the profile for IFRS, i.e., professionalism, flexibility, op timism
and transparency”. These values were, however, exhibited in both India and China.
Therefore , when compared to all the G7 countries (with the exception of France), all the four
BRIC countries exhibit ed higher power distance indices.
Furthermore, Lasm in (2012) examined how societal values in 40 developing countries could
impact on their attitude toward globalisation of IFRS , based on combination of Dimaggio and
Powell’s (1983) institutional isomorphism perspective with Gernon and Wallace’s (1985)
accounting ecology framework. The study found that , national culture, (rather than economic
pressures ) had stronger impacts on deve loping countries` IFRS adoption decision. It also
found that countries with high centralization of power, conservatism, and self -orientation
may have reduced interest in IFRS adoption. The study concluded that the national
accounting ecology of developing countries was not in equilibrium . It was established that
countries with higher level of foreign aid and education were found to be more likely to adopt
IFRS. Nevertheless, countries with higher FDI inflows and GDP growth were found to be
less interested i n adopting IFRS.
2.3. Theoretical framework: institutional theory
Institutional theory considers the institution as the pivot upon which the social structure
rotates. The theory emphasises how social interactions, order and norms among social actors
and groups are evolved, presented, disseminated and changed over times and spaces (Scott,
2004). According to Scott (2001: 48), institutional norms and practices form the bedrock of
social interactions . As such, they are durable, transferable and capable of ha ving both
localised as well as international connotations. Social actors such as individuals,
organisations and governments operate within a web of economic, cultural, legal and political

9 institutions ; all of which directly or indirectly impact on their be haviours (Fligstein and
Freeland, 1995). The theory stresses the need for organisations to conform to rules, norms
and social values of their institutional environments for them to survive and achieve
legitimacy (Meyer and Rowan, 1977). Additionally, it sh ows how individual or agencies may
seek to construct legitimacy by simply attuning to expectations of those key players (whether
individual or organisation) within the environment they operate .
Furthermore, it is widely argued that organisations that shar e similar institutional
environments are likely to experience identical institutional pressures perhaps because of the
competitiveness globalisation might have brought . These organisations therefore “tend to be
isomorphic in their structures and behaviours to obtain legitimac y” (Gonzalez and Hassall,
2009: 15). In addition, Scott (2001) identified three bases for such legitimacy: regulatory
(which emphasises conformity to rules); normative (which stresses moral obligations); and
cultural -cognitive (which pla ces importance on taken -for-granted understandings).
Another dimension to institutional theory is institutional isomorphism. This can be described
as a process that compels one organisation to be like other organisations facing identical
environmental cond itions. DiMaggio and Powell (1983) recognised three elements to
institutional isomorphism. These include coercive (when organisations depend on external
environments for resources to survive); mimetic (when organisations try to copy similar
organisations t hat they perceive more legitimate or successful); and normative (which are
associated with professionalisation).
Many studies have applied institutional theory in explaining certain social phenomena and
adoption and implementation of IASs in particular (s ee Albu et al., 2011) . Such phenomena
include: how differences in economic institutions lead to divergent accounting practices
among countries (Muller 1967, Nobes, 1998); how differences in legal institutions account
for differences in governance system, m arket development and economic growth (La Porta et
al., 1999); how changes in higher education systems impact on accounting education and
educators (Gonzalez and Hassall, 2009). In line with Muller’s (1967) and Nobes’s (1998),
this study draws on instituti onal theory to analyse the perennial institutional isomorphism that
underpin the development of accounting as well as the adoption of IFRS in the four selected
economies of MENA .

10 Specifically, the study uses the theory to understand how the activities of p rofessional
accounting bodies, accounting regulators, government agencies, Arab cultures and social
values constitute institutional environments that generate pressures on the countries’
accounting development. The elements of institutional isomorphism hel p to explain the
MENA countries’ plight in seeking legitimacy and success through the level and pace of
accounting developments in their Western trading partners as well as the activities of
international accounting bodies.
In the current literature, econo mic indicators ( such as FDI, GDP) and financial market data
(such as market capitalisation) have been used to explain IFRS j ourney in different countries.
However, most of the studies were unable to adequately explai n why countries that share
common politi cal, economic, religious institutions and union (such as MENA countries) can
be at different stages of IFRS adoption. This is an important gap that this study aims to fill by
developing accounting development indices to compare the countries’ performance i n IFRS
adoption and implementation. Institutional theory is found to be a suitable theoretical
framework to help explain the accounting development of a region that has rigid institutions
based on their strong religious beliefs. In the next section, strate gies used in designing the
research tools are explained.
3.0. Research methodology
Some of the past studies used classical economic indices as indicators to determine
accounting development even though these indices are not directly related to accounting
development and IFRS adoption (see Cooke and Wallace, 1990; Boolaky, 2012). For
exam ple, Gernon et al. (1987) contended that there is a positive relationship between
education level and the competence of accountants. Similarly, Larson (1993) used the general
literacy rate, in the absence of more relevant data, as an indicator of a country ’s ability to deal
with complex accounting, and gross domestic product as a measure of accounting
development in a country. This has been criticised in the literature on the grounds that
accounting literacy is a more specific indicator of a country’s abili ty to deal with complex
accounting systems (see Adhikari and Tondkar, 1992; Samuels, 1993).
However, Zeghal and Mhedbhi (2006) used Larson’s argument to support their analyses on
accounting development and IFRS adoption in 32 countries . They suggest ed that the
existence of a capital market was an important factor that influence d adoption of IFRS in a

11 country (a finding that supported Abdelsalam and Weetman (2003). Unlike previous studies,
however, this paper provides appropriate evidence to substantiate th e level of accounting
development and assess whether the sample MENA countries are developed enough to use
IFRS. Our study contends that there are more specific indices, other than the classical
economic indices, that could provide evidence on the accounti ng development stage of a
country and its readiness to use IFRS. It uses ADI listed in Table 1 to achieve the research
objectives.
3.1 Indices for accounting development
Table 1: List of accounting development indices (ADI)
Indices
1 Number of listed companies per million of population
2 Growth in stock -exchange using number of listed companies
3 Growth in market capitalisation
4 Market capitalisation per million of populations
5 Market capitalisation/GDP
6 Number of accountants per million of population
7 Number of accountants per listed companies
8 Financing through bank equity*
9 Innovation and sophistication index*
Sources: *World Economic Forum data to 2015 .
3.2 Sample, data collection and analysis strategies
MENA region constitutes approximately 22 countries. This study focuses on four MENA
countries that were purposively selected for certain reasons. Firstly, they have a similar
religious background though Egypt has a remarkable record of the Pharaonic history.
However, our study has not investigated the link between Pharaonism and accounting.
Secondly, t he World Bank had estimate d surge in the flow of capital globally in the 1990s,
however, MENA’s region accounted for only 2% and with little progress thereafter (Yu and
Hassan, 2008). Subsequent UNCTAD reports on the observance of standards and codes
(UNCTAD Report 2002, 2004 and 2 008) indicated that, some countries rapidly progressed in
compliance with standards (e.g. Jordan) and codes while others such as Libya progressed
slowly. Within the sample, we have considered both types of countries with a view to
establishing reasons for such differences. Thirdly, UAE is rich in oil and gas reserv es as

12 Libya. It is interesting to understand why should both nations from same economic region
would have different accounting development.
In this regard, relevant secondary data were collected from credible sources and analysed
based on ranking and comparison of such indices across countries . While World Bank
database and stock -exchanges of each of the four countries were used to access data related to
(i) number of listed companies, (ii) market capitalisation, (iii) gross domestic product, the
association of accountants’ websites were considered in obtain ing data on the number of
accountants. Data on population size was collected from World Bank Indicators database
(2010). Data on index 8 (finan cing through bank equity) and 9 (innovation and sophistication
index) were collected from the WEF database, particularly Global Competitiveness Report s
(from 2003 to 2015 ). To assess the status of accounting development in the selected countries
for compar ison, the UNCTAD Reports (2002, 2004 and 2008) were also used. Findings in
these reports served as evidence to support our discussion of accounting development in the
MENA countries.
To analyse our data, unique indices specific to accounting development as opposed to
classical economic development indicators were developed . A country may be highly
developed economically but not necessarily developed in accounting and vice versa (Nobes,
1998; Boolaky, 2004). For example, Boolaky (2004) used a set of accounting indicators on
28 African countries and inferred that some countries that were classified as less developed in
economic terms are, however, classified as developed in accoun ting.
Although effort is made to discuss rationale for the measurement strategies of each index, our
study mainly adopts a descripti ve and comparative analysis of the data in measuring the
indices . While we aim to analyse country -specific accounting devel opment indices based on
the available data, appropriate inter -country comparison is performed to justify the current
state of accounting development within states/countries.
3.3 Index definition and measurement strategies (accounting development indices)
Index 1: Number of listed companies per million of population
Nobes (1998) pointed out an increased need for external financial reporting if a country has a
large number of listed companies relative to its size. Within the context of institutional
framewor k, pressure from the growing number of companies seeking to be listed on countries
stock -exchange will likely increase the need for external reporting. This index is more robust

13 because it considers the listed companies relative to the increasing number of population
(another institutional control that may exert pressure on the countries accounting need).
However, less listed company in a country translates that external financial reporting to the
stakeholders is less important. Thus, the number of listed companies in a country affects its
accounting systems and standards need. Boolaky (2004) used this inde x to determine whether
a sample of 28 African countries could be classified as developed countries ready for external
reporting and IFRS. The study found challenged classification of some developing countries
(in economics term) under the classical economi c index because they could have qualified as
developed countries (in accounting term) when accounting index is used. For example, a
country may have a low GDP and, yet it may have a vibrant stock -exchange and a large
number of listed companies.
Index 2: Gr owth in stock -exchange using number of listed companies
The growth in the number of listed companies over time also indicates the need for external
reporting. Furthermore, the rise in the number of listed companies also indicates the depth of
the market t o support new capital issues from the public rather than loans from the banks.
Globalisation has increased the incidence of cross border listing, and thus where new entrants
on the market have a higher reporting need, this may increase the incentive to use IFRS
(Boolaky, 2004). This represents another institutional pressure that may trigger change in the
country’s accounting development.
Index 3: Growth in market capitalisation
Market capitalisation indicates the participation of private investment in the e conomy of a
country. If this indicator rises, it implies that there are more businesses in the country (Nobes,
1998; Boolaky, 2004). This is signalled by the growth rate in the market capitalisation over
time. When the number of private businesses increase s in any country, the supply of
information becomes critical and therefore an increased need for a more transparent
accounting systems and practices, hence IFRS adoption (Judge et al ., 2010). Increase in the
market capitalisation can be translated as a goo d indication of institutional impact on the
investors. This may be awareness following a government policy or from the educational
institutions within the state. Hence, we measured this variable using percentage change in the
total stock traded over the pe riod considered in the sample and based on Table 2 of the
appendix.

14 Index 4: Market capitalisation per million of population
This index is computed by dividing market capitalisation by million of population. It explains
the participation of the community i n raising capital for private sector in the country. It also
gives an indication of a country’s business culture. Countries with high index of market
capitalisation per million of population require more transparent reporting than one with a
low index. Bes ides, lack of transparency could have catastrophic impact on a country’s
economic growth. When companies are less transparent, users of financial statements may
not get sufficient information for decision -making purposes.
Index 5: Market capitalisation as a percentage of GDP
Compared to index 3, market capitalisation as a percentage to GDP expresses market
capitalisation as a ratio of total production of goods and services in a country. It indicates the
contribution of private investment activities to the total output of goods and services in an
economy. As a volume indicator, increase in this index suggests increase in private
investment activities which would necessitate rise in commercial accounting and reporting
needs within the economy. Therefore, it i s a good indication of involvement of private sector
in the country’s economic development and potentially drive for more corporations to
improve financial reporting. Hence, this may exert institutional pressure for a country to opt
for IFRS adoption given its capital market need to move the economy forward.
Index 6: Number of accountants per million of population
The level of accounting education is another indicator that can be used to determine
accounting development of a country (Boolaky, 2012) an d use of IFRS (Judge et al, 2010).
This is measured by deflating the number of qualified accountants by the population size in
the country. It shows the accountancy professional capacity in addition to the growing size of
the institutions that require acco unting services. The lower this index is, the less the country’s
capacity to sustain sophisticated accounting system and practices.
Index 7: Number of accountants per listed compan ies
This index is relevant and more specific to listed companies because it shows a country’s
capacity to meet the accounting and reporting needs of the listed companies in a country. The
number of accountants is scaled by the number of listed companies because all listed
companies require their accounts prepared in accordance wit h relevant regulatory framework.
A low score on this index also indicates that the country will have to train more accountants

15 to sustain the accounting needs of the economy while a high score in this index may also
impact on the readiness of a country to use IFRS.
Index 8: Financing through bank equity
Drawing from Nobes (1998), if a country’s financing system is dominated by bank financing
rather than capital market financing, the need for external reporting diminishes. This is
because the number of users involved in equity financing is small and reporting could be
mainly to meet their needs rather than the needs for tax reporting or filing of accounts with
Registrar of companies. In this regard, equity financing prompt external reporting and
adoption of I FRS to attract investments depending on government investment strategies.
Index 9: Innovation and sophistication index
This index indicates a country’s level of innovation and sophistication could impact on its
move towards adapting or adopting sophisticat ed systems and practices. Developing
countries may have a low score index because investment in innovation may not be their
priorities. Some developing countries are still focusing on poverty alleviation and most of the
economic resources are channelled in that direction. However, a country with a high score
index is an indication that it will have an equivalent accounting system and standard to
sustain the innovations.
Author s’ compilation from review of related literature (2015)
Figure 1 present s a summary of the emerged framework for understanding IFRS
adoption/adaption in MENA countries based on review of previous studies and our research
strategy . Within the boundary of in stitutional theory, two main objectives for constructing
ADI (in this study) can be achieved using the recommended indices in the light of regulatory
framework, economic/political/cultural development in MENA region. Institutional theory Accounting development indices (ADI) Need for IFRS in selected MENA
countries Readiness of selected MENA countries
to sustain IFRS requirements Regulatory framework; economic
development cultural/historical
perspective/development
ADI objectives Figure 1: Framework for understanding IFRS adoption /adaption in MENA Countries

16 4.0 Results and discussions
This section reports the findings generated from the accounting development indices
followed by analysis of current status of IFRS implementation in the sample MENA
countries. The indices reported in Table 2 provides information required to achieve the
following objectives: (i) to establish key accounting development indicators for need of IFRS
in the MENA countries; and , (ii) to assess whether the MENA countries are ready
for/sufficiently developed in the accounting sense to sust ain IFRS requirements. For the
procedures followed in deriving eac h of the index, refer to Table 2 of the Appendix .
Table 2: Cross -Country Analysis: Accounting Development Index
Egypt Jordan Libya UAE Indices
2003
2007
2011
2015
2003
2007
2011
2015
2003
2007
2011
2015
2003
2007
2011
2015
1 13 6 3 3 31 43 33 25 NA 1 4 4 7 13 13 14
2 -0.19 -0.14 0.01 0.00 0.19 0.07 -0.02 -0.02 – 0.16 – – 0.14 0.72 -0.01 0.00
3 – 0.56 0.08 -0.32 1.04 0.56 -0.30 -0.27 – NA – – 3.41 0.49 0.20 -0.14
4 – 17.5 5.69 5.89 – 65.94 35.89 27.79 – NA NA NA 67.7 208.8 108. 1 213.9
5 0.88 1.07 0.21 0.17 2.90 2.39 0.94 0.68 – NA NA NA 0.20 0.49 0.27 0.55
6 350 400 253 256 79 98 97 101 – 83 89 89 NA NA NA NA
7 66 75 94 86 2 3 2.98 4.07 – NA NA NA NA NA NA NA
8 – 4.7* 4.30 3.80 – 5.2* 3.80 4.20 – 2.20 NA NA – 5.20 4.20 4.70
9 – 3.5* 3.30 3.23 – 3.9* 3.50 3.99 – 3.20 NA NA – 4.10 4.43 4.83
Source: Data colle cted from World Economic Forum and individual country/institutional websites.
*The figures are the index score and the countries were ranked out 134 countries. Note that N/A means data not available . In the case of
Libya, the uncertain security situation did not allow the Survey to be conducted for 2011 onward.
*For index 8 Egypt ran ked 49, Jordan 22, Libya 131 and UAE 23. For index 9 Egypt ranked 74, Jordan 47, Libya 102 and UAE 34.
Table 2 presents results of the indices computed based on the discussions on each index in the
methodology section and formulae prese nted in Table 2 of the appendix.
(i) An a ssessment of the need for IFRS among selected MENA countries
Consistent with Nobes (1998), the need for external reporting in a country increases when a
that country operates a capital market as an in stitution . Results from i ndex 1 i n Table 2
indicate that all four MENA countries operate a stock -exchange for several years, except
Libya whose stock -exchange is very recent (i.e. 2016) . This is not surprising because Egypt
seemed to be more integrated with Jordan and UAE than Libya. This interprets that the three
countries might share similar environment al pressures that made their organisations to be
isomorphic in structures and behaviours with a view obtaining legitimacy as a region (see
Gonzalez and Hassall, 2009). In terms of growth in the number of listed companies on the

17 stock-exchange between 2003 and 2015 , Jordan and UAE witnessed a growth in the first half
of the sample period (i.e. 2003 to 2007 at 19% & 7 0% and 14% & 72% respectively ).
However , a decline can b e observed in the second ha lf at 2% and 1% for Jordan and UEA
respectively. This implies that more equity finance than bank credit was used to finance
investment activities in these countries. As the need for more capital arises , due to changes in
the inst itutional forces, issue of shares to the public becomes more optimal strategy that
indica tes a need for IFRS.
As country’s business culture develops, it will need more transparent accounting and
reporting framework. From index 4 in Table 2 , all the countries show a growth in market
capitalisation per million of population in the first two periods observed in this study (i.e.
67.74 to 208.81, NA to 65.94 and NA to 17.51 for UAE, Jordan and Egypt respectively) .
However, despite a decline in the indices in 2011 for all the sample, Egypt and UAE have
achieved increase from 2011 to 2015 (i.e. 108.07 to 213.97 and 5.69 to 5.89 respectively) .
This decline may be related to the Arab Spring. The increase during the pe riod explains that ,
propensity of the community to participate in raising capital has increased thereby creating a
need for more transparent financial report. That is why the Stock Exchange Acts in many
countries require companies to prepare financial stat ements according to IFRS (Nobes and
Parker, 2008). This can be translated in the context of institutional isomorphism given that
these countries share institutional environment that may likely exact institutional pressures as
highlighted in Scott (2001).
Economic development in a country requires the participation of both private and public
enterprises except in communist states where the government is the central economic player.
In a market economy, it is important to know the contribution of private sec tor to the national
economy. When market capitalisation represents a high ratio to the GDP , it indicates that the
private sector is actively involved in economic development of a country. Though no data
was available for Libya, the findings indicate that t here is a huge participation of private
sector in the other three countries as revealed by index 5 results (see Table 2) . This is very
strong in the case of UAE due to the buoyant capital market of Dubai and Abu Dhabi. Both
countries are located within Mid dle East rather than North Africa which stresses further an
influence of immediate institutional environment. In these two places IFRS are being used in
the context of public listed companies.

18 Based on the indices (1-5) we analysed, each of the countries shows a need for transparent
external reporting to cope with the pattern of development in the accounting indicators during
the period . For example, since the 2000s, Egypt has made a move towards IFRS adaptation.
Jordan has also demonstrated its move towar ds IFRS, first by fully adopting the IFRS and
secondly, by passing new law(s) to enforce compliance (Al -Akra et al., 2009). UAE is a
special case. Not all the states of UAE have IFRS as a requirement in place, except Dubai and
Abu Dhabi that are coincident ly the two main commercial centres with significant number of
the listed firms .
The need for external financial reporting and IFRS might have arise n as a result of pressures
from the trading partners and international bodies (such as the World Bank and IMF ) 3 as
highlighted in the one of the dimensions of institutional isomorphism called mimetic
isomorphism (see DiMaggio and Powell, 1983). In the case of the selected countries, the
UNCTAD reports on the need to shift towards I FRS implementation in order to (i) attract
FDI, (ii) to increase transparency in accounting report and (iii) to comply with international
standards (UNCTAD Report, 2002, 2006). Therefore, these external pressure s and the
institutional changes revealed from the analysis of the indices, m ight have collectively driven
the need for a country to adopt IFRS.
On the other hand, majority of the trading partners of these four countries (listed in Table 3)
are already using IFRS either in full or in part. This may exert some pressure on MENA
coun tries to move for IFRS in the light of the changes driven by trade with their partners. For
example, listed companies in the EU have been required to comply with IFRS since 2005 and
undoubtedly many of them transact businesses with MENA countries either as a major
supplier or customer. This situation best fits the mimetic isomorphism when the countries re –
strategise to fit in with their partners upon the conditions set for them to comply with (see
DiMaggio and Powell , 1983 and Gonzalez and Hassall , 2001) . To enable an effective and
efficient decision making based on financial reports, they will need transparent and
comparable reports. In this case, the MENA countries would have to adjust their reporting
standards and systems to meet the need of their major t rading partners. In the light of
DiMaggio and Powell (1983:150)’s definition of coercive isomorphism, both formal and
informal pressures on an organisation may have come from other institutions to which it

3 More examples can be found in various versions of the reports on the observance of standards and codes (i.e.
UNCTAD Report, 2002, 2004, 2008) and Boolaky (2010) .

19 depends and ‘cultural expectations’ related to th e society within which the organisation
operates. In the next sub-section, we discuss the capability of these countries to sustain IFRS.
(ii) Development capabilities and Readiness of the selected MENA countries to sustain
IFRS
This subsection and related analysis attempt to address t he second objective of the paper . The
strateg y used to answer the related question is as follows . We examined evidence from the
accounting development indices computed relative to the major trading partners, namely: the
UK, the US, Italy and Germany for benchmarking purposes. The four MENA countries
together with their four trading partners are ranked based on three indices, namely: Index 1,
Index 4 and Index 54. The res ults for three indices are reported in Table 3.
Table 3: Ranking the four MENA countries with their trading partners
Countries Index 1 Ranking Countries Index 4 Ranking Countries Index 5 Ranking
UK 44 1 US 79 1 UAE 15 1
Jordan 43 2 UK 66 2 Jordan 3 2
US 18 3 UAE 32 3 UK 2 3
UAE 13 4 Germany 17 4 US 2 3
Germany 8 5 Jordan 7 5 Egypt 1 5
Egypt 6 6 Egypt 2 6 Germany 1 5
Italy 5 7 Italy 2 7 Italy 1 5
Libya 4 8 Libya N/A 8 Libya N/A 8
Sources: Various sources. N/A means data not available.
On the basis of index 1 of Table 3 (number of domestic listed companies per million of
population), Jordan ranks second, before Italy, Germany and the US, whereas UAE is ahead
of Italy and Germany, followed by Egypt which is before Italy. Exceptionally, Libya is last in
the rank and this i s proven by the young age of its capital market. Considering the previous
review of the market and institutional development in the country , it considered low market
development as a solution that fits very well with its socialist policy for its growing
population. This is not surprising when the notion of socialist economies is reflected upon
and their strong opposition to private ownership (see Sheibani and Havard, 200 5). This
finding lends support to Lasmin (2012) who also documented that national cultur es have
significant influence on the IFRS adoption among countries. Additionally, the institutional
composition of Libya was entirely different from other countries considered in this study. For

4This is because data on the other indices for the trading partners are not available. For example, index 6 could
not be computed for the UK because the data available refers to the total number of members of the four
professional accountancy bodies. This is too general because the members also include those who are foreign
members and are practising in foreign countries. The authors therefore believe that by deflating the number of
members of these professional bodies by population size would be misleading.

20 example, Libya was perceived as mainly resource dependent nat ion and particularly when oil
and gas was the main source of energy to many economies including the West. Libya as one
of the major OPEC producing countries had consistently appeared at the 8th position
throughout the three rankings of the indices in Table 3.
Furthermore, the outcome of the index analyses indicates that the first three MENA countries
in the ranking had an equity market which was stronger, when measured in terms of the
number of listed companies on the exchange per million of population. As it can be observed,
ranking for some MENA countries was higher than some of their trading partners who were
already using sophisticated accounting and reporting standards. Our argument is that Egypt,
Jordan and UAE already have a business environment suffi ciently developed to necessitate
the use of IFRS. Trade activities were mainly the sources of livelihood in the countries except
for the UAE that has expanded on the trade relationship following oil discovery in
commercial quantity. This interpretation is supported by the findings reported in index 2 on
the growth rate of the stock -exchange through the increase in the number of listed companies
over time. In other words, the institutions in the three countries were transformed in a
consistent manner with th e internal demands for capital and government policy.
Similarly, results obtained from index 4, which measures market capitalisation deflated by
the population size, indicate that UAE ranks just after the two leading western economies,
viz: the UK and the US. This is expected considering the current state of FDI in the nations
and different performance levels of the economies. Jordan ranks ahead of Italy based on the
index. This result signals that the participation of outsiders in the raising of capital on the
stock -exchange is higher in UAE than Italy and Germany. In other words, UAE is therefore
classified as an economy with a strong equity market (i.e. more private sector participation )
compared to the other countries ( see indices 4, 5 and 8) thus justifying the readiness of UAE
for IFRS. This lends support to Nobes (1998). It should be noted that on the basis of certain
economic indicators, such as GDP, the decision to have placed the UAE ahead of other
countries could have been different giv en the oil revenues being generated by the country.
Consistently, index 3 on market capitalisation growth confirms the role of the equity market
in the economy, a finding that supports accounting development indicator for IFRS adoption.
The developmental need of the institutions to source capital from the public members
(including outside the UAE) has witnessed steady growth by virtue of the environment
created by the government . This is consistent with results obtained by Apergis, 2015 ). Index

21 (5), market capitalisation as a percentage of GDP indicates that UAE and Jordan are better
positioned than even the US and UK. This is a good indication of readiness of the market
relative to the economic growth of a country. In this case, we argue that the private s ector
plays a key role in the business of the economy and hence an important justification for IFRS.
These results are consistent with A lbu et al. (2011) who also interpreted results based on
institutional theory . Therefore, this interprets that private se ctor-driven institutions will
extend the quest for capital beyond the boundar y of a nation in order to achieve their strategic
goal to maintain trade with their chosen partner, particularly in this competitive environment .
In this regard, government polic y will evolve in support of such environmental norms and
practices. By so doing, a conducive business environment is created for the social actors that
may collectively attract international investments. Consistent with institutional theory
assertion, the institutions operating within a specific country find themselves under such
environmental pressure. Consequently, need for IFRS is inevitable in such types of countries
in order to win the confidence of investors by enhancing quality of the financial repor ts and
imposing some listing requirements for companies (see Apergis, 2015 ). Egyptian, Jordanian
and UAE listed companies are required to prepare and present financial statements in
compliance with IFRS, though not required for all domestic unlisted compan ies, except banks
(IAS PLUS -Deloitte, 2009). Additionally , in countries like Jordan and UAE, domestic
companies are strongly encouraged to apply full IFRS or IFRS for SMEs ( IAS PLUS-
Deloitte, 2016) .
To this end, the readiness of any country in the globe for IFRS adoption and implementation
will always remain a debatable issue because there are numerous factors that determine the
answer to this question (Samaha and Khlif, 2016; Kolsi, 2017; Kamel and Awadallah, 2017
Outa et al., 2017 ). However, in addition to country past -history and economic system (e.g. in
the case of Libya), one key determinant that is discussed in this study is the professional
accountancy capabilities of a country. For this reason, the authors have deflated the number
of accountants by population size and then by number of listed companies. Except Libya, the
other three countries (Egypt, Jordan and UAE) are reported to have a relatively sufficient
number of accountants per listed companies to sustain the demand of IFRSs (see indices 6
and 7 in Table 2). Despite the evidence in support of growing number of accountants, it is
presumed that there is a need for increase as well as a development/training programme for
practising accountants be put in place in place when the number compares wi th the developed

22 nations (in terms of economy, e.g. UK). This may imply that the regulatory environments,
legal system as well as cultural differences may well collectively influence the size of
accountants in a country consistent with Haniffa and Hudaib ( 2002) and Mwaura and
Nyaboga (2009) .
More specifically, when compared to the US and the UK, this index is lower for MENA
countries. However, our interpretation falls within the context of the market histories of these
countries as they do not have the l ong history of capital market development like the one
enjoyed by the developed economies considered in the study. Thus, on this ground, we would
argue that they do have the capabilities to sustain the IFRS implementation. Furthermore,
these countries, including Libya, have reviewed their regulatory environment conducive to
the implementation of IFRS in part or in full adoption (or adaptation) as the indices continue
to improve – indicating growing demand for institutional changes.
Therefore, the enforceme nt mechanisms present in the company laws and stock-exchanges
regulations of these countries make IFRS compliance mandatory. This is an important
conditional decision that government must have to take , to ensure optimal functioning of the
institutions towa rds IFRS adoption. The low indices ( i.e. 6 and 8) for Libya relative to other
countries indicate slow progress in the institutions responsible for developing accounting
profession. This result lends support to El Firjini et al. (2014) who employed triangulation
technique to understand development of accounting regulation in Libya and found that weak
roles of institutions such as LAAA might have slowed move ment towards IASs.
5.0 IFRS Status in the Selected MENA Countries
Apart from Libya, the other three MENA countries (Egypt, Jordan and UAE) have
implemented IFRS in the preparation of the financial statements of listed companies.
However, as shown in Table 4 below, none of these four countries enforces IFRS compliance
on unlisted companies. While Eg ypt the evidence we obtained from the literature suggest a
strong convergence of Egyptian Accounting Standards with IFRS, UAE and Jordan have
opted for the full adoption of IFRS. Egypt has already embarked on the IFRS project and has
adapted them in the co ntext and need of the country. The Egyptian Accounting Standards
were prepared based on the IFRS 2005 version (UNCTAD report, 2008 :5). Egypt now has 35
standards equivalent to those of the IASB whereas Jordan and UAE (Dubai and Abu Dhabi)
do not have any equivalent IFRS because they have opted for the full adoption (Al -Akra et
al., 2009). Libya will probably have to embark on the IFRS if it plans to join the accounting

23 systems, standards and practices of the globe. Moreover, to further stimulate FDI and th e
relocation of multinational enterprises in the country, recourse to the IFRS is necessary.
Sources: IAS Plus -Deloitte (2009), IAS Plus -Deloitte (2016 ) UNCTAD Report (2008)
From the analysis presented in Table 4 for the selected MENA countries, auditors’ reports on
compliance with IFRS lend support to our conclusion about readiness of the countries based
on the indices employed in this study. Interestingly, for UAE, certain m arkets and more
business -oriented regions/hubs such as Abu Dhabi and Dubai indicate evidence of meeting
IFRS requirements, a conclusion that is consistent with our findings about the institutional
capacities and drive for IFRS in the areas based on the ind ices. There seems to be unanimous
agreement of our findings with the conclusions reached in auditors reports for Egypt and
Jordan (that show readiness i.e. ‘ Yes’ result) and for Libya (that shows ‘ No’ result) for the
listed companies.
In addition, IFRS ad option may not be ideal for all market segments as the institutions need
to develop to withstand such transformations. Hence, ‘ No’ answers to IFRS adoption across
all companies (listed and unlisted) even though both economic and accounting development
indicators may support a need for IFRS. The institutional isomorphism describes this process
that compels an organisation to behave like other organisations facing identical
environmental conditions to move towards similar direction. Companies in Abu -Dhabi and
Dubai must have clearly exhibited these attributes which include attracting funds from the
public rather than banks as revealed by the indices. Table 4: IFRS Requirements
Country For All companies For Listed
companies Auditors report on IFRS
compliance
Egypt No Yes Yes
Jordan No Yes Yes
Libya No No No
UAE: No No No
Abu Dhabi No Yes Yes
Dubai No Yes Yes
Ajman No No No
Fujaira No No No
Ras al Khaima No No No
Sharja No No No
Umm al Qaiwain No No No

24 6.0 Conclusion s and Implications of the S tudy
This paper has investigated the level of accounting development of four MENA countries
(Egypt, Jordan, Libya and UAE) based on 9 different indices we considered to be more
accounting focused as against the conventional economic development indices. The stu dy
traces the expansions in regulations and different country -specific analysis to account for the
current state of accounting practices in the selected countries. Albeit the limitations in
available secondary data, accounting development indices were used to assess the level of
development and the indices are compared with those of their key trading partners (Germany,
Italy, UK and US). In addition, the reforms over the last four decades in these countries were
analysed and their impact on accounting was e xplained alongside the accounting indices and
within the framework of institutional theory .
In line with the institutional theory’s assertion that organisations that share the same
environments experience identical institutional pressures, this study demo nstrates how the
political, economic, legal and cultural institutions in the selected MENA countries shape the
development of their accounting practices. Specifically, the study uses the theor ies to explain
the motivations of the players to set what they b elieve is the best way to how the activities of
professional accounting bodies, accounting regulators, government agencies, Arab cultures
and social values constitute institutional environments that generate pressures on the
countries’ accounting developme nt. The elements of institutional isomorphism help to
explain the MENA countries’ plight in seeking legitimacy and success through the level and
pace of accounting developments in their Western trading partners as well as the activities of
international ac counting bodies such as IFAC. The indices reveal the need for IFRS within
the states considered in this study.
The study also reveals that, when compared with their fellow trading partners, three (Egypt,
Jordan and UAE) of these four countries could be pla ced on a level playing field given their
business environment, methods of raising finance and the professional capability. These three
MENA countries do have capital markets that demonstrate the feature of a strong -equity
market (Nobes, 1998) despite their religious and cultural history (Boolaky, 2008). When
comparing the ranks of these countries using the indices in this paper, they precede some of
their fellow trading partners when it comes to whether they have a business environment
conducive to the use of IFRS. Jordan is well quoted in terms of listed companies deflated per
million of population and even precedes countries like the US, Germany and Italy. This is

25 repeated when comparing market capitalisation with population size for Jordan. UAE is also
classified as an economy with a strong equity market and with a significant participation of
the private sector. A glimpse at the score in index 5 suggests that UAE and Jordan are better
positioned than US and UK.
Along this line, the main contributions mad e by this study are noted below:
Our approach, based on indices that proxy for accounting development within MENA
countries, reveals some important indicators that possess the power to relate regulatory
framework of these four countries in understanding an d explaining IFRS adoption/adaption.
Additionally, this paper has made significant contribution to the literature by providing a
comprehensive review of the regulatory framework within the four MENA countries in order
to understand how institutional evolut ion led to the current state of accounting practices. In
the light of the indices/analysis provided, the literature reviewed, and the theoretical
framework developed, this study produce s an important framework to understanding
evolution of accounting practices in the era when countries across the globe are a facing a
push (coercive) towards IFRS adoption.
Consequently, t hese findings are important in the context of evaluating whether an economy
is sufficiently developed and ready to adopt or adapt the IFRS. It has important implications
for FDI both by private individual investors and businesses who are concerned about
transparency and safety of their investments. Complying with IFRS impr oves the information
contents of the annual reports produced by firms in these economies. This may enhance
comparisons and may facilitate further flow of investments from the surplus end of t he
spectrum to the needing end.
Furthermore, findings also have i mportant implications for policy -makers and regulators both
in the selected countries and globally. This is because, the study highlights some important
indicators that link up with country specific cultural and institutional evolutions to explain
countrie s’ accounting development and I FRS adoption . Our approach produces better
explanations why some emerging countries may consider themselves fit for IFRS adoption or
adaption. When more accounting -related indices and country specific indicators were used, it
showed that these countries compare well with other developed countries in which IFRS are
already in use. These results should be of interest to the IASB as it continues its push for the
harmonisation of international accounting standards.

26 Finally, it sh ould be noted that f indings in this study advertise the need for further cutting –
edge research in this area as future studies could develop equally rigorous and unique social
indices that could further explain the readiness of a country to adopt or adapt I FRS. This
could be undertaken on more longitudinal bases involving more countries. Also, previous
studies that have used only the classical indicators may be re -examined in the light of this
study by incorporating some of the variables adopted in this stud y into the models presented
by these previous studies. This will improve the validity of these studies and enhance our
understanding of the factors that account for the readiness or otherwise of adopting and
adapting the IFRS.

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33 Appendix
Table 1: List of Past Research
Year Journals Authors Factors affecting accounting development and IFRS/IAS
1975 International Journal of Accounting Education and Research Radebaugh, L.H Political, Economic, Social and legal
1978 International Journal of Accounting
Research in Third World Accounting Briston, R
Briston, R. Economic activities, taxation, industrialisation
Regional co -operation, economic and political
1982 Journal of Accounting Education and Research Samuels, J.M and Oliga, J.C Economic and socio -political factors
1983 Journal of Accounting and Public Policy Belkaoui, R.A, Economic, political and civil indicator
1985
1986 International Journal of Accounting
International Journal of Accounting Education and Research Hove, M.R
Taluga, J and Ndubizu, G Colonisation
Economic development
1988 Abacus Gray, J Culture
1989 International Journal of Accounting Education and Research Perera, M.H.B Culture
1992 Advances in International Accounting Salter, S and Doupnik, T Legal system
1993

Research in Third World Accounting

Research in Third World Accounting
Research in Third World Accounting
Research in Third World Accounting Hagigi, M and William, P.A
Larson, R.K
Berry, M and Holzer, P
Chaderton, R and Taylor, P.V
Economic and other environmental factors

Economic growth
Types of economy (planned, free and mixed)
Economic growth
1995 International Journal of Accounting
Journal of International Business Studies Doupnik, S and Slater , S.B
Salter, S.B and Niswander, F Extern al environment, culture
Culture
1997 Managerial Auditing Journal Doost, R.K Ethics and accounting
1998 Advances in International Accounting Hassan, N.A Socioeconomic and political environment
2000 The International Journal of Accounting Chamisa, E. Capital Market
2003 The ICFAI Journal of Accounting Research Boolaky, P.K Strategy to attract FDI
2004 The ICFAI Journal of Applied Economics Boolaky, P.K Accounting Development Indicators
2005 The International Journal of Accounting Ding, T.J and Stolowy, H Culture
2008 Journal of Applied Accounting Research Boolaky, P.K Economic, Political and Past History
2016 Journal of Accounting in Emerging Economies, Samaha, K. and Khlif, H IFRS adoption and compliance in developing countries
2017 Journal of Accounting in Emerging Economies, Kolsi, M. C. IFRS and disclosure policy

34 Table 2 : List of Indices and Formulae
Indices Formulae
1 Number of listed companies per million of
population Number of listed companies/ population size
2 Growth in stock -exchange using number of listed
companies Number of listed companies in year 1 less year 0 and divide by
number of listed in year 0 etc (i.e. horizontal analysis of number of
listed companies)
3 Growth in mark et capitalisation Number of stocks traded in year 1 less year 0 and divide by
number of stocks traded in year 0 (horizontal analysis of number
of stocks traded).
4 Market capitalisation per million of population Market capitalisation/population size
5 Market capitalisation as a percentage of GDP
Market capitalisation/GDP
6: Number of accountants per million of
population Number of qualified accountants/population size (per million)

7 Number of accountants per listed companies Number of accountants/Number of listed companies

8 Financing through bank equity

Innovation and sophistication Index Taken from
World Economic Forum 9 Innovation and sophistication Index

35 Table 3 : Accounting Regulatory Framework for the MENA countries
Country Laws Regulatory Bodies
Egypt (i) Accounting Practices Act 133/1951, Revised
in 2002
(ii) Central Auditing organisation , Act 144/1988
(iii) Companies Act 159/1981
(iv) Insurance Act 1981
(v) Bank Act 351/2003
(vi) Capital Market Act 95/1992
(vii) Ministerial Decree 503/1997 (i) Capital Market Authority
(ii) Central Bank
(iii) Insurance Supervision Authority
(iv) Society of Accountants
Jordan (i) Company law 22/1997
(ii) Securities Law 23/1997
(iii) Accounting Profession law 2003
(iv) Banking law 28/2000
(v) Insurance supervision Act 33/1999 (i) Accounting Profession Council
(ii) Jordan Association of certified Public Accountants
(iii) Jordan Securities commission
(iv) High Council and auditing
Libya

Accounting rules in Libya are not very
developed. However , the country has shown
signal to move towards international standards.
(i) Libyan Commercial Code of 1953
(ii) The Income Tax Law No11 of 2004
(iii) Libyan Investment Law No 5 of 1997
(iv) The Accounting and Auditing Profession Law
No 116 of 1973
(v) The State Accounting Bureau 1955 (i) The Institute of Public Control
(ii) Libyan Association of Accountants and Auditors
(iii) Ministry of Treasury
(iv) The Central Bank of Libya
UAE

Accounting rules are not very developed in the
UAE and the government is making move to
converge the national rules with international
standards
Company Law (Effective in 1989) (i) Ministry of Finance
(ii) Ministry of Economy
(iii) Emirates Securities and Commodity Market Authority
(iv) Accountant and Auditor’s Association
(v) State Audit Institutions
(vi) Financial Services Authority
Source: Compiled by Authors using various sources