02 Whole

University of Wollongong Thesis Collections
University of Wollongong Thesis Collection

University of Wollongong Year 
The role of accounting systems in

decision making, planning and control in
a developing country: the case of Libya
Bubaker Shareia
University of Wollongong
Shareia, Bubaker, The role of accounting systems in decision making, planning and control
in a developing country: the case of Libya, PhD thesis, School of Accounting and Finance,
University of Wollongong, 2006. http://ro.uow.edu.au/theses/240
This paper is posted at Research Online.

http://ro.uow.edu.au/theses/240
The Role of Accounting Systems in Decision Making, Planning
and Control in a Developing Country: The Case of Libya
A thesis submitted in fulfilment of the requirements for the award of the degree
Doctor of Philosophy
from
University of Wollongong
by
Bubaker F. Shareia
BA in Accounting from University of Garyounis, Benghazi,Libya
MA in Accounting from University of Garyounis, Benghazi,Libya
School of Accounting and Finance
November 2006
CERTIFICATION
I, Bubaker F. Shareia, declare that this thesis, submitted in partial fulfilment of

the requirements for the award of Doctor of Philosophy, in the School of
Accounting and Finance, University of Wollongong, is wholly my own work
unless otherwise referenced or acknowledged. The document has not been
submitted for qualifications at any other academic institution.
Signature
Bubaker F. Shareia
3 November 2006
ii
ACKNOWLEDGEMENT
First and foremost, thanks are indeed due to Allah Almighty; worthy of all
praise, without whose help none of this study would have been successfully
completed. I would like to acknowledge my indebtedness to many people for
their contribution and support in undertaking this study. I am profoundly
grateful to my supervisor, Dr Helen Irvine for her continued interest, support
and advice throughout the writing of this thesis, and for the effort and
constructive supervision she has provided. I owe an immeasurable debt, and it
is impossible to convey fully the extent of her patience, guidance and
encouragement throughout the preparation of my thesis. I also wish to thank
my previous supervisor, Professor Warwick Funnell, for his support and advice
which have been a great help. His belief that I could do this has been a great
encouragement. Without the guidance of these two supervisors this study
would probably never have come to completion. I am also very grateful to the
Accounting Department, Faculty of Economics at Garyounis University for
providing the chance and support to undertake my study in Australia. I am
thankful to Mrs Kim Draisma, Senior Lecturer at Learning Development Centre
for the considerable efforts she exerted in editing and proofreading the earlier
drafts and final draft of this thesis. She was always helpful, understanding, and
did an excellent job. I am also grateful to the School of Accounting and Finance
at the University of Wollongong for giving me the opportunity to attend many
conferences during my study. My gratitude is also due to many people in
Libya, especially employees at the Industry Secretariat and General Company
for Pipelines for their patient co-operation and participation in the study. To
my wife, Fathia, I express my deepest and sincerest gratitude for her help,
support, patience, understanding and encouragement during the entire PhD
program. She shared with me many moments of frustration, disappointment,
and rejoicing. Without her support, this study could have never been possible.
My daughters, Dania, Salma and little Sara provided me with all the moral
support I needed for completing my studies in Australia. To them I am greatly
indebted because without their support, the completion of this thesis would not
have been possible.
To my brother, sisters and my parents, I owe a lot. They always showed great
interest in my education and encouraged me at all times to get the best
education possible. I wish them a happy and long life.
iii
ABSTRACT
This study examines the present and potential role of accounting information
systems in meeting the development needs of developing countries, with a
special focus on Libya and its unique legal, economic, religious, political and
social context.
A contextualised study, it uses the economic development Theory of
Globalisation in order to interpret the data, with particular emphasis on social
and cultural factors determine economic condition, communication and its
significance in global world and greater technological unification, including
globalised accounting. Within the Libyan context, an ideographic methodology
is used to develop two case studies. One organisation is examined as a provider
of information (General Company for Pipelines), and another, the Industry
Secretariat, as a user/ stakeholder organisation. A variety of data collection
methods is used, including semi-structured interviews, observations, a small
structured questionnaire and document analysis in order to make data
triangulation possible.
Libya is a developing country with significant differences from developed
countries, including the way it makes use of accounting information. At present
the accounting profession does not play a vital role in the economic
development of the country and current accounting practices are based mainly
on government legislation rather than planning and decision-making. This
study illustrates the possibility, and even the necessity, for accounting to play a
significant role in the development of Libya and other developing countries.
Whilst this study demonstrates the importance of an awareness of cultural
context in the role of accounting systems, it has focused only on one country,
Libya, and two organisations within that country. Consequently, even though
developing countries have many similarities, the generalisibility of this study is
limited. Wider research of other contexts within Libya and beyond is needed to
illuminate further the influence of social and cultural factors, communication
and greater technological unification on the practice of accounting. It would be
useful to replicate the study in other organisations within Libya and in other
developing countries. The use of an economic development theory, while
revelatory at one level, limits the interpretation of data. A different theoretical
approach, or different research methods, for example, a larger style of survey or
a different kind of qualitative study, could provide different or additional
insights.
This study helps to increase awareness of the role of accounting and its
potential contribution to economic development at the macro and micro levels
and is a starting point for making a difference in developing countries. It
iv
provides a contribution to practical knowledge of the role of accounting in
developing countries with special reference to Libya, by identifying issues in
the Libyan environment, acknowledging the present of powerful global
influences, and pointing the way forward to use accounting in a more
significant way.
Most previous research in this area has focussed on the suitability of accounting
systems in meeting development needs, with little attention being paid to
addressing how these systems can be made more useful in decision-making,
planning and control. This study acknowledges that the challenge for
developing countries, such as Libya, in adopting globalised accounting systems,
is to adapt them successfully to their own regulatory, legal, political, cultural
and religious setting. This has to be accomplished while still achieving the
production and effective use of timely, relevant and accurate accounting
information in order to serve the country’s development needs. An assessment
of the factors influencing the development and use of accounting systems in
developing countries such as Libya is a necessary starting point for achieving
these goals. This study provides such an assessment.
Key words: accounting systems, Developing Countries, Qualitative case study,

Libya, Globalisation Theory.
v
TABLE OF CONTENTS
CERTIFICATION................................................................................................................. ii
ACKNOWLEDGEMENT .................................................................................................. iii
ABSTRACT .......................................................................................................................... iv
TABLE OF CONTENTS..................................................................................................... vi
LIST OF FIGURES............................................................................................................... xi
LIST OF TABLES ............................................................................................................... xii

Part I- Methodological and Accounting Foundations............................................................. 1
Chapter 1 The Rationale And Purpose Of The Study ........................................................ 2
1.1 Introduction............................................................................................................ 2
1.2 The Study’s Aims and Objectives.......................................................................... 3
1.3 Accounting in Libya, a Developing Country......................................................... 6
1.4 The Structure of the Study ................................................................................... 12
Chapter 2 Research Methodology .................................................................................... 18
2.1 Introduction.......................................................................................................... 18
2.2 Qualitative Research Methods ............................................................................. 18
2.2.1 A Case for Qualitative Research Method ..........................................................19
2.2.2 Case Studies .......................................................................................................25
2.2.3 Use of Theory in Qualitative Research..............................................................27
2.3 The Conduct of the Studies.................................................................................. 32
2.3.1 Data collection from IS......................................................................................36
2.3.2 Data Collection from GCP.................................................................................37
2.3.3 Data Analysis .....................................................................................................42
2.4 Producing Generalisations ................................................................................... 43
2.5 Drawing Conclusions........................................................................................... 44
Chapter 3 Theories Of Development................................................................................ 47
3.1 Introduction.......................................................................................................... 47
3.2 Three Theories of Economic Development ......................................................... 48
3.2.1 Modernisation Theory........................................................................................49
3.2.2 Dependency Theory ...........................................................................................56
3.2.3 World Systems Theory ......................................................................................59
3.3 Globalisation Theory ........................................................................................... 62
vi
3.3.1 Globalisation Theory Defined............................................................................62
3.3.2 Background ........................................................................................................64
3.3.3 Features of Globalisation ...................................................................................66
3.3.4 Globalisation and Culture ..................................................................................69
3.3.5 Globalisation and Communication ....................................................................70
3.3.6 Globalisation and Unity (technology and accounting) ......................................71
3.3.7 Effects of Globalisation .....................................................................................73
3.3.8 A critique of Globalisation.................................................................................75
3.4 Globalisation and Other Theories of Development ............................................. 78
3.5 Integrating Accounting into a Global Economic Development Framework ....... 82
3.6 Summary.............................................................................................................. 84
Chapter 4 The Role Of Accounting Systems In Developing Countries ........................... 87
4.1 Introduction.......................................................................................................... 87
4.2 The Characteristics of Developing Countries ...................................................... 88
4.3 Accounting and Environmental Factors............................................................... 89
4.3.1 Economic Factors...............................................................................................91
4.3.2 Legal and Political Factors.................................................................................93
4.4 Adoption of Accounting Systems from Developed Countries............................. 94
4.5 Problems in the Development of Accounting Systems in Developing Countries 96
4.6 The Role of Accounting Systems in Meeting Development Needs..................... 98
4.7 A Survey of Studies on the Role of Accounting in Developing Countries........ 101
4.7.1 Theoretical Studies...........................................................................................108
4.7.2 Empirical Studies .............................................................................................110
4.8 Accounting Development Patterns .................................................................... 113
4.8.1 The Macroeconomic Pattern ............................................................................114
4.8.2 The Microeconomic Pattern.............................................................................115
4.8.3 Accounting as an Independent Discipline........................................................116
4.8.4 The Uniform Accounting Pattern.....................................................................116
4.9 Regulations ........................................................................................................ 117
4.10 Summary............................................................................................................ 118
Part II- The Libyan Context................................................................................................ 120
Chapter 5 The Political And Social Context Of Libya................................................... 121
5.1 Introduction........................................................................................................ 121
5.2 Recent History of Libya..................................................................................... 122
5.3 Arab Socialism................................................................................................... 127
vii
5.4 Libya’s Political System .................................................................................... 129
5.5 The Structure of the Libyan Government .......................................................... 132
5.6 Libyan Economy................................................................................................ 136
5.7 Social and Economic Development Plans ......................................................... 140
5.7.1 The Period of Setting Plans (1973- 1985)........................................................141
5.7.2 The Action Period with No Plans (1986-2003) ...............................................144
5.8 Role of the Government in Libya’s Economic Development............................ 147
5.9 Lockerbie Crisis and its Impact on the Economy of Libya................................ 152
5.10 Social Obstacles in Libya................................................................................... 154
5.11 The Impact of Legal Factors .............................................................................. 159
5.11.1 Libyan Commercial Law .................................................................................159
5.11.2 The Financial System Law...............................................................................163
5.11.3 Income Tax Law ..............................................................................................164
5.12 The Impact of Environmental Factors on the Plans and Objectives of the IS ... 166
5.13 Summary............................................................................................................ 168
Chapter 6 The Current Role Of Accounting Information Systems In Libya.................. 171
6.1 Introduction........................................................................................................ 171
6.2 The Nature and Role of Information.................................................................. 172
6.3 The Significance of Accounting Information, and How It Can Be Developed to
Serve Economic Development ....................................................................................... 173
6.4 The Importance of Accounting Information in the Development Process ........ 177
6.5 Accounting and National Economic Planning ................................................... 182
6.6 Relevance of Western Accounting Information Systems to Economic
Development .................................................................................................................. 185
6.7 Accountants, Economists and Economic Development .................................... 187
6.8 The Accounting Profession in Libya ................................................................. 189
6.8.1 Libyan Certified and Public Accountants Union .............................................192
6.8.2 Accounting Education......................................................................................195
6.9 Accounting Education and Academic Research ................................................ 195
6.10 Summary............................................................................................................ 202
Part III- Case Study- Accounting in Practice ..................................................................... 204
Chapter 7 The Use Of Accounting Information: The Case Of The Industry Secretariat205
7.1 Introduction........................................................................................................ 205
7.2 Background to the Industry Sector in Libya ...................................................... 206
7.3 The IS Management........................................................................................... 207
viii
7.4 The IS’s Companies and Institutions ................................................................. 213
7.5 IS Objectives and Plans ..................................................................................... 218
7.5.1 The Policies and Strategies of Industry in Libya .............................................218
7.5.2 Evaluation of Industry Sector Plans and Objectives........................................220
7.5.3 Investment Growth within the Industry Sector................................................224
7.6 Data Analysis: The Structural Change of IS...................................................... 229
7.7 Summary............................................................................................................ 240
Chapter 8 The Production Of Accounting Information: The Case Of The General
Company For Pipelines ...................................................................................................... 242
8.1 Introduction........................................................................................................ 242
8.2 GCP Background ............................................................................................... 243
8.3 Management of the GCP.................................................................................... 246
8.4 The GCP Financial System................................................................................ 251
8.5 The Role of Accounting Systems in GCP: Qualitative Analysis....................... 253
8.6 The Role of GCP’s Accounting Systems in fulfilling development needs:
Quantitative Analysis ..................................................................................................... 258
8.7 Summary............................................................................................................ 260
Chapter 9 Discussion And Conclusions ......................................................................... 262
9.1 Introduction........................................................................................................ 262
9.2 Economic Development Theory ........................................................................ 265
9.3 The Present Role of Accounting in Libya.......................................................... 268
9.3.1 State Authorities...............................................................................................268
9.3.2 Development Plans at Secretariat Level ..........................................................269
9.3.3 Standards of Planning at Organisational Level................................................270
9.3.4 Views of Providers of Information ..................................................................272
9.3.5 Views of Users of Information ........................................................................273
9.3.6 Suitability of Accounting Information.............................................................274
9.4 The Potential Role of Accounting Systems ....................................................... 275
9.4.1 Training............................................................................................................275
9.4.2 Communication Technology............................................................................276
9.4.3 Cultural Issues..................................................................................................278
9.5 The Contributions of this Study......................................................................... 280
9.6 Limitations of the Study..................................................................................... 282
9.7 Further Research ................................................................................................ 284
References .......................................................................................................................... 287
ix
Appendix I. The GCP questionnaire.............................................................................. 303
Appendix II. The GCP Interview Schedule............................................................ 307
Appendix III. The IS Interview Schedule................................................................ 308
Appendix IV. Fieldwork Plan.................................................................................... 309
Appendix V. List Of Interviewees, Identifying Position In The IS And GCP ... 310
Appendix VI. Final Approval .................................................................................... 311
x
LIST OF FIGURES
Figure 1-1 The Present and Potential Role of Accounting Systems in the Libyan Context
...................................................................................................................................5
Figure 2-1 Four Paradigms for The Analysis of Social Theory......................................30
Figure 2-2 The Process of Data Collection, Organisation and Analysis.........................45
Figure 5-1 The Authority of the People in Libya..........................................................131
Figure 6-1 The Role of Accounting Information in Economic Development ..............177
Figure 6-2 The Importance of Accounting Information in Specific Development
Decisions ...............................................................................................................178
Figure 7-1 The IS's Organisation Chart ........................................................................212
Figure 8-1 GCP’S Performance from 1993 to 2003 .....................................................246
Figure 8-2 Financial Affairs of GCP.............................................................................249
Figure 8-3 The GCP's Organisation Chart ....................................................................250
Figure 8-4 GCP Information flows ...............................................................................251
Figure 9-1 The Interaction between the Role of Accounting Systems and Libyan
Environmental Factors ..........................................................................................263
xi
LIST OF TABLES
Table 1-1 Summary of the Structure of the Study ..........................................................13

Table 2-1 Some Differences Between Quantitative and Qualitative Research...............20
Table 3-1 Comparison between four main Theories of Development ............................54
Table 3-2 Major Aspects of Globalisation ......................................................................84
Table 4-1 Summary of Studies of the Role of Accounting in Developing Countries ..102
Table 5-1 Values of indices for Arab countries, Great Britain and the US (with rank
numbers)................................................................................................................155
Table 5-2 Comparison between Old and New Libyan Income Tax Law ....................165
Table 7-1 The IS Companies and their Ownership Structure .......................................215
Table 7-2 Actual Expenditure and Investment Allocations for IS 1969- 2003............225
Table 7-3 The Share of the Industrial Sector in Gross Domestic Product in Libya 1970-
2003.......................................................................................................................227
Table 7-4 The Structural Change of the Industry Sector Secretariats...........................230
Table 8-1 GCP Performance from 1993 to 2003 ..........................................................245
xii
PART I- METHODOLOGICAL AND
ACCOUNTING FOUNDATIONS
1
Chapter 1: The Rationale and Purpose of the Study
CHAPTER 1 THE RATIONALE AND PURPOSE
OF THE STUDY
1.1 Introduction
Economic development in a developing country is based on a successful and
monitored planning process (Belkaoui 1994, p. 69). A well-established planning
process is mainly dependent upon the availability of timely and reliable micro
and macro information for measuring, allocating, utilizing and controlling
economic activities and economic resources. The absence of such information
makes the achievement of successful economic development difficult, if not
impossible, in a developing country like Libya (Bakar and Russell 2003, p. 202).
Accounting can play a vital role in the provision of such information (Samuels
1990, p. 67; Kieso and Weygandt 1995, p. 2). Furthermore, accountability for
economic activities through the preparation of relevant accounting reports will
give reassurance to both the Libyan state and to foreign investors. In the light of
the above discussion, it seems reasonable to believe that accounting objectives
and practices in Libya have the potential to affect Libya’s economic
development. Thus, the identification and resolution of accounting objectives
and problems of accounting practice will increase Libyan awareness of the
strengths and weaknesses of its accounting systems and will be useful for the
2
meeting of Libyan economic development needs.
Several researchers (Bait El-Mal et al. 1973; El-Sharif 1978; Kilani 1988; Bakar
1998) have provided information on the status of accounting systems in Libya.
However, the focus of these researchers has generally been a description of
those accounting systems and not an identification of the cultural and
institutional individuality of the country, the resultant problems faced in
developing accounting systems or the strategies available to resolve these
problems. For instance, Kilani (1988, p. 229) wrote that “accounting practices of
Libyan public enterprises have been highly influenced by accounting practices
in the U.K. and U.S.”. He argued (Kilani 1988, p. 229) that the accounting
system in Libya had emanated from the U.K. and the U.S. and was
unquestioned and uncritiqued, with no attention given to its potential to
advance the particular economic interests of Libya.
1.2 The Study’s Aims and Objectives
The principal aim of this study is to offer an informed understanding of the role
of accounting information systems at present and their potential role in the
future in meeting the development needs of Libya. Thus its aim is to make a
contribution to the development of accounting systems in Libya, specifically
focusing on accounting systems in the public sector, in order to assist the
ongoing economic development of the country.
3
This study achieves this aim by answering the following research questions:
1. How significant are AIS in developing countries in a global economy?
2. What role do AIS play in developing countries at present?
3. How have Libya’s legal, economic, political, social and cultural systems
shaped its development?
4. What is the present role of AIS in assisting Libya’s development needs?
5. How could AIS assist Libya in its economic development in the future?
These questions will be examined within the context of two case studies of
organisations operating within Libya’s Industrial Sector. The first, the Industrial
Secretariat (IS) is a government body responsible for oversight of all Libyan
industrial companies. The second, General Company for Pipelines (GCP) is one
of those industrial companies. By focusing on these two different, but inter-
related organisations, insights will be gained about how information is
provided (in the case of GCP) and how it is used (in the case if IS).
Figure 1-1 illustrates these aims and their interaction within the Libyan
development environmental context. As can be seen from the diagram,
cultural, social, political, religious, economic and legal aspects of the Libyan
environment have a profound effect on Libyan development policy, its national
information systems (NIS) and its industrial sector. All of these aspects interact
in a globalised economy being influenced by external, global factors.
4
Accounting information systems (AIS) are integral to these functions, both
affecting and being affected by factors internal and external to the Libyan
context.
Figure 1-1 The Present and Potential Role of Accounting Systems in the
Libyan Context
This chapter first provides a brief introduction to the present state of
accounting in Libya. It then describes how the study was conducted, identifying
this study as qualitative research, exploring what is distinctive about qualitative
5
research, and in particular, a case study. Data collection methods are then
outlined, as are the role of theory, issues of generalisability and the drawing of
conclusions. The chapter concludes with an overview of the structure of the
thesis.
1.3 Accounting in Libya, a Developing Country
Several studies have observed that in developing countries relatively little use is
made of accounting information as an aid to managerial decision-making and
control (Jones and Sefiane 1992, p. 71). For instance, Seiler (1966) noted that the
internal accounting systems of most companies in such countries provided
inadequate assistance to management and that this had adverse consequences
for the economies of the countries concerned.
In a number of the less developed countries, information systems which
provide reliable financial data are few in number …. Each time a
production, pricing or investment decision is made without adequate
knowledge of its consequences, the probability of misdirected efforts
wasted resources and economic loss is increased (Seiler 1966, p. 653).
Bengharbia (1989, p. 125) claimed that none of the studies on the accounting
profession in Libya reported the use of accounting information in decision-
making, planning and control. Thus accounting and auditing, as a profession,
still do not play a vital role in the economic development of Libya. Abdalaziz’s
(1992, p. 1) study of accounting information in Libya found that there was no
6
decision-making benefit being derived from the accounting information created
by accounting systems in the public industrial sector. The study focused on
companies in the public sector in Libya, all of which were supervised by the
Libyan government. Its finding revealed that although accounting reports were
prepared by these enterprises, they were orientated towards the requirements
of external agencies and played little, if any, part in either planning or
operational decision-making and control at an organisational level. The study
did not investigate the reasons for the phenomenon that there were no decision-
making benefits being derived from accounting information in the industrial
sector, even though the information that was revealed had significance for
organizational decision-making and the economic future of the country. This
study addresses the reasons why this is the case, taking into consideration the
Libyan context in which accounting is practised.
There are some characteristics that make Libya different from other developing
countries. The term “developing” is not used in the strict sense of the word, but
rather reflects Libya’s emergence into the global economy. Libya has oil
reserves yet a small population of only 5.5 million (Libya State 2006b). As such,
it has some resources to call upon in implementing accounting systems. Many
developing countries were previously colonized, and still carry a strong
influence from their colonizers, including their accounting systems,
professional training and education. Although Libya was previously colonized
7
by Italy, little Italian influence is discernible now because of the continuation of
conflict until the end of World War II. After this, Libya remained under the
supervision of the United Nations until 1951, when it became independent.
Since then, Libya has had a planned economy, unlike most developing
countries, with its accounting systems reflecting compliance with government
requirements rather than the measurement of profit.
Further, Libya, as a developing country, has special characteristics that differ
significantly from those of developed countries, in particular its religion,
culture and economic conditions (see Figure 1-1). Most importantly, Islam, the
dominant religion of Libya, does not accept the accrual or payment of interest
(Riba) nor does it involve itself with economic activities (Taheri 2000, p. 1).
Whatever the precise scope of interest, in the Hadith1 the prophet Muhammad
condemns the one who takes it, the one who pays it, the one who writes the
agreement for it and the witnesses to the agreement. It is also clear that the
Qur’an2 requires Riba to be given up in all its forms and in its entirety: “O ye
who believe! Fear Allah, and give up what remains of your demand for usury,
if you are indeed believers. If you do it not, Take notice of war from Allah and
His Messenger: But if you repent Ye shall have your capital sums: Deal not
1
The Sunnah (Hadith) reflects what Prophet Mohammad (pbuh) said, did, and agreed to as preserved by
his companions (Zaid 2000, p. 75).
2
The Qur'an (Arabic: ‫ن‬DEFG‫ ا‬al-qur'ān, literally "the recitation"; also called Al Qur'ān Al Karīm or "The
Noble Qur'an"; or transliterated Quran, Koran, and less commonly Alcoran) is the holy book of Islam, the
culmination of God's revelation to mankind, revealed to Muhammad, the final prophet, over a period of
23 years through the angel Jibril (Gabriel).
8
unjustly, And ye shall not Be dealt with unjustly” (Qur'an 2: 278 to 279; The
Presidency of Islamic Research 1992, p. 127-128).
A heated debate is now occurring within the world of Islamic finance because,
in practice, Islamic financing has come to rely for its legal form much more
heavily upon contracts of exchange than contracts of investment3. For this
reason, the state has a responsibility to create a suitable environment to
implement Shari’ah Islami’iah (Islamic Teaching) in society. This is acceptable
for Libyan citizens because the legal system is intertwined with religious law.
Also, the influence of religion upon accounting is not an issue that has been
explored to any great extent in the conventional literature4, although it is easy
to see how the two might be connected in the Libyan context. Traditionally,
religion has had a role in shaping and enforcing ethical behaviour such as
truthfulness, honesty, and justice. A community in which such values are
paramount may be marked by a high degree of trust in business dealings and
financial affairs, creating a distinct culture.
Culture has been defined in a variety of ways. Gray (1988, p. 14) determined
four cultural hypotheses based on the relationship between identified cultural
characteristics and the development of accounting systems. These were
professionalism, uniformity, conservatism and secrecy. Perera (1989b, p. 43)
3
With a contract of exchange both parties receive a countervalue. With a contract of investment assets
(or effort) are invested into a project on a profit-sharing basis (Diwany 2003, p. 145).
4
See for example, Mohammed’s (2003) paper on "Institutionalization and Promotion of Saving Habits
through Bai-Muajjal Mode of Financing".
9
argued that culture is usually viewed as an expression of norms, values and
customs that show distinctive behavioral characteristics. Culture has been
defined by Hofstede (1994, p. 5) as the collective programming of the mind,
which distinguishes the members of one group from another and governs how
individuals perceive their responsibilities and carry out their duties. Given the
pervasive nature of cultural factors, culture inevitably influences accounting, as
does religion, if only because religion affects cultural values (Hamid et al. 1993,
p. 132).
Another important issue is that Libya, a centrally planned economy, has an
Islamic accounting model, based on macroeconomics, while the western
accounting model is based on microeconomics (Taheri 2000, p. 8). A
macroeconomic model emanates from a central holistic plan, whose focus is on
national objectives. In a microeconomic model, the focus is on the enterprise as
an economic entity that affects the economy through its operations in the
market. There are many other countries whose economy is based on
macroeconomics concerns but opinions about an Islamic economy, even among
Muslim scholars, vary. Therefore, general macroeconomic issues are not the
only consideration in the development of an Islamic accounting model, which
must incorporate Shari’ah Islami’a, or Islamic laws. In addition, economic
conditions in Libya are quite distinct because Libya depends on oil as a major
source of income and this source is non-renewable and being depleted. Much of
10
the economic decision-making related to the industrial sector has been made on
an ad hoc political basis rather than an accounting information basis. Due to
these special characteristics, Libya has made little use of accounting
information.
Current accounting practices in Libya are based mainly on government
legislation. For example, by government requirement every industrial company
should prepare a budget for the following year. This procedure is necessary to
gain access to foreign currency in order to import raw materials from another
country. All companies, therefore, prepare a budget statement, not for the
purposes of accounting information, but to provide a justification document to
obtain foreign currency. In addition, according to the report of the General
People’s Committee for Auditing and Control, which is responsible for auditing
the public sector, most companies in the public sector, if not all, have delayed
for several years the preparation of financial statements (Shareia 2004).
Publicly available information is limited. Like many developing countries,
Libya is moving towards privatisation of its industrial sector and the
establishment a stock market. A Code of resolution 56/2006 was passed by
Libya’s Central Bank in June 2006, indicating that a Libyan stock exchange
would be commenced soon, this has not yet commenced. This resolution was in
response to World Bank calls for privatization (Central Bank of Libya 2006).
There is an encouragement to countries to move from a public sector to a
11
private sector resolution of economic problems (Libya State 2006a).
This creates difficulties for efficiency when accounting information is required
at each stage of decision-making. Moreover, this situation makes the private
sector very small and less important than the public sector, which the Libyan
government has supported for the last three decades. The Libyan government
during this time has invested in several business enterprises in major industrial
sectors of the economy, which since their inception have been entrusted with
ensuring that professional management is operating efficiently and profitably
with the aim that these enterprises will eventually become self-supporting.
However, more than twenty years after the establishment of these enterprises
none is self-supporting and most are operating at substantial losses, supported
by huge government subsidies. In 2003, the government mooted the sale of
these enterprises and raised for discussion a move to privatization as a solution
to the problem (General People's Congress 2003). The need for useful and
timely accounting information has thus been heightened.
The next section of this chapter describes the way in which this qualitative
study was conducted.
1.4 The Structure of the Study
A summary of this study is presented in Table 1-2, which identifies the major
purpose of each part of the thesis, and of each chapter.
12
Table 1-1 Summary of the Structure of the Study
Part Chapter Chapter purpose Research questions

addressed
One To introduce the concept of the Research questions defined.
role of AIS in developing
countries.
To introduce Libya as the
subject of the study.
To identify IS and GCP as case
Methodological and Accounting Foundation
studies.
To introduce the use of
Globalisation Theory.
Two To establish the applicability of Setting the parameters
qualitative case study research within which the study is
and outline the way the study conducted.
PART I
was conducted.
Three To introduce alternative What is the significance of

Theories of Development. AIS in developing countries
To assess their relative in a global economy?
applicability to the study of (Question 1)
AIS in developing countries.
To select the theory most
suitable for this study
Four To define “developing What role do AIS play in
countries” and explore their developing countries at
economic and non-economic present? (Question 2).
characteristics.
To discuss the influence of
cultural factors on accounting.
Five To explore the historical, How have Libya’s legal,
political, economic, legal, economic, political, social,
religious and cultural and cultural systems shaped
background of Libya. its development? (Question
The Libyan Context
3).
Six To discuss the meaning of What is the present role of
PART II
information. AIS in assisting Libya’s

To identify the objectives of development needs?
accounting systems in Liberal (Question 4).
Market Economies (LMEs).
To identify the role of the
accounting profession and
accounting education in
Libya’s context.
13
Seven To present data collected from What is the present role of

the Industry Secretariat (IS). AIS in assisting Libya’s
To assess the way in which development needs?
Libyan Case Studies and Conclusions accounting information is used (Question 4).
and its contribution to Libya’s
development.
Eight To present data collected from What is the present role of
the General Company for AIS in assisting Libya’s
Pipelines (GCP). development needs?
PART III
To assess the way in which (Question 4).

accounting information is used
by GCP and IS.
Nine To provide an assessment of How could AIS assist Libya
the present role of AIS in in its economic development
Libya. in the future? (Question 5).
To outline the potential role of
AIS in Libya.
To reinforce the contributions
and limitations of this study.
To suggest possibilities for
further research.
The first part of this thesis provides the methodological and accounting
foundation of the study, and is presented in Chapters One, Two, Three, and
four as shown in Table 1-1. Chapter One, the introduction, has identified the
research issue at the heart of this thesis and has provided an introduction to the
study's main concern, the role of accounting information systems in Libya’s
economic development. Chapter Two presents the research method. It outlines
the method conducting fieldwork and collecting empirical data which involves
choosing and designing the qualitative research methodology and the specific
methods. The study's purpose, methodology and method(s) are the focus of the
chapter Two. The differences between qualitative and quantitative
14
methodologies are explored. The study's methodology and method are then
discussed. Case study is adopted as the study's methodology and method
respectively. Two organisations, the General Company for Pipelines (GCP) and
the Industry Secretariat (IS), were chosen to represent two case studies. The
chapter explains how data from these two cases and other sources was
collected. Interviews and documentary analysis were the main data collection
instruments. The data collection process and the fieldwork plan are outlined in
this chapter.
Chapter Three explores the methodological choice made for achieving the
research objectives, and further establishes the theoretical assumptions of this
thesis, including a more detailed explanation of development theory and the
choice of a theory appropriate for this study. Consequently, the discussion in
this chapter is mainly concerned with theories of development, which provide
the theoretical basis for this thesis. This chapter also provides discussion of the
importance given to accounting in development theories. Chapter Four explores
the role of accounting systems in developing countries and the influence of
developed countries' accounting systems on this role. The chapter begins by
defining what is meant by developing countries and explores their economic
and non-economic characteristics. The influence of culture on accounting in
developing countries, and hence the role of accounting, is discussed with
reference to Hofstede's (1984a; 1984b) culture dimensions and Gray's (1988)
15
accounting values.
The second part of the thesis includes Chapters Five and Six, and addresses the
Libyan context. Chapter Five provides a historical, political, economic and
cultural background of Libya. This background is important as it provides a
contextual framework, informed by Globalisation Theory, within which the
observations of this study are to be interpreted and understood. The chapter
explores accounting and economic development in Libya and the role of
accounting systems in these developments. Chapter Six focuses on the role of
accounting information systems in development in liberal market economies,
by discussing the meanings of information and the objectives of the accounting
systems. The importance of accounting information in the decision-making
process is also explored, and the influences of market mechanisms and
regulation on the role of accounting are explained, including their effect on the
Libyan context.
The third part of the thesis is divided into three chapters. The data collected
from the IS and the GCP are presented as two case studies in Chapter Seven
and Chapter Eight, respectively. These two chapters describe the data collected
from each case study and apply Globalisation Theory as a lens to examine the
role of accounting systems in Libya as a developing country. Chapter Nine is
devoted to drawing together these observations, reinforcing the contributions
of this research, its limitations, and potential for future study, and fulfilling the
16
purpose of the study, which is to identify:
• the importance of accounting systems in developing countries in a global
economy;
• the present role of accounting systems in decision-making, planning and
control in the Libyan context; and
• the potential role of accounting in Libya to enhance its economic
development, given its legal, economic, political and social, cultural
dynamics.
17
Chapter 2: Research Methodology
CHAPTER 2 RESEARCH METHODOLOGY
2.1 Introduction
The main aim of this chapter is to set the parameters within which the study is
to be conducted, specifically justifying the use of qualitative research, informed
by theory. This chapter argues that the social world is subjective in nature and
may be accessed through the interpretive approach provided by the people
involved in the context of the study. The chapter defines and distinguishes
between qualitative and quantitative research methodologies, explores Burrell
and Morgan's (1979) framework for social research, and presents the study's
adopted methodology and methods, with the rationale for these choices. The
data collection process and the fieldwork plan for the case studies in IS and
GCP are also outlined. The IS and other secretariats, such as Libya’s Economy
Secretariat and Planning and the Treasury Secretariat, are members of the
General People's Committee (See Chapter 5). The IS's responsibilities include
supervising industrial companies, one of which is GCP. IS has been chosen as a
user of information and GCP as a provider of information.
2.2 Qualitative Research Methods
A qualitative approach was adopted for this study, which was conducted over a
three year period. Qualitative research is a powerful method by which to
18
understand issues in social sciences.
2.2.1 A Case for Qualitative Research Method
Qualitative research is "an approach to the study of the social world which
seeks to describe and analyse the culture and behaviour of humans and their
groups from the point of view of those being studied" (Bryman 1995, p. 46).
Quantitative researchers have tended to view qualitative research as an
exploratory way of conducting social investigations. They see it as a useful tool
at the preparatory stage of a research project (Bryman 1995, p. 94) and yet there
are significant differences between the two methodologies. Stake (1995, p. 37)
divided the differences between qualitative and quantitative methodologies
into three areas. The first was related to the distinction between explanation
and understanding as the purpose of the inquiry. Qualitative research, he
suggested, was concerned mainly with understanding the complex
interrelationships between different variables, while quantitative researchers
were interested in explanation and control. The second area of divergence he
identified was related to the distinction between knowledge discovered and
knowledge constructed. Qualitative researchers believe that knowledge is
constructed rather than discovered (Stake 1995, p. 99). Proponents of qualitative
research see this methodology as a useful tool to expose actors' meanings and
interpretations. The distinction between the personal and impersonal role for
the researcher was the third major difference between qualitative and
19
quantitative studies highlighted by Stake (1995, p. 41). The personal influence of
researchers on the research setting is not acknowledged in quantitative
research, but is recognised in qualitative research.
Several authors (Creswell 1994; Bryman 1995; Neuman 2000, p. 20) have
provided a summary of the important dimensions on which qualitative and
quantitative research diverge. Table 1-1 summarises these differences according
to their view points.
Table 2-1 Some Differences Between Quantitative and Qualitative Research
Please see print copy for Table 2.1
The table shows that the relationship between the qualitative researcher and the
subject is close and the researcher is seen as an insider. Bryman (1995)
suggested that qualitative researchers can better view the world by getting close
to their subjects and becoming an insider within the research setting. In
20
contrast, the relationship between the quantitative researcher and the subject is
usually brief or non-existent, with the researcher seen as an outsider (Creswell
1994, p. 5; Bryman 1995, p. 94; Neuman 2000, p. 123).
With regards to the reality dimension, quantitative researchers tend to convey a
static view that exists independently of the researcher. It is based on the notion
that there is only one social reality. On the other hand, qualitative researchers
believe that social reality is constructed by the actor and can be changed.
Qualitative researchers try to preserve the multiple realities that may exist
(Cavana et al. 2001, p. 34; Creswell 2003, p. 18).
The role of theory and concepts within the two approaches is different. Theories
are the starting point for investigations within the quantitative approach
whereas developing or refining a theory is the concern of qualitative research
(Bryman 1995, p. 97). Qualitative data may suggest a theory to explain the
phenomena being studied, which can then be strengthened by quantitative
support (Eisenhardt 1989, p. 538). Research methods adopted in quantitative
research tend to be more structured than those adopted in qualitative research.
Quantitative research is structured in the sense that sampling determination
and data collection instruments, for instance, are designed prior to the data
collection process (Bryman 1995; Denzin and Lincoln 2003), whereas in
qualitative research project the subject being studied often evolves as the
21
research is undertaken.
In relation to research findings, a distinction is made between quantitative and
qualitative methodologies in terms of nomothetic and ideographic modes of
reasoning. The collection of large-scale quantitative data lends itself to a
nomothetic approach. While a qualitative study usually takes an ideographic
approach:
anomothetic approach seeks to establish general law-like findings which
can be deemed to hold irrespective of time and place; an ideographic
approach locates its findings in specific time-periods and locales (Bryman
1995, p. 100).
Thus understanding the reality of the practice of accounting objectives from the
participant’s perspective may better be achieved by collecting data through
ideographic methods. An ideographic approach is one where the researcher
obtains insights using techniques that take the researcher inside the subject of
interest, for example via personal encounter with the subject and/or
involvement with the subject’s “everyday flow of life” (Burrell and Morgan
1979, p. 6). Since this study acknowledges the Libyan context, qualitative
methods are more appropriate to achieve its objectives, through a case study
approach.
There are many valid reasons for doing qualitative research rather than
quantitative. The important one, and probably the most valid one, is the nature
22
of the research problem (Silverman 2006, p. 34). For example, research that
attempts to understand the meaning or nature of the role of accounting
information systems, with problems such as decision making, planning and
control and finding out what people are doing and thinking, can only be
conducted by using qualitative methods. Qualitative methods can be used to
explore substantive areas about which little is known, such as in Libya, or in a
situation in which much is already known, in order to gain a fresh and deeper
understanding. In addition, qualitative methods can be used to obtain intricate
details about phenomena such as beliefs, thought processes, and emotions that
are difficult to extract or learn about through more conventional research
methods (Strauss and Corbin 1998, p. 11). Qualitative researchers seek to make
sense of personal stories and the ways in which they intersect (Glesne and
Peshkin 1992, p. 1). Qualitative research is of specific relevance to the study of
social relations, owing to the pluralization of life worlds (Flick 2002, p. 2), and
hence is appropriate to this study, which investigates the role of AIS in meeting
the development needs of Libya.
Qualitative research is therefore most appropriate for this study of the Libyan
context. The accounting profession in Libya, for example, has a short historical
background (Kilani 1988). As a result, very little is known about its accounting
practices and the profession generally (Bakar and Russell 2003). Where studies
of Libyan accounting do exist (Bait-El-Mall et al., 1973; El-Sherif, 1978; Kilani
23
1988; Bakar, 1998), they have mostly provided general descriptions of the
accounting system in Libya, not the problems faced by the accounting
profession nor the strategies available to resolve these problems (Bakar and
Russell 2003). Libya has funded many students to study overseas (Kilani 1988)
and whilst these students have undertaken many research projects, most have
focused on research about other countries rather than Libya, because of the
difficulties of the availability of data in Libya. Access to data in Libya is
restricted, and governed by time-consuming and bureaucratic rules. The
opportunity to gain first hand knowledge of the way Libya’s accounting
systems work, can best be grasped by using a qualitative approach, with
interviews of people actually involved in accounting.
This study places an emphasis on a consistency between the purpose of
research and the theoretical, methodological and methodical choices. Thus, the
approach is mainly qualitatively based, and as such, relates to the interpretive
tradition. It seeks to collect data based on case studies, and to interpret that data
in the light of the economic development theory of globalisation. This is in
keeping with social science researchers who employ qualitative research
methods and who espouse an approach in which theory and empirical
investigation are interwoven (Silverman 1985).
24
2.2.2 Case Studies
Case studies include a variety of data collection methods including document
analysis and interviews, as well as the technique of data triangulation to
establish the validity of data. Data triangulation involves “using multiple
sources of evidence”(Yin 2003, p. 97). These are adopted in this study, for they
permit a greater understanding of the particularities of accounting objectives
and development needs in the Libyan research setting than do research
methods limited to surveys and questionnaires.
The term “case study” has been defined as "an empirical inquiry that
investigates a contemporary phenomena within its real-life context; when
boundaries between phenomenon and context are not clearly evident; and in
which multiple sources of evidence are used" (Yin 2003, p. 13). A case study is
therefore contextualised, "a detailed investigation, often with data collected
over a period of time, of one or more organisations, or groups within
organisations, with a view to providing an analysis of the context and processes
involved in the phenomena under study" (Hartley 1994, pp. 208-9; Hartley 2004,
p. 26). Hartley (1994) further argued that a case study approach is not a method
but rather a research strategy. Eisenhardt (1989, p. 534) described a case study
as a research strategy which focuses on understanding the dynamics present
within single settings. The terms case study method and case study strategy
have been used interchangeably.
25
Stake (1995, p.3) distinguished three purposes of a case study. First, a case study
can be employed to understand and learn more about a particular case. This
type of case study is called an intrinsic case study. Secondly, a case study can
assist in understanding something through studying something else. The aim in
this case is to accomplish something other than understanding just a particular
case. This type of inquiry is called an instrumental case study. Finally, a collective
case study refers to conduct of a detailed investigation where more than one case
is chosen. Case studies can involve either a single or multiple cases. Yin (2003,
p. 3) distinguished between three types of case studies: descriptive, exploratory
and explanatory. Scapens (1990, p. 265) added illustrative and experimental
case studies. In undertaking case studies, different methods can be used in
collecting and analysing data. These methods may be either quantitative,
qualitative or a combination of both (Hartley 1994).
The selection of a case study relies on theoretical sampling as cases are chosen
for theoretical rather than statistical reasons. Cases may be chosen to replicate
previous cases, extend emergent theory, or to fill theoretical categories
(Eisenhardt 1989, p. 537). Case study research will be used to explore and
understand the role of accounting information systems and relationships
between the Industry Secretariat (IS) and the General Company for Pipelines
(GCP) in Libya. These two organisations have been chosen since GCP is a
26
provider of information and IS is a user of information5. Thus both
perspectives, the provision and use of accounting information, can be explored.
The current role of accounting systems was examined through the use of an
explanatory qualitative case study, a most effective way of gaining an
understanding of specific cases. The opposite side of this specificity, however, is
the difficulty of generalising the insights gained from the study. This will be
discussed further later in this chapter.
2.2.3 Use of Theory in Qualitative Research
The use of theory in qualitative research has been a problematic issue. In
quantitative research, the hypotheses and research questions are often based on
theories that the researcher seeks to test. In qualitative research, in contrast,
theory is often adapted or refined throughout the research process in an
attempt to link diverse and unrelated facts in logical way (Irvine and Gaffikin
2006, p. 134). Researchers will face many problems when they incorporate
theory into their research, for instance, clarifying the role of theory in
qualitative case studies, the relationship between theory and data, and how to
apply theory in their research (Llewellyn 2003). Llewellyn (2003) identified five
different levels of theorizing: metaphor, differentiation, conceptualization,
context-bound theorizing of settings, and context-free “grand” theorizing.
5
The IS owns 100 per cent of GCP’s capital.
27
According to the first level, peoples’ experience of the world is grounded in
metaphor. The use of metaphor is a way in which human beings make sense of
the world, by grounding their image of reality and experience in a familiar
picture (Llewellyn 2003, p. 668). Theories of differentiation highlight contrasts
in the study (Llewellyn 2003, p. 667). On this level, the researcher’s lens will
enable him or her to sift the qualitative data gathered into distinctive categories
that are set in opposition to each other. At the third level, concepts are theorised
by linking theory and structure to practice. The fourth level of theorising refers
to making sense of relationships between theory and data within a particular
context. It shows the setting for activity are important in understanding data.
Accounting as a human activity takes place within a social context, and
demonstrates the way social and organizational structures are intertwined.
Level five of theories according to Llewellyn (2003) refer to “grand” theory that
is theorisation by explaining impersonal, large scale and enduring aspects of
social life, at a society-wide level (Irvine and Deo 2006). This type of research is
concerned with ideas, philosophical underpinnings, or a meta-theory that
explains the world. Research outcomes are formed when a societal view is
projected onto the world scene.
In the present study, the third and fourth theoretical levels are applied to the
Libyan context by using an economic theory of development. The study argues
that there is a close connection between the environment of the country and its
28
accounting practices as represented in Figure 1-1.
In any study, the application of a theory to accounting represents the
outworking of the researcher’s philosophical beliefs. Four paradigms have been
identified as being available to researchers studying a phenomenon. Burrell and
Morgan (1979) combined the objective-subjective and regulation-radical change
dimensions and produced a matrix defining four key sociological paradigms.
These four paradigms are labeled as functionalist (acknowledging an objective
reality and concerned with regulation), interpretive (seeing reality as
subjectively constructed and concerned with regulation), radical structuralist
(objectivist and concerned with radical change) and radical humanist
(subjectivist and concerned with radical change). These paradigms are
portrayed in Figure 1-2, and according to Burrell and Morgan (1979, p x), are
founded upon mutually exclusive views of the social world. Each stands in its
own right and generates its own distinctive analyses of social life.
The radical humanist paradigm is defined by its concern to develop a sociology
of radical change from a subjectivist standpoint. It emphasizes individual
perceptions and interpretation, it views the social world from a perspective
which tends to be nominalist, anti-positivist, voluntarist and ideographic
(Burrell and Morgan 1979, p. 32). The radical structuralist paradigm treats the
social world as being composed of external objects and relationships
independent of any particular person. It approaches these general concerns
29
from a standpoint which tends to be realist, positivist, determinist and
nomothetic. Theorists located within this paradigm advocate a sociology of
radical change from an objectivist standpoint (Burrell and Morgan 1979, p. 34).
From a functionalist viewpoint, the social world is composed of relatively
concrete empirical phenomena which exist independently of particular human
beings. Thus, functionalists apply the methodologies used in the natural
sciences to analyse the way accounting systems work. By doing this they
assume they are neutral, objective, and value-free observers of the role of
accounting systems under investigation (Burrell and Morgan 1979, p. 26).
Functionalists also accept power and political arrangements as given and so
consider the existing power structure as unproblematic. Their concern is to
search for workable solutions to practical problems which will help accountants
and managers achieve better alignments of these systems with other
organizational elements and forces.
Figure 2-1 Four Paradigms for The Analysis of Social Theory
Please see print copy for Figure 2.1
30
The interpretive paradigm was useful for this study because it produces rich
and deep understandings of how managers and employees in organizations
understand, think about, interact with, and use accounting information in
decision making, planning and control. The interpretive paradigm is informed
by a concern to understand the world as it is; that is, to understand the
fundamental nature of the social world at the level of subjective human
experience. The focus is an individual meaning and people’s perceptions of
reality rather than any independent reality that might exist external to human
perception. The social world is perceived as an emergent social process which is
created by the human individuals concerned (Burrell and Morgan 1979, p. 28).
According to the interpretivist paradigm the role of accounting systems does
not stem predominantly from social structures which exist independently from
accountants and managers, but is reflexively developed. This study takes an
interpretive approach at the level of collecting and studying data, but moves to
more functionalist approach in proposing changes in Libya’s accounting
systems.
To sum up this section, qualitative methods are often more useful for the study
of how language and meaning evolve and are modified, and therefore to study
how accounting meaning is socially generated and sustained. Indeed it is
because there are so many ways of conceptualising the role of accounting that a
certain degree of prior theorization, in the form of a theoretical lens, is
31
considered necessary, in order to limit the complexity and make sense of the
results. For the present study, theories of economic development have been
chosen as a theoretical lens, considered against a backdrop of accounting in
developing countries, public sector reform and state control. The study does not
intend to test or validate theory; rather it uses theory to assist in organizing
ideas and identifying themes, while remaining open to the possibility that new
theory may emerge from the data. The next section will discuss the way in
which the IS and GCP studies were conducted.
2.3 The Conduct of the Studies
Archives, observations, questionnaires and interviews are among data
collection methods which may be adopted when undertaking case study
research (Eisenhardt 1989, p. 534). The benefit of using documents is to
corroborate and augment evidence from other sources (Yin 2003, p. 87). The use
of multiple sources of evidence in case studies allows an investigator to address
a broader range of historical, attitudinal, and behavioural issues. However, the
most important advantage presented by using multiple sources of evidence is
the development of converging lines of inquiry, a process of triangulation
mentioned in the earlier section of this chapter. Gathering data by studying
documents follows the same line of thinking as observing or interviewing. The
potential usefulness of different documents should be estimated in advance and
32
time allocated so that it is judiciously spent (Stake 1995, p. 68).
Participant observation is probably the collection method with which
qualitative case study research is most closely associated (Bryman 1995, p. 46).
Through participant observation it is possible to describe what goes on, who or
what is involved, when and where things happen and how they occur (Stake
1995). Participant observation is especially appropriate for exploratory studies,
descriptive studies and studies aimed at providing a theoretical interpretation.
The main advantage of this method is that it enables the researcher to collect
first-hand data in a natural setting. Moreover, researchers can understand and
interpret the observed behaviour, attitude and situation more deeply than by
using only questionnaires or interviews.
However, one of the disadvantages of being an observer is the inability to
observe and record all actions in a setting. The main disadvantage is that
individuals who may find it difficult to translate the events into useful
information make most of the observations. Other problems are concerned with
ethics, confidentiality, objectivity, visibility and the impact of the researcher on
those being observed (Neuman 2000, p. 363). Observer bias may arise due to
different interpretations of an action, event or behaviour. Due to the above
limitations, time and cost constraints, participant observation were not adopted
as the main data collection method in this study. Data collection was
accomplished through archival information, interviews, meeting attend and the
33
distribution of questionnaires.
Questionnaires have already been identified as a technique primarily of
quantitative research. They allow the researcher to collect data from a large
sample. It is considered to be cheaper than other methods such as telephone
questionnaires or interviews. However, in spite of the advantages of
questionnaires as a tool for data collection, there are some disadvantages of this
method, one of the main ones being the misinterpretation of questions by
participants. Low rates of response and unanswered questions are the most
common problems with posted questionnaires. Furthermore, questionnaires are
criticised for not allowing respondents to express freely their views due to the
limited and pre-determined answers of the questionnaires. Consequently while
the questionnaire method is not the main data collection method used for this
study, the use of questionnaires which are administered by the researcher to
interviewees in person has many advantages as a data collection method. For
this reason, a relatively small questionnaire was used to support the data
collected using the major data collection method of the study (that is,
interviews), and was administered to participants within the GCP (see
Appendix VI).
The interview method of data collection has three main features that distinguish
it from other methods: it is a highly flexible method; it can be used almost
anywhere; and it produces data of great depth (King 1994; King 2004; Van der
34
Velde et al. 2004). The interview has a wide variety of forms and a multiplicity
of uses. The danger of using this method is that researchers may feel that it is
too familiar, straightforward and even boring. If the goal of a qualitative
research project is to see the phenomena from the perspective of the
interviewee, and to understand how and why he or she comes to have this
particular perspective, then an interview is a most useful and appropriate data-
gathering technique. The most common type of interviewing is an individual,
face-to-face verbal interchange, which can be structured, semi-structured or
unstructured.
Interviews were conducted because it is acknowledged that the interview is a
powerful method of data collection. It provides an opportunity to ask for
clarification if an answer to a questionnaire question is vague (Tashakkori and
Teddlie 1998). Interviewing was thus a vital source of data from employees
within the organisations. A key feature of the qualitative research interview
method is the nature of the relationship between the interviewer and the
interviewee. This view is based on seeing the interviewee as a participant in the
research, actively shaping the course of the interview rather than passively
responding to the interviewer’s pre-set questions (King 1994, p. 15; Jones and
Gratton 2003, p. 142).
There are several sources of bias or error arising from carrying out an interview.
Saunders et al (2003, p. 252) described three types of bias to be considered when
35
conducting interviews. These were interviewer bias, interviewee or response
bias and sample bias. Interviewer bias is related to the interviewer's comments,
tone or verbal behaviour during the interview that may affect the interviewee
response. Interviewee bias occurs when an interviewee gives biased answers
either to conceal some facts or to please the interviewer. Sample bias may occur
as a result of bias in the individuals or organisational participants who agree to
be interviewed. These may not have the information the researcher is looking
for to answer the research question(s) and to achieve the research objective(s).
2.3.1 Data collection from IS
Data were collected mainly through semi-structured interviews with senior
managers and officials within the IS (see Appendix V). Although gaining access
and obtaining data were difficult, social and personal relationships played an
important role in supporting the formal request to collect the data from the
research setting. The IS interviewees were all male, except one, and their place
on the IS organisation chart is shown in Figure 7-1. In addition to these seven
interviews conducted within the IS, the Director of Companies and the
Investment Department in the General Board for Companies and Public
Economic Units Ownership were interviewed. This Board was a newly created
Board whose purpose was to evaluate all IS companies’ fitness for privatisation.
The interviews, which were held in July, August and September 2004, lasted
36
from forty-five to ninety minutes duration, and were sometimes conducted in
two stages. Using the tape recorder allows a researcher to concentrate fully on
the respective interviewees’ answers and thoroughly observe their non-verbal
behaviour. However, none of the seven interviewees agreed to their interviews
being tape-recorded. This was because of the sensitivity of the issues being
discussed. An outline of the main issues contained in the interviews was given
to interviewees prior to starting the interview (see Appendix III). Notes were
taken during interviews, and manual analysis of the interviews was
undertaken, summarising the main points and issues raised.
The researcher was given access to review some IS documents such as
productions annual reports and budgets. This data was reinforced by
observations and informal discussions made in the IS context.
2.3.2 Data Collection from GCP
The researcher has relied primarily on interviewing a number of prominent
people from the Finance Department in the GCP and examining relevant
documents which are related to the role of data and financial information. A
total of fourteen interviews (see Appendix V and Figure 8-3) were conducted
within the GCP.
At the start of each interview, the researcher acquainted the interviewee with
guidelines that clarified the subject of the research (Stake 1995, p. 65; Jones and
37
Gratton 2003), and then sought permission to use a tape-recorder to record the
interview. The option was provided to have the details of the interview
recorded in writing. From the fourteen interviews conducted, only one person
agreed to the use of audio-taping, while all the rest refused (Shareia et al. 2005).
Some expressed the view that they would be more relaxed without the use of
audio-taping, and could provide more realistic answers to the questions. This
encouraged the researcher to set aside tape-recording in the interest of the main
objective of acquiring data and information (Stake 1995; Jones and Gratton
2003).
All participants except one were male, and the duration of the interviews
varied. The interview with the Director of Financial Affairs lasted five hours
and 10 minutes; the interview with the Internal Auditor lasted one hour and 15
minutes, and the remainder of the interviews lasted an average of ninety
minutes. The interviews were conducted during July, August and September
2004, and on some occasions the interviews with some of the people were
undertaken over two consecutive days, as in the case of the Production
Manager. This occurred when pre-organised schedules intervened. At the start
of each interview, the researcher asked participants a simple and conventional
question, to describe the nature of their job and its significance to the company
(King 1994; Jones and Gratton 2003; King 2004). The questions sought to
determine information about the nature of the relationship between GCP and
38
the IS, in the past, on a state level, or in the present, on the Sha`biya
(Municipality) of Benghazi level. The questions also sought information on the
relationship with other bodies that required information, such as the Treasury
Secretariat, the Board of Inspection and Control, the Inland Revenue (The Tax
Office) and others (see Appendix II). The researcher also conducted discussions
with the workers in the company regarding many various measures relevant to
the subject of the study.
An individually administered questionnaire was used to supplement
information from interviewees in GCP, the site of the present study.
Questionnaire forms were distributed to ascertain workers` views on the role of
accounting systems in the development plans in Libya. 28 questionnaire forms
(see Appendix I) were distributed in the GCP Finance Department to survey
accountants’ views on the role of the accounting system within the company in
strategic decision-making associated with development plans. 22 of those forms
were returned, completed, a response rate of 78.6% The questions were
specifically focused on the role of the accounting systems in the company, the
information produced by the accounting systems and their significance and
advantages in decision-making, control, planning and supervision.
The accounting literature shows that the type of data that needs to be collected
are those specified to serve the study objectives. In this case, these data were
39
divided into the following:
• information associated with the extent of the significance of accounting
information in decision-making;
• information associated with the reasons regarding why accounting
information was not so important in decision-making;
• information related to factors that hinder the development of accounting
applications in Libya (educational factors, professional factors and
others); and
• information that shows in whose interest accounting is carried out.
Following the definition of the type of questions in the questionnaire form, the
questions were then formulated into four areas as outlined above. Many
considerations were taken into account when setting up the questions contained
in the questionnaire. Among these were (Hussey and Hussey 1997, p. 165):
• the questions had to be formed in series and associated with one another,
• questions started from simple and general questions and moved to
specific questions;
• there must be a specified objective for each question related to the
research problem;
• clarity and simplicity must be observed as well as avoiding- where
possible- the use of technical terms, which have more than one meaning,
40
when setting up the questions;
• the questions were to be as short as possible to give required meanings;
• questions were not be exaggerated so as to avoid the questionnaire form
being neglected or ignored so that respondents would read meticulously;
• the questions were not to be formulated in a way that might bring
embarrassment or prejudice, or impel participants to resort to a certain
way of answering the questions;
• questions were not to deal with sensitive subjects such as security, or
military or religious issues;
• questions that required professional answers were limited to the lowest
possible level;
• insignificant, provocative and scornful questions were to be avoided; and
• questions were to be earnestly formulated without any obscurity, and
were to be common questions, seeking common sense answers.
After defining an appropriate questionnaire, and formulating the questions, a
method and a standard for the answers were defined. A Likert Scale was
adopted, in this case a five-point scale, to extend the anticipated answers of the
questions, and for the answers to be a more realistic measure of the
participants’ approaches and stances (Sekaran 1992) ( see Appendix I).
A copy of the financial reports of the company from 1993 to 2003, a copy of the
production report for the years 2002, 2003 and the first half of 2004, in addition
41
to the sales reports for the same period, a copy of the company’s organizational
chart and its statute, were provided. This information and data were used to
better understand the role played by accounting systems in the GCP in
decision-making, supervision, control and planning.
2.3.3 Data Analysis
More information about the background of the IS and GCP and a brief
description of the administration, organizational charts and the financial system
will provided in chapters 7 and 8. Analysis of the data collected from the two
cases studies was undertaken manually by using spreadsheets.
Principally, the analysis process was applied to the fundamental data acquired
through personal interviews with the participants in the study, and from
documents and observations made in meetings. Qualitative analysis of these
data includes comment on them with a focus on observing some matters that
arose during the researcher’s presence in the company. Regarding quantitative
data, due to the small size of the respondent population (less than 30
participants), and because of the contrast in the unknown population, a
descriptive statistics test was employed and the result of it was determined
(Witte and Witte 1997). Discovering and understanding the role of accounting
systems in providing useful data for the development plans, and the extent of
the feasibility of these systems primarily in providing data and information,
42
were the key objectives in gathering and analysing data.
2.4 Producing Generalisations
Case studies seem a poor basis for generalisation, particularly for quantitative
researchers, who typically deal with large sample populations (Ezzamel et al.
2004, p. 299). In this study only two cases will be studied, but these will be
studied in depth and at length. Certain activities, problems or responses will be
shown to have come up again and again. As a result, the researcher may
become convinced that certain generalisations can be drawn. On the other hand,
the ability to generalise from case studies is not usually the main concern for
researchers adopting this method. Scapens (1991) and Yin (2003) distinguished
between theoretical generalisations and statistical generalisations. A case study
“does not represent a 'sample,' and the investigator's goal is to expand and
generalise theories (analytic generalisation) and not to enumerate frequencies
(statistical generalisation)” (Yin 2003, p. 10). The unique circumstances of each
case study make generalisation a difficult task. Scapens (1990) argued that
statistical generalisations, as opposed to theoretical generalisations, do not
explain; rather they only indicate the statistical regularities. The aim of the case
study is not to understand other cases but to understand a particular case (Stake
1995, p. 8) and any researcher bias that might affect the result of the study.
The two case studies adopted here did not attempt to locate universal truths or
43
generalisable theories in order to explain the role of accounting systems and
processes. Therefore, the objective of using the case study method in the current
study was to provide limited generalisations about the role of accounting by
understanding the role of accounting objectives within the GCP and
accountability relationships within and between the IS and the GCP. However,
the final result of this study may reflect the situation of the industrial sector in
Libya. This is because of the similarity of the Libyan environment and the
public ownership of all enterprises. Theoretical generalisations from this case
study show how and why the GCP provides its private information to
stakeholders, in general, and to the IS, in particular. The present study shows
differences in the role of accounting information between Liberal market
economies and the Libyan Socialist oriented economy, but also provides
evidence of similarities in that role between organisations within Libya.
2.5 Drawing Conclusions
The process of collecting data was divided into four major steps: data collection,
data display, data reduction and conclusions, both informed by and informing
theory (Miles and Huberman 1994, p. 12). Figure 2-2 illustrates these steps and
their interrelationships. As mentioned, data was collected mainly through the
use of interviews from participants within the IS, the GCP and other
Institutions (such as the Tax Office, and the Public Control Office,). A fieldwork
44
plan was prepared to guide the researcher in the data collection process (see
Appendix IV). The plan described the research setting and the main actors to be
invited to participate in the study. It also highlighted the issues to be discussed
with the participants. The interview process, the number of interviewees, the
timing of interviews, for the IS and the GCP are explained in more detail in
Chapters Seven and Eight.
Figure 2-2 The Process of Data Collection, Organisation and Analysis
Displaying the interview data in tables and other forms is a helpful tool to
reduce, categorise, understand and interpret the data (Miles and Huberman
1994, p. 11). Therefore, after the collection process, data were grouped and
reduced into different categories manually. This process helped to move from
45
burdensome unorganised data to more organised data from which patterns
emerged. Categorising the data helped the researcher to develop an
understanding of how accounting information was practised and understood
by participants. From these patterns and through a theoretical lens of Economic
Development Theory, conclusions were drawn based on the researcher’s
interpretation of the participants’ view points. In order to encourage feedback,
participants were given an outline of the researcher’s impressions. The
participants were then invited to comment upon it. Receiving feedback from
participants was important as a source of assuring the conformability of
observations (Miles and Huberman 1994, p. 275; Stake 1995, p. 115).
After collecting and analysing the data, an account of each case study was
made. From the data gathered from these cases and the conclusions drawn, an
assessment was able to be made of the present state of accounting in Libya, and
what action would be needed to advance the role of accounting in order to
enhance Libya’s economic development.
The above discussion argued for the adoption of the interpretive approach of
social inquiry to understand the role of accounting information in the IS-GCP
context. Ideographic methods were argued to be more suitable than nomothetic
methods to understand socially constructed reality. The case study method was
adopted to understand the role of accounting information systems in IS-GCP.
46
Chapter 3 Theories of Development
CHAPTER 3 THEORIES OF DEVELOPMENT
3.1 Introduction
“Development Theory by itself has little value unless it is applied, unless it
translates into results, and unless it improves people’s lives” (Lewis T.
Preston, Former President, World Bank, Quoted in Todaro 2000, p. 77).
The aim of this chapter is to provide an understanding of the role of AIS in
developing countries in a global economy with special reference to Libya.
Chapter one identified the role of accounting systems used in Libyan public
sector organisations and their contribution to Libya’s economic development as
the focus of this research. It also described the validity of a qualitative approach
to the study, outlining various dynamics in the way the study was presented,
one of which was the use of theories of development as a framework through
which the data is to be studied and interpreted. Chapter Two argued the role of
accounting studies have been based mainly on economic theories and
conducted in liberal market economies with few studies on developing
countries. This study extends this argument to developing countries. To explore
this argument, reviews of four different theories of economic development are
discussed. The chapter first considers these theories of economic development
and shows how significant AIS are in developing countries in the global
economy. The purpose of this chapter is to review alternative theories of
47
development and assess their relative applicability the study of AIS in
developing countries, and Libya in particular. Finally, this chapter will select
the theory most suitable for this study and justify why it is most suitable.
3.2 Three Theories of Economic Development
Within the discipline of Economics, there is a subcategory of economic
development, which is somewhat new. It seeks to apply identified tools and
approaches to the economic, social and institutional aspects of developing
countries in order to achieve improvements in the standard of living (Belkaoui
1994, p. 2; Todaro 2000, p. 7). The focal point of this kind of economics is the
economic condition of developing countries regarding these matters and the
development of policies that improve a nation’s position economically, socially
and institutionally. Theories of Development were stimulated by the situation
in the mid 20th century when decolonization occurred and the economic
disparity between European and underdeveloped nations became obvious.
Others believe that it is more accurate to evaluate development economics as a
general provider of organized systems (Todaro 2000).
Consequently, social, economic and political aspects are included in theories of
economic development, which apply different models related to different key
concepts (Martinussen 1997; Roberts and Hite 2000). One effective method
through which the differentiation between various theories can be recognized is
48
by their classification, based on the primary concept each theory identifies as
the driver of economic development, whether internal or external. Several
definitions exist for development and offer different focal concepts. For
instance, Modernisation Theory stresses the cultural features of each society,
such as political, religion and culture. On the other hand, World Systems
Theory and Globalisation seek to evaluate external relationships and to define
different points in the development of countries. Consequently, every theory,
having identified a driving concept, then proposes specific strategies which
should be applied (Olson 1963; Parsons 1964) to achieve economic
development. Modernisation development Theory, with a focuse on culture,
suggests internal cultural reforms or changes in social or political organisations.
In a different way, Dependency Theory and World Systems Theory, with an
external focus, rely on external reformation policies that deal with relations
between dependent and independent countries (Cardoso and Faletto 1979;
Szymanski 1982). The following sections deal with four different theories of
economic development, highlighting the distinctive main focus and the
resultant policies of each. The main features of each are summarised in Table 3-
1.
3.2.1 Modernisation Theory
Modernisation Theory has been defined as a theory (Reyes, 2001a) that uses a
systematic process to move underdeveloped countries to a more sophisticated
49
level of development. It is a US and European-centric normative model of
development. The focus of Modernisation Theory is cultural change directed at
institutional structures in non-industrialized countries. Modernisation Theory
explains inequality within or between states by identifying different values,
systems and ideas held by different nation states (Martinussen 1997, pp. 61-66,
167-172).
Modernisation Theory emerged in the late 1950s when it appeared as a North
American political scientists’ reaction to the incipient failure of many of the
prescriptions of development economists (Rapley 2002, p. 15). While
Modernisation Theory stresses the importance of political development in the
progress and climactic improvement of a nations’ economic standing, it also
acknowledges social and cultural reforms. It should be added also that
Modernisation Theory is completely different from development economics,
which is the first or basic model of development theory. Modernisation is
appropriate for political development, but also can be used for any liberal
theories of modernisation that appeared after 1945 targeting the nation-states of
the Third World (Berger 2004, p. 87). Consequently, the focal point of
Modernisation Theory is on political development with levels of coverage that
consider history, sociology, political sciences in general, and area studies.
It is a commonly held idea (Haque 1999, p. 72) that the reason for the emergence
of Modernisation Theory was the freedom of Third World countries from
50
colonization and the strategies employed during the Cold War by Western
countries in order to prevent these countries from being controlled by
communists. Haque (1999) refers to what Preston explicitly states about this
issue, pointing out that the U.S. presents Modernisation as an attack on the
former USSR’s widespread socialistic belief. Thus, Modernisation Theory is a
by-product of a political reaction against the communist ideology.
Theories of Modernisation, according to Chase-Dunn (2000, p. 216), stress the
shift of modern technology and develop institutions and labour habits
complementary to industrial production. They also consider the impact of
modern beliefs on people, families and society as a whole.
Modernisation Theory treats development as a phased process. Reyes (2001a, p.
2) referred to Rostow’s (1962) five identified stages, which give shape to the
Modernisation Theory of development:
• The traditional society;
• Preconditions for take-off;
• Take-off;
• The road to maturity
• The age of mass consumption.
Traditional society was famous for a limited range of production. Such a society
suffered from a false understanding of environmental capabilities and from a
51
shortage of technology and advanced tools that produced a limitation in
production. It represented a biased social classification pattern with the political
point of focus on a specific region (Rostow 1962, p. 311).
The first steps for advancement from traditional society in Europe stemmed
from two important happenings that occurred after the Middle Ages: the
development of modern science and ideologies and the subsequent land
discoveries that led to the increase in trade, and the competitive struggles to
avoid becoming European territories (Rostow 1962, p. 312). These are
considered to represent the preconditions for take-off.
The take-off stage starts from the rise of new industries with the application of
new industrial techniques, for example, the growth of cotton textiles, timber
cutting and the railroad industry (Rostow 1962, p. 317). The road to maturity
stage involves the widespread application of technology in its full range. This
phase is actually the time of expansion in which some new fields developed
into rivals of older sectors (Rostow 1962, p. 318).
As a society recognises its need for greater security, welfare and leisure to its
labouring forces, it moves into on age of mass consumption. This leads to the
provision of extensive private consumption like durable goods, and an
extension of power internationally for the nation (Rostow 1962, p. 323).
Guilhot (2005, p. 120) recognized that as a country moved to the age of mass
52
consumption, it sought development aid and foreign support. Along with this
support came expectations of democratization on the part of the developed
countries providing aid. This relatively conservative understanding emanated
from a hegemonic U.S. belief in the rights of human beings.
Based on the last two stages identified by Rostow (1962), which are the road to
maturity and mass consumption, accounting plays a vital role as a modern
technology. This is, of course, desirable, but Modernisation Theory ignores the
particular concerns of developing countries because the main objectives of the
accounting systems based on the developed country model are to satisfy the
needs of shareholders. In many developing countries, however, few enterprises
have private shareholders, investment decisions are often not made on financial
grounds, and the market for information is relatively undeveloped and
imperfect. The role of accounting systems in developing countries is therefore
seen as inevitably being the adoption of those from developed countries. This
failure to take account of the unique characteristics and concerns of developing
countries is the main weakness of the theory and limits its applicability to this
study (see Table 3-1). The next section will discuss an alternative theory of
development, which is Dependence Theory.
53
Table 3-1 Comparison between four main Theories of Development

Dimension Modernisation Dependency World Systems Globalisation
Definition & Development as a Elements of neo-Marxist theory. Capitalism as the Greater global integration of economic
background systematic process. dominant system. transactions.
Model US & Europe- centric. Revolution of under-developed World- centric. US & Europe- centric, a positive model.
A normative model. nations
Focus Political; Cultural Totality of society. Social system Relations Communications and international ties
changes; Imposition of periphery. between
western values and countries.
policies.
Main direction Institutional structure. Differences between countries. Culture. Cultural and economic factors;
A phased process. communication; technology.
Problem of Un-industrialized. First World and Imperialism. Social changes. Communication systems need to adopt
underdevelop western-centric forms.
ment identified
Key points in Differing value Regions and structural Culture and the Cultural and economic factors
explaining systems and ideas. conditions. role of the state.
inequality Immaturity of systems.
Scope-unit of Nation-State. Nation-State. International Global Connection.
analysis Connections.
AIS in Adopted from Using developed countries’ Accounting is a Accounting is a global practice and a
developing developed countries. systems, which are cultural issue. western model is adopted in developing
countries. inappropriate. countries.
54
Dimension Modernisation Dependency World Systems Globalisation

Positive Takes modern Takes into account the Takes culture and Takes into account the global
Aspects technology into differences between developed social change into environment, and does not ignore the
consideration (Chase- and developing countries (Reyes account. Unites culture aspects of the developing nations.
Dunn 2000). 2001a). socialist countries It can be adapted more easily to the needs
(Wallerstein 1979) of a developing nation in a global
economy(Reyes 2001a).
Negative Completely ignores the Western, capitalist systems are It perceives that It does not take into account the dramatic
aspects particular concerns of viewed negatively, as there is only one growth rate of developing countries
developing countries inappropriate to publicly owned world system (Intriligator 2004).
(Rostow 1962). enterprises(Reyes 2001a).. which is
capitalism(Reyes
2001a).
Relevance to a Would view progress Would emphasise the Emphasises the Acknowledges differences between
study of AIS in as the adoption of ideological differences between dominance of developed and developing nations and
Libya western systems, capitalistic developed countries western systems the need for all countries to adapt to
irrespective of national and reject western influences at the expense of global world view in order to participate
characteristics developing in the global economy. Enables unique
nations cultural characteristics to be considered.
55
3.2.2 Dependency Theory
Dependency Theory has been presented as a theory of development that
improves Modernisation Theory (Reyes, 2001a). It combines elements from a
neo-Marxist theory and adopts a “revolution of under developed nations
model”. The focus of this theory is the totality of society and social system
periphery, which highlights the differences between imperialistic countries in
the first world and underdeveloped countries. Dependency Theory explains
these differences by focusing on regions and structural conditions in different
nation states. Although the radical dependency outlooks of Andre Gunder
Frank, Ruy Mauro Marinin, Thetonio Dos Santos, and Immanuel Wallerstein,
cited in Haque (1999), have the hue and revolutionary aspect of social change,
they do not demonstrate the exact result of classical Marxism or Leninism in
their evaluation and consideration of historical development and
underdevelopment. For example, although Wallerstein applies Marxist terms
like production mode, and challenges classes and state, he changes the order of
the cause and effect relationship that originally was believed to exist among
them from a Marxist viewpoint (Haque 1999, p. 111).
Within Dependency Theory there are several strands of thought about the
relationship between dominant and underdeveloped nations. There are several
basic differences between classical Marxist theory and radical Dependency
Theory. For instance, according to radical Dependency Theory, the lack of
56
equality in the “exchange” relation between the Third World and the capitalist
countries is the source of First World surplus. This is in sharp contrast to what
classical Marxism believes. In classical Marxist theory, the origin of surplus is
considered to be in the capital-labour relation that exists in “production” itself.
The two theories also have opposing views about the major basis of evaluation.
Marxism considers “class” as the basic core of analytical study while
Dependency Theory sees the “capitalist system” of the world as the main focal
point of theoretical evaluation. Marxist theory is able to recognise different
production means everywhere in the world, but Dependency Theory limits
itself to the capitalistic mode of production. While in Marxist theory there is a
dynamic system of active production, in Dependency Theory the structure of
development and underdevelopment is passive and monotonous. Marxist
theory emphasizes the progressive role of capitalist intervention in the Third
World countries, while Dependency Theory views it as the main cause of their
underdevelopment. Referring to all these contrasting features, Dependency
Theory is different from Marxist theory (Haque 1999, p. 112, citing Bernstein
1979).
Muuka (1997, p. 670) remarked that Dependency Theory belongs to a school of
thinking that is not isolated from world events but took shape immediately
after Latin American disappointment that the commercial benefits guaranteed
by neoclassical theory failed to eventuate. Todaro (2000, p. 91) believed that,
57
according to international dependence patterns, Third World countries are
basically under the rule of the politics, institutions, and the economy of the
developed countries themselves or of other countries of the world that are
controlled by dominant wealthy countries.
According to this theory, the system of the capitalistic world causes a labour
upheaval that damages the domestic economies of under-developed countries.
It diminishes the economic growth rate and ends in the increased inequality of
income. It also has a negative effect on the welfare of the majority of people.
Further, since there is no basic equality in the goods that are processed and the
exchanged raw materials, major and minor countries have been separated from
one another more and more by the application of trade dependency. This has
also caused a relatively long-term decrease in the price of primary goods
compared with the prices of processed goods. In the same way, Shen and
Williamson (2001, p. 263) remarked that a focus on the export of specific raw
materials will result in a country having an unbalanced reliance on only one
sector. They add that, this way, the amount of taxes the government can receive
will be diminished and, consequently, this influences in a negative way the
government’s ability to fund health and social programs. They referred to what
modern trade dependence theorists believe about unification with the global
economy, consisting of foreign investment, trade and loans that increase the
growth of the economy. Such unification is considered by Dependency
58
Theorists to decrease economic growth.
Reyes (2001a, p. 4) saw some common features in Modernisation Theory and
Dependency Theory despite their contrasts. Both theories basically focus on
Third World development conditions. In both theories, the methodology
emphasizes the development process and applies the major unit of nation-state
for evaluation. Similarly, they both apply the perspective that follows a bilateral
structured theoretical system, which on one side covers the modern traditional
system and on the other includes minor-major dependency. Reyes (2001a) also
indicated that there was one aspect for which both Modernisation and
Dependency Theory were criticised recently: the fact that both theories still
construct their ideologies based on the nation-state unit. The role of accounting
systems in developing countries is dependent according to UN and World Bank
guidelines, on the adoption of systems from developed countries. These are
sometimes inappropriate, given the public ownership of enterprises (see Table
3-1). For this reason, we can take these theories as being distinct from World-
System or Globalisation Theory. The emphasis of these two theories is on
universal relations, specifically those related to financial matters, trade, military
and technological interconnections (Reyes 2001a, p. 6).
3.2.3 World Systems Theory
World Systems Theory uses other levels of quantitative analysis, though it
59
admits that there is no set of processes in World Systems Theory that is
applicable to all economies. World Systems Theory argues that international
trade specialization and transfer of resources from less developed countries to
developed countries (known as a “core” countries) prevents development in
less developed countries by making them rely on core countries and by
encouraging peripheralization (Szymanski 1982). World Systems Theory
therefore views the world economy as an international hierarchy of unequal
relations. A country can change its position in the global hierarchy with
changes controlled by the “World System”. Relations between countries are
similar to what developing theorists described (Szymanski 1982). In other
words, wealth is taken from semi-periphery or periphery zones to economies in
the core countries.
World Systems Theory is a theory of development that deals with different
forms of capitalism world-wide (Reyes, 2001a). It thus takes a world-centric
view and focuses on the relationship between countries. This relationship is
directed by culture through social change. World Systems Theory explains
inequality by identifying different cultures and the role of the state in
international connections.
Reyes (2001a, p. 6) identified the origin of World Systems Theory as capitalism
in its various forms in different parts of world, specifically since the 1960s. From
this date onward, Third World countries tried to raise their levels of life-style
60
and develop their overall situation. Such development started when
international trade interactions played an important and influential role
compared to the national government roles and activities, which became less
significant. Such international economic interrelations caused radical
researchers to conclude that new practices in the economy of the world in
capitalistic theory are very difficult to define, considering the limitations of the
Dependency Theory point of view. Still, Reyes (2001a) concluded, most
theorists of World Systems Theory consider that, as a whole, this is the only
theory that unites the socialist countries in the twentieth century.
For Wallerstein (1979, p. 5), World Systems is a multiple cultural system with a
single division of labour. He argued that the basic feature of this system is
having a pool of labour in which different divisions and areas are dependent
upon each other in exchanging the provisions of those areas (Wallerstein 1974,
p. 390; Wallerstein 1979, p. 5). As Szymanski (1982, p. 57) pointed out, most
theorists of the World Systems school argue that there is only one World
System, the capitalist world-economy, and specifically that this single system
incorporates the socialist countries. In the nineteenth and twentieth centuries
especially, there was one only world system, namely, the capitalist trade
economy.
Onyemelukwe (2005, p. 16) traced the source of World Systems Theory in the
early 1970s as a reaction against Structuralist theories. This viewpoint did not
61
accept the idea that the wrong model of social structure would lead to countries
becoming impoverished. According to this idea, it is the foreign capitalistic
countries that are responsible for the underdevelopment of such poor countries.
Paradoxically, the way ahead for underdeveloped countries is to adopt the
practices and systems, including accounting, of developed nations. These
changes inevitably have a negative cultural impact (see Table 3-1).
Reyes (2001b, p. 1) observed that the methods of international relations with the
focal point of geopolitics, the neoclassical theories of the economy that apply
comparative progress as a base, and the World Systems viewpoint with the
emphatic point of unequal exchange, all illustrate various patterns of
international systems. Rather than a two phase system, three types of country
classifications (Reyes, 2001b, p. 1) can be identified: core, semi-periphery and
periphery countries. The next section introduces Globalisation Theory as a
theory that addresses some of the limitations of Modernisation, Dependency
and World Systems Theories.
3.3 Globalisation Theory
3.3.1 Globalisation Theory Defined
Globalisation is a theory of development (Reyes, 2001a) that uses a global
mechanism of greater integration with particular emphasis on the sphere of
economic transactions. It is a US- and Europe-centric positive model of
62
development whose feature is the spread of capitalism around the globe. The
focus of Globalisation Theory is communications and international ties, with
these ties directed at cultural and economic factors in communication systems.
Globalisation Theory explains inequality by identifying cultural and economic
factors in global connection. Reyes (2001b, p. 2) claimed there are two major
meanings of the word “Globalisation”. One deals with the word as an event
when a sense of interdependence occurs throughout different countries of the
world in different aspects of communication, trade, and finance. The other
meaning that has been applied to the concept of Globalisation considers it as a
theory of economic development with the supposition of widespread
unification among different countries. This integration is believed to have an
effective influence on the development of economies and on the improvement
in social indicators.
As far as the term Globalisation is concerned, it includes degrees of change in
theories. For example, as Zineldin (2002, p. 37) stated, Globalisation has
transformed theory concerning development effort and its different definitions,
which is specific to every developing country. It can therefore be considered a
theory of economic development which provides constructive suggestions
about the ways in which developing countries can achieve the positive,
beneficial effects of developed countries. According to Zineldin (2002),
however, one can witness the problems that have been produced by
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Globalisation in developing countries. He traces the origin of such problems to
developing countries competing rather than cooperating with each other.
Religion, he states (Zineldin 2002), can affect Globalisation in exactly the same
way that culture can, as demonstrated by the instruction in the Quran that
cooperation is based on piety and goodness and shuns malice and devilish
deeds (Qur'an, verse 2 in sura 5; Zineldin 2002, p. 39). Zineldin (2002, p. 39)
takes Arabic countries, of which Libya is one, as examples of places where,
according to Islam, such an idea will help the sense of cooperation needed in
implementing Globalisation Theory. Similarly, Hamid et al. (1993, p. 132)
generalised the notion of religious cooperation to include not only Muslim but
also non-Muslim countries.
3.3.2 Background
As far as the level of interest is concerned, the phenomenon of Globalisation has
caused an increasing level of eagerness and attraction in different academic
disciplines since the early 1970s (Unerman 2003, p. 425). Graham and Neu
(2003, p. 449) reflected on the unfortunate lack of sufficient understanding
about Globalisation, despite the unlimited and increasing coverage that the
mass media dedicate to Globalisation and its issues, pointing out that modern
critics have been dubious about considering “Globalisation” as a theory. They
(Graham and Neu, 2003, p. 449) believed that this is specifically because of
social theorists like Marx, Engles and Adam Smith that such an interpretation of
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Globalisation has been created among people today. More explicitly, Graham
and Neu (2003, p. 450) undermined the authenticity of Globalisation as a theory,
claiming that it is nothing but a modern, attractive fashion.
Considering the concept of Globalisation in relation to markets, Everett (2003)
traced its emergence in the article by Theodore Levitt (1983), and claimed the
concept of Globalisation itself had been applied for many years, specifically
after the revolution in the world of technology. Levitt believed that a strong
wave has appeared that is moving the world towards a kind of shared
condition. He ascribed this powerful force to the emergence of technology.
Moreover, Levitt pointed out the importance of such a wave with its easy and
cheap availability to the isolated parts of the world and poor nations.
Consequently, everyone ought to be able to enjoy equally the fruits of modern
economic prosperity. Communication systems increasingly cause the
appearance of commonality, which makes the markets homogeneous
throughout the world (Levitt 1983, p. 20).
Nonetheless, however the term Globalisation is defined, the story of its
increasing emergence in academic arguments goes back to the early 1980s. As
Clark and Knowles (2003, p. 361) indicated, it has been the active and dynamic
feature of the age, although it is still under evaluation and strict consideration is
given to matters dealing with its meaning and specifications. The main reason
for this focal investigation is that Globalisation has always been studied
65
independently and separately from other related fields, each with its own filter.
This kind of perspective has led to the one-dimensional growth of theories with
a limited consideration of the subject. In international business also, the
existence of several elements blocks the appearance of an inclusive
consideration of Globalisation. Considering such a situation, it is wise to ask if
there are any risks or outcomes in the case of Globalisation. It is not correct to
think that Globalisation has an equal influence on the rich and the poor. In the
same way, it is not true to undermine its value by saying that it is only a kind of
new liberal movement. It is not wise either, for example, to define it as the
continuation of the idea of neo-colonialism. The best way, as Everett (2003, p.
402) suggests, is to be doubtful and cautious about the two polarised views.
3.3.3 Features of Globalisation
Globalisation has positive and negative effects. It has led to increasing global
competition. Despite many organizations, especially in developing countries,
worrying about competition, there are a lot of beneficial effects of competition
such as increasing production and efficiency. In some cases, competition has led
developing countries to improve their economic situation. Moreover,
Globalisation may increase productivity as a result of the rationalization of
production on a global scale and the spread of technology (Intriligator 2004, p.
490; Tanzi 2004, p. 526).
66
Indeed, if we aim to introduce Globalisation as a constructive theory having a
fruitful effect, it is necessary to trace in detail the foundations on which it is
based. Globalisation Theory makes us recognise that communication is
increasing on a daily basis and every day more countries are finding it easy to
put themselves in an interacting relationship; this kind of interaction is not
limited to government affairs but can be seen among the public as well (Reyes
2001b, p. 2; Stiglitz 2004a, p. 18). Such interrelationships not only exist at a high
level among developed countries, but also are occurring with increasing
intensity among less developed countries. This kind of communication lets poor
countries apply new technology and enables them to participate in a global
context.
Modern communication mechanisms have led to positive changes in the
cultural and socio economic models of every nation (Reyes 2001b, p. 2). As a
result, as far as economic activities are concerned, minor local businesses can
benefit from technological improvements. It has also led to the creation of what
is, basically, a new atmosphere for operating any business affairs applying
productive sources, tools, and trading products with the positive help of a
“virtual monetary mechanism”. Culturally, the products that are the result of
these kinds of communication systems act as integrating models of
communication throughout the world, at least as far as they cover economic
business transactions. These kinds of communication systems are so powerful
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that they can affect the minorities of every country although such minorities are
not so involved with the modern pattern of communication. Due to the
presence of powerful political parties or business sectors in each country, the
ultimate decision-making of world interaction, however, is still western-centric.
Another viewpoint that is considered in Globalisation arguments is the
positional features of some countries. Their sharing of similar patterns of
relationships can act as linkages with other countries only in terms of the
regional relationship. That those countries’ characteristics are subject to various
changes, such as changes in the size of the economy, internal demand, the
structure of exports, the degree of economic and historical growth, even the
periphery position of international relations, is a much-discussed issue in
Globalisation (Reyes, 2001b, p. 1). Finally, it has been verified that focal
economic models among different countries, specifically those related to
financial construction and international trade, are connected to the models of
dependent development introduced by neo structuralists. Reyes (2001b, p. 1)
concluded that the Development Theory of Globalisation accepted these
matters and tried to reach an agreement on them.
The final major aspect of Globalisation Theory according to Reyes (2001b, p. 2)
is the effect on the living standards of the nations of social and economic
factors, which are themselves under the influence of the present Globalisation
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issue.
Three main points can be counted as basic presupposed ideologies of
Globalisation (Reyes 2001a). The first principle is that economic and cultural
factors determine social conditions. The second principle deals with the fact that
the nation-state unit loses its importance and value in the present global
conditions and also when a financial system is evaluated. This is because
international relations and universal communications cause this unit of analysis
to lose its usefulness. Finally, as technological progressions become more
standard, there is an increasing connection among social groups that leads to
the increased ease of economic transactions as well and the unification of social
and international groups.
3.3.4 Globalisation and Culture
In Globalisation Theory the signifying factor is the cultural element that stresses
the social and economic situation of the nation (Reyes, 2001a, p. 9). Weber (1985,
p. 23) held a similar view, declaring it to be like a comprehensive school,
involving various factors such as the main model of identity, ideologies, value
systems and subgroups that are taken to be the most important ones in defining
each nation’s economic and social features. Thus Reyes’ idea, obtained from
1920s Weberian theory, applies to the present condition of the world specifically
in matters of transferring and scattering cultural values that are influencing
69
several groups in all countries through the application of communication
systems.
Globalisation Theory proposes a great unified universal system with the focus
on areas of communication and economic relations. This is the feature that this
theory shares with the World Systems Theory, although the outstanding feature
of Globalisation lies in the emphasis it places upon, and attention it gives to,
cultural characteristics and the interconnection of such aspects in the world.
Reyes (2001a, p. 8) declared that “rather than the economic, financial and
political ties, Globalisation scholars argue that the main modern elements for
development interpretation are the cultural links among nations”.
3.3.5 Globalisation and Communication
Globalisation is therefore an interpretation of the events taking place globally in
economic situations, social plans, political and cultural effects and most
importantly, development. Moreover, being a series of theoretical ideals,
Globalisation includes two major developing categories: it underlines both the
universal dynamic system of communication, and current economic situations,
specifically those of highly active financial transactions and trade (Reyes 2001b,
p. 1). What is usually predicted in the process of Globalisation is that countries
will be more dependent on universal trade, financial mechanisms, and
interrelations. As a result, there is more unification in the world’s economic
70
systems. The progress of technology and communication has opened up
opportunities for local businesses. As a result, a completely different
atmosphere has emerged for all kinds of economic relations, the application of
productive resources, the existence of tools and business products and finally
the usage of virtual monetary mechanisms (Reyes 2001b, p. 2).
The influence of new models of communication on nations’ minorities is thus a
major aspect of Globalisation (Reyes 2001b, p. 2). The presence and the
authority of certain political groups or strong business sections can mingle with
a new communication system although the minorities cannot totally integrate
with such a mechanism. This is what Reyes (2001b, p. 2) explicitly referred to
when he said, that “the business and political leaders continue to be the
decision makers in developing nations”. Decisions in developing countries
often are made on an ad hoc or unilateral basis without reference to accounting
information and with little or no accountability to the general public. Thus, in
spite of global communications, dissenting minorities in such situation have no
opportunity to question decisions.
3.3.6 Globalisation and Unity (technology and accounting)
One of the positive points of global improvements in communication, which is
based on culture, is the dramatic development in technology, which facilitates
communication throughout the world (Reyes 2001b, p. 2; Tanzi 2004, p. 526).
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In the literature of accounting, basic studies of Globalisation have stressed the
influence of financial market liberalisation and accounting standards leading to
the proliferation of western accounting technologies around the world.
Following on from the views of Clark and Knowles (2003), Graham and Neu
(2003) added that, based on such research, we now know increasingly more
about institutional settings, such as capital markets. Unfortunately, there has
been a less emphatic attempt to discover the function of financial/accounting
operational systems and other centres in the distribution of general actions and
practices to places outside capital markets. The role of accounting systems in
developing countries is seen as being a global practice and it is undergoing
change in line with western accounting.
Generally, the development of sophisticated systems of communication and
globalised technologies means that nations are increasingly unified. One can
examine the results and the outcomes of such a unified condition from two
main viewpoints, the external condition and outward system, and the internal
or domestic situation of every country from within. As Reyes (2001b, p. 1) and
Smith and White (1992, p. 857) believed, from the second perspective, the units
of analysis lead to the country variables of economic growth or social
indicators. They add that the process of Globalisation that is happening at
present includes two major topics in the world political economy: the first one
is the format of the international economy, and the second is the way
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international relations have been changed as a result:
[t]his Globalisation approach suggests that the structure of the global
system and the roles that countries play within the international division of
trade and labour, are important in understanding a wide variety of social,
political, and economic changes within particular countries (Reyes 2001b, p.
1).
Given the increasingly global focus of world trade and politics, it is inevitable
that developed and developing countries will experience an increasing number
of interactions. To analyse different aspects of development therefore,
international relationships and connections thus play an important role, for
example in the connections related to financial issues among different nations
and their economic growth. As far as the notion of economic change is
concerned, the unification level among nations is the focal point of
Globalisation (Reyes, 2001b, p. 1).
3.3.7 Effects of Globalisation
Globalisation thus has several major drivers. One of its effects, according to
Everett (2003, p. 408) and Reyes (2001b, p. 2) is the increasing extent to which
nations are unifying with increasing ease regardless of the bounds of
government so that they can integrate within the community as well. Another
important characteristic of Globalisation is its ability to influence less developed
countries on a widespread scale, despite the fact that we might expect this
growth only in developed nations. This is the characteristic of the
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communication mechanism that enables groups that have a marginal existence
in poor countries to use new technology and consequently relate on a global
scale (Reyes 2001b, p. 2). This way, they can unify with the global village and
develop modern and up-to-date universal interrelationships, and dramatically
decreased the costs of data processing and information storage and retrieval
(Intriligator 2004, p. 486). The increased facility of communication, as a key
component of Globalisation, has, in turn, helped to speed technology transfer
from one country to another (Gomory and Baumol 2004, p. 428; Stiglitz 2004a,
p. 16).
One of the key effects of Globalisation is the unification of international
business and accounting, a system for financial affairs, communication and
technological advances, in addition to the dissemination of global culture and
technology from developed nations to less developed nations. According to
Reyes (2001b, p. 3), “economic integration at the systemic level, among
countries, means stronger worldwide relationships”, and at the sub-systemic
level, within individual countries, “it implies social and economic integration
from the different social sectors”.
Based on this notion, at the systemic or national level, some countries have a
greater capability than have others to participate in the economic condition of
the new world. Some social groups at the sub-systemic level have the ability to
unify themselves with the progressive economic factors that emerge from
74
economic development, but other groups are socially marginalised (Reyes
2001b, p. 3).
3.3.8 A critique of Globalisation
In spite of the claims of globalisation, there are challenges to its supposed
universal benefits. The disparity in global incomes is one of the probable
consequences considering the fact that the growth rate of developing countries
is more dramatic than the developed ones (Intriligator 2004, pp. 490-492). This
is evidenced by a limited number of countries called “tiger economies” in East
Asia, such as China, South Korea, Taiwan, and Malaysia that have a quicker
rate of growth than the least developed countries of Africa, Asia, and South and
Central America (Stiglitz 2002b, p. 17). This fact leads to a bimodal “twin
peaks” distribution of incomes (Intriligator 2004, p. 490), and as a result,
developing countries are going to become less powerful and lose their position.
In the meantime, probable international or even local instability can be
considered as another side effect of Globalisation which itself is the result of the
worldwide interdependency of economies. It may be the case that an economic
vibration or instability in one country can trigger global effects, as illustrated by
the financial crisis in Asia.
Through Globalisation, the control of national economies becomes the
monopoly of certain powerful units like nation states, international institutions
75
or strong multinational companies. This threatens the economic control of self-
governing, independent countries, which is why the leaders of some
developing countries think that Globalisation means their limitation and
imprisonment in the hands of powerful international forces, and voters feel
uninterested and discontented due to the perceived devaluation of their
government’s independence. The severe sense of instability of every kind in
addition to a harsh type of national devotion are manifestations of the negative
side of Globalisation, and can lead to a sudden national reaction and a probable
rise of traditionalism in politics.
It has been suggested that unemployment and lack of job opportunities in
countries with a high wage economy is a cost of Globalisation. However, the
relatively low rate of unemployment in most high wage countries and their
high rates in many low wage nations seem to disprove this idea. It is worth
mentioning that technological factors and the political approaches of each
nation determine the employment situation, not merely global trends.
Globalisation has also been condemned for threatening the traditions of the
society, but there are other elements which play more important roles in this
matter like the local budgetary approach or population-based factors. In each
case similarly, Globalisation is blamed for the weakness or incapability of
national policy (Intriligator 2004, p. 491).
In addition to the previously mentioned economic aspects of Globalisation,
76
there are other possible effects which are not economic, like probable costs, or
potential crises. The most risky factor is the issue of security, with the negative
side of Globalisation possibly leading to another world war or at least a serious
crisis. The Globalisation process can culminate in a desegregation of markets,
with catastrophic challenges both economically and socially.
According to Intriligator (2004) political turning points are considered another
side effect of Globalisation, which can grow from a limited local area to a
challenge on a large scale. He identified health and environment as two areas
which can be affected by the negative aspect of Globalisation, for example the
influenza epidemic of 1918 or global warming.
The effect of Globalisation on world poverty either in the scale of the country or
each person, is another important matter which should be considered. Based on
the measurement of poverty in a relative scale, the results vary in a dramatic
way. Salvatore (2004, p. 548) suggested that an estimation of the regular, time-
bound changes of the per capita income of the richest country (U.S.) compared
with that of the poorest country among 10 or 20 selected countries of each
group, is the best way to measure changes in relative poverty. Stiglitz (2002a)
emphasised that Globalisation caused the appearance of income inequality and
the emergence of poverty in the poorest developing countries in a large scale
over the past decades.
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Stiglitz (2004b, p. 468 ) also argued that countries could benefit from
Globalisation by selecting specific policies and institutions. He even considered
Globalisation as a good, strong motivation for the economic growth of
developing countries, but asserted (Stiglitz 2004a, p. 482), that Globalisation
under the auspices of the IMF had not been so well managed. Consequently,
Globalisation without good management influences the growth rate in a
different way in different countries. Generally, it the undemocratic usage of
Globalisation that has resulted in negative consequences in developing
countries, especially the poorest ones.
3.4 Globalisation and Other Theories of Development
Modernisation, World Systems, and Dependency are three major theories of
development that have been considered besides Globalisation. If we consider
Globalisation and Modernisation Theories comparatively, we can see they share
some similarities (Reyes 2001b, p. 3). Reyes (2001b) determined that all three
theories (Modernisation, Dependency and World Systems Theory) share a belief
in the way they regard the influence of the U.S. and Europe. The other common
characteristic of all theories concerns the fact that the most practical and
successful model of communication and the best equipment by which we can
gain a high standard of living are believed to be those originating from
developed regions.
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There are, however, differences between the four theories. Modernisation
Theory takes a normative position, i.e. it proposed a desirable solution to
development issues, Globalisation Theory focuses on the positivist viewpoint. It
focuses on communication and international ties (Reyes 2001a, p. 8),
emphasising the emphatic, determinative factors of culture and economy that
influence the political and social situations of countries (Reyes, 2001b). This is
exactly what the comprehensive social school of Max Weber claimed. Based on
this theory, the identity features of major and minor groups of each society,
such as sets of values, beliefs and models, determine every nation’s
characteristics economically and socially.
This Weberian notion is widely applicable to, and suitable for, the present
world condition, when cultural values are mingling with each other through
systems of communication that have an increasing influence on social sectors
(Reyes, 2001b, p. 3). Table 3-1 shows that the global viewpoint is the analytical
unit of both Globalisation and World Systems theories instead of the nation-
state unit which is the focus of Modernisation and Dependency Theories.
Regarding the differing point of Globalisation and World-Systems schools,
Etzioni (1981) claimed we should pay attention to the latter’s inclusion of neo-
Marxist elements, while the former signifies a structural and functionalist
sociological movement. As a result, he concludes that Globalisation Theory
leans more towards a systematic and gradual change mechanism rather than a
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sudden and violently abrupt transition model:
For Globalisation authors, the gradual changes in societies become a reality
when different social groups adapt themselves to current innovations,
particularly in the areas of cultural communication and the economic
sphere (Reyes 2001b, p. 3, citing Etzioni, 1981).
Both Modernisation and Globalisation Theories identify the major category of
development as the one defined by the U.S. and Europe. According to these two
theories, to achieve more practical tools of communication and achieve a faster
rate of closing the knowledge gap (Stiglitz 2004b, p. 467), it is imperative to
adopt the practices of these developed regions. This ethnocentric approach
(Reyes, 2001a, p. 8) means that, to follow the way of development, every
country should obey the patterns of the U.S. and European countries.
According to Globalisation theorists, the reason developing countries should
adopt such models is due to the wide interconnectivity of communication and
the widespread cultural pattern of such developed countries. Such is the
dominance of their practices that not to adopt them would result in going
backwards economically.
Functionally, Globalisation is different from the theory of World Systems,
which focuses on the process having a quantitative nature instead of a focus on
qualitative features since “Globalisation processes are qualitatively different
from internationalisation processes” (Dicken 1998, p. 5). Furthermore, such
processing in Globalisation deals with the geographical development of
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economic performance on the one hand and on the other, it covers the
functional formatting of such activities as well (Dicken, 1998). It is worth
mentioning that this feature of globalisation processing creates a new kind of
unity for global functioning (Reyes 2001b, p. 3).
In the light of these observations, understanding the role of accounting systems
from the participant nation’s perspective will be better achieved by applying
Globalisation Theory. This is because accounting has now become a global
practice common to both developed and developing countries. The adoption of
western forms of accounting assists developing countries to comply with
globally accepted practices and participate in the economic benefits of
Globalisation. A Western accounting model is therefore imperative for the
survival of developing countries, not just an optional extra (see Table 3-1).
Consequently, Globalisation Theory takes into account the global environment,
and does not ignore the cultural aspects of the developing nations. While, it
does not take into account the dramatic growth rate of developing countries, it
can be adapted more easily to the needs of a developing nation in a global
economy. It acknowledges the desire of developing countries to participate in
the global economy, and the difficulties they face in embracing western
technologies to their own unique characteristics (see Table 3-1).
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Chapter 3: Theories of Development
3.5 Integrating Accounting into a Global Economic Development
Framework
Instead of leaving things to market forces or chance happenings, some
developing countries have tried to set appropriate plans for their own
development. This kind of planning is evidenced in widespread national
development plans, intended to lead to a significant and durable improvement
in economic development. One of the most active debates of the governments of
developing countries at present is the link between living conditions and socio-
economic factors. Consequently, development authors offer theoretical
solutions to cope with this important issue in developing countries. Given the
increasing Globalisation of all aspects of cultural, social and economic life it is
inevitable that the practices of developed countries will have a huge impact on
these plans.
According to many writers (Enthoven 1973; Mirghani 1982; Perera 1989a;
Belkaoui 1994), accounting is essential in the implementation of the economic
development plans of developing countries. As a result of this situation
accounting has become a global practice common to developed and developing
countries over the world. However, for a variety of reasons most, if not all,
developing countries have difficulties in using accounting information. The
current practices of the accounting profession in developing countries are based
82
mainly on the requirements of government legislation. Consequently, this thesis
will identify the characteristics of developing countries and the environmental
cultural factors which will influence their accounting practices in global context
(Chapter 4) Central to this discussion will be a consideration of the adoption of
accounting systems of developed countries by developing countries. The
importance of communications will be the main issue in relation to the Libyan
environment (Chapter 5). The political and social context of Libya will be
explored, in a global context. The role of accounting systems in decision
making, planning and control will be the focus in the case of Libya (Chapters 6,
7, 8, and 9). After assessing the current role of accounting information systems
in Libya, two cases will be presented. The IS study will give the perspective of a
user of accounting information, while the GCP case will explore accounting
information from the point of view of an information provider. Conclusions
will be provided about the present and potential role of accounting information
systems in Libya, given the country’s commitment to entering the global arena.
As a result, Globalisation can be explained as a means of developing
interrelationships among developed and developing countries with accounting
playing a role in satisfying the requirements of the development of developing
countries (see Table 3-2).
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Table 3-2 Major Aspects of Globalisation

Major aspects of Globalisation Link to the Thesis
1) Social and cultural factors The need for an economic development plan,
determine economic condition. taking culture into account (Chapter 5).
2) Communication and its The need for communication as Libya operates in a
significance in a global world global world (Chapter 5).
3) Greater technological The role of accounting in Libya (Chapters 6 to 9) as
unification, including globalised part of a globalised world, including difficulties in
accounting. implementing westernised accounting practices.
3.6 Summary
This chapter has established what is meant by development in the context of
this thesis. Development is considered to be an internal, social process taking
place within every country, where the basic requirements of the people are
fulfilled by the wise and durable application of the country’s resources.
Economically, the definition of development suggests the nation’s fulfilment of
people’s needs, employment, and the improvement of national wealth.
As mentioned above, there is a common tendency to reduce the problems of
development to economic problems. Some theories of development
(Modernisation, Dependency, and World-Systems) concern themselves with
internal social, political or cultural considerations. They pay more attention to
prevailing power relations, cultural or social preconditions for economic
reform. They normally fail to consider, for example, whether governments have
the administrative capacity or political will to implement the suggested
economic development strategies.
One may argue that the paradigm of development is no longer suitable and has
84
been distorted under the forces of global competition. However, Globalisation
does not mean a global theory of development. It does mean, however, that due
to the influence of powerful western nations and western-centric global
institutions, structural modification plans have been carried out by
governments of developing countries interested in receiving development aid
and support from international bodies. Further, Globalisation can be identified
as a powerful force for the mobilisation of technologies, including accounting,
across cultures, aided by global communication systems. Of course, considering
such an application we need to think about the cultural characteristics of the
whole country.
The goal of the thesis is to examine the role of accounting systems in Libya, and
it utilises the perspective of Globalisation Theory based on the model of
developed countries. Chapter One identified the research issue at the heart of
this thesis and provided an introduction to the main concern of the study, the
role of accounting systems in Libya’s economic development. This chapter
explored the methodological choice made for achieving the research objectives,
and included a more detailed explanation of development theory. Development
theories have implications for the use of accounting systems in assisting
developing countries to achieve economic improvement, and for the kind of
accounting systems that will be adopted.
While accounting is a globalised practice, every country has a unique culture
85
and there is a need to understand the individual characteristics of Libya in
order to use accounting as a tool to achieve economic development in an
increasingly globalised environment. If Libya is to succeed in that global
environment, it needs to harness the potential of accounting information to
diagnose where it is now and to move ahead. A study of accounting as it is
practised in IS and GCP will illustrate these dynamics. In order to understand
the global context in which accounting is practised in IS and GCP, the focus of
the next chapter will be about the role of accounting systems in developing
countries.
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Chapter 4: The Role of Accounting Systems in Developing Countries
CHAPTER 4 THE ROLE OF ACCOUNTING
SYSTEMS IN DEVELOPING COUNTRIES
4.1 Introduction
The aim of this chapter is to define “developing countries” and explore their
economic and non-economic characteristics. It will also discuss the influence of
cultural issues on accounting and identify the significance of AIS for developing
countries. Chapter Three identified Globalisation Theory, with its emphasis on
culture, as an appropriate theoretical approach through which to study this
issue. While Globalisation Theory is concerned with development, it has little to
say, overtly, about the role of accounting in that process. This is despite the fact
that accurate and timely accounting information would make a valuable
contribution to developing countries in meeting their development aspirations.
From the viewpoint of Globalisation Theory, the recognition of cultural factors
plays a basic role in setting a practical program for economic development in
developing countries. In other words, the awareness of social conditions
determines the direction and dimension economic development should follow.
The aim of this chapter is to identify what role AIS play in developing countries
at present. This chapter continues this argument by reviewing studies of
accounting systems in developing countries, with an emphasis on the
87
importance of accounting education and the accounting profession. The chapter
begins by defining the term “developing countries”, exploring their
characteristics and relating them to accounting development. This is
accomplished first by describing environmental factors such as economic, legal
and political factors. It then focuses on the adoption of accounting systems
from developed countries, highlighting the difficulties encountered in this
process. A discussion of the role of accounting systems in meeting the needs of
developing countries follows, with a synthesis of studies on the role of
accounting systems, and the patterns and regulation of accounting systems.
4.2 The Characteristics of Developing Countries
Developing countries are those that became independent by the end of the
1950s (Wallace 1990). These developing countries have been defined as “third
world countries”, meaning they are less developed and do not include either
the western world as their center (as U.S.) or the eastern world (as Russia).
Developing countries are mostly found in Africa, Asia, Latin America, the
Middle East, and Oceania (Perera 1989a; Wallace 1990). Although developing
countries have some common features they are not a homogeneous group. Each
country is different in terms of gross national product (GNP), population,
culture, degree of literacy, and the kind of economic and political system under
which it operates (Perera 1989a; Wallace 1990). Despite great differences in
88
these factors, however, there are many characteristics that are quite similar
(Perera 1989a; Samuels 1990; Wallace 1990; Belkaoui 1994; Belkaoui 2000),
including:
• the absence of exchange markets;
• low levels of living standards and productivity;
• high rates of population growth, dependency burden and levels of
unemployment and underemployment;
• political mismanagement and an inefficient public sector; and
• an absence of the relevant education system in general and accounting
education in particular.
Some of these characteristics that have influenced accounting systems in these
countries will be discussed in the next section.
4.3 Accounting and Environmental Factors
Accounting, being a social practice, is affected by environmental factors (Perera
1989a, p. 141; Mueller et al. 1997b, p. 2), which differ from country to country
as they do from time to time within the same country. Accounting does not
work alone, but works in symbiosis with the surrounding environment. Each
country has special environmental factors, internally and externally, which play
a vital role in creating its accounting system (Cooke and Wallace 1990).
Wallace (1990) argued that the study of accounting systems for any country
89
should include not only a study of its accounting techniques, but should
include also a study of the practice and education of accounting in that country,
within its environmental context. Many studies (Bait El-Mal et al. 1973;
Kwabena 1982; Kilani 1988; Bait El-Mal 1990a; Bait El-Mal 1990b; Cooke and
Wallace 1990; Kilani 1990; Jones and Sefiane 1992; Baydoun and Willett 1995;
Bakar 1998; Bakar and Russell 2003) have shown that the study of
environmental factors for any country should precede a study of its accounting
systems. Since accounting systems are a product of the environment in which
they are embedded, they need to be suitable to its environmental needs.
Accounting researchers have identified:
• difficulties in determining the environmental factors affecting accounting
systems in any country;
• the impossibility of generalisation of the affect of any independent factor,
or a group of environmental factors, upon various accounting systems
for different countries; and
• difficulties to determining the attraction between environmental factors
in developing countries (Cooke and Wallace 1990).
Environmental factors affecting accounting systems are the broad national
environment of the country, as well as the global environment. Nationally, they
include economic, social, cultural, legal and political factors (Perera 1989b;
Radebaugh and Gray 2002). Accounting education and the accounting
90
profession are also subject to these environmental factors, and have a profound
effect upon the development of accounting systems.
4.3.1 Economic Factors
Economic factors have an important effect on accounting systems on the one
hand, and on the other contextual factors. Among the economic factors that
affect accounting systems are the nature of ownership, the nature of the
economic system, economic development plans, users of the accounting
systems and the stock market (Perera 1989a; Samuels 1990; Wallace 1990;
Belkaoui 1994; Belkaoui 2000).
The nature of the ownership of a business has an effect upon national
accounting systems. Most governments in developing countries control and
own the business field because of their role in the ownership of natural
resources in such countries. This situation ensures that the governments in
these countries have a vital role in economic activities for the purpose of
achieving economic development and growth. Therefore, accounting systems
have an important role for these governments in assisting them to achieve their
goals. The role of the government in an economic system affects the feasibility
of accounting systems as a result of government legislation. As a result of this
control, many Acts have been issued to organise accounting systems in
developing countries (El-Sharif 1981, p. 36).
91
To achieve economic development in developing countries, governments
should create development plans. These development plans require
information and, of course, some part of this information is accounting
information. This accounting information should satisfy key characteristics6 to
assist management to reach informed decisions about any issue.
The reflexive relationship between accounting and its environment has already
been mentioned (Mueller et al. 1997b, p. 2). Because every country has a
different history, values and political systems, they also have different patterns
of accounting systems development (Belkaoui 1983; Cooke and Wallace 1990).
For example, accounting in the U.S. is not like accounting in other countries.
Indeed, diversity is what we see. This diversity is an outgrowth of the variety of
business environments around the world and the fact that accounting is
environmentally sensitive. The development of globalised accounting systems
emanates from U.S. and Europe, impacting the culture and regulatory systems
of developing countries. It is interesting to note, too, that when countries’
business environments are similar their financial accounting systems also tend
to be similar.
Financial accounting information in many developed countries is directed
towards the needs of investors and creditors, and decision usefulness is the
overriding criterion for judging its quality. However, in developing countries,
6
Understandability, relevance, consistency, comparability, reliability, and objectivity.
92
financial accounting has a different focus and performs other roles, such as to
ensure that the proper amount of income tax is collected by the national
government. Moreover, in many developing countries few enterprises have
private shareholders. Investment decisions are often not made on financial
grounds and the market for information is imperfect (Mueller et al. 1997b, p. 2),
challenging the assumption of classic economic theory with its emphasis on
equilibrium between supply and demand .
4.3.2 Legal and Political Factors
Political and legal factors are among the most important environmental factors
that affect the determination of accounting practices (Cooke and Wallace 1990;
Radebaugh and Gray 2002). The degree of their importance depends upon the
political freedom of a country (Belkaoui 1983), and there is a positive
relationship between accounting roles and political freedom. Moreover,
accounting systems that apply in any country are affected by government
legislation, which has a defining effect on the organisation of the accounting
profession. Legislation includes tax law, commercial law and companies Acts.
Professional organizations in the U.S. such as the American Institute of
Certified Public Accountants (AICPA) have a basic role in organizing the
accounting profession with the Financial Accounting Standards Board (FASB),
an independent body, issuing financial accounting standards. However, in
developing countries such as Libya, the government has full responsibility for
93
these issues.
4.4 Adoption of Accounting Systems from Developed Countries
A number of studies have shown that the main reason for the differences in
accounting systems between countries is the variety of their environmental
factors (Mueller et al. 1997b, p. 2; Mueller et al. 1997a; Radebaugh and Gray
2002, p. 21). This is because the difference in environmental factors between
countries is a guide to the difference in the objectives of decision-makers from
one country to another (Mueller et al. 1997b, p. 2). As a result of this, every
country should create its own accounting system that is relevant to its needs
and consistent with its own environmental factors. The challenge with
Globalisation is to adapt successfully accounting systems imported from the
developed would.
Many studies (Mirghani 1979; El-Sharif 1981; Cooke and Wallace 1990; Kilani
1990; Baydoun and Willett 1995) have shown that the environmental factors
differ between developing countries and developed countries, and occur at
various levels within those countries. Since the industrial revolution many
changes have occurred in the environment of western countries in general and
in particular the U.S. and U.K. For example, the growth of the private sector has
resulted in a growth in the need for capital. Moreover, there has been an
increase in the number of investors, the extent of private ownership and the
94
separation of management from ownership. There has also been an increase in
the effectiveness of the stock market and a high need for professional
accounting services. However, this has diminished the role of governments in
economic activities in these countries. As a result some development has
occurred in accounting systems because of these changes.
On the other hand, the environment in developing countries continues as
before, wherein the private sector is very small and less important than the
public sector. Due to the role of the government in developing countries in
decision-making, planning and control, especially in making development
plans, this has led to many flexible changes in the environment in these
countries. Even the main objectives of accounting systems in developing
countries are to fulfil economic and social development as fast as possible,
requiring all enterprises to contribute to the nation’s advancement. However,
developed countries have taken the opposite view (Kilani 1990). The objectives
and needs for information in these countries are completely different because
the main purpose of accounting in developed countries is to satisfy
shareholders (i.e. the interests of the providers of capital), whereas in
developing countries, with an insignificant number of shareholders, the main
purpose of accounting is to satisfy government reporting requirements. In spite
of these differences, accounting systems in developing countries are adopted
from developed countries, sometimes without any modification to make them
95
more suitable to the needs of the developing countries (Kilani 1988, P. 509; Mir
and Rahaman 2005, p. 817).
It is hardly surprising that the introduction of accounting systems from
developed countries in general, and the U.S. and U.K. in particular, into
developing countries, fails to satisfy the particular needs for information in
developing countries (Wallace 1990). This information has the opposite effect on
performance activities and economic development in developing countries
because it focuses on short term results. Furthermore, the majority of
developing countries do not understand the role of accounting systems at their
stage of economic and social development (Mirghani 1982).
4.5 Problems in the Development of Accounting Systems in
Developing Countries
The previous discussion showed that accounting systems in most developing
countries reflect the economic, political and social environment of those
countries. Many studies (Mirghani 1979; El-Sharif 1981; Cooke and Wallace
1990; Kilani 1990; Baydoun and Willett 1995) have shown a variety of negative
aspects of accounting systems in these countries, aspects which might be the
main reason for the inefficiency of accounting information being derived. Some
of these negatives aspects are discussed below.
It has been established that accounting systems have been adopted from
96
developed countries without any attention being paid to environmental and
local needs (Perera 1989a), despite the irrelevance of such systems to these
countries. While a great deal of attention has been directed to developing an
accounting profession in developing countries, little serious attention has been
given to a determination of the accounting objectives and development needs in
such countries (Bakar and Russell 2003). Accounting education in developing
countries is weak, with an adherence to the source of accounting influence,
outdated regulations, and a lack of qualified instructors at professional
institutions (Bakar and Russell 2003). Accounting systems that are applied in
companies are irrelevant and uncommon (Wallace 1990). This is as a result of
the absence of training in accounting and auditing fields. Accounting in
developing countries has not been highly valued and the accounting
information which is created by such accounting systems is of negligible use
(Enthoven 1983; Bengharbia 1989). Consequently, most developing countries do
not appreciate the role of accounting systems, nor their importance in each
stage of their decision-making and national development plans (Mirghani 1982;
Bengharbia 1989; Belkaoui 1994).
Corruption is another problem facing the development of accounting in
developing countries. Corruption may be overbearing, administrative,
syndicated, criminal or political, sometimes linked to government employees.
However, this corruption is not exclusive to government (Belkaoui 1994), with
97
organised crime, and elected officials being implicated.
These negative aspects are the main reason for the problems of accounting in
developing countries at the present time. As a result of these problems,
information systems which provide reliable financial data are few in number
and each time a production, pricing or investment decision is made without
adequate knowledge of its consequences, the probability of misdirected effort,
wasted recourses and economic loss is increased.
4.6 The Role of Accounting Systems in Meeting Development
Needs
There are similarities between the accounting systems of developing countries.
The colonial legacy is clear and continues to influence accounting in such
countries, despite the growth of other influences in more recent years. These
newer influences do not reflect the legalistic part of the order of colonial
relationships but they do echo the economic element. Despite change and
evidence, in some countries, of a movement towards more locally relevant
accounting systems, a major concern remains the suitability of accounting
systems for local needs and, in particular, for those of development. This has
long been a central issue in development accounting. More fundamental,
however, is the notion that accounting systems matter for development. This is
implicit in much of development accounting: accounting systems contribute to
98
economic development and lack of developed accounting systems acts as a
barrier to economic development in developing countries.
Seiler (1966, p. 652) stated that “the strength and extent of a nation’s
information system determines in large part the rate at which economic
development will progress, and that accounting systems thus assume an
important role in the development of emerging nations”. Many authors have
expressed similar views (Bait El-Mal et al. 1973; Enthoven 1973; Enthoven 1977;
Enthoven 1980; Enthoven 1983; Belkaoui 1988; Kilani 1988; Bait El-Mal 1990a;
Kilani 1990; Enthoven and Sokolov 1993; Bakar 1998). However, the evidence,
either from theoretical analysis or empirical research, to justify the claim that
accounting systems matter for economic growth, is scattered and limited. Much
work remains to be done on this subject.
Enthoven (1977) saw accounting as having a dual role to play in economic
development. Accurate and informative accounting information created an
environment of confidence in which flows of capital may be stimulated,
implying the generation of saving and its effective use in investment.
Accounting, thus, should help to attract capital. The second role for accounting,
as stated by Enthoven (1977), was in assisting capital to grow through its
effective utilization, once invested. This provided accounting with its
organizational role in both private and public sectors. The capital market role of
accounting thus introduced the link between financial development and
99
economic development, since accounting cannot help stimulate savings or assist
in their allocation in an institutional vacuum. Controversy has been intense
over the relationship between financial development and economic
development (Enthoven 1977).
No one can deny that accounting systems have the potential to play a very
important part in many of the debates on issues affecting economic
development (Wallace 1990, p. 67). Consequently, the role of accounting
systems in social and economic development has received some attention by
accounting researchers since the 1960s (Perera 1989a). Many studies (Enthoven
1980; Kwabena 1982; Mirghani 1982; Parry 1989; Perera 1989a; Ezzamel and
Bourn 1990; Kilani 1990; Wallace 1990; Jones and Sefiane 1992; Belkaoui 1994;
Taufu'i 1996; Wallace 1999; Phadoongsitthi 2003) have shown that accounting
has a vital role to play in all stages of economic and social development in
developing countries. This is because the only way for developing countries to
improve their situation is to provide relevant information at the right time to
decision makers. Successful developmental efforts are dependent, among other
things, upon the availability of reliable economic information for supporting the
multitude of decisions that comprise them. Accounting information, as a part of
an overall information system, could have a significant positive impact on
decisions involving planning and programming the economic development of
developing countries. In the majority of developing countries, there is a lack of
100
awareness of the potential significant role that accounting could play in the
economic development process (Mirghani 1982).
4.7 A Survey of Studies on the Role of Accounting in
Developing Countries
The basic perspectives of financial statements as far as purpose is concerned,
are the economic income and stewardship functions of management, according
to critics like Gaffikin (1993, p. 11), Whittred and Zimmer (1992, p. 11).
Following this notion, the major goal of financial statements has been to
prepare reports for capital suppliers such as shareholders and creditors in order
to make an evaluation of management's stewardship (Beaver 1981, p. 48;
Whittred and Zimmer 1992, p. 12; Gaffikin 1993, p. 11). However, in the 1960s,
when the information approach was introduced, a change was made from the
stewardship function of financial statements to having a role in decision-
making. This provided practical information to investors, creditors and the
remainder of users to help them make their decisions (Beaver 1981, p. 22).
Discussion in regard to a more emphatic stress on functional accounting
systems centres emphasizes the various requirements of the users of such
accounting information.
Several specific research studies have been undertaken on the required
information and role of accounting in different developed countries. Several
101
kinds of theoretical and empirical studies have broadened the matter of the role
of accounting systems in developing countries. Table 4-1 summarises the
objectives, findings, methodologies and research methods of these studies, most
of which are empirical and functionalist7. A brief evaluation of these studies
follows the table.
Table 4-1 Summary of Studies of the Role of Accounting in Developing

Countries
7
This refers to the application of methodologies used in the natural sciences to analyse the way
organisational control systems work.
102
Author(s) Objectives and finding Epistemology/ Research method The role of

accounting (relevant
methodology issues)
one developing satisfy the

country, the Sudan. information
needs of the
Sudan
Kwabena The study Functionalist. Empirical data The role of
(1982) examined the use from accounting is
or potential use of management minimal.
accounting in the of state run
management of enterprises.
state controlled
Ghanaian business
enterprises in
comparison with
private
corporations.
Kilani (1988) The main purposes Functionalist. Empirical data Current
(dissertation) of this study were from Libyan accounting
to ascertain organisations systems in Libya
whether Libya’s do not provide
accounting systems information
provided the relevant to the
necessary Libyan
information for its environment.
socio-economic
development
planning and to
suggest means by
which to improve
accounting in the
country.
103

methodology issues)
Parry (1989) It was taken as Functionalist. Empirical data AIS in

axiomatic that there from developing
is a relationship Bangladesh countries must
between using meet the
accounting and Contingency countries needs.
development. A theory.
model of the nature
of that relationship
incorporating
contingency theory
was developed in
this study, for the
case of Bangladesh.
Perera This study focuses Functionalist. Theoretical Anglo-American
(1989a) on accounting in based on style of
developing historical accounting
countries as a case development. practice did not
for localised match the
uniformity. conditions of
developing
countries such
were countries
unable to
provide efficient
information for
the AIS.
104

methodology issues)
Jaruga (1990) The study offers a Functionalist. Theoretical, Accounting

synthesis of based on a should be
accounting socio- understood not
functions in economic only as a
Socialist Countries. approach. technical device,
Its aim is a better but as a social
understanding of phenomenon in a
the systems of democratic
centrally-planned socialist society
economies, the
changing role of the
plan, the market
and the institution
of governmental
finance within their
social, economic,
and legal contexts.
Abdalaziz The main objective Exploratory. Empirical data Both the quality
(1992) of this study is to using and quantity of
(dissertation) investigate some questionnaires information
aspects of the and interviews which industrial
information issue; to collect data companies give
specifically users of from to users have
information industrial many problems.
concerning Libyan companies.
industrial
companies are to be
determined.
Jones and The study Functionalist. The multi case The inadequacy
Sefiane examined how study focused of internal
(1992) short-run operating on 4 public accounting
decisions are made manufacturing systems
in four enterprises companies in compromised
in Algeria, all Algeria. A economic
supervised by the qualitative development.
Algerian Ministry method was
of Light Industry. adopted in
this study.
105

methodology issues)
Dunbar The study explored Functionalist. Empirical data Accounting

(1993) the role of using made no
(dissertation) accountants in the questionnaires significant
economic and interviews contribution to
development of to collect data economic
developing from development in
countries with Caribbean the Caribbean
specific reference to countries. region.
the Caribbean.
Accounting
systems as they
apply to the
financial structure
of the countries
were the focus of
the thesis.
Baydoun The study explored Exploratory. Theoretical Western AIS
and Willett the issue of the based on were not
(1995) relevance of cultural relevant to
western accounting theory. developing
systems to countries.
developing
countries.
Taufu’i The study Functionalist. Empirical data Accounting

(1996) investigated the using played a very
(dissertation) role of accounting qualitative important role in
and accountants in approaches Tonga’s
the economic was collected economic
development from Tongan development.
process of Tonga. organisations.
106

methodology issues)
Bakar (1998) The study Functionalist. Experimental. AIS was oriented

(dissertation) examined the The basic toward the U.K.
environmental research tool and U.S. private
characteristics deployed to sectors, to
within Libya in compile the Libya’s
order to determine necessary data detriment.
whether its for this study
accounting system was a
seemed questionnaire
appropriate for its distributed to
environment and key personnel
its economic in Libya.
development.
Bloom et al The focus of this Functionalist. Theoretical Accounting

(1998) case was the based on reports affected
accounting system analysing the share prices in
currently historical the developing
prevailing in background of economy of
Armenia and the Armenia, and Armenia
proposal of reforms also the
necessary to cultural
enhance the aspects of
usefulness of accounting
decision making to systems.
investors and
creditors.
Andrew This paper Functionalist. Theoretical Professional
(2002) illustrates the role based on accountants in
of accounting economic the public sector
systems in a rationality. have a dominant
developed country. role in
It explains the influencing
development of the government
accounting policy.
profession and
practices in the
public sector in the
U.K. over the past
100 years.
107

methodology issues)
Phadoong- The study Functionalist. Empirical There was a

sitthi (2003) examined what data. direct
(dissertation) features of relationship
traditional and between
contemporary accounting
management activities leading
accounting to financial
facilitate economic benefits and the
decision making in firm's financial
emerging performance
economies and how
that occurs in
Thailand.
4.7.1 Theoretical Studies
In regard to policy on accountancy and economic development, Enthoven
(1973, p. 7) argued that it addressed the administration or control of all data
needed for socioeconomic activities and conditions in the micro and macro
economic sector of developing countries. It also covered the requirements of
different groups, whether internally or externally. It may be classified in broad
terms first as the development of economic facts based on real-world
phenomena involving measurements and their further appraisal and supply in
the form of costs and benefits to enable effective evaluations and decisions
about activities and the allocation of resources. Moreover, the effects of
accounting policy were communicated in order be used for current and future
goals. This source of information provides a more focal point on micro and
108
macro managerial decision making that deals with supervision, economic
programming and preservation of material instead of micro-entity
accountability or stewardship content.
Considering the type of national economy, Briston (1978) believed that every
country has its own specific political, social, economic, and even cultural
features and more probably the purposes and information requirements also
vary.
In a study by Jaruga (1990) it became clear that accounting functions differed
significantly in Socialist Countries (SCs) from accounting functions in Industrial
Market Economies (IMEs), although the differing points have been subject to
change during the passage of time. It is worth mentioning that IMEs learned
harmonization and governmental control of accounting practice over time.
However, in the SCs there appeared to be highly strict, uniform accounting
systems under the control of a management system manipulated by economic
reconstructions and democratisation, specifically in Hungary and Poland.
Accordingly, the study of any accounting activity or functions should consider
the growth of the socio-economic system, and more importantly, the focal
programming role that is subject to change. State budgeting should also
consider the market. Jaruga concluded that accounting is not only a technical
tool but also a social event of a democratic socialist society and as Baydoun and
Willett (1995) clarified, this is because of the different cultures of each country.
109
Andrew (2002) concluded that the accounting professional body of the public
sector has a very dominant role in making view points and producing
compelling methods which the state adopts or adapts.
4.7.2 Empirical Studies
In order to set a relationship between the results and presuppositions obtained
from theoretical studies and the activities of firms, many empirical studies
based on these roles and functions have been carried out. Mirghani (1982)
reported that since accounting cannot happen in developing countries at the
same range and level that can occur in developed countries, it cannot grow and
improve in such countries. In order to make accounting grow, the process
should be done based on the consideration of each country’s specific
environment. So far, there has not been any significant focus on the function of
accounting systems in developing countries.
In Kwabena’s (1982) study, it was stated that in Ghana there was very limited
use of accounting information by project managers, due to the low awareness
and regard for accounting principles in managing processes. Kwabena thus
concluded that as a solution, managers should strengthen their awareness
about information sources which meant including accounting in the process of
their decision making. At the end of Kwabena’s research he stated that
accounting information is very rare in management of the enterprises in Ghana.
110
In Libya, specifically, as Kilani (1988) claimed, there was no relationship
between the development situation and the information in its accounting
systems. He suggested that by offering uniformity, an accounting system could
be developed. Parry’s (1989) analysis matrix enabled certainty of predictions
with one exception: the lack of employment of a knowledgeable accountant on
the operation of accounting management, whether in the internal system or for
external reporting. Concerning the necessity of an inward looking method in
developing countries, Perera (1989a) gave two reasons. He believed that the
Anglo-American style of accounting practice did not match the conditions of
developing countries. Secondly, he believed there was an inability of these
countries to provide efficient information for the accounting system. This is
when, according to Abdalaziz (1992), information plays a crucial role in
economic development. He added that both the quality and quantity of
information which industrial companies give to users may have many
problems. This is why Jones and Sefiane (1992, p. 71) believed that considering
the control of activities in developing countries, accounting is passive. They
added that due to the inadequacy of inward accounting systems, there was an
opposite result in the economic situation of the developing countries. As a
developing country, Algerian manufacturing firms were controlled in a
supervising manner by the Ministry of Light Industry. Although, according to
four project studies, they provided accounting reports, these were aimed
111
towards the requirements of external companies and could not have any
positive role in programming and controlling plans. This was despite all the
annual reports and financial support of the companies. It is believed that such a
discrepancy originates from the various goals of the organisation system of
market economies. Similarly, Dunbar (1993) found evidence showing the
accounting standards of the reports from the Caribbean region were
problematic.
As a whole, there are different ideas about accounting by some critics. Taufu’i
(1996) believed that although accounting seemed to play a very important role,
it was not very important. As a weak point of Libyan accounting, Bakar (1998)
suggested that the direction of the accounting process, unfortunately, was
oriented toward, the U.K. and the U.S. private sectors. Bloom et al (1998)
concluded that accounting reports affected share prices in the developing
economy of Armenia and Phadoongsitthi (2003) reported that in Thailand, an
other developing country, there was a direct relationship between accounting
activities leading to financial benefits and the firm's financial performance.
All but one of these studies focus on the extent to which AIS assists in the
economic development of developing countries. In each of these cases, with the
exception of Taufu’I (1996), accounting played an insignificant role in the
development of the national economy. The article by Andrew (2002), in
contrast, identifies the powerful role of accounting professionals in the United
112
Kingdom, indicate a profound difference in the influence and effect of
accounting.
The issues that become apparent from these readings highlight the failure of
AIS to influence or mobilise government economic policy in developing
countries, thus denying these countries accounting information that could lead
to an improvement in their economic status. The challenges in adopting and
adapting western AIS to the culture and regulation systems of developing
countries have been identified.
4.8 Accounting Development Patterns
Hendriksen and Van Breda (1992, p. 33) stated that accounting can be
considered a dynamic practice that interacts with its environment in a reflexive
way, ever since the development of double-entry bookkeeping by Pacioli in the
15th century. Hendriksen and Van Breda (1992, p. 33) also believed that
Globalisation Theory covered all countries, specifically developed countries.
They identified the shift of emphasis in the major accounting literature since the
1920s and 1930s as a change in the goal of giving information to management
and creditors to presenting such information to investors, shareholders and the
general public (Hendriksen 1982, p. 68). The change in the objective of financial
statements has led to an emphasis on consistency, a shift of emphasis from the
balance sheet to the income statement and the need for full, fair and adequate
113
disclosure (Hendriksen 1982, p. 67).
Mueller (1967) traced the history of the accounting profession and believed that
the U.S. and U.K. in the nineteenth century helped in a very significant way the
progression of the accounting profession. Their technical and conceptual
methods and standards have been used in many developing countries. The
international engagement to undertake this application has been very important
in conveying accounting technology from developed countries to others. Other
elements that helped the transference of accounting technology include
colonisation, education, international aid organisations, and other global
institutional organisations such as the World Bank and International Monetary
Fund (IMF). Mueller (1967, p. 2) also identified four methods of viewing
accounting development: the macroeconomic pattern, the microeconomic
pattern, the independent discipline approach and the uniform accounting
approach.
4.8.1 The Macroeconomic Pattern
In a macroeconomic framework, accounting has grown as a link between
national economic policies. The co-ordination between firm goals and national
goals requires a degree of administrative direction from central governments.
There is an interrelationship between national economic policies and business
accounting according to this pattern. As far as specific actions are concerned,
114
national economic goals are mentioned rarely. On the other hand, specific
actions are stated in developed policy guidelines. It is important to recognise
that firm goals are often more significant than specific actions. Firm goals
influence macroeconomic development, whereas a firm’s specific actions, made
on the basis of those goals, influence the firm at a micro level. According to
Choi and Mueller (1992, p. 44), firm goals followed national economic policies.
Every enterprise can set and operate its purposes through a close relationship of
its practices with the policies of the national economy. As Muller (1967) added,
the focus in this system is on value-added statements, tax accounting and social
responsibility. He declared that there was only a minor difference between tax
accounting and financial accounting but there was bilateral validity between
financial accounting and accounting rules (Mueller 1967, p. 27).
4.8.2 The Microeconomic Pattern
The microeconomic approach of accounting development is evident when
countries have private businesses as the base for their economic affairs (Mueller
1967, p. 34). In this way, firms are the core of business and accounting can be
considered as a sub-category of business economics. In this method, accounting
reflects the reality of the economy, for example, its measurements and values.
Mueller (1967) continued to say that the major features of such systems were
the progression and application of accounting approaches, like replacement
cost. The approach of micro economics to accounting demands a totally
115
separate tax system from financial accounting since the former has macro goals
while the latter has micro goals (Mueller 1967, p. 50).
4.8.3 Accounting as an Independent Discipline
Mueller(1967, p. 74) referred to accounting as an independent discipline like an
independent development of governments or theories of economy. He stated
that the argument for accounting as an independent discipline is based on the
postulate that accounting can construct a meaningful framework derived from
the business process it serves (Mueller 1967, p. 74). He added that accounting
terms and approaches are accordingly improved based on current business
operations.
4.8.4 The Uniform Accounting Pattern
A uniform model of accounting development has improved as a by-product of
research to give accounting a more scientific approach. It is believed by Mueller
(1967, p. 89) that the more uniform accounting is, the more scientific it will be.
This kind of accounting system came to be used as a vehicle for the
management of businesses, with standardisation of accounting definitions,
measurements and presentation. Mueller (1967, p. 92) argued that to have an
influence on national programming, a uniform scheme of accounting is needed.
These kinds of accounting development patterns indicate that for both macro
and micro purposes we need accounting information whose ways of provision
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differ in a substantial way. Such differences in financial reporting systems and
rules among countries cause complex problems for those who are providing,
and using published financial reports.
4.9 Regulations
Existing market pressure and the differing regulations of many countries have
led to the need to obtain comparative accounting information from firms.
Beaver (1981) believed that information about conditions in a firm will be, in
general, under-provided without regulation, and that we cannot trust in the
capital market taking immediate action wherever it is needed unless there is
regulation. Those who are against regulation give an opposite argument. They
believe that managers are motivated to present international information to
differentiate them from other firms. It has been said that regulation is probably
important in diminishing the lack of symmetry produced by noise, where noise
is defined as the link between the information needs of users and decision
usefulness.
According to Cooke and Wallace (1990), the effectiveness of financial disclosure
regulation in a country is dependent on the regulatory requirements and
mechanisms of enforcement. They add that discussion of accounting
regulations is based on many presuppositions. First, market forces themselves
are unable to ensure sufficient quantity and quality of financial information.
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Secondly, the assumption is that it is uncertain that financial statements can be
reliable and comparable when various standards are applied. Thirdly, there is
the limited ability of users to apply and interpret accounting information
provided by different regulations. Moreover, as Cook and Wallace (1990)
stated, regulations can help investors to allocate resources among companies
more efficiently by reducing information asymmetry between information users
and by reducing information costs to investors. They believed that we need
regulations with an organising base rather than those occurring from the capital
market's mechanisms since they have the potential to limit the numbers of
developed investors from exploitation. Gibbins et al (1992, p. 31) claimed that
market failure and public interest theories see the state as justified in interfering
only when the normal market processes fail. In regard to regulatory capture
theories they maintained that the state acts only in response to lobbying
pressure as lobbyists extend their efforts where the benefits outweigh the costs.
The major challenge for developing countries, therefore, is to develop
regulatory systems compatible with globally recognised systems, and to be able
adequately to enforce them.
4.10 Summary
Perceptions of the role of accounting systems in the academic accounting
literature are based mainly on economic theories originating in liberal market
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economies. The application of these theories to understanding the role of
accounting system practices in other economic settings was questioned. Few
empirical accounting role-related studies have been conducted in developing
countries. The transfer of developed countries' accounting systems and
practices to developing countries was shown to be problematic. The literature
indicated that many developing countries used accounting systems and
standards that originated and were developed in Western countries.
Developing countries, however, had different needs from those of developed
countries due to the influence of their own unique culture on the role and
development of accounting. They therefore needed different information to
achieve these needs. The problems of development of the accounting systems in
developing countries include the public ownership of enterprises in many
developing countries, and the difficulty of adapting developed countries’
accounting systems. A number of studies have explored the international
differences in accounting practices. Accounting’s role in meeting development
needs in developing countries has been severely limited due to political and
economic constraints and a lack of understanding of the role accounting could
play. The next chapter builds on these insights and explains and describes
accounting and economic development in Libya. The chapter will identify and
analyse the basic characteristics of the Libyan social, economic and business
environment in which accounting systems operate.
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PART II- THE LIBYAN CONTEXT
120
Chapter 5: The Political and Social Context of Libya
CHAPTER 5 THE POLITICAL AND SOCIAL
CONTEXT OF LIBYA
5.1 Introduction
The aim of this chapter is to show how Libya’s legal, economic, political, social,
and cultural systems have shaped its development. This will provide a
background for developing an understanding of both the present role of AIS in
Libya, and the challenges in tailoring AIS to meet Libya’s development needs.
Being informed of the standard economic operating systems of the world paves
the way for the economic development of each developing country. To reach
such an understanding every developing country should be equipped with a
highly efficient communication system in order to be able to interact at a global
level. From a Globalisation Theory viewpoint, understanding where Libya sits
in regard to its political social and economic systems, is vital in order to be able
to adopt and implement accounting technologies that will assist in Libya’s
economic development.
The aim of this chapter, therefore, is to explore the historical, political,
economic, legal, religious and cultural background of Libya. This is necessary to
understand and investigate the role of AIS in Libya. Understanding these
factors will help in understanding the role of accounting systems and their
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effect on the development needs of such a country. The chapter begins with a
brief historical and geographic background of the country, followed by a
description of Arab Socialism, Libya’s political system and an explanation of its
social and cultural attributes. This is followed by an historical account of Libyan
economic development. The main sources of economic regulation of the Libyan
business environment and activities are then described.
5.2 Recent History of Libya
This part of the study deals with the historical background of Libya. Libya,
which is located in North Africa and whose area is 1,759,540 square kilometres,
is the fourth largest country in North Africa. It has a population of almost five
and a half million (5 673 000) (Libya State 2006b). The country stretches along
the Mediterranean coast approximately 2,000 kilometres. Libya’s neighbours
are Egypt to the east, Sudan, Chad and Niger to the south, and Tunisia and
Algeria in the west. In the development of Libya, geography has played an
important role (Knapp 1977).
The presence of the Mediterranean coast as a link between Europe and the Arab
countries of North Africa is worth considering. History shows that the active,
lively cities have been host to many European visitors who have come to trade
goods, as well as travel for entertainment and business purposes. In that sense,
Libya has been subject to global influences for centuries. On the other hand, the
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rural regions, being desert areas, stand in isolation and do not attract many
visitors. For example, a limited number of people would visit the Sahara.
Agricultural businesses, such as farming, can only be carried out where there
are reliable water sources. There are mountains in the southwest and southern
parts of Libya bordering Chad, the highest of which is Sarir Tibasti. The peak
of this mountains as Bette, which rises 7, 500 feet (2, 286 meters) above sea level
(Brill 1988, P. 15). The lower slopes are in the south of Tripoli and east of
Benghazi, with 3,000 feet (914 meters) (Brill 1988). Tribes live in the Sahara
desert, however, few people travel the sandy wasteland and farming is possible
on sparse oases only.
The major religion in Libya is Islam and the language is Arabic. Originally,
Libya was occupied by the Berbers but the Arab invasion in AD 642 made it an
Arab country (Monti-Belkaoui and Riahi-Belkaoui 1996). The Arabs brought
Islam to the country and named it Libya. During the 1500s, Europeans
conquered Libya and ruled over it for about 40 years (The Economist
Intelligence Unit 1997). After that, Libya experienced several foreign
occupations, the last of which was that of the Ottoman Empire (1551-1911) and
the European tutelage (1911-1951).
Early in its history, Libya was under the conquest of several invaders such as
the Phoenicians, the Greeks, the Romans and, most importantly, the Arabs who
finally settled down and significantly affected the lives of the Berbers. The
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World Bank (1960, p. 26) reported that it was the Ottoman Turkish emperorship
in the Nineteenth Century that brought about the very powerful political
situation in which Islam was introduced. Bedouins were the main body
opposing the invasion by Italy in the Twentieth Century but Italy eventually
won control of Libya and established a new ruling strategy linking the three
major areas of the country (World Bank 1960, p. 26). These three regions were
previously known as Cyrenaica in the East, Tripolitania in the West (now
known as Tripoli) and Fezzan in the South. The Italian administrative system
developed the basic infrastructure of the country, such as roads, port facilities,
and different projects for irrigation. Unfortunately, Italy did not influence the
educational system and paid little attention to training the people in technology
or agriculture.
The World Bank (World Bank 1960, p. 27) reported that Libyans joined to the
Allied side to fight their Italian rulers and gain independence during World
War II. This influenced the defeat of Italy but led to the U.K. and French
dominance of Libya for a time (1943-1951). Eventually, with the support of the
United Nations, King Idris, a member of the Sanusi family, announced the
independence of Libya when he proclaimed the United Kingdom of Libya,
which existed from 1951 until the 1969 revolution. Following the declaration of
independence, Libya suffered serious economic conditions and sought
international and foreign help. Vandewalle (1998, p. 42) stated that the country
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was seen at independence to represent little more than "a geographical
expression".
The United Nations (UN) co-ordinated a three-group team to study Libya in
1950-1951 (World Bank 1960, p. 46) . The head of the team, Benjamin Higgins
(1968, p. 819), was very pessimistic about the possibility of any development in
terms of the economy or social aspects, although he (Higgins 1968, p. 821)
planned a six-year socio-economic development plan, which was adopted by
the Libyan government after independence. Based on the report of the World
Bank (1960) Higgins’s plan focused on education and training programs.
As a complementary project, the UN assisted in operating a technical aid
program for agricultural development and education systems. U.K. and the U.S.
also took part in this project. As a result, these two countries settled military
bases in Libya for about 20 years and started a military settlement in 1953. The
U.K., consequently, granted a sum of £2.75 million annually to support the
deficit budget and £1 million annually for economic development. The U.S.
also agreed to offer $42 million, payable over 20 years (World Bank 1960, p. 45).
Knapp (1977, p. 202) added that the development plans had a slow pace and left
Libya in the category of an underdeveloped country dependent on foreign aid.
In 1959 the situation changed. It was then that research prospectors from Esso
(later renamed Exxon) announced Libya as being rich in petroleum resources
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(World Bank 1960, p. 5; Knapp 1977, p. 202). Further discoveries followed and
concession holders quickly initiated commercial development. Before the
discovery of oil, Libya’s economic development was seen as a discouraging
matter but after 1959 this was changed to a prosperous outlook and provided a
turning point in the history of the country.
The governing power in Libya changed with the military seizure on September
1, 1969 by the twelve directors of the Revolutionary Command Council (RCC)
(Monti-Belkaoui and Riahi-Belkaoui 1996). This council first proclaimed Libya
as a free, independent country with the name of “Libyan Arab Republic”.
Muammar Al Gathafi was a member of the council holding both the positions
of Prime Minister and Defence Minister. Gathafi was affected by the
revolutionary ideas of the Egyptian leader, Gamal Abdul Nasser (Monti-
Belkaoui and Riahi-Belkaoui 1996). The council set a basic motto of "Freedom,
Socialism and Unity" according to the Egyptian model. Following the socialist
ideology of the government, Libya’s official name was changed to "The Socialist
People's Libyan Arab Jamahiriya." The term "Jamahiriya" is translated to mean
"power to the masses"(Wright 1982, p. 191; Altunisik 1995, p. 28).
Gathafi, as the leader of this Jamahiriya wrote a book in the 1970s titled The
Green Book, in which he set forth his principles of political, economic and social
programmes (Knapp 1977, p. 197) . This book is similar to the “Little Red Book"
of Mao Zedong for the Chinese. The Green Book contained pronouncements on
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Libyan development for transportation, communications, utilities and other
basic services. Gathafi rejected communism and offered an Arab interpretation
of socialism, which inserted Islamic principles into the social, economic and
political reformative movements. It led to the settlement of a unified political
party named the Arab Socialist Union (ASU) in 1971, which followed the model
offered by Egypt (Knapp 1977, p. 197).
The second part of this chapter focuses on the background of socialism in Arab
countries and how Libya adopted this for its own use. Understanding the
country's socialist ideology provides one of the significant explanations of the
role of accounting systems in development within the context of this study.
5.3 Arab Socialism
Since the 1950s, the economic situation of most Arab states has developed. Until
the 1940s, public ownership rarely extended beyond irrigation works and
public utilities. It was during the mid-1960s that the public sector grew in
Egypt, Iraq and Syria. After the 1969 revolution and nationalisation process,
public ownership increased in Libya in the 1970s and covered the majority of
economic activities. With the help of the 1970s oil boom and concomitant
increase of trade, Arab countries that were exporting oil became spending
governments through industrial programmes and systems of welfare.
According to Ayubi (1992, p. 95), regardless of the socialist viewpoint which
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was the main reason for the arrangement of organisations in most socialist Arab
states, the desire and search for independence and the construction of the State
made the Arab states a symbol of socialism. In other words, the political
movement was not the cause of socialism; it was the emergence of the military
power which led to the instalment of socialism in Libya. Gradually, socialist
countries gathered together with Egypt, Syria and Iraq among the early socialist
Arab nations.
Egypt and Iraq became familiar with socialism after the military domination
and cooperation with the Soviet Union in some industrial plans. Following this
introduction, the same models of institutions that existed in the Soviet Union
and East European countries were established in these two countries. As a
result of the union with Egypt from the years 1958 to 1961, the first socialist
aspects appeared in Syria. In order to create a stronger union with Egypt, Syria
and Iraq tried to adopt the socialist system, which was, in turn, the source of
motivation for nationalism for them. This gradual socialism happened in Libya
as well as after the revolution in 1969. It began when the Libyan government
developed the public sector and cut back the private sector. Control of domestic
trade, foreign trade, industry, banks and insurance companies was transferred
to the state as the direct by-product of nationalisation, industrialisation and
social services programmes. Such changes were the result of ideological
changes by the political establishment. These political changes led to a new
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economic situation and the emergence of a particular style of accountability.
5.4 Libya’s Political System
The establishment of the Arab Socialist Union in 1971 basically changed the
structure of domestic policy. According to Ayubi (1992), although some
countries followed the doctrines of socialism, they did not have strong socialist
beliefs. Rather, they were followers of economic and political structures, not
proactivists (Jaruga 1990). In Libya, such a socialist structure caused the
emergence of an economy where many projects belonged to the State. Turkey,
Iran, Egypt and Algeria had all, before Libya, transformed the State into an
instrument designed to organise and promote industrialisation (Bearman 1986,
p. 126). The cultural or popular revolution of Libya caused the remodelling of
the social and economic situation (Bearman 1986). The revolution had different
goals, such as the challenge of inefficient bureaucracy, the absence of public
participation in sub-national governmental structures and difficulties in co-
operative action of national policy (Bearman 1986, p. 140). Gathafi (1980)
explained that the emergence of "people's committees" helped to solve the
problems. Such committees were responsible for the management of local
affairs and applied the systems of direct democracy, which was outlined in the
first volume of his Green book (Gathafi 1980).
After the replacement of the General People's Congress (GPC) by the
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Revolutionary Command Council in 1977, more changes began to take place.
The basic plan of the new structure was a legal GPC which was also presided
over and controlled by a Secretary as the head. This GPC appointed members of
the General People's Committee and created the General Secretariat of the GPC.
In this way the General People's Committee can be considered the government
cabinet and all the authorities whether executive or legislative, were under the
responsibility of this committee. As shown in Figure 5-1, there are two other
Congresses, the Municipal People's Congresses (MPC) and the Basic People's
Congresses (BPC) in which people discuss relevant decisions. Finally, such
decisions are transferred to the GPC for further consideration and national
political oversight.
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Figure 5-1 The Authority of the People in Libya

(Libyan People's Bureau 1982, p. 12)
Tribal loyalties play an important role in Libyan social relations, economics and
politics. However, the various legacies of the colonial period, independence, the
development of the oil industry and the economic crises of the 1980s and 1990s
did much to alter tribal and social structure. Indeed, traditional values have
131
changed under the impact of economic changes. Social life in Libya centres
traditionally on the individual's family and tribal loyalty, which override other
obligations in the community. Loyalty to family, clan, and tribe and the
emphasis on regionalism and sectarianism occasionally outweigh loyalty to a
profession and the law (Agnaia 1997, p. 120). Libya is no different from many
other developing countries in having a number of traditions and customs which
emphasise the collective rights and obligations of families and tribes. Tribal and
family collectivity is institutionalised in peoples' work-related practices and
social relationships. Thus, the Libyan culture is characterised by the prevailing
attitude of favouritism in appointments to government jobs, which sees that
they were and frequently are made on the basis of personal friendship or family
connections rather than merit (Agnaia 1997, p. 120).
5.5 The Structure of the Libyan Government
The Popular Congress in Libya undertakes the process of defining the
objectives and goals that Libya wishes to accomplish through established laws
and legislation in regard to various policies (Gathafi 1980; Libyan People's
Bureau 1982). However, these laws and legislation usually appear in the form of
general principles and guidelines which provide administrative institutions a
great deal of flexibility and freedom to undertake necessary measures during
the policy implementation process. Therefore, the variability and instability of
132
institutions and structures is a key factor affecting the efficiency and
effectiveness of government policies and the extent to which objectives can be
accomplished (El-Moghirbi 2003). In discussing the process of setting up and
implementing government policies in Libya, it has become clearly evident that
the continuous structural changes since the late 1970s affected, and still affect,
the efficiency and effectiveness of policies in various fields, since these changes
involved being in contact with the various administrative and executive levels
(Mogherbi 2003).
Since 1977 there have been frequent changes in the way in which government is
organised and policies are implemented through the public services. Following
the declaration of the People’s Authority Regime, Libya was divided into 10
provinces constituting a body of 46 municipalities (Mogherbi 2003). In 1979, the
provinces were abolished, while the 46 municipalities were retained. Each
municipality was subdivided into a group of 174 municipal branches. In 1980,
the municipalities were re-organized into 25 municipalities and 173 municipal
branches, and in 1986, the number of municipalities and municipal branches
was further reduced to 13 and 53 respectively (Libya State 1986b; Libya State
1986a)8. In 1990 the number of municipalities was again reduced from 13 to
seven and the municipal branches were also reduced from 53 to 30 in
8
These changes occurred in accordance with General Popular Committee’s Resolution No. 459/1986
regarding the re-division of Libya into municipalities and in accordance with the General Popular
Committee’s resolution No. 609/1986 regarding the division of the municipalities into municipal
branches (Libya State, 1986a).
133
accordance with the General Popular Committee’s Resolution No. 1038/1990
regarding the re-division of Libya into municipalities (Libya State 1990).
This system of organization was in force until 1992, when the municipalities
and the branches system were abolished once and for all. Political
representation was provided through the Principal Popular Congress, with
approximately 1500 principal popular congresses (Libya State 1992). However,
this division did not last long as the number of popular principal congresses
was reduced the next year, in 1993, to become around 370 principal popular
congresses, then soon after to 236 principal popular congresses. Furthermore,
Libya was divided into 13 regions in accordance with the General Popular
Committee’s Resolution No184/1995 (Libya State 1995). Finally, a Bill was
presented to the Principal Popular Congress in the first ordinary session of 1998
to conclude the division of Libya into 27 Sha`biyas (municipalities), “according
to the new name of regions and municipalities”. The number of Principal
Popular Congresses was 351 in 1998 and by the beginning of 2003 the number
of Sha`biyas was more than 30 and there was a total of 450 Principal Popular
Congresses.
These changes within the organizational structure of the municipalities, the
municipal branches and the Principal Popular Congresses, had a noticeable
affect on the structure and performance of the executive and administrative
body presented in the typical popular committee, as the number of typical
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popular committee members was associated with the number of municipalities.
Following the abolition of municipalities, the number of typical popular
committee members became associated with the number of Principal Popular
Congresses. Therefore, each Principal Popular Congress has its own members
within the typical popular committees of the various sectors. The overall
number of these members forms the typical popular committees. For instance,
the elected members of the Principal Popular Congresses for the industry sector
are those who are from the General Popular Committee for the industry, and
this is the case for other sectors concerned.
The General Popular Committee has witnessed a number of changes regarding
its structure or duration which has made it difficult for it to set up and
implement coherent and stable policies. In 1977, the General People’s Congress
nominated the first popular committee, and continued to do so until 2004. The
committee has been subject to amendments and the General People Committee
Secretariat was assumed during the same period (1977-2004) by eight
secretaries. The average tenure of each secretary ranged between one and six
years. On the other hand, the General People Committee’s structure (the
number of typical secretariats) was exposed to several changes. Thus, the size of
General People Committee (see Figure 5-1) changed a number of times over the
same period from a maximum of 26 secretariats to a minimum of seven. This
however, meant the abolition of some secretariats, the merger of others and the
135
introduction of new secretariats. With all these changes, it is not difficult to
realize the extent of negative impact on the planning and the implementation of
the general policies and the various resolutions.
5.6 Libyan Economy
Oil is the main source of income in Libya. There is nearly no other resource in
the country (Altunisik 1995, p. 48; Selway 2000, p. 69). Before the discovery of
oil, Libya was considered as one of the poorest countries (Higgins 1968, p. 819;
Altunisik 1995, p. 32). After the control of Libya by U.K. and Italian powers, the
economic conditions grew better. Libya overcame the bad economic condition
of the fifties with the aid of American and British financial support, along with
UN backing through programmes (Altunisik 1995, p. 33). Before the economic
development of Libya after the discovery of oil, the Libyan people earned their
living through agriculture and animal husbandry (Higgins 1968, p. 820). The
limited number of enterprises which existed before were controlled by Italian
expatriates (Bait El-Mal et al. 1973, p. 85).
Knapp (1977) stated that, in contrast to neighbouring Algeria, Tunisia or Egypt,
the colonial economy in Libya did not create clear domestic financial,
commercial, capitalist or agricultural firms that had close economic
relationships with colonial powers. Agnaia (1996, p. 32) demonstrated that
before the discovery of oil, established industries were mainly responsible for
136
the processing of local agriculture products, including flour, textiles, tobacco,
footwear and clothing. Due to the primitive system of agriculture, which led to
a very limited number of products, the economic situation was experiencing
budget loss gradually. Benjamin Higgins, who was the economic advisor of
Libya in early 1950 (Wright 1982, p. 108), described the economic situation of
the country in this way:
[we] need not to construct abstract models of an economy where the bulk
of people live on a subsistence level, where per capita income is well below
$50 per year, where there are no sources of power and no mineral
resources, where agricultural expansion is severely limited by climatic
conditions, where capital formation is zero or less, where there is no skilled
labour supply and no indigenous entrepreneurship. When Libya became
an independent nation … it fulfils all these conditions (Higgins 1968, p.
819).
Several authors (Altunisik 1995, p. 36) reported that the economic condition of
Libya developed positively after the discovery of oil and led to an increasing
investment of foreign capital in the country (Altunisik 1995, p. 36). After 1959,
with the increase of international oil companies’ investment in Libya, their need
for direct foreign subsidies declined. Such investment caused the appearance of
a surplus in addition to oil income, which accounted for 24.4 per cent of the
country's Gross Domestic Product (GDP) in 1962, 61.7 per cent in 1969 and 28.3
137
per cent in 1992. This continued to place Libya as the second largest oil
producer among the Arab world. Consequently, there appeared a rise in per
capita income from below $40 in 1951, to $1,250 in 1968 (Bait El-Mal et al. 1973,
p. 85). Per capita income reached $10,985 (LD3, 252)9 in 1980 and afterwards it
dropped to nearly $6, 064 (LD2 426) in 1997. The oil sector’s contribution to
GDP reached its peak in 1980 (LD6, 525.7 million). On the other hand, the non-
oil sector's climax reached LD 9, 998 million in 1997.
According to Bait El-Mal et al (1973), the Libyan economic system was feudalist
for the most part during the years 1951 to 1969. The Government did not
interfere in private ownership and focused on the regions where a high degree
of investment was needed. In order to encourage competition, the government
set some standards and rules for private businesses, such as the establishment
of rules of import and export, which demanded the necessity of issuing a
licence for the importation of foreign goods. The second standard was the
setting up of the Real Estate Bank of Libya (currently the Development Bank)
which provided loans to Libyan business in order to establish local industries.
Finally, there was the development of the Industrial Research Centre which
assisted the operation of the country's development plans through producing
technical and economic services in both the public and private sectors (Bait El-
Mal et al. 1973, p. 86). After the discovery of oil, the economic situation jumped
9
LD denotes to the Libyan currency, Libyan Dinar.
138
from a deficit to surplus income and the 1969 revolution turned the capitalist
inclination to a socialist one. There appeared to be an increase in State
interference and governmental expansion of the public sector as well as a
rejection of the private sector. The structure of State ownership of businesses
began in the 1970s, rapidly increased and reached a climax in the 1980s when
the majority of businesses were controlled by the State (Altunisik 1995, p. 112).
All the industrial operations, foreign and domestic trade, banking and
insurance services were under the dominance of the State as well.
The Economist Intelligence Unit (1997) reported that although the Libyan
economy was focused on the policies of authorities and central control, during
1990-2000 private companies appeared to operate their activities as well. The
reason behind this shift was the heavy fall of oil prices in the world and the
critical economic situation it brought about for Libya in the late 1980s and
1990s. As Vandewalle (1998, p. 84) stated, in order to compensate for the
economic loss, the State gave freedom for the emergence of the private sector by
introducing more liberal standards. The general purposes of such measures
were the stopping of public spending, and blocking of subsidies and finally the
encouragement of the growth of the private sector (Vandewalle 1998, p. 84).
The establishment of group businesses was the first revolutionary standard that
occurred in 1987 and 1988. Another reformative measure was the policy
regarding the management of the private sector and selected projects and the
139
end to limitations on private trading. In order to enhance the private practices,
the government passed Act Number 9, enabling the process of privatisation of a
number of public-sector companies. The major aim of the act was to regulate
the important key function of private sector economic activities. The Act
signified the main operative duties of the private sector, including production,
distribution and services. Transport, agriculture, industry, commerce, tourism,
and finance are the main areas of those activities. The Act also permits the
establishment of privately funded companies and allows families to fund their
own private business. It also allows the selling of public companies to private
sector based organisations on General People’s Committee suggestion.
The State issued another Act (Number 5), Foreign Capital Investment
Encouragement, in 1997. In order to develop the economic and social situation,
The Act set a base for foreign capital investments generally. It specifically
encouraged investment in the fields which brought modern technology to
Libya, offering variation of income and helping the development of national
products, which, in turn, led to Libya’s entering the international market.
5.7 Social and Economic Development Plans
The policy of economic development in the early seventies aimed at giving
greater attention to the industrial sector in order to play a role in decreasing
dependency on the oil sector (as far as the income source is concerned) and
140
lessening dependency on imports from abroad. The state has undertaken the
task of increasing expenditure on the industry sector, which has been reflected
in the establishment of many economic enterprises controlled by the
government. As a result, the need for accounting information has increased.
The development movement went through two phases following the 1969
revolution. During these phases, economic and social plans were set up during
the first phase, between 1973 and 1985, but during the second phase that
covered the period from 1986 to 2003 the setting up of development plans was
suspended, and instead, reliance was placed on the annual budget.
5.7.1 The Period of Setting Plans (1973- 1985)
During the period from 1973 to 1985 a change in Libya’s development plans
meant that a remarkable amount of attention was directed to the industry sector
in order to undertake the vital role of diversifying the nation’s economy,
thereby lessening its dependency on oil. In addition, there was the creation of
new job opportunities and the replacement of imports of some goods by local
production, which contributed to the establishment of a strong industrial
foundation.
The three year economic and social plan between 1973 and 1975 focused on
fundamental food industries and making use of available natural resources by
providing assistance to the agriculture sector to ensure that the food industries
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were supplied with the resources they needed. In the subsequent five year
economic and social plan between 1975-1980, more attention was devoted to the
industry sector through the allocations it acquired during that period (Barker
1982; Bait El-Mal 2003). The plan also offered a good deal of attention and
priority in the implementation and operation of industry designed to replace
imported fundamental goods with Libyan production. For example, final
consumption industries, industries of intermediate the consumption,
commencement of establishing fundamental mineral and chemical industries,
the iron and steel industry and the expansion of oil and gas refinement were
established.
The five year economic and social shift plan of 1980-1985 gave priority to
investment and implementation processes in export industries, with the
establishment of a group of integrated industries, which are considered to be
intermediary industries. They made use of available organic and mineral
materials and secured the manufacturing of a maximum percentage of those
materials in order to increase added value in the industry sector and make a
tangible change in the industrial production structure (Barker 1982; El-Jehimi
1987; Bait El-Mal 2003). The plans also aimed at broadening food industries so
as to increase the level of import replacement to lessen dependency on the
import of products of these industries.
In order to accomplish the objectives set by the 1980-1985 plan, a number of
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policies were adopted. The phrase, “partners not wage-workers”, (Gathafi 1980,
p. 43) aimed at increasing production, securing the continuity and stability of
the work force, lessening the rate of work rotation and disseminating industrial
awareness of the workers in order to increase the level of productive skills, was
adopted. Industrial credit was broadened, guiding Libya towards industrial
partnerships through economic development by choosing and researching
industrial enterprises and guiding the private sector to make investment in
them. Material incentives were offered to national industry by customs duty
exemptions on machinery and raw materials and through tax exemptions.
Among the most important results of implementing the economic and social
development plans during the period 1973 to 1985, was the accomplishment of
higher rates of growth in overall production. Although these good results were
achieved in the industry sector, the main objective was not achieved, which was
to find alternative resources to the oil sector to generate foreign currency.
Despite the establishment of a standard industrial foundation, this foundation
became fully dedicated to the local market. The results of this situation appear
problematic in that the development strategy should have shifted towards the
export industries and activities following the establishment of an appropriate
production foundation. However, the adoption of this strategy was hampered
by the constant predominance of administrative measures regarding economic
decisions, which had a negative impact on industry efficiency and its capacity
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for competition. If there was anything that justified the policy of replacement in
the first place, it was the lack of continuity through the period from 1970 to 1985
Also, the goal of accomplishing autarky in the agriculture field, regardless of
natural and objective considerations, led to a lack of competition and
recessional inflation.
5.7.2 The Action Period with No Plans (1986-2003)
The consecutive decline in crude oil prices in the European market, and
subsequently in oil returns from 1982 until the collapse in oil prices in 1986, all
led to uncertainty about oil revenues and, subsequently, disorder in Libya’s
development efforts. Instead of making use of the opportunity to change
planning objectives, economic administrators during the period 1986 to 2000
suspended development plans and relied upon annual development budgets
(Altunisik 1995, p. 87). In order to deal with the decline in the oil prices, the
government decided to take a greater role in both economic management and in
the direct provision of goods. It also narrowed the field of commodity balancing
(imports) and imposed restrictions on foreign remittances. State intervention
resulted in reduction of spending on imports. So that Libya’s own
manufacturing sector output would not have to compete with goods from
overseas.
In the absence of a new planning perspective, some of these policies led to the
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phenomenon of recessional inflation. The following outcomes resulted from this
situation in the industry sector:
• Dependence on oil continued, whether for funding development and
operation expenditure or as a main resource to acquire income from
transferable currencies (Secretary of Planning 1986).
• The use of production capacities in many production and service sectors
was reduced. For example, operational activity was around 41.2% of
overall capacity in 1997, which meant the existence of great inoperative
capacity at a rate of 58.8% of the overall available capacity (Planning
Council 2000).
• The available demand for goods decreased, both for local production and
for imports. This was followed by a wave of inflation and exceptional
increases in the price of many commodities, with a rate of inflation of
between 100% to 350%, to the stage where the inflation rate reached its
highest levels between 1980 and 2003 (Altarhoni 2003, p. 143).
• Development allocations declined through the handling of budgets,
which contributed to the aggravation of recession and decline in the
development rate of overall local production in the industry sector
during the period from 1985 to 1997 (Secretary of Planning 1998).
In order to counter these negative phenomena, the state issued several pieces of
legislation, which paved the way for the development of the private sector
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during the period 1987 to 1997. One hundred and twenty four factories were
privatized and 10250 partnerships in industrial firms, covering various small
industries, were established and commenced production activities (General
People's Congress 2003).
However, the manner in which this legislation and policies were implemented
did not ensure any tangible results. The industry sector still endures bottleneck
difficulties and crises, which need study and analysis to steer the sector in the
right direction. This is all due to the absence of planning techniques, which
require the setting up of development plans to contain difficulties. This was
clearly evident in the interposition made by Gathafi in the Libyan Economic
Forum and the aversion of oil revenue (future vision) when he said:
… hundreds of factories have been established in order to sell products and
bring foreign currency necessary to buy the raw materials and provide
maintenance and services for machinery; we keep spending the revenue
from oil on these enterprises thinking that they will replace the dependency
on oil. Instead, they, as well, continued to strive for oil. The agriculture
activities came to a standstill and so did industry (Gathafi 2003, p. 400).
The accomplishment of many economic development objectives stated by
consecutive development plans in the last twenty years is due to several factors,
which may be classified into three main categories:
• domestic reasons encountered by the Libyan economy associated with
the narrowing of Libyan markets and the incapability of making use of
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volume economies, the poor standard of competitive capacity of export
industries and the poor standard or absence of economic feasibility
studies;
• reasons associated with the institutional organization of the development
plans; and
• reasons associated with the implementation of plans, the first of which is
the poor standard of efficiency of implemented investments, especially in
the production sectors, for example, agriculture and industry. These are
in addition to the development policies adopted in the past.
5.8 Role of the Government in Libya’s Economic Development
Mainly because of Libya's strategic role in World War II, the Libyan
government had come to depend on foreign patrons for its financial needs.
During the Italian occupation and in the immediate postwar period, first Italian
and then U.S. and U.K. grants kept the Libyan administration solvent (Higgins
1968, p. 821). After 1956 the need for direct foreign subsidies declined as the
international oil companies began to invest heavily in Libya, resulting in
substantial capital inflows. During the 1960s, the investments of the previous
decade began to pay off and the country experienced the fruits of rising oil
wealth. This trend not only reduced the government's need for foreign
assistance but also generated a huge increase in taxable domestic income.
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However, Libyan physical and human resource development continued to lag,
necessitating sustained reliance on foreign technical assistance. This pattern of
dependence on foreigners to perform crucial skilled functions, which
subsequent governments have been unable to eliminate, has made Libyans
acutely aware of their subordinate status in the world economy in relation to
the industrialized West.
Consequently, the Gathafi government has assigned a high priority to the
achievement of what it perceives as "true economic independence." This theme
has been one of Gathafi's staple arguments and underlies much of the post-1969
revolutionary government's economic policies. Gathafi's other principal
economic objective has been to promote equity, which he equates with
socialism. Because of Gathafi's unique conception of the character of the state,
his distrust of the private sector, and his abhorrence of the profit motive, he has
maintained that it is only through massive state intervention that economic
independence and equity can be attained. Thus, the state has taken control of
virtually all economic domains since Gathafi came to power in 1969.
Throughout the 1970s, the government expanded its role to take control of
Libya's economic resources, as already mentioned. The public Libyan
Petroleum Company (LIPETCO) was supplanted in 1970 by the National Oil
Company (NOC), which became responsible for implementing policies decided
upon in the Ministry of Petroleum before the latter was dissolved in March
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1986. Similarly, the government exercised effective control over water rights
and created a large number of state-owned enterprises to oversee Libya's basic
infrastructural facilities, such as highways, communications, ports, airports,
and electric power stations. Public corporations were also created to run the
state airline and to import certain restricted goods. The public import company,
the National Organization for Supply Commodities (NOSC), was given a
monopoly over the import and sale of many basic consumer items. In 1975 the
government became the sole importer and retailer of motor vehicles. The
domestic marketing of certain commodities and the provision of certain services
were restricted to the public sector. By 1977 these included construction
materials, livestock, fertilizers, fish fodder, insecticides, insurance, banking,
advertising, and publishing.
Since the late 1970s, the Libyan government has accelerated its assault on the
private sector in a determined attempt to stamp out what it identified as
bourgeois exploitation. This renewed effort followed the codification of
Gathafi's economic theories in the second volume of The Green Book, published
in 1978 (Gathafi 1980). Many of the regime's most radical economic policies
began soon after that date. The first concrete manifestation of Gathafi's new
economic militancy occurred in 1978, when he outlawed rental payments for
property, changing all residential tenants into instant owners. The private
sector housing and real estate industry was thus eliminated, and the new
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owners were required to pay monthly "mortgage" payments usually amounting
to about one-third of their former rent directly to the government; however,
families making less than the equivalent of US$500 a month were exempted
from this obligation.
Gathafi initiated another major innovation in 1978 when, during a speech, he
urged workers in both the public and private sectors to take control of the
enterprises in which they worked by following his dictum: "partners, not wage
laborers." This new idea went much further than an earlier law in 1973, which
had merely instituted mandatory profit sharing (Gathafi 1980). Now workers
were urged to involve themselves in the day-to-day management of the
enterprises in which they worked. Within three months of this speech, workers
in 180 enterprises had formed "workers' committees" which, in principle at
least, ran these concerns.
The most ambitious of the 1978 measures, however, was the attempt to do away
with all private commerce, retail as well as wholesale. In that year, the
responsibilities of the NOSC were considerably enlarged because the state took
over responsibility for the importation of all goods and control over all foreign
exchange transactions. In theory, all private commercial transactions became
illegal as the state began to open centralized supermarkets run by local people's
committees with the aim of undermining the numerous neighborhood shops
that previously had catered to the daily needs of most Libyans. Eventually,
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there were 230 such state-run supermarkets in various parts of the country.
Although no one expected such a small number of stores to replace fully the
thousands of private sector merchants, state planners hoped that the stores
would constitute enough of a market presence in each location to exert a
downward pressure on private sector prices for competing goods.
The hostility of Gathafi toward the private sector was based on his view of
merchants as nonproductive parasites; he ignored their role as distributors. In
fact, many state proclamations explicitly stated that government policy was
designed to do away with the whole merchant class. The only type of private
sector enterprises that the government did not actively seek to eliminate were
small service-providing firms, which were not viewed as inherently
exploitative. By 1980 it was clear that Gathafi's assault on the private sector was
not proceeding as fast as he had hoped. Even in a time of relative wealth, when
oil revenues were nearing their peak and the state had enough revenue to fix
the prices of certain goods, the public sector was unable to satisfy demand for
many consumer items (Bait El-Mal 2003). The unsatisfied demand left room for
private sector activity at various levels of legality. Continuing his attack on the
private sector from another angle, in 1980 Gathafi demonetized all currency
notes above one Dinar (for value of the Libyan Dinar (LD). His action was
designed to encourage those holding large quantities of Dinars to deposit them
in the nationalized banks, thus increasing state control over private sector
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assets. Many individuals with large cash holdings were reluctant to deposit
their savings, however, since withdrawals in excess of LD 1,000 were
prohibited. They also feared that large deposits could be used against them as
evidence of their having engaged in illegal commercial transactions. The main
result of the 1980 demonetizations, therefore, was a rise in conspicuous
consumption, as individuals sought to transfer their savings into material
goods, and an increased demand for black market foreign exchange as people
sought ways to export their Dinars. Further events in the 1980s increased
Libya’s global economic isolation.
5.9 Lockerbie Crisis and its Impact on the Economy of Libya
On 21 December 1988 the Pan Am Boeing 747 “Maid of the Seas” was blown
apart over Lockerbie, in Scotland. It was flying to New York City, and 270
people were killed. A bomb had been hidden inside a radio-cassette player in
the luggage hold. Economic sanctions commenced when the U.S., U.K. and
France succeeded on the 22nd Jan 1992 in achieving a United Nations Security
Council resolution expressing condemnation of the failure of Libyan authorities
to respond to the demands presented by the governments of the U.S., U.K.,
France and Northern Ireland to cooperate to uncover those responsible for the
bombing of two airplanes, one American and the other French (Altunisik 1995,
p. 169). The resolution also called on Libyan authorities to inclusively submit a
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comprehensive and effective response, though clearly the surrender of those
accused of bombing the planes was not among their demands.
The escalating western campaign against Libya began in the early eighties
when Libya was subjected to limited American economic sanctions in 1982.
These sanctions were greatly expanded in 1986, when a comprehensive trade
embargo was imposed on Libya within a framework of extensive economic
sanctions. Following those sanctions, Libya was unable to export any goods to
the U.S., which was the largest importer of Libyan oil in 1985 when oil revenues
reached approximately $ US 2,995 million, equivalent to 27.4% of Libyan
exports (Abohbil 2003). When the American sanctions remained limited or
ineffective in the absence of similar sanctions by the rest of the world, the U.S.
endeavoured to impose sanctions against Libya under international cover
through the United Nations Security Council. Indeed the U.S. succeeded in
imposing a complete, world-wide air embargo and the boycotting of equipment
related to the oil sector, which inflicted severe economic losses that
subsequently affected all sectors, including the industry sector, which primarily
relies on the oil sector (Altunisik 1995). These events had a profound effect on
the economic and social fabric of Libya, and consequently on the practice of
accounting.
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5.10 Social Obstacles in Libya
Libya is one of a number of Arabic countries included in Hofstede's (1997, p. 55)
cultural study, along with Egypt, Iraq, Kuwait, Lebanon, Saudi Arabia and the
United Arab Emirates. Although Arab countries have many characteristics in
common, they differ from each other in many respects. Hofstede (1997, p. 54)
showed that, for instance, the Saudis are more collectivist than some other
Arabs such as the Lebanese or Egyptians. Baydoun and Willett (1995, p. 75)
showed that the value the Lebanese place on power distance10 is probably
much closer to the French value. Hofstede (1997, p. 26) and Baydoun and
Willett (1995, p. 76) show a comparison of culture value scores between Arab
countries, and other nations. Arab countries scored high levels of power
distance with a score of 80 compared with low levels of power distance in Great
Britain and the US, 35 and 40 respectively (see Table 5-1). Superiors and
subordinates in large power distance societies consider each other unequal.
Hierarchical systems exist and subordinates are expected to be told what, when
and how to carry out their tasks. Centralisation is expected to characterise high
power distance societies.
10
A measure of inequality in society (Hofstede 1997, p. 24).
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Table 5-1 Values of indices for Arab countries, Great Britain and the US (with
rank numbers)
Arab countries scored 68 for uncertainty avoidance11. This score is relatively
high compared to 35 and 46 in Great Britain and the US respectively. Hofstede
(1997) argued that strong uncertainty avoidance societies, which include Arab
countries, tend to be collectivists. Arab countries scored 38 on individualism
which is considered low compared to Great Britain and the US with a score of
89 and 91 respectively. This indicates that Arab countries are more collectivist
societies than many other countries. Islam may be one of the reasons for the
collectivist nature of these societies. In this context, the Prophet Mohammed
says that "believers [Muslims] in their mutual love, sympathy and co-operation,
are like the [interacting] parts of the human body: when one part complains, the
other parts call each other to hasten to its rescue, each sharing its pain and
sleeplessness (Ali, 1996, p. 13)". Although, collectivism predominates in many
Arab countries, Baydoun and Willett (1995) argued that Lebanon is a
predominantly individualistic country.
11
The extent to which the members of a culture feel threatened by uncertain or unknown situations. One
of the dimensions of national cultures (Hofstede 1997, p. 263).
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The variety and the influence of cultural dimensions, economic, political and
historical variables on the development of accounting systems have led to
different accounting practices in different countries. Classifications may help a
country to predict and solve accounting development problems that might be
faced by looking at the accounting systems of other countries in a similar group
that may have the same problems.
The surrounding environment, in terms of the predominant concepts in the
community, influences accounting like any other social science. Chiefly, social
aspects influence the public administration through the domination of values,
customs and traditions, which may hinder progress and the success of the
administration in accomplishing its objectives. Among the social themes that
noticeably influence accounting in Libya is tribalism and consequent nepotism.
In accordance with custom and traditions, participation in the professions in the
public sector is influenced by nepotism, by the influence of relations and close
friends because of tribal affiliation and not through professional performance
and merit. This situation has been firmly established with the emergence of the
idea of open-nomination for assuming public professions12.
This method has been exploited in the public professions and subsequently the
large tribes have appropriated the leadership without considering the extent of
availability of qualified persons to run utilities. This has inflicted terrible
12
It will be discussed in more detail in Chapter 6.
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damage on the public interest. It is worth mentioning here in this context, that
tribalism is implanted even in the minds of the qualified and the educated
among the tribe. Rather than turning themselves away from this tradition and
practice they find themselves willingly or unwillingly steered by the tribe. They
yield to its instructions regarding management and authority, because if they
turn away from their tribe, they will be deprived of assuming membership of
the professions in spite of their qualifications and performance.
What results from this practice is that those administrating the public
authorities support their own interests and the interests of the party over public
and national interest. This is reflected in explicit egoism and demoralization of
employees in the developing country to the stage where workers look at their
profession as a mere source of subsistence, endeavouring to hold on to it until
completion of legal tenure and retirement on a pension. During this period,
employees strive to outdo one another and colleagues evade the burdens of
work and deny responsibility. In actual fact, one’s profession is not looked on as
a means of offering service to the country and people or a place in which to
show talent and capability to increase the level of performance and production
in the community. Administrative aspects are also affected by the social aspect,
which is based on nepotism, courtesy and tribal affiliation. Appropriate rules to
evaluate performance and assess employees’ efficiency are absent. The current
system makes no comparison between the diligent and the lazy employee and
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removes the creative spirit of active employees, who in the shadow of these
systems endure the mistreatment and hatred of their lazy colleagues and bosses
alike. If they earnestly get on with their work they are accused of being
covetous to take control of higher administrative professions and fulfil their
own personal interests. On the other hand, they may be questioned and held
liable for mistakes committed by lazy employees and find an acceptance by
those lazy and negligent employees in performing their assigned duties at
work.
These negative impacts associated with being an employee, are compounded
by other negative impacts, where the citizen who receives the service is
answerable for it. It represents a reflection of social concepts on the employees
character in accepting the services, as he comes to the department totally
convinced that he will not leave it unless he accomplishes all matters he wishes
to undertake on the foundations of family relationship and friendship, whether
that is in accordance with the rules and regulations or not. The reality cannot
accept fallacy. Today we cannot refer to any administration unless we have a
close relative or a friend in it. This is what happened to the researcher when he
chose the GCP as a case study for the subject of this research because one of his
relations in this company facilitated the task of obtaining data and information.
This subject, social relationships, though indisputable even in western societies,
is the existence of human relations within the administration.
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In western countries, if an employee can help obtain a service quickly for one of
his or her friends, it is more difficult to offer this service or help obtain it ahead
of others, unless someone entrusted with a prominent post authorizes him to
acquire such a service. In the west, employees cannot break the law or give
priority as happens in similar situations in developing countries. This is what
prompted the necessity to ask how any employee can undertake any work or
business and accomplish it without external influence. The influence of
tribalism and nepotism is a matter which undoubtedly needs to be rectified by
raising the awareness level of every citizen and employee. Educational
institutions may contribute to this promotion of awareness by educating their
students and making them realize that the only criterion that should regulate
their relationship to others, is as a citizen of their country and not membership
of their tribe. This has significant implications in relation to professional
qualifications and employees’ ability to perform accounting tasks.
5.11 The Impact of Legal Factors
5.11.1 Libyan Commercial Law
Libyan mercantile law and income tax law are considered to be the most
important legal factors that influence the regulation of accounting practices in
Libya. Libyan Commercial law was enacted in 1953 (El-Sharif 1981), and
included regulations concerning business activities performed by any person,
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whatever his or her legal status. It covered the rules executed on traders (first
Article 1/P) (Libya State 1970), which bound every trader to abide by regular
daily bookkeeping, inventory and budget at a minimum level (Article 58)
(Libya State 1970), and to keep special files for correspondence and dialogues
relevant to trade affairs (Article 59) (Libya State 1970). The most formal
measures and objective conditions, which guarantee the consistency of these
books, are outlined below.
Every page of the obligatory books must be numbered and stamped by the
court of first instance’s stamp. In addition it is necessary for the registrar to
write attestation on the first page of each book, indicating the number of pages
and to confirm the official title with the signature and date on this attestation.
Books and files must not have spaces, writing in their margins or any erasures
or writing between lines (Article 60) (Libya State 1970). The law binds every
trader to keep these books and files for a period of not less than five years
(Article 64) (Libya State 1970). It also binds the board of directors to set up the
fiscal year Balance Sheet for joint-stock companies, to calculate profit and loss,
and to attach a report to the Balance Sheet indicating the progress of the
company’s activity (Article 272) (Libya State 1970). The Balance Sheet contents
of assets and deductions have to be fixed in the Balance Sheet with their overall
value (Article 273) (Libya State 1970), and must be confirmed by the General
Assembly (Article 516) (Libya State 1970). The board of directors must submit a
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copy of the Balance Sheet and the calculation of profit and costs as an
attachment with their report, the control committee’s report and the General
Assembly confirmation minute to the trade register bureau within 30 days of
confirmation (Article 583) (Libya State 1970).
Libyan commercial law clarified many rules about estimating the assets,
establishing the legal reserve, increasing and decreasing the invested capital
and distributing profit. Among the important rules regarding the valuation of
assets are the following:
• fixed assets are valued on the basis of original cost;
• inventory should be valued at the “ lower of cost or market”;
• trademarks shall not be valued higher than their cost or purchase price,
and the values of these assets are to be amortized each financial year in
accordance with their useful life;
• debts should be valued at their estimated realizable value;
• organization and development costs may be capitalized with the consent
of the board of directors, in which case the capitalized values should be
amortized over a period not exceeding five years; and
• goodwill cannot be recorded unless it is purchased, and once recorded, it
should be amortized in subsequent years by a suitable amount estimated
by the directors and the board of auditors (Articles: 574, 575 and 576)
(Libya State 1970).
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The legal reserve13 is established by deducting no less than 5% of the net annual
profits until the value of this reserve reaches 20% of the company’s capital, and
regarded as part of seized profits, which are classified as standing capital
(Article 557). The increase in the company’s capital is achieved by issuing new
Shares with a price more than their nominal value. This is done before
finalizing the establishment of the legal reserve, or by transferring the reserve
surplus to the company’s capital by issuing free new shares or by increasing the
nominal value of floating shares (Articles: 578 and 590) (Libya State 1970). The
reserve surplus may be decreased when it exceeds the enterprise’s needs, or in
the event of losses of more than a third of the capital, by exempting the
participants from paying the remaining instalments or returning the capital
instalment to the State in conformity with current legislation (Articles: 578 and
590) (Libya State 1970).
The commercial law also stipulated the necessity to appoint auditors (Article
550) (Libya State 1970), so as to monitor the company’s administration and
ensure sound progress of the company’s activities in accordance with the law.
Article 553 of commercial law details the duties of the auditing board (Article
553) (Libya State 1970). The law binds the auditor to submit a report to the
general assembly on the outcomes of the fiscal year activities indicating his
13
The Libyan commercial code requires that five percent of the annual net profit for every corporation
must be retained as a legal reserve (El-sharif, 1981, p.38).
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view regarding the progress of the company’s work in addition to the
authenticity and the confirmation of its budget and accounts (Article 580)
(Libya State 1970). The law does not specify what this report should include,
nor does it deal with the formality that should be included in this report.
5.11.2 The Financial System Law
The Act concerning the emergence of The Financial System Law (FSL) (Libya
State 1967) first came into practice in 1967. According to Article 1 of the FSL,
this law allows the Secretary of Treasury to control the State Budget and plan
for future expenditure. In order to do this, the Secretary of Treasury selects a
Finance Controller for every institution, and organisation. The role of this
controller is to prepare a report of the policies in the institutions and give it to
the Secretary of Treasury14. A copy of their report is sent to the related
secretariat, organisation and institution. Kilani (1998, p. 213 ) stated that this is
based on the principle that “the Treasury should be wherever the public money
is”. Consequently, the Secretary of Treasury has been involved in all publicly
held organisations. Generally, all the administration processes of the budgets
are the same. Based on Article 6, every budget has two parts: revenue and
expenditure (Libya State 1967). The expenditure itself has three divisions:
wages, general expenses and new projects. Furthermore, Article 23 of the FSL
(Libya State 1967) requires the Secretary of Treasury to prepare an annual
14
These information flows are described in more detail in chapter 7, particularly in Figure 7-4.
163
report for the Public Control Office, including detailed information of the
State's budgets and expenses. It also calls its improvement, debt or any
emergency accounts as well as trust.
5.11.3 Income Tax Law
The income tax law that was applied in Libya during the period from 1923 to
1968, was the Italian income tax law (El-Sharif 1981). However, following the
undertaking of some necessary amendments to suit local circumstances, a new
income tax law was issued for the first time in Libya in 1968 (Central Bank of
Libya 1971; Central Bank of Libya 1977, p. 154). In 1973, this law was replaced
by Income Tax Law No. 64 (Libya State 1973), which has had a direct impact on
accounting practices in Libya, and has been used by many companies for the
purpose of setting up external financial reports. Among the most important
accounting practices stated in Income Tax Law No. 64/73 (Libya State 1973) are
the following:
• depreciation of all assets utilized in producing the income at a fixed
annual rate specified for each group (Article 55);
• donations to charitable organizations should not exceed 2% of the net
income (Article 55); and
• if an account of one year ended with loss, this loss would be included in
the expenditure of the year or the following years, until the fifth year as a
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maximum limit (Article 59).
Libyan income tax law does not differentiate between income tax from ordinary
activities and income tax from unusual activities (Shareia and Buferna 2001),
whether this income is a product of an activity sale or any of the activity’s
material or non-material assets (Article 65).
Income Tax Law No. 64/1973 (Libya State 1973) has been amended as well as
Stamp Tax Law in accordance with the principal popular congresses’ resolution
convened during the period from 26/12/2002 to 2/1/2003. In March 2004, Income
Tax Law No 64 was replaced by Income Tax Law No 11, and there has been a
significant change in the new law. It now offers tax allowances, especially for
those with high incomes, and it has deleted the public tax category of income
and increased the value of each category in the progressive taxes on the
activities (Libya State 2004a) ( see Table 5.1) . This encourages the private sector
to make more profit and thus contribute to Libyan development plans.
Table 5-2 Comparison between Old and New Libyan Income Tax Law
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Legal factors have indicated that law regulates the accounting profession in
Libya, and there are organizations or professional authorities, which regulate
this profession.
5.12 The Impact of Environmental Factors on the Plans and
Objectives of the IS
As previously mentioned, it is clear that in Libya, like any developing country,
environmental factors substantially differ from the environmental factors in the
developed countries particularly Britain and the U.S. (Bait El-Mal et al. 1973; El-
Sharif 1978; Kilani 1988; Bengharbia 1989; Bait El-Mal 1990a; Bait El-Mal 1990b;
Kilani 1990; Bakar 1998; Kilani 1998; Bakar and Russell 2003). Libya is
characterized by the following environmental factors:
• heavy dependence on oil revenue in funding various economic activities;
• predominance of public sector ownership of these activities;
• inefficiency of economic activities associated with public sector
ownership;
• continuous intervention on the part of the state in setting up the
development plans, ineffectiveness of the accounting profession and its
poorly regulated standards by the laws set by the state;
• absence of appropriate accounting education system; and
• absence of a stock exchange.
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On the other hand, Britain and the U.S. are characterized by the following
factors:
• increase in the number of active stock markets, which play a vital role in
funding economic activities;
• predominance of private sector ownership of these activities;
• active economic activities in all sectors;
• the accounting profession is well established and regulated by
professional organizations and authorities; and
• there is an appropriate accounting education system.
Moreover, Libya, like any other developing country is seeking to accomplish
economic and social development in a prompt and comprehensive manner.
Despite the explicit environmental differences between Libya, as a developing
country, and U.K. and the U.S., as developed countries, Libya has adopted the
U.K. and U.S. accounting system. This means that accounting principles,
auditing standards, accounting education and the institution of an accounting
profession have been adopted without thoroughly considering local
environmental factors.
During the last three decades, Libyan society has witnessed extensive social,
political and economic changes (The Economist Intelligence Unit 2003). Despite
all these changes, the tribal structure of social relations still play a key role in
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the community (Knapp 1977, p. 178). These have affected country’s plans and
objectives profoundly.
The employment of workers on the basis of ability and merit is considered to be
necessary in order to obtain optimum performance in economic activities.
However, Agnaia (1997, p. 120) demonstrated that many workers in the sector
of industrial companies have been assigned on the basis of social relations and
nepotism more than on skills, expertise and knowledge. This was certainly a
reason for some of the problems which the sector encountered when
implementing its plans and accomplishing its objectives. As well as inability to
perform required tasks other problems include absenteeism, indifference,
failure to abide by appointments, lateness and signing off before the end of the
shifts (Agnaia 1997, p. 121). Agnaia’s study confirmed observations made
earlier in this chapter about the manner of management and its operations
within industrial companies was clearly influenced by many social and cultural
factors.
5.13 Summary
This chapter has described Libya’s legal, economic, political, social and cultural
systems, in order to develop an understanding of how they have shaped the
country’s development, and in particular, the way accounting is practised (see
Table 1-1). It establishes a platform for later consideration of accounting
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information systems within I.S. and GCP.
Globalisation Theory takes into account Libya’s place in the global economy,
but at the same time does not ignore Libya’s own unique cultural characteristics
(see Table 3-1). Situated as it is in the Middle East, as a former Italian colony,
now an Islamic nation under a Socialist government, Libya has a centrally
planned political system. Having once been a Western-oriented capitalist
country, it has gone through a period of being strongly nationalist and socialist
under the leadership of Gathafi. During this period, while benefiting from
booming oil revenues, the government exercised a heavy hand in implementing
its own ideologically driven economic development plans. Accounting played
no significant role in implementing these plans, with accounting education
sidelined and the influence of the accounting profession negligible.
Under the influence of the World Bank and the United Nations, Libya is now
entering the global economic stage, endeavouring to broaden its economic base
beyond oil, and responding to pressures to privatize its industry. This new
policy contradicts what has gone before, yet must be introduced into the
present bureaucratic infrastructure, the product of earlier cultural factors which
are likely to provide a challenge to this process. As greater reliance is placed on
accounting, professional and legal networks will be challenged in delivering the
kind of accounting that is required to run companies for profit. Against this
backdrop, the next chapter will explore in more detail the current role of
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accounting systems in Libya.
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Chapter 6: The Current Role of Accounting Information Systems in Libya
CHAPTER 6 THE CURRENT ROLE OF
ACCOUNTING INFORMATION SYSTEMS IN
LIBYA
6.1 Introduction
This chapter examines the present role of AIS in assisting Libya’s development
needs. A unified accounting system which is responsive to global influences
can have a positive effect on economic development. The provision of accurate
and timely Information is considered one of the main factors that assists
economic development in general and industrial development in particular.
With its direct relationship with technology, industry is believed to be the
biggest producer and consumer of information, as well as the essential
stimulator for comprehensive development. The information sector in Libya, as
well as in other developing countries, faces significant problems. Decision
makers complain that they are not obtaining required and needed information.
They argue, as shown later in this chapter, that neither the quality nor the
quantity of information that is provided to them is satisfactory. Producers of
information are complaining too. They argue that numerous agencies and
governmental bodies ask repeatedly for information, some of which they have
already been given. In addition to the problem of asking for the same
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information again and again, managers of industrial companies are
complaining that neither the type of information nor the users of such
information are well defined. The main objective of this study is to examine the
present and potential role of accounting in meeting the development needs of
Libya and to examine the influence of culture on accounting needs (see Chapter
5). Specifically, the users of information about Libyan industrial companies are
to be determined. The aim of this chapter is to discuss the meaning of
information and to identify the objectives of accounting systems in LMEs.
6.2 The Nature and Role of Information
Information plays a vital role in economic activities which are dependent upon
many decisions. This explains the great effort businesses expend to provide
information to those given the responsibility for making company decisions. As
used in the context of business decisions, there is an important distinction
between “information” and “data”, or “fact”. Information is described as “data
relevant to a decision. Data, in order to be considered decision information,
must bear on some aspect of criteria or alternatives related to that decision”
(McNeill 1974, p. 6). The presence of alternatives may stimulate decision action
or help in choosing the best among alternative actions, or it may do both of
these. Information (relevant data) for one decision may not be relevant to
another decision. One of the major problems in business is determining which
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information will be needed for decisions and providing that information when
it is needed. The main function of accounting information is to provide
management with information useful for decision-making. This information is
provided in the form of reports that fall into two main categories: financial
statements and managerial reports (Romney and Steinbart 2003, p. 33).
Accounting provides information about financial aspects of the business. It is
true that accounting often provides nonfinancial information, and probably
should provide more, but the primary service of the accounting function has
been the supplying of financial information. This information is provided for
the use of all those who make decisions concerning the business: investors,
management, employees, and government.
6.3 The Significance of Accounting Information, and How It Can
Be Developed to Serve Economic Development
A study of the accounting profession is social science, the study of human
communities and their development within context of socio-economic relations.
In every social system, there are objectives, functions, content and meanings. As
a result, accounting develops along with the development of the community in
which it operates.
Accounting can be described as an art involving recording, classifying and
summarizing the processes and financial reports which are accomplished in an
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enterprise in a way that makes sense based on the monetary assumption
(Hoggett et al. 2006, P. 8). It involves the explanation and analysis of results. It
can also be described as a service activity that provides quantitative
information, with financial characteristics, on the economic units necessary for
decision-making purposes. This information assists in identifying preferences
between alternatives and available choices between proposed methods of
accomplishment and implementation. It is the language of commerce and one
means of conveying information on specific economic units and economic
activity in general, and a means to date the financial activity and the
information system within the economic unit, specifically (Belkaoui 1985).
Consequently, accounting has a recognised role in supplying all groups with
the necessary information for planning, implementation, control and decision-
making, which are the phases of all development processes in any country.
A number of explanations have emerged of why business in Libya is falling
behind. One of these explanations is that the roots of this phenomenon may be
attributed to non-economic factors, physical, social and political. Others refer to
economic factors such as the sheer decline in the rate of capital accumulation,
the lack of sophistication of production techniques, vicious circles which set
barriers before economic progress, and results of the unmatched trade
connection between developing and developed countries. From these
explanations, the main causes of the retardation phenomenon may be deduced
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to include (Bait El-Mal 1990a):
• the hot climate and the scarcity of natural resources;
• the traditional social environment and its failure to progress;
• Colonialism and its aftermath;
• vicious cycles and obstacles to economic progress; and
• foreign trade as one cause of the retardation gap.
The economic development process is considered to be a process of shifting the
national economy from a state of retardation to a state of progress. This shift
requires a radical change in production techniques employed (production
forces and production relations which suit the phase of production forces
progress), and the shift to a cultural milieu that suits these production
techniques. Economic development is considered to be a process of a
continuous increase and development in the social production forces (material
and human) and this means there is a need for change in the production
relations to suit the development of these production forces. There is a need for
economic development to become a natural technique for the community, so it
can possibly be said that the national economy has entered the development
phase, that is, the establishment of forces within the community capable of
overcoming all obstacles, and setting the national economy on the path of
development and progress.
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A differentiation can be made between western economics and the concept of
western civilization. That is, whether the acquisition of some western
civilization characteristics, in this case western economics, could be
accomplished without becoming a western civilization. This differentiation
between the two concepts may lead the community to become a developed
community as a consumer of goods and services, from the developed world
without becoming a developed community as far as production is concerned.
For economic development to accomplish the desired objectives, the answers to
the following questions have to be clearly defined:
• What is the size of the available resources, what are their sources and
their anticipated role in development?
• What are the available means of application and the most appropriate
one for these resources?
• What is the nature of accounting information necessary for achieving the
optimum use of these resources?
The following diagram (Figure 6-1) provides a general framework for
understanding the inter-relationship between accounting information,
development and planning. A developing country, in order to develop its
economy, needs to plan for economic development, establish and implement
those plans, and evaluate their effectiveness in an ongoing manner. Accounting
information needs both to respond to economic development needs, and to
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provide, evaluate and improve information to be used in decision-making in
order to achieve economic development plans.
Figure 6-1 The Role of Accounting Information in Economic Development
6.4 The Importance of Accounting Information in the
Development Process
One of the criticisms of information systems in Libya is the lack of data,
information and accurate statistics. What is available does not normally get
presented on time, which subsequently imposes a large responsibility on the
accountant to provide accounting information, which is useful for the decision-
making process necessary for the economy in Libya. In order to contribute to
Libya’s economic development, the accounting information necessary to
proceed with specific decisions may be reviewed as portrayed in Figure 6-2.
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Accounting information in the economic development field is considered to be
a product of a systematic process, which includes monitoring the effects and the
results of cash flow. Conveying this accounting information is now recognized
as being necessary for the economic development of every country (Bait El-Mal
1990a). Accounting information that should be made available in Libya to
proceed with economic development decisions, needs improvement that will
ensure certain characteristics.
Figure 6-2 The Importance of Accounting Information in Specific

Development Decisions
It must have the ability to be comprehended on the part of employees other
than accountants. The information must be timely and reliably, and must be
suitable for the needs of decision makers at the economic unit level and on a
national level. Comparability between the units at all times must be able to be
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discerned and there must be the ability to investigate and document this
information.
Libya requires an increase in the proportional benefit of accounting information
for economic development in a way that will ensure the previous
characteristics. The development of accounting in Libya must therefore include
the use of unified accounting policies on the level of the main sectors in a
manner that will allow the results obtained to be comparable on one hand, and
connected with the needs of national accounting on the other hand. This may be
started by setting up one accounting manual and forms for the financial
statements for companies with similar activities, with the flexibility that allows
an understanding of the issues related to every sector and company, as well as
meeting any new developments on the other. Standards need to be developed
to evaluate investment enterprises in both the public and private sectors to
assist in making fair judgments regarding efficiency and effectiveness in using
available resources.
Accounting standards need to be issued for measuring social performance and
income statements need to be developed because of deficiencies in financial
measurement in expressing the effectiveness of activities. Financial
measurement does not currently cover all activities. This deficiency may be due
to several factors, among which are the difference between predominant prices
in the state and actual prices for valuing assets. In this domain, some people
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have indicated that while the discipline of accounting is about 500 years old
(since the invention of double entry bookkeeping), and it is still developing,
social responsibility accounting is relatively modern. It has developed quite
fast, but still has a long way to go (Ralph 1973, p. 491.). Therefore, there will be
a clear impact on accounting practice where it includes accounting
measurement in comparison with the economic and social impact of activities.
Instead of being confined to financial impacts, the economic unit has to be
capable of representing the state as a whole, or a municipality, an
administrative unit, a decision, a program or a certain activity.
The state’s financial system must be reconsidered in order to handle modern
tendencies in the state’s financial administration and for the service of economic
development in Libya, including reports associated with state activity. It has
been demonstrated financial reporting systems in many developing countries
are inadequate for the purposes of financial administration, because they fail to
provide policy makers with the relevant information on a regular basis and in
due time. In spite of the fact that an information system does not itself
guarantee better decisions in the field of economic and financial policy, it does
decrease the possibility of ineffective decision making by providing financial
policy makers with appropriate information.
There must be an association between sector accounting and national
accounting within the framework of the central needs of planning and
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performance evaluation. Accounting in developing countries like Libya has
traditionally been better developed in the public sector than the business sector,
since the business sector has been smaller and less significant in economic
terms. In order to achieve economic development, integration of both branches
of accounting will be beneficial, “Accounting for Economic Development”
would address several areas including planning for development on sector and
total economy levels, which would lead to generating capital and funding
development. Regarding this branch of accounting, accounting for economic
development has been recognized as one specialized field of accounting that
may be related to economic growth (Enthoven 1973, p. 137).
The establishment of an accounting information center will include a set of
branches associated with the state’s main sectors, classified through this center
into a number of forms which fulfil the needs of information users. Naturally
this center will come into existence after establishing and updating an
accounting database, taking into consideration cost and the possibility of
negotiation and flexibility. In this field, it will be necessary to define the
following: the nature of information needs, the relative significance of the
information, the study of costs and benefits, the undertaking of analysis, the
design and testing of the system, and then upgrading it (Davis 1983, p. 8.).
Despite recognition of the role of accounting systems in planning and decision-
making, they have not played that role in Libya in the past and may not even
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play it in the future, due to the presence of limitations and obstacles that
prevent it from performing such a role. Among these limitations and obstacles
are:
• difficulty of prediction and domination of uncertain circumstances,
owing to the issue of many rules and regulations without feasibility
studies being conducted;
• transfer of the greater part of the practice of auditing to the public
authority (the popular body for supervision);
• increase in the responsibility of the auditor without a matching increase
in his professional authority;
• decline in the standard of care devoted to the profession; and
• lack of efficiency and development of accounting education and scientific
research in this field.
6.5 Accounting and National Economic Planning
Many governments of developing countries have determined to plan the
development of their economies rather than leave everything to chance or to
market forces. This is achieved through national development plans that are
meant to achieve quick and sustainable economic growth and development.
Even in this area of government activity, accounting has an important role to
play. Economic planners need accounting information in order to identify past
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economic development trends, to carry out feasibility studies of projects for the
plan and to monitor ongoing economic projects in order to facilitate control and
revision of plans. Seidler (1967, p. 272) asserted that they have not always
realized this potential contribution of accounting:
this neglect [of the importance of accounting to the economic development
process] seems to stem partly from a feeling by economists working in
economic development that general accounting concerns only private
enterprises. Not only is it assumed that the private sector is capable of
satisfying its own needs in this respect, but the extensive role of enterprise
accounting in affecting the operations of government and development
planning is also ignored (Seidler 1967, p. 272).
Seidler (1967, p. 7) argued in addition that:
the resources available to the developing country are, by definition, limited.
Not only is the power of the developer usually symbolized by a
government, limited politically, but it is also constrained by a lack of
information and resources. Enterprise accounting is a supplier of
information, a device for increasing the efficiency of resource allocations
and a mechanism for controlling productive operations. It seems logical
that these skills, normally considered to be tools of private enterprise
management, should be equally useful to the management of the
development process (Seidler 1967, p. 7).
National economic planning and control are activities that rank high in the
agenda of most developing countries. Even governments of developed
countries with free-market economies will normally exercise some degree of
control over their economies through monetary and fiscal policies.
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Mirghani (1982, p. 60) argued for an accounting system that supplies
information which reflects the economic realities of the particular developing
country and is useful in aiding national economic development planning:
One of the major roadblocks for effective development planning in
developing countries is the unavailability of reliable information or the
unreliability of available information. The term “lack of information” will
be used from this point to denote both unavailability of reliable
information and unreliability of available information. Lack of information
for development planning could have a number of adverse effects upon
exerted development efforts. First, selection of development model would
be made on no realistic basis, and the selected development model could
very well be one, which is completely incompatible with economic realities
of the particular developing country. Second, lack of information could
lead to the selection of a development model that covers certain parts of the
economy, not because of their importance for future development but
because information about them was available. Third, lack of information
concerning the interdependencies of the major economic sectors could lead
to an internally inconsistent development plan and therefore, is rather
impossible to make operational. Fourth, lack of information regarding the
relative scarcity of resources available for development would misguide
the resource allocation process in the economy. Fifth, lack of information
about the progress being made toward the achievement of developmental
objectives would make it impossible to revise the plan in view of changing
conditions. The net effect of such adverse effects is that by the end of a
development plan period, no material tangible benefits would accrue to the
particular developing country, or if any were to materialise, they would be
at an exorbitant cost.
The situation outlined above is in fact representative of the dilemma of most
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developing countries. Even though reliable accounting information is not the
only factor that is required to achieve effective economic planning, its
usefulness is indisputable. With reliable accounting information, at least
governments of developing countries could tell with some degree of assurance
where and why their plans were not working so that corrective action could be
taken where possible.
6.6 Relevance of Western Accounting Information Systems to
Economic Development
Many developing countries have adopted accounting systems found in western
developed countries without any concern being given to the ability of these
systems to create information that is necessary for effective national economic
planning. Most frequently it has been U.S./U.K. accounting systems which have
been adopted, and the factors that have encouraged this are outlined by Briston
(1990, pp. 200-201) as the British Empire, English language, the availability of
professional qualifications offered by some of the British professional
accounting bodies in overseas countries, and educational exchange and direct
aid from the U.S. and U.K. Nevertheless, there are powerful arguments to
suggest that that system is unlikely to meet the information needs of the
economic development process in developing countries. These arguments are
set out by Briston (1990, pp. 200-201).
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There is no doubt that the adoption of the U.S/U.K. system, in a situation where
very little accounting existed before, would represent an improvement.
However, it must be borne in mind that that particular system evolved in a
particular social, political and economic environment and that it may well need
considerable adaptation to meet the needs of a particular country. In the first
place the system presupposes that companies financed by private shareholders
and whose shares are listed in a local stock exchange carry out the bulk of
economic activity. Where the bulk of investment is in public sector companies,
then very different criteria of measurement need to be developed. There is also
the likelihood that the political and economic system would be very different
from that of the U.S. or U.K., so that the objectives of economic management
might well be different.
Also, particularly in the Arab world, religion may have a significant influence
upon financial and economic reporting. Finally, whatever the nature of the
economy, there is a strong argument that the approach to accounting should be
broadened, partly to take into account different political, economic and
religious objectives, but even more importantly, to have regard to the fact that
scarce accountancy skills may well make a stronger contribution if they are
directed towards information for decision-making, internal audit, and
performance measurement, rather than being aimed at the external audit of
activities, which are already completed. For accounting to play a vital role in
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economic development it has to provide information that is relevant to the
needs of that particular country. As Seidler (1967, p. 271) pointed out,
government planning without adequate and reliable accounting information is
bad planning.
6.7 Accountants, Economists and Economic Development
Most developing countries have very few accountants and economists who are
capable of fully exploiting the potential that accounting information offers for
economic development. The policymakers who could influence the
development of accounting are themselves often not aware of the potential that
accounting offers for economic development and are thus reluctant to commit
much of their scarce resources to the development of relevant accounting
systems. The failure to recognize the importance of accounting in economic
development in developing countries is compounded by fact that accountants
and economists do not understand that their disciplines cover much common
ground, and thus do not collaborate as closely as they should. Accountants are
associated mainly with enterprise activities, while economists are regarded as
planners in the government and public sector. In developing countries, where
resources are much more scarce than in developed countries, there is an urgent
need for accountants and economists to cooperate in identifying the
information needs of economic planners, in order to construct a system of
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accounting which is appropriate for the country.
Government economic planners, who are usually economists or statisticians,
appear not to be aware of the significant contribution that accounting could
make to economic planning, both as a source of information for plans and as a
feedback mechanism on the effectiveness of ongoing economic plans. However,
economic planners do, at least in part, depend on micro accounting in the
formulation, evaluation and monitoring of national economic plans. Indeed,
they regularly collect micro accounting data from both private and public sector
enterprises, oblivious of the possibility that enterprise accounting information
could perhaps be presented in such a way that it could serve their needs
directly.
One such possibility would be the adoption of uniform accounting plans, based
perhaps upon the French “plan comptable”. Such a plan would require all
enterprises which fell within the criteria laid down by the government both to
maintain their financial accounting records and to prepare their published
financial statements in accordance with the uniform rules set out in the plan.
One of the plan’s objectives would be to facilitate the construction of macro
accounts through the aggregation of the standardized accounts of individual
enterprises. Unfortunately, however, relatively few developing countries have
adopted the French system due to the predominance, for the reasons set out
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above, of the U.S. /U.K. system (Bait El-Mal 1990a).
However, the achievement of compatibility between micro and macro
accounting is far from easy, even where there is significant uniformity within
the enterprise accounting system. The Libyan Inter-Secretariat Working Group
recognized this on National Accounts, which prepared a “System of National
Accounts” (Abusneina 1993). In discussing the link between business
accounting and economic theory, they stressed that priority has to be given to
economic theory where it conflicts with accounting practice due to the
inadequacy of financial reporting practice in such matters as the measurement
of depreciation, the adjustment of data to deal with changing prices and the
identification of opportunity costs (as opposed to the largely irrelevant historic
cost). This leads to a consideration of the role of the accounting profession in
Libya, which will be discussed in the next section.
6.8 The Accounting Profession in Libya
Libya, being within Hofstede's Arab country classification (see Chapter 5), has
high levels of power distance and uncertainty avoidance and is those have
affected its accounting profession. Although the Libyan accounting profession
is not well developed (El-Sharif 1980; Bengharbia 1989; Selway 2000), there is a
belief that it has been influenced most by the UK and the US accounting
systems (Kilani, 1988). The UK and the US are individualistic societies with low
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levels of uncertainty avoidance whereas Libya is a collectivist society where
levels of uncertainty avoidance are expected to be high. Therefore, it is expected
that Libyan companies' accounting systems may not provide the information
needed by its socialist government for macro purposes.
No records are available to show precisely how and when the accounting
profession was first established in Libya. Since the early 1950s, the development
of the Libyan accounting profession has been significantly influenced by several
factors, such as the education system, the teaching of accounting academics, the
preferences of international companies, the expertise of international
accounting firms and to some extent, the rapid changes in the Libyan social,
economic, political and legal environment. Western influences have caused the
Libyan accounting profession to follow the same path as its counterparts in the
U.K. and U.S. (Kilani 1988, P. 241). Therefore, compared with the western
accounting profession, which has existed for more than a century, the Libyan
Accountants and Auditors Association (LAAA) is quite young. It is only 30
years since the CPA system was introduced officially in 1973 by Law No. 116 of
1973 (Libya State 1974). After this date the profession become more formal.
Moreover, accounting became a popular course of study from 1957, when the
Faculty of Economics and Commerce was established at Garuonis University in
Libya. Professional bodies and universities in the U.K. and the U.S. were the
main sources of influence, providing accountancy education and training for
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Libyan students (Bakar and Russell 2003). The preference for the U.S. was
obvious because many Libyan students completed their studies in American
universities during the 1970s (Kilani 1988, P. 175). The U.S. was also an
economic power and a leader in accounting practice and education, and Libya
had a good relationship with the U.S. at that time.
Despite the LAAA being established more than three decades ago, it has done
nothing to build any theoretical base for accounting as a profession in Libya
and has not established a Code of Ethics for members to abide by (Bakar and
Russell 2003). This suggests that the LAAA has failed to regulate itself and to
recognize its obligation towards the public interest. Furthermore, it has not
achieved its objectives of furthering activities such as research, conferences, and
seminars, a continuing education and training programme or of promoting
accounting publications to improve the status of the profession and accordingly
of its members (Shareia 1994). All these factors suggest that the status of the
Libyan accounting profession is very weak.
The LAAA specifies no uniform audit report requirements and no professional
examination requirements. They base their practices mainly on their members’
accounting university education (Kilani 1988, P. 243). The definition and the
objectives of the accounting profession in Libya are the same as those in the
U.K. and the U.S. (Kilani 1988, P. 255), however, the environmental factors of
Libya are significantly different from those of the U.K. or the U.S. Currently, the
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accounting profession in Libya confines itself to external financial reporting and
external auditing (Bait El-Mal et al. 1973; El-Sharif 1978; Kilani 1988; Bakar
1998).
6.8.1 Libyan Certified and Public Accountants Union
The LAAA, which is also known as the Libyan Certified and Public
Accountants Union (LCPAU), is not the only professional accounting body in
Libya. There is also the Government organization, the General People’s
Committee for Auditing and Control. This organization is responsible for
auditing the public sector whereas LCPAU is responsible for auditing the
private sector. Also, sometimes the government organization employs private
sector auditors to audit financial statements for the public sector. This happens,
for example, when the Government organization does not have the capacity to
do this work.
The LCPAU was established in 1973 and its objectives, rules and regulations
were codified in the Accountants’ Act 1973, which created the Board of Public
Accountants to monitor the public accounting profession. The entry
qualifications of its members are prescribed in the Act. The board is responsible
for registering public accountants, maintaining a register of public accountants,
determining the qualifications of persons for registration as public accountants,
ensuring adherence to the ethical codes of conduct and disciplinary matters. To
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qualify as a public accountant, section (24) of the Accountants Act specifies that
the applicant must:
• be a Libyan citizen;
• have at least a Bachelor of Accounting degree;
• be of good character;
• have a good reputation; and
• pass any requirements recognized by the Board of Public Accountants
(Libya State 1974).
Qualifications, such as a PhD in accounting or auditing from any university of
good standing in Libya or outside of Libya, are recognized by the Board of
Public Accountants. Certification from The Institute of Chartered Accountants
in England and Wales or The American Institute of Certified public
Accountants is also recognized.
In order to gain admission to the General Union of Accountants and Auditors
(GUAA), applicants should have between three and five years of relevant
practical training, depending on whether the training is structured or
unstructured. Structured practical training means experience gained under an
approved principal in a public accountant’s office or in any organization in the
public sector or industry and commerce. With the enactment of the
Accountants’ Act 1973, all members of the profession are called “Certified
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Public Accountant”.
Regulating financial practices is accomplished either through a legally
constituted public body to which the responsibility for implementing,
monitoring and enforcing accounting standards is given or through a voluntary
approach which relies on self-regulation. Theoretically, the Libyan Accountants
Union was responsible for establishing and monitoring accounting standards
and practices in Libya (Accounting Profession Law no 116 of 1973), but
practically it had failed to issue and implement Libyan accounting standards,
according to its vice president. Of the two approaches to regulate accounting
profession - professional self-regulation and statutory control - the Libyan
accounting profession was governed by the Libyan Commercial and Financial
Laws. The weakness of the Libyan Accountants Union has led the State to be
the sole accounting regulating statutory. In fact, public bodies such as the
Public Control Office have taken the absence of an effective accounting
association to instruct and demand companies to follow certain accounting
procedures.
The Libyan accounting profession was influenced for decades by international
colonisation and international businesses prior to the move towards a centrally
planned economy and the recent emergence and encouragement of establishing
private businesses (See Chapter 5).
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6.8.2 Accounting Education
The deep-seated influence of western accounting (mainly from the U.K. and the
U.S.) has dominated accounting education and accounting practice in Libya. An
accounting education system like any discipline, consists of students, academic
staff, curriculum, and resources (library, computers, facilities, financial
resources, innovations, and technology) that are ideally associated
harmoniously and efficiently to meet the education needs of a given society
(Bakar 1998). Additionally, the accounting education system itself is a factor of
the wider education system of the country it serves. The education system is
affected by and also affects the social, economical, political, and cultural
environments of the country in which it operates. Consequently, an education
system should be designed to meet overall national needs.
6.9 Accounting Education and Academic Research
Accounting in developing countries was, and still is, an expansion of
accounting in the western world, which in its part was the product of the
colonial period and the power of foreign investors, or of the effect of multi-
national companies, foreign aid and, finally, through western education.
Perhaps the clearest example of that is what has been said by one accounting
academic:
the accounting principles of state (A) have not been shifted and applied in
state (B) through study and persuasion on the significance of those
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principles, but have been shifted and applied in state (B) when these
conditions have been satisfied:
There is no institution in state (B), which takes an interest in issuing the
appropriate accounting principles for state (B), and subsequently investors
were capable of imposing their requirements from the accounting
principles. Therefore, these countries could not find a way to escape the
acceptance of these imported principles and trying to get adapted to them.
The existence of a large amount of funds flooding from state (A) and
invested into state (B) (Bait El-Mal 1990a, p. 31, citing Wilkinson, 1975).
Affirming what has been said, we find that a state like Indonesia, due to several
factors such as the presence of multi-national companies, international aid and
accounting companies and the language, has adopted imported educational
techniques. Consequently, the accounting profession in Indonesia became
Dutch in its requirements, but American in training and philosophy.
Undoubtedly, this situation does not suit a country like Indonesia, which has a
developing capital market and regulatory system, as well as a large public
sector. In spite of these developments, its economic and cultural circumstances
are utterly different from those found in the Netherlands and the U.S. (Bait El-
Mal 1990a; Sukoharsono and Gaffikin 1993; Marwata 2006; Silaen and Smark
2006).
Among those factors responsible for this situation in developing countries in
general are accounting education systems. Economic development requires
changes in the predominant accounting education system in order to create an
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attitude that recognizes there is a vital need for change in the curricula and the
methods of accounting education capable of engendering scientific, critical
enquiry and a willing attitude to understand its changing surroundings. Also,
the accounting education system must be amended so as to serve development
needs by the creation of skills and the development of technical and
organizational capacities, which the development plans need. In order for
economic development to achieve success, there should be adequate numbers
of administrative and organizational skilled personnel. One of the main
problems encountered in the development process in developing countries,
accompanied by criticism of the misuse of resources, is the mismanagement in
these countries (Mohidin 1972).
It is clear that accounting education policies and the need to have academic
research in this field, are incompatible with the economic development
requirements of developing countries in general, and in the Arab world and
Libya, in particular. This incompatibility between economic development
requirements and accounting education policy and academic research is due to
the deficiencies in the role of accountants and educators. The role of these
professions is crucial in accelerating economic development and subsequently
the extent of response of the accounting education structure regarding
anticipated change in the national economy. This is an issue which will hold
university management responsible for the status of the university in regard to
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serving the community. Therefore, Arab thought must define the development
of the contemporary Arab university structure, on one hand, and formulate the
relation between that structure and Arab economic components, on the other
hand.
Both accounting education and academic research are decisive factors in the
process of economic development and what demonstrates that is the return to
historical analysis associated with the role of education in economic
development. Additionally, early manufacturing industries in the western
world were influenced by and associated with education and the spread of
scientific knowledge. Very often university curricula with their special fields
and levels are associated with the nature of the development phase of a national
economy. From this angle it is vital to look at accounting education and
scientific research in the Arab world in relation to the national economy so as to
be able to provide multi-dimensional requirements.
Education and research activity in any society is an economic activity with its
own costs and resources, and every time the development phase progresses, the
expansion in scientific research and transmission through universities and
higher and intermediate institutes all require additional capital to meet that
expected expansion. Development variables clearly rely on the contributions of
continuous research, though the decline in the contribution of expenditure on
Arab research in economic development, has led to the failure of this field
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fulfilling the role it was commissioned to do.
The typical retardation in some academic research areas is not due to the
structure of the Arab scientific mind inasmuch as it is due to the variables and
circumstances surrounding Arab academic research institutions. These
circumstances, in combination, have led to the immigration of some highly
skilled Arabs: 50% of immigrants were doctors, 23% engineers, and 15%
researchers in applied sciences in the Arab world in 1976 (Badran 1985). It is
well known that highly skilled people build up a typical structure for advanced
economies but the Arab academic research system and associated paradoxes
collectively do not provide a motivation for applied academic research. Among
the first of these obstacles is the lack of attention paid to the relative capacity of
skilled Arab people regarding their creative ability in scientific and other
academic research and the frequency of their attendance at specialized
academic conferences. Lastly, and most importantly, is the fact that research is a
marginal issue in the field of Arab expenditure. A report from the United
Nations Educational, Scientific and Cultural Organisation (UNESCO) has
indicated that the former Soviet Union allocated approximately 4.76% of its
national income for academic research, while the rate for the US was
approximately 2.23%, and in Africa, with the exception of the Arab states, this
expenditure was 0.36%. In the Arab world the rate in 1980 was as low as 0.27%
(Altinner 1988).
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Finally, the objective connection between the national economy and accounting
education structure and scientific research is necessary so as to have no
partition between development and updating on one hand, and
implementation and production on the other hand. There should be no future
deficiency on the part of one or both aspects in order to create the required
economic development.
A study conducted in 1985 affirmed this (Bait El-Mal 1990a, p. 34). It defined the
main problems of scientific practice and accounting education in developed
countries, and clarified that the most important of these problems were largely
due to accounting education. The following were identified as the most
significant of these problems:
• shortage of skilled accountants at all levels and in all accounting fields;
• accounting information can either be unavailable, not made available as
it should be or be made available but late;
• accounting information has not been sufficiently used for internal
administration purposes;
• lack of financial reports and appropriate auditing standards;
• lack and deficiency of national accounting systems;
• lack of appropriate accounting within the state’s authorities and public
companies;
• lack of legislation associated with accounting and standard and auditing
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measures;
• the use of the accounting firm primarily to help companies to evade
paying income tax and to fabricate financial lists;
• the attempt made by some accountants to apply imported concepts and
principles from developed countries regardless of their suitability for
local circumstances and urgent needs;
• incompatibility of educational standards in the teaching of accounting
subjects in colleges and institutes;
• shortage of accounting books and other references in colleges and
institutes; and
• shortage of qualified lecturers in colleges and institutes.
From what has been previously mentioned, the key role for accounting systems
in general can be seen, and the accounting information produced by these
systems in particular. This is important because progress in the field of
production and the conveyance of this information become vital elements for
economic development objectives in developed countries and developing
countries alike. As Libya is a country which anticipates the accomplishment of
economic development, it is necessary to devote attention to accounting
systems which set up and provide accounting information. This information is
regarded as one of the principal resources to activate the development
movement in general and industrial development in particular, because of
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industry’s close and direct association with technology. It is both the greatest
producer and consumer of information, and the main driving force for a
comprehensive development process.
Most researchers stress that information is more significant than material and
energy. They also stress that production rates increase in any sector with the
increase of information.
6.10 Summary
Accounting is an information system that is vital in the proper management of
any modern economy, for no significant level of economic activity is sustainable
without a formal system of accounting. Similarly, accounting clearly has a role
to play in economic development, though, as with any other information
system, its usefulness depends on its ability to generate reliable and relevant
information for decision-making. Furthermore, for accounting to have any
significant impact on economic development, those involved in the economic
decision-making process must understand how to interpret the information
generated by the accounting system.
As nations differ in terms of their cultural, economic, legal and political
systems, so too do their financial and economic information needs. However,
accounting systems in developing countries have been predominantly imported
from developed countries, thus it is important to raise questions about their
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relevance to the information needs of developing countries, given the obvious
differences between the socio-economic systems of developed and developing
countries. The use of such accounting systems will inevitably limit the
usefulness of the information generated by these systems in developing
countries.
Accounting systems in most developing countries fail to reflect the
environments within which they operate, do not begin to serve the needs of
these countries supplying information for national economic planning and the
subsequent review of such plans, and do not concern themselves in any
meaningful way with the industries that are the economic back-bone of these
countries. As a consequence, the potential role that accounting could play in the
economic development of these countries remains unfulfilled.
In order to construct a system which will encourage accounting to achieve its
potential contribution to economic development, it will be necessary for
developing countries to search for a system which is relevant to their economic,
social, political and legal environment and then to provide a suitable education,
training and professional environment in order to ensure its successful
implementation (Ndzinge and Briston 1999, pp 34-41). The next chapter will
provide and analyse the data collected from the study’s first case study, the IS.
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PART III- CASE STUDY-
ACCOUNTING IN PRACTICE
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Chapter 7: The Use Of Accounting Information
CHAPTER 7 THE USE OF ACCOUNTING
INFORMATION: THE CASE OF THE
INDUSTRY SECRETARIAT
7.1 Introduction
This chapter focuse on the case of Libya’s IS in order to discover the present
role of AIS in assisting Libya’s development needs. To make sound decisions
within the parameters of their national and global goals, organizations need to
capture data not only of their own economic situation but of foreign trades,
which will enable them to formulate appropriate policies. The achievement of
harmony between future plans and data collection connotes a sense of
unification which includes global data collection as well to produce productive
policies. The purpose of this chapter is to present data collected from the
Industry Secretariat (IS), and to assess the way in which data is used.
The previous chapter discussed the current role of accounting systems in Libya
and outlined the contribution accounting must make to assist in development
plans. This chapter and the next illustrate that role by providing and analysing
data collected from the IS and the GCP. Due to the IS's relationships with
companies in the industrial public sector in general and the GCP in particular,
obtaining data about the IS was important in order to understand the role of
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accounting systems and the role of accounting information in the various stages
of decision-making and control. The chapter begins with a definition and the
background of the case study - the IS. Next, the IS's management and
relationship with companies and institutions in the industrial public sector, is
outlined, followed by the IS's objectives and plans, the socialist aspect of the
economy and the role of the State in such an economy. Information demanded
by industrial companies in the public sector and issues of accountability are
then explored.
7.2 Background to the Industry Sector in Libya
During the last three decades industry in Libya has significantly developed, in
contrast to the situation in the 1970s. During the 1950s, 80% of the factories in
Libya employed less than ten people (Barker 1982). The private sector in Libya
was dominant until the end of the 1970s, after which most factories became
associated with the public sector (Bearman 1986, p. 275; The Economist
Intelligence Unit 2003), as the public industry sector was increasingly taken
over by the state, to the point where public ownership fully dominated the
whole industry sector (Gathafi 1980; Bearman 1986, p. 275; The Economist
Intelligence Unit 2003). Industrial companies were distributed throughout the
cities in Libya, where previously they had been centered in Tripoli and
Benghazi (World Bank 1960, p. 33; Agnaia 1996; Bait El-Mal 2003, p. 210). This
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phenomenon was an outcome of various State development plans that had been
set up to accomplish a number of objectives, such as the diversification of
sources of income from sectors other than the oil sector, and the increase in the
industry sector contribution to GDP and self-sufficiency in goods and services.
The shift towards heavy industry did not occur until the early 1980s when this
became one of the priorities of the state’s planning (Secretary of Planning 1986).
However, due to the decrease in oil prices and the subsequent decline in state
revenue during the mid-1980s, the great dependency of the development plans
on oil revenue meant that some of projects and plans associated with heavy
industry were hampered (The General Planning Institute 2000; Bait El-Mal
2003). Oil revenues decreased from 22 billion US dollars in 1980 to 5 billion US
dollars in 1988. This major decrease caused a shortage in cash flow which
resulted in the necessity to reduce development plans and programs (Bait El-
Mal 2003).
7.3 The IS Management
The General Popular Committee for Industry, on the governmental level, was
abolished and replaced by the General Board for Transfer of Ownership of
Companies and Public Economic Units in 2000. This change occurred in
accordance with Resolution 198/2000. The IS remained on the municipalities’
level (see Figure 5-1) and subsequently became subordinate to the industrial
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companies, among which is the GCP for the IS on the municipality (Sha`biyat)
level. Since the GCP is located within the city of Benghazi, its subordination is
to the IS of Benghazi municipality. Consequently, the presence of the researcher
during the data collection period coincided with some of the structural changes
taking place within the IS as well as with some of the changes that had occurred
within the departments of the GCP. In this respect, the researcher has provided
a full summary of the effect of these structural changes upon the status of the
general policies and the implementation of these policies in Libya in the period
1977 to 2004 since the introduction of the People’s Authority Regime (see
chapter 5).
The Industry Secretariat managed its activities through a number of
Departments, Boards and Institutions (See figure 7-1 - The IS chart). The
Industry Secretariat’s Secretary appointed a General Deputy and two Assistant
Deputies: one for technical affairs and the other for production. The Production
Deputy was concerned with companies' production, commercial, sales and
financial issues. Companies provided the Production Deputy with monthly,
quarterly and annual reports about their production, costs, sales levels and
other administrative and financial information. Companies' financial reports
were examined in the IS's Companies Department. The IS's Companies
Department consisted of the Budget Division, the Legal Division, the
Following-up and Performance Division and the Cadre Division. Companies'
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production reports were dealt with in the Production Department that
compares the levels of production achieved and production targets. Issues
related to exports and imports were dealt with in the Commercial Affairs
Department.
The Technical Affairs Deputy was more concerned with technical issues rather
than financial issues. The Project Planning and Follow-up Department, as one
of the departments attached to the Technical Affairs Deputy, was concerned
with planning new projects and following-up current projects. The Mineral
Resources Department, which was attached to the Technical Affairs Deputy,
was a relatively new department and was concerned with exploring and
supervising mineral sites. The Quality Control Department was responsible for
the hygiene and the quality of companies' products. This process was done
through making sure that companies used and followed the right production
components and procedures. The Research and Development Department was
concerned with developing new ways of production and introducing new tools.
The above mentioned Departments were accountable to the Technical Affairs
Deputy to whom they provided their reports.
In addition to the above mentioned Departments and Divisions, there were a
number of Boards and Institutions that reported directly to the IS's General
Deputy. Furthermore, there were the IS representatives in the country's
municipalities and regions who supervise and provide advice to public and
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private companies within their regions excluding other companies that are
supervised by other sectors and the thirty-one companies (see Table 7-1) that
account directly to the IS. These representatives held regular meetings with the
IS's Secretary or the General Deputy to whom they provide their reports.
The change in the political system outputs, which principally represents a set of
government policies within the various social, economic and political spheres,
comes as a response to the inputs from the surrounding environment. The
government’s general policies are divided into distributional policies,
organizational policies and inferential policies15. These general policies
endeavour to distribute or re-distribute resources among groups and
individuals to organize the conduct and relations between those groups and
individuals, in order to discover and employ human and material resources.
The general policies therefore are considered to be the most significant tools
used by the political system to perform the distributional, organizational and
inferential functions within the community. This chapter now describes some of
the initial indications and general effects regarding the influence of various
structural changes in Libya on the status, implementation and efficiency of
general policies in various fields and sectors such as the industrial sector.
15
Distribution policies refer to the distribution of Libya’s national annual budget between sectors.
Organisational policies refer to the policies of individual organisations. Inferential policies are those that
regulate non-government organisations.
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The effectiveness of government policies is associated with the extent of
instability and variability of the structures. The administrative and political
institutions which assume the setting up and implementation of the general
policies for the community in various fields and sectors, including the industry
sector, are also considered, since the variability and instability of the institutions
directly influence the efficiency of the position and the implementation of the
various general policies. The instability and variability of the institutions and
structures of the position and the implementation of the general policies in
Libya during the period from 1977 to 2004 were associated with a lack of
efficiency and effectiveness of the general policies during the same period,
which indicates the extent of the effect of the general policies with regard to the
structural and institutional situations.
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Figure 7-1 The IS's Organisation Chart
212
7.4 The IS’s Companies and Institutions
The IS supervised a number of companies that employed approximately 50,000
employees in 1999, 90 per cent of whom were Libyans (Industry Secretariat
1999). There were three types of company that were supervised by the IS:
Collective Ownership Companies, State Owned Companies and Joint Venture
Companies. Collective Ownership Companies were small-scale private
companies, which started to emerge in late 1988. These were either the result of
transferring State Owned Company ownership to groups or newly established
businesses. The IS delegated supervision responsibility for these businesses to
its representatives in municipalities.
The second type of company supervised by the IS, State Owned Companies,
were either fully or partially owned by the state. Fully state owned companies
were those where the state, represented by the IS, other publicly owned
companies, banks and the like, owned all their capital, whereas partially state
owned companies were those in which the state shared ownership with other
public or private, domestic or foreign parties. For example, the ownership of the
National Company for Soap and Detergents was shared between three parties.
They were the IS, which owned 80 per cent of the capital, the Development
Bank with 6.9 per cent of the capital, and the domestic private sector, which
owned 13.1 per cent of the company's capital.
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The third type of company supervised by the IS, joint venture companies, were
those where the state and a foreign partner(s) with special arrangements shared
a company's ownership. The structure of joint venture company ownership
differed and depended on each company's Articles of Association, the
agreement arrangements between the state and the foreign partner. However,
the state always owned more than half, that is 51 per cent or more, of a
company's capital where foreign partner ownership was involved, as outlined
in Article 4 of the Commercial Act No. 65 of 1970 (Libya State 1970). For
instance, as shown in Table 6-1, the IS owned 67 per cent of the Libyan Tractor
Company's capital and a Canadian company, Massey-Ferguson, owned 33 per
cent of the capital. The IS owned 75 per cent of the National Trailer Company
and the Italian company, Calabrese, owned 25 per cent of the capital.
In the last decade, the ownership of 147 plants and productive units was
transferred to employees as part of the quasi-privatisation process.16 The
private sector had established 10,250 of these Collective Ownership Companies
by 1998 (Secretary of Planning 1998). Furthermore, the supervision of 115 plants
was transferred from the IS to other economic sectors such as the Economy
Secretariat, which had activities linked to these companies' products. At the
time of this study the IS supervised 31 companies divided into six categories,
which included 180 manufacturing plants. The six categories involved the
16
These new establishments were known in Libya as Industrial Partnerships or Collective Ownership
Companies
214
spinning and textile industry, furniture and paper industry, chemical industry,
metallurgical industry, electrical and engineering industry, and food
production industry. Table 7-1 shows the IS companies divided into the six
categories and the ownership structure of each company.
Table 7-1 The IS Companies and their Ownership Structure
215
Table 7.1 continued
216
In addition, the sector had other bodies and institutions attached to it, such as
the Industrial Research Centre and the Information and Industrial
Documentation Centre. The Development Bank, reporting to the Libyan
government, made funds available to the IS. The Industrial Research Centre
was established in 1970. The centre aimed at offering consultation and technical
support to the IS. It conducted technical and economic feasibility studies for
industrial projects. The centre was also responsible for publishing a list of the
IS’s investment opportunities available in Libya. The objectives of the
Information and Industrial Documentation Centre, established in 1989,
included organising training programmes for the sector employees and
preparing periodic reports about the industrial sector companies. The
Development Bank, created in 1981 to help finance industrial projects, was
permitted to make loans to the industrial sector, to participate in the equity
capital of industrial companies and to facilitate the import of machinery and
raw materials ( Industry Secretariat 1999). The general aim of the above and
other institutions was to develop the Libyan industrial sector and to achieve the
IS's goals within the country's centrally planned economic framework. The next
section describes the IS's objectives and plans.
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7.5 IS Objectives and Plans
7.5.1 The Policies and Strategies of Industry in Libya
State policy provided support, in the form of funding from the distribution of
budget and the development bank, to the industrial sector because of its crucial
role in improving and developing the country. Through diversification of
sources of national income and subsequently the reduction of almost complete
dependency on oil revenue, the public industry sector also had to undertake the
task of creating jobs and fulfilling community need for goods as well as making
use of available resources, whether human or natural (Industry Secretariat
1994). In studying development plans in Libya, consideration needs to be given
to the diversification and frequency of change in adoption of industrial policies
and strategies. This involved diversification from a strategy of import
replacement to a strategy that encouraged exports. This was in addition to the
strategy of exporting the surplus from the import replacement industries after
the needs of the local market were met. This not only implies a lack of stability
of strategies, but also at the same time implies a diversification of strategies
(Secretary of Planning 1986; Abusneina 1991; Secretary of Planning 1993;
Secretary of Planning 1997; Secretary of Planning 1998). In researching the
Libyan economy two important points must be borne in mind. First, the Libyan
economy is a growing economy, which involves a large geographical area with
218
a small population, and it is an economy that is largely dependent on oil, a
resource that will eventually be depleted. Secondly, the Libyan economy has
developed during the last three decades and adopts a socialist philosophy that
encourages public ownership (El-Jehimi 1987).
We can say that the industrial policy in Libya has relied on two principal
foundations: an abundance of capital expenditure in the industry sector and a
focus on the public sector, giving it a key role to develop and improve the
industrial sector (Abusneina 1991). This policy has resulted in the adoption of a
number of important strategic objectives (Abusneina 1993) such as:
• achieving autonomy in basic needs;
• diversifying the national economy, and handling the difficulties within
the economic structure by shifting to an economy that does not depend
on oil, but rather can be supported by several major industries that will
subsequently secure a source of income capable of funding the
development processes of the country;
• making a contribution in meeting the increasing demand for goods,
particularly food products, from the local market and focusing on
industries that produce products that can replace imported goods;
• creating new job opportunities;
• making use of available resources; and
• achieving a local balance in the development process.
219
Therefore, to achieve the above-mentioned objectives, industrial development
in Libya has adopted two equally balanced methods. First is the establishment
of medium and small industries, and the improvement of these industries to
fulfil community demand, which in turn may reduce the dependency on
imports from abroad. Secondly, it has worked towards the establishment and
improvement of strategic industries, particularly, those that export products,
but giving priority to chemical and petrochemical industries as well as oil and
gas, which greatly depend on available local resources.
7.5.2 Evaluation of Industry Sector Plans and Objectives
Industry in Libya has devoted special attention to development strategies
because of the key role the strategies play in the process of change and
reconstruction of an economy that is not totally dependent on oil revenues (Bait
El-Mal 2003). Industry also played a vital role in the creation of new job
opportunities and accomplishing autarky, in addition to meeting public
demand, making use of available resources and achieving local development
(Abusneina 1993; Industry Secretariat 1994).Therefore, a researcher who studies
the development plans of Libya (1973-1975, 1975-1980, 1980-1986) and the
development plans and programs that have been followed, will notice
variations and changes in the adopted strategies and the objectives of those
plans.
220
When analyzing relevant documents and conducting interviews during the
study, it was evident that the role of accounting systems in industrial
companies is seldom clear to the staff, whether in the IS or in industrial
companies (Shareia 2005). Despite the existence of a difference in the level of
perception of this role, some participants in this study generally indicated that
there is a role for accounting systems in the process of decision-making and
development of plans. However, most participants strongly stressed the
absence of any role for accounting systems in industrial companies in any
process, whether in planning, control or taking strategic decisions. Many
participants went to the extent of saying that the reports made and submitted
by the accounting systems within industrial companies in Libya were merely
routine work demanded by the legislation and by-laws issued by the state to
regulate the IS, and the role of the reports in decision-making regarding pricing,
production or investment was unremarkable. The Executive Manager for the
GCP stated:
perhaps the greatest evidence of the failure to use these reports in decision-
making by the IS is the frequency of demands for the same information
stated in the periodical reports from the company, which gives the
impression that those in charge within the IS do not thoroughly examine
these reports and do not pay special attention to this information within the
incoming periodical reports and there is no need to keep asking for these
reports from the companies (The GCP Executive Manager).
On the other hand, the Director of Companies and the Investment Department
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in the General Board for Companies and Public Economic Units Ownership
indicated that the main purpose of demanding these reports was for follow-up
and supervision. The examination of correspondence forwarded to the
industrial companies actually showed that there was frequent demand for some
information that was included in the periodical reports that were sent regularly
to the IS and other supervisory and control bodies.
Despite what has been said about the role of accounting systems in the
industrial companies, there was not a consensus among the participants
(whether from the IS or the industrial companies) regarding the nature of this
role. In addition, the role was expressed in general terms and no attempt was
made to define this role in detail. Despite this, some Libyan policies were
ambitious in relation to the potential of the Libyan economy. For example the
purpose of autarky in industrial products, which is considered to be one of the
pillars of the industrial policies’ principles in Libya, was an ambitious goal in
comparison with the limitation of the resources in the Libyan economy to
achieve this goal, especially when crude oil reserves are taken into account.
Regarding the objective of reconstructing the economy and lessening
dependency on oil, it can be seen that the Libyan economy has not been
successful so far in avoiding dependency on oil. Also, the industry sector itself
still relies heavily on oil, especially in providing its need for foreign currency,
whether for acquiring raw materials or for investment and development. This
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was clearly evident in the interposition made by Gathafi in the Libyan
Economic Forum on the aversion of oil revenue in the future, when he said:
[t]he hundreds of factories that we have established in order to sell their
products and bring the foreign currency necessary to buy the raw materials
and provide maintenance and services for their machinery, we keep
spending the revenues from oil on these enterprises thinking that they will
replace the dependency on oil. Instead, they as well continue to rely on oil.
The agriculture activities came to a standstill and so did the industry
(Gathafi 2003, p. 400).
Therefore, if industry itself has been unable hitherto to continue to work
without dependency on oil revenue, then it can be argued that it will not be able
to accomplish one of its main objectives, which is finding an alternative for oil
as a source of income. The research that was conducted at the GCP, one of the
industrial companies which consisted of general administration offices and
three factories, showed that the company’s objectives were not clearly drafted.
What was found, however, was that the decision to establish the company,
clarified within the company’s statutes, was to preserve the market for the
company’s products. Nevertheless, this objective in itself has not been
accomplished and to date what the company has achieved is the provision of
only 50% of the region’s needs. Incompatibility and ambiguity in defining the
industrial companies’ objectives, has led to ambiguity and lack of clarity among
staff and workers in the sector in performing their work. They seem to perform
their work haphazardly, either in accordance with what their predecessors had
223
already followed, or on the basis of ad hoc instructions issued by the
department.
Generally speaking, the previous analysis related to analyzing the objectives
qualitatively and the extent of their clarity to the staff and workers in the sector,
linking that to the inability of the sector to accomplish these objectives and to
consolidate the achieved results. The next section focuses on the extent to which
the sector has been successful in achieving investment growth.
7.5.3 Investment Growth within the Industry Sector
Oil has been identified already as the dominating sector in the Libyan economy
(Selway 2000). It forms approximately 30% of the country’s GDP and is the key
source of foreign currency (Central Bank of Libya 1994). The significant increase
in the oil prices during the 1970s and the early 1980s was accompanied by
growth in development expenditure, specifically in the industry and agriculture
sectors. During the first development plan (1973-1975), priority was given to the
agriculture sector (Bait El-Mal et al. 1973; Knapp 1977; Wright 1982), whereas in
the second and third development plans (1975-1980, 1980-1985), priority was
devoted to the industry sector with contribution rates of 21% and 23%
respectively of the two overall development plans (Wright 1982, p. 263). This
reflected the state’s desire to speed up the industrial development process.
These two development programs are considered to be the main turning point
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for industrial development in Libya. They are also considered to be the biggest
two programs ever witnessed by the industry sector so far.
Despite the huge volume of resources devoted to the industry sector, its
contribution towards GDP remained small (Kilani 1988, P. 39; Bait El-Mal 2003,
p. 216). The rate of actual expenditure on investment in the sector concerned
was approximately 5235.8 million Dinars during the period 1969 to 2003 (see
Table 7.2), and average annual investment was approximately 153.9 million
Dinars. Nevertheless, the actual rate for the sector did not exceed 3% of GDP
and this contribution was under 8% during the 1970s, whereas in 2000, the rate
dropped to 5.9%, and eventually dropped again to 3.2% in 2002 (Industry
Secretariat 1994; Bait El-Mal 2003).
Table 7-2 Actual Expenditure and Investment Allocations for IS 1969- 2003
Although the industry sector has shown a good contribution from investments,
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its performance has not reached the required standard. This is to some extent
owing to a failure in implementing the development plans. For example, the
ratio of implemented activities to planned activities in the industrial sector
during the period 1981 to 2003, as shown in Table 7.2, was very low. The ratio
fluctuated during the development programs (1980-1985, 1986-1993, 1994-1996,
1997-2001, 2002-2003) at the following rates: 44%, 41%, 21%, 16% and 11%,
respectively.
As shown, this affirms the failure of industry sector to provide the resources
that would lessen Libya’s dependence on the oil sector, whether in the
processes of investment or the acquisition of raw materials. Owing to the
reduction in oil revenue during the 1980s and the 1990s, the industry and other
sectors suffered a reduction in expenditure compared to the initial planned
figures (The Economist Intelligence Unit 2003). The decrease in oil revenue from
22 billion US dollars in 1980 to 5 billion US dollars in 1988 made it difficult to
obtain the necessary cash flow for the development programs, which
necessitated vital amendments to the development plan of 1980-1985, and the
later annual development programs. Also, the decrease in oil revenue since the
early 1980s delayed or cancelled most of the new development projects
(Ghanem 1987; Elfiture 1992). Nevertheless, the actual percentage share of GDP
for the sector did not exceed 3% and its contribution to GDP was under 3%
during the 1970s, rising to 7.7% in 1993 and dropping back again after that
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(Secretary of Planning 1993) (see Table 7-3).
Table 7-3 The Share of the Industrial Sector in Gross Domestic Product in
Libya 1970-2003
Moreover, the decrease in oil revenue also caused a change in the method of
funding development projects in industry, where industrial companies and not
the state became responsible for funding development programs. On examining
the three-year programs from 1994 to 1996, in the plan of change, it can be seen
that allocations for the industry sector reached 619.5 million Dinars, at a rate of
10% of the total allocations for the plan from 1969-2003. Of this 61905 million
Dinars, industrial companies were to contribute 467 million Dinars, that is, a
rate of 75% of overall expenditure, whereas the Treasury Secretariat contributed
152.5 million Dinars, that is, a rate of 25% of overall allocated expenditure
(Secretary of Planning 1993).
So, by the end of 1996 actual expenditure reached 132.8 million Dinars. The
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companies had paid 122.8 million Dinars, whereas the Treasury Secretariat had
only paid 10 million Dinars, that is, contribution rates of 92% and 8%,
respectively (Secretary of Planning 1997).
The analysis conducted showed that the most prominent characteristic of the
industry sector was poor earnings on investments (Abusneina 1991; Abusneina
1993). It seems that many investment decisions were taken without sufficient
feasibility studies, and other decisions were not reviewed during the various
phases of operation. It is believed that the reason behind this was the poor
standard of training and supervision of the people in the sector who were
assigned to following-up and monitoring the various phases of the
implementation process. Thus, the cost of investments was very often high
(Industry Secretariat 1994).
As previously mentioned, it is clear that this huge expenditure may be
explained by the fact that it was not only dedicated for economic purposes but
also for local and social development purposes. The government’s focus on the
industrial public sector can be regarded as a means to achieve social guidelines.
It is also a vital tool in successfully implementing the development plans, and
this is partially clarified in the general objectives of the state, which ensure
autarky, local development and the distribution of earnings on community over
a vast social domain (El-Jehimi 1987).
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From the previous discussion, it is clear that development objectives and their
plans in the industry sector encountered many problems and difficulties, which
prevented accomplishment of what was planned. However, these issues should
not be dealt with without taking into account the impact of environmental
factors (economic, social, political and cultural), as discussed in the next section.
7.6 Data Analysis: The Structural Change of IS
Ideological change in economic, political and social guidelines has led to the
restructure of all state secretariats including the IS. Table 7-4 summarises
restructures from 1977 to 2004. In 1977, the two secretariats that were in direct
and close relation with the industry sector were the Strategic or Heavy IS and
the Light IS. This change was executed in accordance with Resolution No. 4 of
the General People’s Congress, which stipulated the formation of the General
Popular Committee in 1977. However, in 1979 the two secretariats cited above
merged into one secretariat titled the IS. In 1982 the light industry component of
the IS merged into the Secretariat of Economy and was retitled the Secretariat of
Economy and Light Industry, and the strategic industry became independent of
the secretariat in question.
This system remained in force until 1985 when the Planning Secretariat merged
into the Secretariat of Economy, when the Light IS was abolished and the
Heavy IS remained. In 1986, the secretariats of the industry sector were re-
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formed to become once more two secretariats, the Light IS and the Strategic or
Heavy IS. This division policy continued until 1990 when further changes
occurred within these secretariats. That is, the Light Industry Secretariat and the
Strategic Industry Secretariat merged into one secretariat known as the Industry
Secretariat with its strategic and light sections. In 2000, the IS was abolished and
its competence was transferred to the Popular Committee Secretariat for
Production Affairs. In 2004, the Popular Committee Secretariat for Production
Affairs was abolished and the IS ceased to exist except on the level of Sha`biyas
(municipalities) (Libya State 2004b).
Table 7-4 The Structural Change of the Industry Sector Secretariats
It is clear now that the secretariats directly associated with the industry sector
were subjected to a number of cases of merger, division and abolition
throughout the period 1977 to 2004. This makes it difficult, if not impossible, to
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keep up with and follow clear and stable programs and policies within the
industry sector. It also increases confusion about how accounting systems
should play an active and vital role in all phases that may necessarily influence
the efficiency and effectiveness of the economic policies and the extent of
accomplishing their goals. The numerous mergers and divisions in these
secretariats have led to the creation of disorder and deficiencies in conducting
the tasks these secretariats undertake. This is in addition to the negative impact
on the performance of the secretariats, the institutions and other economic
bodies. Besides this, cases of merger, division and abolition can result in
administrative instability, decline of efficiency and overlap in fields of
specialization, which can have a negative impact on the role of accounting
systems in the industry sector as a whole.
Easily concluded from this is that the failure of accounting systems to serve the
development plans of the industry sector is a reflection on the lack of efficiency
and effectiveness of the economic policies and their inability to accomplish the
goals of these policies. The variability and instability of the structure and
institutions associated with the industry sector both represent one of the major
causes of the problems encountered by the industry sector in Libya, more
specifically.
However, the various changes within the Municipality structure, the General
Popular Committee and the typical popular committees directly associated with
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the industry sector, have led to lack of administrative stability. Administrative
stability is considered to be a crucial factor for the stability of economic policies,
both on legislative and executive levels, where the laws, rules and resolutions
which regulate and re-regulate the municipalities are created. This has meant
the general popular committee and the typical popular committees associated
with the industry sector have become numerous.
The increase in the number of rules and regulation and their overlap in the
industry sector has been accompanied by the restriction of domestic industry in
state-owned companies and the need for authorization to practise various
industrial activities. These factors have contributed to the spread of chaos in the
industrial field, the emergence of a black market, domination of unproductive
dependent activities, an increase in the general level of prices, and so forth.
The lack of stability within the executive bodies of the secretariats, already
highlighted, resulted in an absence of supervision and control. Furthermore,
these changes have also led to a decline in the level of administrative efficiency
due to the frequency of the merger, divisions and abolitions as well as the shift
of administrative competence among the various positions.
It is no longer possible for the industrial sector secretariats to follow up their
various resolutions and general policies, whether they are related to the
determination of aspects of expenditure, domination over prices, or the
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distribution of goods and services, in addition to other aspects in which the
accounting systems within the company sector play a vital and effective role.
These changes have had a direct impact on the ability of these secretariats to
collect and save data on principal economic indicators, necessary to adopt clear
and sound economic policies. It is quite obvious that the absence of data
collection regarding the level of inflation, domestic and foreign trade
indications, patterns of consumption, levels of income and other indications,
have all led to confusion among various economic policies.
As previously mentioned, it is obvious now that the main causes of the
problems, deadlocks and crises encountered and still being encountered by the
industry sector, focus on the lack of stability in this sector and subsequently, the
absence of a clear and stable vision regarding the nature and trend of the
general policies. The most important result of these problems and deadlocks
was the attempt made by the state to abandon many of the policies associated
with the sector, which had been set up in the early eighties, and which made the
state the sole monopolist of the industrial activity and the chief employer in the
community. Therefore, by attempting to privatize factories and companies and
merge them into the private sector, and by authorizing individual industrial
activities, the state has abandoned its obligations to support industrial
companies.
The state cannot deny its role and responsibilities in this sector, because the
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matter requires setting up and implementing effective and successful general
policies and this will not be possible without the provision of stable and reliable
administrative and political institutions specialized in setting up and
implementing general policies.
The state cannot suddenly and without any prior notice deny its responsibilities
in the employment and labor sector. The economic policies and measures of the
early eighties almost conclusively put an end to the stability of the private
sector to cater for the increasing numbers of the Libyan labour force.
Amidst the drifting current of Globalisation, the multitude of predictions and
the call for state retreat, the state has a vital and crucial role to play, particularly
in Libya, where the state owns the major resources of natural wealth. The
Director of Companies and the Investment Department in the General Board for
Companies and Public Economic Units Ownership has indicated the following:
[t]he legislations that the state has issued are in existence and in force,
though the real problem is the failure to execute these laws and regulations
because of the interference of social relations, and this in its part, has led to
the persistence in committing mistakes, and in many occasions, the setting
up of financial reports are accomplished only to fulfill the legal aspects, as
the laws put forward the necessity of setting up these reports, and
subsequently I think that the companies are negligent in presenting the true
picture of the factories to the IS. Besides, there is no one there who can
undertake the task of analysing these data stated in these reports in order
to deduce some results and indications and refer them to the decision
makers in the general popular committee (the Director of Companies and the
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Investment Department in the General Board for Companies and Public Economic
Units Ownership).
On the basis of this logic, these reports are characterized by being a routine
process undertaken by companies and they have no role in laying out policies
and decision-making process. Within the context of the question regarding the
purpose of demanding these reports, the Head of Information and
Documentation Centre said that the main purpose is to know the problems and
difficulties encountered by the companies, but said also that she is unable to
know whether this information has been utilized or not when she said:
“I don’t know, because my role ends up with the accomplishment of setting up
and submitting the reports”.
However, these comments were in contradiction to what was said by the head
of the Costs Department in the GCP when he said that “the reports which are
set up by the company do not have any role and it is only an objective for
acquiring a certain thing and not a means that is setting up the balance sheet for
acquiring foreign cash”. He went on to say that “these reports are merely
routine work which doesn’t represent any benefit, and the IS has never made
any contribution to solve any problem for the company. Therefore, in my
opinion, these reports are nothing but a waste of time and a loss of stationery”.
As for skilled personnel in the administrative and financial fields, most
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participants indicated a lack of these skilled personnel. Regarding this
phenomenon, the Head of the General Accounting and Budget Unit stated that
“in this department, only seven members of our staff have Bachelor’s Degrees
in Accounting and the rest have other qualifications which do not suit this type
of profession, whereas ten years ago, we used to have thirteen officials, most of
whom have qualifications related to finance”. Moreover, the Head of the
General Accounting and Budget Unit focused on the aspect of skill when she
indicated that the longest serving official in the department had only been
employed since 1998. Most participants clearly stressed the continuous changes
occurring within the department, where it had been noticed that management,
whether on the level of companies or the IS, was in a constant state of change.
They had never witnessed a period of stability, as the Head of the General
Accounting and Budget Unit in GCP indicated when she observed that “from
1998 to 2003 the financial department has been assumed by five directors”. That
is, an average rate of more or less one director every year. This in part has
hampered the role of the accounting system and led to ambiguity surrounding
the objectives of these systems, in addition to the contradiction and
inconsistency of laws which very often have led to ineffective and unworthy
applications in the Libyan accounting environment.
The project Planning and Following-up Department Manager in the IS
indicated that
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the budget has to be defined first, then the planning process and not the
opposite way round, in order to encounter the plan according to the state’s
framework and in conformity with its political statute, though the
allocations always come late and limited. And as a result, there isn’t any
role for the data produced and presented by the accounting systems in the
industrial companies in Libya.
He also indicated that there haven’t been any development plans since 1985:
“There is no longer at all any plan, though it depends on the annual budget
potentials allocated for the development process”.
The main problem which hampers the role of the accounting systems, is the
constant change occurring within the department:
There is always a justification for any problem, and this justification is the
persistent changes within the department.
Regarding legal issues, he indicated that
there are still obstacles as far as the legal aspect is concerned, because most laws
issued by the state are contradicting each other and restrict the development
process as well as the role of the accounting in this field. Besides, the public sector
has not actually been set up one day for competition or shift to the private sector,
but the objective at the very start was the creation of industrial foundation and new
job opportunities for the local citizens.
In relation to the extent of qualitative and quantitative properties available in
the information, which is set up and submitted by the accounting system in the
industry sector, the Head of the Project Planning and Following up
Department added:
The data always come late and incomplete, and they are collected following
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continuous insistence, contrary to what used to be like when the state used to
support the industry sector and things used to be characterized by centralism. As
well, the increasing number of authorities, which demand the same information
without coordination among each other, has led to the demand for the same
information by the same authority more than once.
Regarding social issues, the Head of the Project Planning and Following up
Department went on to say:
[t]here isn’t really any deterrent for those negligent employers, owing to
the influence of social relations that have even influenced the Board of
Supervision and Control which is supposed to apply the law without
hesitation. But on the contrary, this authority intervenes sometimes by
breaching the law and revokes the punishment, which may be imposed on
someone for his or her negligence.
When asked about the accounting objectives that he would very much like to
see in the future, he said that
[t]he accounting system must be approved and not be the product of
diligence on the part of some people. By confirmation, the system cannot be
breached and there must be complete administrative stability in the
companies, especially the executive administrations, and the observance of
expertise factors, as well as the emphasis on conducting economically
feasible studies when establishing any enterprise in the future.
Regarding accounting applications in the companies at present, he believed that
they were restricted and vary from one company to another, and that legislation
did not touch on how the accounting system has been set within the company
in order to improve performance. This legislation did not have any role despite
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its presence. Financial reports played a limited role, in his opinion:
there are no additional explanations with the financial lists which give an
opportunity to the person who is not an accountant to understand what the
reports contain, and therefore there wasn’t any use for these reports in the
process of decision-making. Consequently, this has led many of those
concerned to refrain from devoting attention to these reports and
submitting them in due time with the required accuracy.
When asked about the role of the accounting system he said that “there isn’t
any active role for the accounting system. Accounting is only part of a
department, that is, a substitute company. A lot of factories have been
established without conducting economic feasibility studies". This was also
indicated by The Director of Companies and the Investment Department in the
General Board for Companies and Public Economic Units Ownership when he
said:
most enterprises in the past were carried out without conducting economic
feasibility studies, because the main reason that lies behind them was not to
acquire profit, but to create an industrial foundation and new job
opportunities, and this in its part has led to the neglect of the accounting
role which led these enterprises to this level of decline.
The project Planning and Following-up Department Manager talked about the
situation in the past and observed:
in the past, most attention was devoted to technical aspects in the industry sector,
whereas the financial or the accounting aspect is a mere complementary aspect, and
this was clear in all industrial companies’ managements which consisted of
engineering personnel. And also there was a scarcity in the financial and
accounting allocations and a sort of custom at that period when the director used to
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be an engineer supported by the state.
He went on to say that
the accountant cannot be an electrical engineer, because electricity may electrocute

him and kill him, whereas an engineer can be an accountant because accounting
does not electrocute like electricity does, and this has led to the frustration of many
employees in the financial department, because they feel that their work does not
receive the attention of their bosses, and plays no role in decision-making.
Additionally, the failure of the state in fulfilling its promise to support the private
sector has also created a state of mistrust in the state.
7.7 Summary
The Libyan government set up the IS for the purpose of supervising and
controlling all industrial companies, irrespective of their ownership structure.
The efficiency of this sector was recognized as being vital to Libya’s economic
development, and accounting’s role in this process has been identified as
important.
As previously stated, it is clear from the discussion that surrounding
environmental factors have a huge impact on the use of accounting information.
Restructuring within IS has produced confusion, lack of direction and has led to
inefficiencies and ineffective implementation of government policies. This
confusion has contributed to a lack of awareness of the role of accounting
information. In addition, there has been a lack of qualified people. All these
observations are borne out by the people interviewed within IS. Therefore, the
problems of planning, failure to accomplish objectives and the ineffectiveness of
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accounting systems must not be dealt with within the sector’s context alone. It
is important to understand these problems within the context of the social,
political and economic environments of the sector. The next chapter will focus
on one of the companies under the supervision of IS, GCP, to ascertain attitudes
and practices regarding accounting information from the point of view of an
information provider.
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Chapter 8: The Production Of Accounting Information
CHAPTER 8 THE PRODUCTION OF
ACCOUNTING INFORMATION: THE CASE
OF THE GENERAL COMPANY FOR PIPELINES
8.1 Introduction
Following the presentation in chapter 7 of data from Libya’s IS, an information
user, this chapter focuses on case of GCP, an information provider. The purpose
of this chapter thus is to further identify the present role of AIS in assisting
Libya’s development needs. In order to offer a globally applicable model of
decision making and policy planning which can assist the economic situation of
developing countries, each country needs to establish an appropriate AIS that
can ensure its success in a global environment. Without such a system, every
country’s capability for global interaction and controlled planning is
undermined and there will be no effective plan, either internally or globally.
In the previous chapter, collected data was analyzed from the perspective of the
IS. Exploring how information is used in decision-making and control within
the GCP context is intended to provide an understanding of how accounting is
practised. The company was established in accordance with a resolution of the
General Popular Committee issued on 4 February 1978, under the name of the
GCP. It is a state-owned company and in 1978 was made subordinate to the
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Popular Committee for Strategic Industries.
The aim of this chapter is to discover the present role of AIS in assisting Libya’s
development needs. This chapter describes and analyzes the data collected from
the GCP, which is the second case study in this research. Also in this chapter,
the organizational chart of the company, the role of the accounting system in
the development plans of the government and the company’s relationship with
the IS are described, together with an historical and political background to the
company. Next a description of the financial system utilized by the GCP is
provided, and the role accounting systems play in the company and the extent
of their significance for development plans are analyzed.
8.2 GCP Background
The GCP is one industrial company that is subject to direct supervision by the
Popular Committee Secretariat for Industry, Mining and Energy in the Sha`biya
(Municipality) of Benghazi (Libya State 1978). Table 7-1 identified GCP as being
wholly owned by the IS, and in the metallurgy industry. GCP’s supervision by
the IS followed the abolition of the Popular Committee Secretariat for Industry
on a national level and the devolution of all its functions and properties to the
General Board for Transfer of Ownership of Companies and Public Economic
Units and the Popular Committee Secretariat for Industry on the level of
Sha`biyas (Municipality), as shown in Table 7-4. The GCP is located in the
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Qawarsha district, 15 km south west of Benghazi. It was established in 1978
with a capital of 12 million Libyan Dinars. Its capital grew to 42 million Libyan
Dinars in 1992, owing to the emergence of some new installations, for example
a factory for producing longitudinally welded pipelines, a factory for producing
spirally welded pipelines, and a factory for producing spray irrigation
pipelines.
The company is completely owned by the State, and the Treasury Secretariat
provided all capital under the auspices of the IS until 2002 when its supervision
was transferred to the IS in the Sha`biya of Benghazi, (the local Municipality)
the second largest city in Libya. The main objective of establishing this
company was to manufacture all types of pipelines and pipeline equipment, to
trade these products at home and abroad, and to undertake all necessary work
in order to accomplish this objective. According to a company statute it was to
undertake the following (Libya State 1978):
• ownership, management and operation of pipelines factories and their
supplies, as well as factories involved in finishing those products, or
those based on them, whether by construction, purchase or partnership;
• purchasing of patents, industrial forms and private licenses regarding
industrial use of the products mentioned;
• the import of raw materials and production supplies necessary for the
company’s factories;
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• the import of pipelines and pipeline supplies manufactured abroad in
various types and sizes, plus the marketing of the products mentioned at
home and abroad and undertaking activities of the commercial agencies
of the productive foreign companies in accordance with Act No.78 of
1975 (Libya State 1975);
• trading pipelines of various types and supplies, whether from the
company’s production or from elsewhere at home and abroad, and the
establishment of assembly and distribution centres; and
• the ownership and procurement of fixed and circulating assets necessary
for accomplishing its objectives, and to achieve its objectives, the
company should participate in any way with other companies which
undertake similar activities to help accomplish its objectives at home and
abroad, including, where necessary, merger or annexure.
The company was established on the basis of monopolizing pipeline goods in
the Libyan oil market, offering no opportunity for any other competitor. This
monopoly position was reflected in the company’s performance from 1993 to
2003; as shown in Figure 8-1. Profits ranged from a high of 4.3 million Libyan
Dinars in 2000, to a loss of 3.86 million Libyan Dinars in 2003 (see Table 8-1).
Table 8-1 GCP Performance from 1993 to 2003
years 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
P/L 2.34 .338 .7308 1.86 .757 2.93 .268 4.30 (2.95) (2.42) (3.86)
Million
Dinars
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Figure 8-1 GCP’S Performance from 1993 to 2003
The outcomes of the company’s activity changed to losses during the years
2001- 2003, when the state abandoned its support of the company and adopted
the open market system.
8.3 Management of the GCP
An organisational chart is a helpful tool in identifying and explaining formal
relationships and accountabilities within firms. The data collected showed that
the GCP maintained its organisational structure since 1978 without any changes
(See the GCP’s chart Figure 8-2) When studying the company’s organizational
chart (see Figure 8-2), it can be seen that there are four administrative levels.
The organisational structure consisted of eight Bureaus, three Administrations,
eleven Departments and twenty-five Units and subunits. The Bureaus and
Administrations were accountable to the Executive Manager who was also the
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Head of the GCP’s Administration Board. Supreme management is represented
by the Popular Committee Secretariat for the company, which is immediately
followed by eight bureaus: the Committee’s Affairs Bureau, the Internal
Auditing Bureau, the Bureau of Planning and Supervision, the Public Service
Bureau, the Legal Affairs Bureau, the Bureau of Security and Integrity, the
Bureau of Quality Control and the Bureau of Research and Development.
Under these is the second administrative level, which consists of three public
administrations: the Public Administration for Production and Technical affairs,
the Public Administration for Administrative, Financial and Commercial
Affairs and the Public Administration for Factory Works. Each of these
administrations includes other internal administrations, followed by
departments and units. For example, the General Administration for
Administration, Financial and Commercial Affairs, includes Administration
Affairs, the Financial Affairs, the Commercial Affairs, the Materials
Administration and the General Service Administration. Each of these
administrations is responsible by number departments, for example, the
Financial Affairs is responsible by four departments: the General Accounting
and Budgets Department, the Costs Department, the Financial Follow-up
Department and the Salaries Department. The ultimate authority in GCP was
the Popular Committee Secretariat. A description of some of the tasks of the
GCP Bureaus, Administrations and Departments is provided next.
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The Internal Auditing Bureau, which can be considered one of the company's
control mechanisms, is obliged by law to audit the company's records and
books, payment documents and procedures, money and cash balances, and
review the inventory reports. The GCP's Internal Auditor, who was appointed
by the Executive Manager, listed his main obligations as auditing the
company's payments, sales and entries. However, he described three types of
auditing that the Bureau was involved in: accounts auditing, document
auditing and technical auditing. The Bureau prepared a report for the Executive
Manager every three months. The report was then sent to the IS. Although the
Bureau worked very closely with Financial Affairs, it answered to the Executive
Manager.
Financial Affairs (see Figure 8-2), which consisted of the General Accounting
and Budgets Department, Costs Department, Financial Follow-up Department
and Salaries Department was obliged to apply the right accounting procedures
according to the Libyan Commercial Code, the Libyan Financial System Law
and to follow the instructions given by government bodies such as the Public
Control Office and the Tax Office. The General Accounting and Budget
Department, which operated under Financial Affairs (see Figure 8-3), prepared
the company's budget and financial statements and reports. The Salaries
Department prepared employees' salaries, issued payment cheques and
compared the company's money balances in records and banks. The Cost
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Department developed and applied the company's cost system, determined the
production cost per unit, prepared monthly reports on costs of production, and
reported on variances from the budget. The Financial Follow-up Department
was responsible for following the financial procedures in the company.
Figure 8-2 Financial Affairs of GCP
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Figure 8-3 The GCP's Organisation Chart
250
8.4 The GCP Financial System
The company's fiscal year starts on the 1st January and ends on 31st December
each year. The company's main revenues are generated from selling its
products, however other revenues are obtained from loan interest and selling
other assets. The company uses the following accounting books as part of its
accounting system: the journal sheet, expense book, cash account and
chequebook. Finance Management is required by the company's Financial
System to prepare a monthly trial balance and a comparison between actual and
estimated production values and costs. It also analyses any variances and
reports these to the Executive Manager within the first ten days of the following
month (see Figure8-4).
Figure 8-4 GCP Information flows
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The company's Financial System requires the company to prepare its balance
sheet and profit and loss account within two months of the fiscal year end and
presented it to the Internal Auditor. Then, the Internal Auditor reviews, within
two months at most, the company's financial statements, before the company
sends them to the Public Control Office. The Public Control Office appoints an
external auditor to audit the statements and makes a report to the company's
General Assembly. The appointed external auditor is either an auditor working
within the Public Control Office or a self-employed (independent) auditor. The
Public Control Office appoints independent auditors to audit companies’
financial statements whenever it suffers from auditing staff shortages.
The Libyan Financial System Law of 1967 requires that all Libyan owned
companies have a Finance Controller, who works very closely with the
Financial Affairs Administration. The Finance Controller, who is appointed by
the Secretary of Treasury, is not accountable to the management of the company
that he/she works in, but to the Secretary of Treasury. One of the Finance
Controller's responsibilities is to make sure that companies are committed to,
and do not exceed, their budgets. They also supervise finance departments and
make sure that these departments apply the right accounting procedures and
policies. Finance Controllers must provide the Secretary of Treasury with a
monthly report on the organisation’s expenditures as set forth by the Libyan
Financial System Law and outlined in Chapter 4 (Libya State 1967). They have
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to provide their approval on all of the organisation’s payments that exceed a
pre-agreed amount. They also provide a copy of their reports to the body
supervising the organisation they are reporting on. Chapter Two includes a
description of the way the GCP study was conducted. The next sections
provide the results of this analysis, first qualitative and then quantitative.
8.5 The Role of Accounting Systems in GCP: Qualitative
Analysis
The GCP undertakes the task of supplying the IS, annually, quarterly and
monthly with many reports such as production and sales reports, and other
reports required by the IS from the companies associated with it. The reports
are prepared on forms specifically designed for this purpose by the IS and
utilised in all companies, in order to facilitate the IS’s ability to draw
comparisons between various industrial companies. This point highlights a
difficulty for those in charge of preparing these data. They believe that each
company, its own activities and circumstances, differs from others, even in the
same sector. The Director of General Administration for Production and
Technical Affairs indicated this precisely when he said:
we are bound by the IS to provide the data and information on a form
prepared beforehand by the Secretariat, and this form is completely
unsuitable for what we need to give and they have never even consulted us
regarding the format.
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In addition to supplying the IS with these reports and information, the
company also was required to supply data and reports to other authorities,
such as the Board of Control and the Inland Revenue (The Tax Office).
The participants in this study almost unanimously agreed that there was no
existing role for the accounting systems, and that no one read these reports.
This was due to the enormous amount of data and the number of reports
required. The Financial Supervisor in the Bureau of Research of the GCP
observed that:
no one seriously reads these reports. In the past, a person who wasn’t an
accountant was assigned to conduct an evaluation of the company and
submit this evaluation in the form of a report. In fact he did his work in a
period of only three days, but no one ever asked for this report and its
content.
There was a belief among many people in the company that no one examined
these reports and their content. The Director of Commercial Affairs made this
clear:
These reports became routine work, and they are prepared and submitted
to the IS or to any other authority, and the only thing the authority does
with the reports that have been sent, is to confirm that the company has
sent these reports and nothing more. Their sole concern is to stress that the
companies should submit these periodical reports on time, and
subsequently this emphasis leads to the inaccuracy in preparing these
reports and the indifference of those in charge of preparing the reports,
because they are already confident that no one will look into and evaluate
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the reports.
This attitude certainly weakened the vital and potentially positive role of the
accounting systems and the extent to which they could be effectively utilised in
decision-making, setting up development plans, supervision and control.
The sheer volume of reports and the need to gain approval by higher
administration further increased the ambiguity of their contents. The Popular
Committee Secretariat for the company attested to this:
When requesting the reports, normally the original copy is requested and
the size of one report may reach 100 pages on some occasions, stressing the
necessity to confirm each page of this report by the Popular Committee
Secretariat for the company, and this certainly takes a long time, and
subsequently I end up taking these reports home to confirm them, and
because the reports are very long, I can not study and examine every single
page of them and subsequently I do not blame anybody in the IS when
making any comments regarding these reports.
The IS received reports from all companies with similar content and length to
that of the GCP, because these reports were all prepared in a standard manner
as required. Undoubtedly, clear and accurate reports always lead to appropriate
and timely decision-making. The Financial Supervisor of the company made
this clear when he drew an analogy with a football match:
football has been developed in the third world and has reached the same
level of football as in developed countries, because you cannot hide
anything with football. Everything is clear. So in the case of poor
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performance of the team, the coach gets changed without favoritism or
courtesy, and this certainly leads to the taking of the right decision at the
right time without resorting to the concealment of truth, because there is no
room for the truth to be hidden.
The Financial Supervisor of the company recognized that social factors were
important in influencing the types of reports and their contents, and even their
credibility and timeliness. So the analogy of the football match was very fitting.
The reports of any football match played by a team cannot be circled in secrecy
or courtesy because the crowds of spectators follow up the match, and as a
result we find the management committed to changing the coach in the event of
defeat or poor performance. This is what has made football in the third world
develop and catch up with football in the developed countries. In a similar way,
the impact of social factors and social relations in influencing the role
accounting systems play in both the developed countries and the third world is
important.
During discussion with some participants in the study, it became evident that
they felt at one stage that the state wanted to receive positive reports on the
industrial companies’ activities, regardless of the actual situation, because this
sector enjoyed the support of the state. Its success played a part in the state’s
success in accomplishing its policies, and prompted many people to believe that
anyone submitting poor quality reports might lose his or her job. Responsible
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members of staff in any department, if they submitted a good report, even if it
were untrue, might be promoted or at least their current job would be secured.
The Financial Supervisor clearly indicated this:
in order to secure any job, the official in charge prefers to submit an untrue
report and embellish the truth to the relevant authority, in an attempt to
secure his job for a longer period of time, because this person is seen as a
supporter to the public sector and subsequently he supports the state and
its policies, which in turn, devote support to this sector. On the other hand,
any person who submits a bad report, even if it represents the truth, may
be considered to be an obstacle for the public sector, and should be
removed or replaced by another person.
During the researcher’s presence in the GCP, he attended two meetings, a
regular meeting of the General Administration for the Administration and
Financial and Commercial Affairs (see Figure 7-2) and a meeting of the Popular
Committee Secretariat for the company. From the meeting, the researcher
formed the following impressions:
Half of those who were supposed to attend the first meeting failed to be
present. No genuine excuse was offered despite their role in the company.
They later indicated they were convinced that attending such meetings was a
futile matter.
There was a general failure by attendees to produce reports required for the
meeting well before the start of the meeting. The outcome of this was that the
chair of the meeting received reports during the meeting, which resulted in loss
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of opportunity to discuss these reports thoroughly.
When the General Director of Financial Affairs reviewed his periodical report it
was apparent to the researcher that the Directors of the Department were not
acquainted with financial and accounting terms, even the simplest of these such
as, “deferred sales”, “advance instalments”, and “cash surplus”.
As previously mentioned, the extent of the influence of political factors in this
subject is clear. This has led to workers being fully convinced that there is no
way to row against the sweeping current without losing their jobs or incurring
countless problems. This behaviour obviously weakens the role that accounting
systems play, which is to produce accurate data and timely information that
shows the state of industrial activity and progress in Libya. The General
Director of Financial Affairs stated that there was no role for accounting
systems in the company in helping the Department:
The Department here undertakes its work spontaneously. In other words,
we can call it the “Department of crises”. Therefore, we notice that the
subject continues until a crisis or a problem emerges, then all authorities
rush and intervene to solve the crisis.
8.6 The Role of GCP’s Accounting Systems in fulfilling
development needs: Quantitative Analysis
The first question on the GCP questionnaire asked respondents whether they
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believed accounting information systems were very important at each stage of
decision making in GCP. The results indicated that the majority of the 22
participants stressed the importance of accounting information in decision-
making, with 12 strongly in favour of the idea.
The second part of question one sought reasons for the scarcity of accounting
information, and the researcher provided several hypothetical reasons.
Participants agreed on some of these but disagreed on others. For example,
some participants agreed that among the reasons were the poor standard of
awareness of the importance of accounting information and how to use it. Other
participants were not in agreement with either the poor quality of accounting
information or the inadequacy and irrelevance of accounting information.
Regarding factors which hinder the development of accounting applications in
Libya (Question 2), educational, professional and other factors were suggested.
Participants did not agree on the educational factor items, except those factors
that dealt with the scarcity of training programs for managers. Eighteen
participants out of 22 agreed that these were part of the factors that hindered
the development of accounting applications, whereas they did not agree on the
rest of the items: the poor influence of accounting method, the poor standard of
efficiency of lecturers, the lack of accounting books in Arabic language as well
as state policies that failed to devote enough attention to the significance of the
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Regarding professional factors in question number 2 part B, participants all
agreed on the failure of people to understand the role of accounting in decision-
making, in addition to the poor efficiency exercised by the Accountants Union
and the scarcity of accounting releases. Other participants were preoccupied by
the decline in the accounting profession in Libya. Participants also stressed the
decline of government support and cultural and social influences.
Regarding the issue of to whom participants felt accountable (Question 3), their
answers indicated superiors, the IS, the Public Control Unit and the
Community. They did not agree that they undertake accounting tasks for the
benefit of other secretariats, customers, IS and the public as a whole.
Meanwhile, participants stressed that they undertook their professional
accounting activities to satisfy the implementation of government programmes
and policies and the company’s programmes and policies. This was logical
because they worked for the public sector.
The final section of this chapter provides a summary of the role of GCP’s
accounting systems in fulfilling development needs.
8.7 Summary
This chapter has outlined the present role of accounting systems in GCP. The
current role of accounting systems is based mainly on government legislation.
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The company’s role is limited by the IS, which supervises many companies,
including GCP. Accounting systems were shown to be created to provide
justification documents to state bodies in order to satisfy legal requirements.
The chapter indicated that GCP provided many reports to a number of bodies
at certain times. There was no feedback from the IS and the workers in the GCP
departments had the belief that there was no benefit to be gained from these
reports. Despite the significance of the data and accounting information in
decision-making regarding economic and social development in Libya, it is
evident that the role of accounting systems currently in existence is unclear as it
relates to the decision-making process. This affirms the results of similar
previous studies conducted in developing countries (Seiler 1966; Seidler 1967;
Enthoven 1977; Briston 1978; Enthoven 1980; Kwabena 1982; Perera 1989a;
Briston 1990; Ezzamel and Bourn 1990; Wallace 1990; Jones and Sefiane 1992;
Taufu'i 1996; Wallace 1999; Saleh 2001; Phadoongsitthi 2003; Saleh 2004). These
and other observations will be expanded in the next chapter, which will
provide discussion and conclusions on the role of accounting systems in Libya’s
decision making planning and control.
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Chapter 9 Discussion and Conclusions
CHAPTER 9 DISCUSSION AND CONCLUSIONS
9.1 Introduction
This chapter identifies how could AIS assist Libya in its economic development
in the future. Drawing on previous chapters, both the role of accounting
information systems in economic development and the reflexive effect on this
role of legal, economic, religious, political, social and cultural conditions have
been investigated.
The previous chapter focused on the necessity for developing countries to
improve their economic situation. The achievement of economic development
implies a recognition of the importance of an accounting system which
produces reliable, timely and globally valid information. The role of the
communications system of developing countries is very important since those
countries operate in global environment in which the technologies of the West
inevitably have an impact on national conditions.
Despite the importance of data and accounting information in decision-making
in regard to the economic and social development of Libya, it is evident that the
current role of accounting and accounting systems is unclear as they relate to
the decision-making process. This affirms the results of previous studies
conducted in developing countries, at the same time providing evidence that
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accounting information is not effective in meeting the development needs of
Libya. It has also been revealed that there are contextual reasons why that
information to date has not been utilised to its full potential. Therefore, this
study provides practical evidence that confirms accounting literature on
developing countries in general by providing evidence of Libya’s use of
As shown in Figure 9-1, accounting information systems do not play a central
role in Libya, but a marginal one, being used in a very limited way in decision-
making, planning and control. This is because of the special characteristics of
the Libyan environment. For instance, religion plays an important role in all
aspects of Libyan life. Islam is the only religion in Libya for all practical
purposes, and Islamic beliefs and laws thus have an impact on the role of
accounting systems in Libya.
Figure 9-1 The Interaction between the Role of Accounting Systems and
Libyan Environmental Factors
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The extent of the marginalisation of accounting systems in Libya is shown in
the fact that the accounting information which is created in industrial
companies in Libya is not used in decision-making and control. Even though
the government is trying its best to encourage companies to prepare financial
statements and reports, there seems to be a lack of awareness of the role of
accounting and its potential contribution to economic development at both the
macro and micro levels. Therefore, in addition to investigating the current role
of accounting systems in Libya, this study examines the potential role of
accounting in meeting the development needs of Libya and emphasizes the
need to increase the level of accounting in order to serve those needs. To this
end, case studies of the IS and GCP have been conducted to explore the role of
accounting systems in decision making, planning and control. These studies
were presented in Chapters 7 and 8.
The aim of this chapter is to fulfil the purpose of this study and reinforce the
contributions of this research, its limitations, and potential for future study.
This chapter addresses this issue by summarising the role of accounting
systems in Libya, as demonstrated in the IS and the GCP. The four main
theories of development, discussed in Chapter Two, will be summarised first
and the applicability of Globalisation Theory reinforced. A summary of the
current situation of Libyan accounting follows, with reference to the two cases.
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Significant findings on the present role of accounting information systems in
Libya are reiterated. The next section of this chapter then outlines the potential
role of accounting systems in Libya, linking this to other developing countries.
Finally the contributions and limitations of the study are outlined and
suggestions are made for further research.
9.2 Economic Development Theory
Economic theories of development provided the methodological foundation for
this thesis. Alternative theories have emerged to explain the role of accounting
systems using different arguments and assumptions, and all these theories have
implications on the importance of accounting information in the decision
making process.
Four major theories of development, Modernization, Dependency, World-
Systems and Globalisation, have been identified as the principal theoretical
explanations used to interpret development efforts carried out, especially in
developing countries. Modernization Theory is an international development
theory that considers the shortage of capital technology and lack of industrial
development in a society as the reason for underdevelopment. Dependency
Theory identifies unfavourable production relations that exist between
countries as being the result of imperialistic domination. World-Systems Theory
takes a world-centric view, focusing on social and cultural change as a
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necessary contributor to economic development. Globalisation Theory identifies
a greater level of integration taking place among different regions of the world,
and asserts that this integration has an important impact on economic growth
and social indicators through enhanced communication and the proliferation of
global technologies. The adoption of the theoretical perspective of Globalisation
Theory allows us not only to clarify concepts and to set them in their economic
and social perspective, but also to identify recommendations in terms of social
policies.
For the purposes of this study, the term “development” was understood to be a
social condition within a nation, in which the authentic needs of the population
are satisfied by the rational and sustainable use and development of natural
resources and systems. This utilization of natural resources is based on
technology that respects the cultural features of the population of a given
country. This general definition of development includes the specification that
social groups have access to organisations, basic services such as education,
housing, health services, and nutrition, and above all else, that their cultures
and traditions are respected within the social framework of a particular
country.
In economic terms, the aforementioned definition indicates that for the
population of a country, there are employment opportunities, satisfaction at
least of basic needs, and the achievement of a positive rate of distribution and
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redistribution of national wealth. In a political sense, this definition emphasizes
that governmental systems have legitimacy not only in terms of the law, but
also in terms of providing social benefits for the majority of the population.
Despite the contemporary focus in many development circles on enhancing the
capacity of accounting systems in developing countries, as an empirical matter
surprisingly little is known about the relationship between accounting systems
and development. By reviewing literature on accounting and theories of
development, it has been concluded that little attention has been given to the
study of the relationship between accounting systems and development needs
through the interpretation of theories of development. This lack of emphasis on
accounting highlighted a need to consider to the aspects ignored in economic
development theories, and this is the focus of this investigation. The use of a
theory of development highlights the influence of culture, including religion,
the role of the state and political systems and the stage of development,
encompassing a country’s history, resources, and place in the world.
Globalisation as a theory of development was chosen to interpret these concepts
and to link them to a focus on accounting, since it focuses on the interaction
between developed and developing countries. Using Globalisation as a
theoretical perspective is a useful and appropriate way of understanding the
data gathered from field work, as it acknowledges social and cultural factors,
the prevalence of global communication and greater technological unity at a
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global level, including the technology of accounting.
9.3 The Present Role of Accounting in Libya
A review and analysis of the views of participants from the GCP and the IS as
revealed in interviews, from a survey, and from a study of relevant documents,
enabled the following insights to be discerned in regard to Libya’s failure to use
accounting information to enhance its development needs.
9.3.1 State Authorities
The General Popular Committee for Industry, on the governmental level, was
abolished and replaced by the General Board for Transfer of Ownership of
Companies and Public Economic Units in 2000. The IS remained on the
municipalities level and subsequently became subordinate to the industrial
companies, among which is the GCP for the IS on the municipality (Sha`biyat)
level. There are many state authorities that have the right to impose policies and
demand information from companies in the sector. Therefore, companies are
liable to be questioned by a number of authorities and to have to provide
information to those authorities in the form of report. This is certainly a
challenge to the administration of these companies, which attempt to satisfy all
authorities while trying to run daily activities. The necessity for macro-level
economic policies to be implemented at a micro-level is evident. However, the
failure of companies to achieve targets at micro-level has thwarted Libya’s
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development plans at macro-level. On the basis of policy decisions made at a
central level, other decisions such as production, sales and purchases, are made
on an organisation level. As the IS has failed to accomplish production targets
through the individual companies under its authority, it has subsequently
failed to achieve its other plans and programs for the sector, which are
dependent on production and sales.
9.3.2 Development Plans at Secretariat Level
Industry in Libya is a relatively new phenomenon and development plans in
Libya showed unclear and unstable industrial strategies. The industry sector
has witnessed marked progress in all investment expenditure, production, and
local sales and foreign exports. Despite this progress and the huge level of
funds invested in the industrial sector, however, the productivity of the sector
and its contribution to national productivity is still poor. The industrial sector
has encountered many problems and difficulties that have hampered its
progress. For example, there has been a shortage of skilled workers, poor
standards of management and a shortage of raw materials and spare parts,
which are mostly imported from abroad and need foreign currency to be
acquired, and which are inadequate when needed by the industrial companies.
The poor standard of control and supervision in implementing development
plans and programs in the industry sector is also clearly evident. As the study
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has shown, the sector’s share of investment allocations is good; nevertheless,
the execution of these allocations has not been at the required level and this
explains the poor efficiency of control and supervision in implementing
development plans. Company management has had an ineffective role in
formulating and setting up company objectives. It is clear that there is
ambiguity surrounding the objectives and policies in the minds of staff in the
sector, whether in the Secretariat or related companies, even amongst those
who occupy leading positions.
9.3.3 Standards of Planning at Organisational Level
The study has shown that industrial institutions in Libya are characterized by
poor standards of planning and failure to set priorities according to needs.
There is also no evidence of clear strategies, either on the level of the IS or on
the level of companies. Planning schedules and balance sheets at various levels
are hampered by conflicting priorities and there is a huge gap between planned
objectives and actual practices. The role of accounting systems in setting up and
providing the required accounting information for development plans within
the industry sector in Libya is ambiguous and unclear from both the theoretical
applied and points of view. In reality, the situation is entirely different from the
official systems. No meaningful role for these systems, whether inside
industrial companies, control and supervision authorities or any other state
authority, is currently seen. This is a matter that ought to be re-examined. Either
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there is no role already or there is a negative role. There is certainly no
correspondence between the stated goals, objectives and systems and what is
actually operationalised.
The study has shown that the information requirements of the authorities and
other parties are undefined or not known to the information providers (the
industrial companies). That is, there is no clear definition by the authorities,
parties and groups about the information demanded from the industrial
companies. The study has also revealed that the most important authorities that
use the data and information provided by the industrial companies are the
administration sections of these companies, the IS and the Board of Control. In
addition, there are other groups that demand information of concern to them
and which serve the purpose of their establishment, such as the Popular
Committee for Planning, the Exports Development Board, the Commercial
Banks, the Bank of Development and the Tax Office. It has been shown from the
participants’ views, whether in the GCP or the IS, along with an examination of
documents provided by the two parties, that the industrial companies often
receive no prior notice from public authorities or other external groups of their
needs for information. That is, the industrial companies have no knowledge of
the information users’ needs and obviously this is regarded as a most important
issue. Submitting information quickly at short notice results in inaccuracy of
information and, subsequently, this has an impact on the various decisions
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taken on the basis of this information. In contrast, submitting information late
does not serve the required use of the information and there is often a failure to
respond to the request for information, overlooking the information users’
demands.
9.3.4 Views of Providers of Information
An analysis of the participants’ views revealed that the public authorities do not
make appropriate use of the information and data that has been provided.
Understandably, this creates an impression on the part of information
presenters (the industrial companies) that a lack of care can be shown in
relation to the demands of those authorities. Where there is no evidence of the
use of information, or perhaps sporadic use, signs of the lack of use of
requested information may be deduced. Sometimes the information provider
gives an estimate or random numbers because he regards this as a mere routine
measure without incurring any consequences.
Participants in both authorities (the GCP and the IS) made it clear in interviews
that there was an absence of feedback, which would have provided a motive to
the information providers to present and set up the information earlier and
convey it or submit it to the authorities who needed it. It was clear that
information users need the information and data at various times. Some data
and information were required monthly, others annually, or even quarterly or
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every six months. It has also been shown through the interviews that were
conducted with the participants in the GCP, the body that provided the
information, that there were authorities that demanded certain data and
information without the power and authorisation to do so. Instead, these
authorities should have contacted the supervision and control authorities to
acquire what they wanted in relation to data and information. Participants
believed that the financial statements could provide most public authorities’
needs if they were coordinated and required at times set by law.
9.3.5 Views of Users of Information
From the analysis, it was evident that there were many public authorities
(information users) that required data and information which had already been
requested and provided. This occurred because of lack of attention and lack of
expertise in organizing, managing and specifying the data and information held
by these authorities.
Participants were unable to describe the relation between the GCP and the IS.
The same thing was also clear from participants in the IS, where some described
the relationship as administrative subordination, while others described it as
supervisory. Views varied on the role of law and legislation in influencing the
setting up of accounting data. Some regarded them as obstacles to the role of
accounting systems and others regarded them as absolutely ineffective.
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The above discussion summarised the study's observations, based on the data
collected from the IS and the GCP. The discussion related to the focus of the
study in describing and understanding the role of accounting systems in
decision making, planning and control in the IS-GCP context. In a global
economic environment, the role of accounting, driven by the practices of liberal
market economies, emphasises the availability and effective use of reliable
accounting information. This indicates difficulties for Libya in entering the
global environment, since that is not the case. The study’s observations showed
that the GCP's role for accounting was oriented to serve a particular public for
regulatory purposes rather than for decision-making.
9.3.6 Suitability of Accounting Information
Very little information could be obtained from current accounting systems
because of their applicability to American and British accounting models, which
emphasise the provision of information for the purposes of the stock exchange.
These models are inappropriate to the development needs of developing
countries. Also, national accounting in developing countries, including Libya,
primarily depends on the United Nations’ model for national accounting, which
is equivocal in fulfilling the needs of developing countries for complete timely
and relevant accounting information. If Libya is to achieve its development
aims, its accounting systems will need to take on an enhanced role.
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9.4 The Potential Role of Accounting Systems
This study has shown that the industry sector is failing to fulfill Libya’s national
economic development needs, which implies shortcomings and failures in
implementation and processes. At the same time, there is no system for
capturing, explaining and correcting these failures. Obviously, knowing these
deviations is essential; knowing the reasons for deviations in order to try to deal
with them is equally essential, as is the capacity to correct short-comings. The
study has also identified a poor standard of control and supervision, which
very often has led to taking wrong decisions.
From a theoretical perspective, it is necessary for accounting systems to
mobilise development plans by supplying important data and information
necessary for planning, supervision and control. This role is hampered in Libya
because of the unclear role of accounting systems within industrial companies
due to several reasons. Some of these are related to information providers and
others to users. In addition, there are social and political factors that work
against the establishment of effective accounting information systems. The
following sections include some recommendations for addressing these limiting
factors.
9.4.1 Training
There is a need to raise awareness among information providers in developing
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countries, through seminars and forums, of the importance of information and
its role in planning, control and supervision, and the significance of the flow of
information to the users through the making of periodical reports. There is a
need to establish a body or a centre for information, which will be responsible
for receiving information from the industrial companies and republishing and
distributing it in a manner that will serve all parties. This centre might be a
government body and serve all sectors.
Libya clearly needs to plan strategically to modernise both its accounting
education and practice by ensuring that modern texts which are relevant to the
needs of Libya are available for consultation. At present both the perceived
status of the accounting profession and the availability of accounting educators
are perceived to be obstructing factors. Consequently, it would seem that if the
appropriate level of funding, and strategic planning geared to the needs of
Libya are established, then the personnel required to implement them would be
available.
9.4.2 Communication Technology
Computers in both the main information centre and the company branch
centres need be connected to facilitate sharing of information. There is a need to
establish clear lines of communication and authority to avoid duplication of
information required. There is a need to upgrade the means of communication
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between industrial companies and public authorities in order to facilitate the
process of conveying information to users. It is important to define the
mechanisms by which information and data are requested and submitted, in
order to overcome problems resulting from the frequency of demanding the
same information and data, especially the demand for information at the end of
every financial year, which causes a lot of confusion and problems for the
companies presenting the data and information.
The use of computers is still confined to routine work, such as preparing
salaries, monitoring stock movements and following-up workers’ positions and
their compensations, as well as monitoring sales returns. Moreover, the use of
computers in these applications is still in the form of specialized individual
systems that have been applied and used at various times. Their objective is to
accomplish the work in accordance with what official requirements are and
subsequently the reports produced by these systems do not go beyond the fact
of being summaries, which can not be utilized as information except on the
level of supervisory administration in charge of the direct implementation of
the activities.
In the absence of genuine and correct information, in due time and with
reasonable cost in the public and private sectors, it is difficult to plan and take
the right decision. Therefore the establishment of a modern and fast
information and communications base is necessary. Raising awareness of the
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use of technology through computers and Internet facilities has become a vital
requirement to increase the efficiency and effectiveness of the role of accounting
systems.
9.4.3 Cultural Issues
A lack of transparency increases corruption in governance. There is a need to
obligate all companies to publish financial statements in a manner that makes it
easy for users to obtain information. Attention must be devoted to those in
charge of the accounting profession and the role of accounting in the
community. There is a need to establish an environment free of fear and
frustration because of the increasing number of control and supervision bodies
in the public sector and the variation of their objectives and styles of work.
Accordingly, the role of each role of these bodies must be considered in
accordance with a unified view in which the highest interests of the country are
paramount. Through this role, the efficiency and effectiveness of performance
during the implementation process should be guaranteed.
There is a need to trust academic research as one of the tools by which nations
and peoples are promoted. Through such research, the state is capable of
identifying and treating weak points. It can also identify and concentrate on its
potential, in addition to being a means to pursue the latest developments in any
field.
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Most organisations do have administrative units to set up statistics and reports
associated with the follow-up process. These units are either designated by
names, which do not include the term “information”, or this term is
underestimated. For example, in the GCP, this unit was named the “Mechanism
and Information Unit” and the same name was applied in the IS and as such
was subordinate to the Bureau of Planning and Supervision. It is clear from this
name that the main objective is setting up standard periodical reports, which
reflect the outcomes of the implementation process of principal activities in the
company. Therefore, what these reports contain in regard to information is of
little use to the administrative body (especially the high and intermediate
administrations) except in monitoring what has been implemented in previous
periods and on the level of specialization of activities.
Therefore, Libya, and other developing countries, need to establish an
independent accounting system, whose task is to link records and accounts of
full accounting (Macro) and partial accounting (Micro). The purpose of these
systems will be to supply planners with accounting information necessary for
the fulfilment of development plans in order to enhance the effectiveness of
administrative decision-making. This can only be accomplished by taking into
account various key economic factors, prepared on a unified base.
279
9.5 The Contributions of this Study
In the light of these observations, the following are the main contributions this
thesis makes to an understanding of the role of accounting systems in Libya.
1. The study contributes to the role of accounting literature which is often
considered to be richer on theoretical models and weaker on detailed
case studies. The richness of the data collected reflects the advantage of
adopting the case study method in conducting research. Empirically, this
study confirms the assertions of prior research studies with a case study
of Libya. This Libyan study confirms that accounting practices, as
socially and politically constructed phenomena, are the product of the
cultural, economic, social and political contexts in which they exist
(Gray, 1988; Perera, 1989b).
2. The study contributes to the limited studies on the role of accounting
systems conducted in developing countries in general, and within the
Arab socialist context in particular (See Chapters 4, 5 and 6). Although
generalisation of the observations was not the aim of the study, these
insights do provide a wider understanding of the influence of cultural,
social and economic contexts on the role of accounting systems in Libyan
and similar environment(s). By tackling the issues of the role of AIS in
developing countries with the use of Globalisation theory, this study
280
extends previous studies by analysing the reasons why it is difficult to
implement global AISs in developing countries, in spite of the
contribution they could make in meeting development needs.
3. Libya is a planned economy that is now emerging onto the world
economic stage and adopting some of the characteristics of a market
economy. This case therefore has resonances for other former planned
and now emerging countries such as China or those in Eastern Europe.
While each of these countries is different, they all face similar challenges
in adapting a government-directed AIS to one which is capable of
measuring profit and providing useful information for economic
decision making.
4. AIS in Libya has not been studied qualitatively before. The motivation to
study AIS in Libya was to study in depth the gap between theory and
practice. Previous academic emphasis has been on quantitative studies.
In this study qualitative and quantitative methods have been used to
collect information about the perceptions of people with regard to AIS.
This study is therefore unique in giving Libyans an opportunity to state
their opinions about the role of AIS, and to identify some of the problems
the country will face in moving from a planned economy to a more
market based economy.
5. This study has analysed the effects of culture, religion, politics law and
281
the economy on Libya’s accounting systems. As Libya increasingly takes
its place in a globalised environment, this analysis will be important in
order to assist in the effective implementation of AIS to achieve economic
development plans.
6. The study opens up a dialogue within Libya and other developing
countries on the issues involved in pursuing economic development. It
highlights the contribution accounting information can make, through
academic research, and partnership between academics, the accounting
profession and governments.
9.6 Limitations of the Study
The thesis has dealt with the role of accounting systems in the economic and
social plans of developing countries. This has been done in the Libyan context
through a study of the role played by data and accounting information
submitted by accounting systems in the GCP to the IS and other authorities as
users of this information. This study certainly may not reflect the view of the
entire population, but the similarities between the public sector in developing
countries, in general, and in Libya, in particular, as far as economic, political
and social situations are concerned, make the results beneficial and support the
accounting literature.
In spite of similarities between developing countries in regard to their need to
282
develop and make use of accounting information systems to further their
development needs, this study has highlighted the fact that there are unique
environmental factors that pertain to individual countries. The Libyan example,
therefore, while it affirms other studies and offers valuable insights, is one case
and care needs to be exercised when applying its findings to other developing
countries.
Another limitation of the study, particularly pertinent to qualitative studies, is
the role of the researcher. Researcher bias is always present when conducting
interviews. Moreover, the researcher was looking through a particular
theoretical lens by using Globalisation Theory as the framework for this study.
Qualitative research using a different lens could produce a different
interpretation of the data, which would have implications for further research,
as addressed in the next section.
Empirically, the study focused only on two Libyan case studies in the
manufacturing sector. Including other organisations and institutions from the
manufacturing sector and/or other sectors may have provided a wider and/or
different understanding of role of accounting systems in the Libyan context.
Access, time and cost constraints and the amount of work involved prevented
the researcher from expanding the research setting.
283
9.7 Further Research
The observations and propositions of this study could be used to conduct
further studies on other Libyan companies using the case study method. This
could be achieved either by replicating this study on other organisations or by
adopting different research methods. Action research may provide a
richer/different understanding of the role of accounting systems in decision
making, planning and control. Further research may explore the extent to which
the notion of the accounting role applies to other organisations in Libya.
Although the study demonstrated the importance of context in the role of
accounting systems, further research is needed to illuminate the role and the
influence of an organisation’s unique national and global context on the role of
accounting. This may involve understanding how societal setting influences, or
is related to, the role of accounting systems.
Based on the study observations, there is a gap between expectations and
challenges regarding research in Libya, as opposed to Western societies,
particularly English speaking countries. Much of the current literature on
research methodology does not pay attention to the issues and challenges faced
by PhD research students who study in one country and research in another,
such as Libya. Currently, most of the discussion regarding qualitative case
study research in the literature focuses on research design and the relationship
284
between researcher and participants, without addressing multicultural or
multilingual issues. This is an area in which further research would be
beneficial. It would be useful to replicate the study in another developing
country and use a different theory in a qualitative project or different research
method, for example, a larger style of survey and a different kind of qualitative
study. More work on specific environmental factors, such as culture, and the
applicability or lack of applicability of western accounting systems to
developing countries, would be another area of further research.
Exploring how the role of accounting is constructed and understood in other
public and private organisations in different economic and cultural settings is
an area that also needs further research. The role of religion in the role of
accounting in different economic and cultural settings may provide an
understanding of the role of sacred values in the accounting construction
process in such contexts. The expectations of the role of accounting systems in
developing countries within a development stage are growing and raising the
importance of the accounting profession. Accounting in these countries is
increasingly being dominated by governmental legislation whose agendas may
be different from those traditionally held by the developed countries in which
they work. The challenge for developing countries, such as Libya, in developing
and using accounting information systems in the same way as developed
countries use them, is to adopt them successfully to their own regulatory, legal,
285
political, cultural and religious setting. This has be accomplished while still
achieving the production and effective use of timely, relevant and accurate
accounting information in order to serve the country’s development needs. This
is a huge challenge, worthy of concerted effort on the part of government
authorities, company personnel, accounting professionals, other users of
information and academics.
286
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Appendices
APPENDIX I. THE GCP QUESTIONNAIRE
The answers to the following questions range from strongly agree to strongly disagree.
Please note that:
1= Strongly agree. 2= Agree. 3= Neither. 4= Disagree. 5= Strongly

disagree.
1- Accounting information systems should be very important in each stage of decision-making

in your company
Strongly Agree 1 2 3 4 5 Strongly Disagree
If you believe that accounting has little importance in decision-making in your company,
the reasons for this are:
Strongly Agree Strongly

Disagree
1 2 3 4 5
The poor quality of accounting

information
Lack of awareness of the importance and

how to use the information in decision-
making.
Inadequate information
Irrelevance of accounting information

systems
Government policies that do not require

accounting information to be used.
Others (please specify)
…………………………………………………
………………………………………….
303
Appendices
2 Factors that have obstructed the development of accounting practice in Libya are:
A- Educational factors
Lack of relevant and effective accounting
curricula
Lack of sufficiently qualified instructors
Lack of and/or outdated accounting textbooks

in the Arabic language
Lack of training programs for managers
Government policies that do not

emphasise the importance of accounting
information.
………………………………………………
…………………………………………
B- Professional factors
Inadequate public understanding of the
role of accounting in decision-making
Lack of active professional accounting

societies
Low status of professional ethics
Low status of present accounting

publications
Poor image of the accounting profession
………………………………………………
…………………………………………
C- Other factors
Low level of government support
Social and cultural influence
304
Appendices
Please specify any other significant
Obstructing factors.
------------------------------------------
------------------------------------------
------------------------------------------
3 To whom do you feel accountable

1 2 3 4 5
My superiors
The Industry Secretariat
Other Secretariats
The community
The Public Control Office
The customer
The public
__________________________________
4 You see yourself responsible for using accounting information for implementing
government programmes and policies in relation to the industrial sector
Strongly Agree 1 2 3 4 5 Strongly
Disagree
5 You see yourself responsible for using accounting information for implementing the
company’s programmes and policies
Strongly Agree 1 2 3 4 5 Strongly
Disagree
305
Appendices
6 Please write below any further information you would like to add.
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________
Thank you again for your co-operation

The researcher
Bubaker F. Shareia
306
Appendices
APPENDIX II. THE GCP INTERVIEW SCHEDULE
The following is an outline of the main interview questions used in the GCP:
1- Can you describe the accounting system in your company?
2- Can you take me through the process of recording and communicating
accounting information in your company?
3- Who are the main users of your financial information?
4- For what purposes do users use the information?
5- How do you describe your company’s relationship with the Industry
Secretariat (IS)?
6- What type of information does the IS usually require?
7- What is the role of government legislation in accounting information
preparation?
8- What accounting objectives would you like to see in accounting reports
of your company that report to IS?
9- What are the main purposes, from your point of view, of preparing your
company’s accounting reports?
10- How do you see the usefulness, relevance, reliability, timeliness and
availability of your company’s information to internal users and to the
IS?
11- How do you see the differences in accounting objectives under socialist
and market economies?
12- How suitable is the accounting education provided by Libyan
universities, for the Libyan accounting sector or environment?
13- How does the company make decisions on production, pricing, and
investment?
14- What is the kind of feedback that comes from the users about accounting
information, which is created by accounting systems in your company?
15- What is the main reason for requiring accounting information from your
point of view?
16- What is the main problem, which will happen if your company delays
the preparation of financial statements?
17- What is the kind of benefit your company should obtain if the
preparation of financial statements and reporting has been done on time?
307
Appendices
APPENDIX III. THE IS INTERVIEW SCHEDULE
The main interview questions to participants from the IS included the

following:
1- What are the IS’s main purposes of using companies’ information?
2- What type of information do you usually require companies to provide?
Why?
3- How would you describe your department’s relationship with
companies?
4- To whom and for what are you accountable?
5- What role does the IS play in decision-making processes in the
companies?
6- What role does the information provided by companies play in
planning?
7- How do you see the usefulness, relevance, reliability, timeliness and
availability of companies’ information?
8- What accounting objectives would you like to see in the accounting
reports of companies that report to you?
9- How do you see the present accounting systems and practices in Libya’s
companies’ in general?
10- What are the main purposes, from your point of view, of preparing
companies’ financial statements?
11- How do you see the differences in accounting objectives under socialist
and market economies?
12- Do you think the type of accounting education, which is provided in
Libyan universities, is suitable for Libyan accounting needs?
13- How do companies make decisions on production, pricing, and
investment?
14- What is the kind of feedback that comes from the users about accounting
information, which is created by accounting systems in your companies?
15- What is the main reason for requiring accounting information from your
point of view?
16- What is the main problem, which will happen if companies delay the
preparation of financial statements?
17- What kind of benefit should your companies obtain if the preparation of
financial statements and reporting has been done on time?
308
Appendices
APPENDIX IV. FIELDWORK PLAN.

The aim is to appreciate how accounting objectives and accountability are constructed
from the IS-companies’ perspective. Empirical data is to be collected from the IS, one
selected company and other organizations and institutions (that is the Tax Office and the
Public Control Office). Primary data will be collected from the GCP and the IS using
three methods: questionnaires, interviews, and documentary analysis. I will interview
the company’s Executive Manager, the Accounts Manager, the Finance Manager, the
Production Manager and the Internal Auditor. Others may be considered during the
fieldwork. In the IS situation, officials within the Companies Department and the
Budgets Department will be interviewed. A copy of the interview’s main issues will be
handed to interviewees. Permission to tape-record the interviews will be requested. The
interviewer will keep an open mind to any themes and issues that may develop through
the interviews. Moreover, documents will be collected and analysed. The following
table summarises the main data sources and data collection method(s).
Primary data sources Data collection methods Secondary data
The company Interviews, questionnaires Other organizations and
Finance Manager, Accounts and documentary analysis institutions, the literature,
Manager, Internal Auditor, general statistics and
the Executive Manager, etc. reports, informal
The IS: meetings.
Companies department,
Budgets department, etc.
The main issues in the selected company’s interview:

• The company’s past, current and future accounting objectives.
• The content of accounting objectives (the role of accounting in development needs).
• The relationship with information users (accountability).
• The role of accounting information in decision-making.
The main issues in the IS’s interview:

• Information needs.
• The role of financial information in planning and control.
• The relationships with companies.
• The quantity, quality and timeliness of information provided by companies.
Fieldwork timetable: (June - September 2004)

The data will be collected in the period June- September 2004 as follows:
• Four weeks in the selected company (GCP)
• Three weeks in the IS.
• Two weeks between the Public Control Office and the Tax Office.
• Two weeks for collecting data from other sources. However, the above plan is
flexible and change may be introduced as the data collection progresses.
309
Appendices
APPENDIX V. LIST OF INTERVIEWEES, IDENTIFYING POSITION IN THE IS AND

GCP
IS Interviewees GCP Interviewees

The Commercial Affairs Department The Executive Manager.
Manager. The Financial Supervisor (Bureau of
The Project Planning and Following- Research).
up Department Manager. The Internal Auditor.
The Quality Control Department The General Director of the Financial and
Manager. Commercial Department.
The Head of Legal Affairs The Director of Financial Affairs.
The Head of Information and The Production Manager.
Industrial Documentation Centre. The Director of the Bureau of Planning and
Accounts and Budget Division Supervision.
employees within the IS's Finance The Commercial Director.
Department. The Head of General Accounting and Budget
Unit.
The Director of Companies and the The Head of Costs Unit.
Investment Department in the The Head of the Financial follow-up Unit.
General Board for Companies and The Director of Legal Affairs Bureau.
Public Economic Units Ownership. The Head of Purchasing Unit.
The Head of Stock Control.
Note: with government restructures, the titles of some of these positions
changed during the course of this study. See Figures 6-1 and 7-3 for the location
of these interviewees in the organisation structure.
310
Appendices
APPENDIX VI. FINAL APPROVAL
Final Approval
In reply please quote: RN: ES HE04/146
Further Enquiries:
7 June 2004
Bubaker F Bubaker
Dear Mr
I am pleased to advise that the Human Research Ethics application referred to below
has been approved subject to the following condition. As a condition of approval, the
Human Research Ethics Committee requires that researchers immediately report
anything, which might warrant review of ethical approval of the protocol, including:
serious or unexpected adverse effects on participants, proposed changes to the
protocol, unforeseen events that might affect continued ethical acceptability of the
project. You are also asked to submit a final report when the project is completed or if
the project is not commenced.
The Committee notes that the proposed research process should allow individuals to
freely decide whether or not to participate. The Committee remains concerned that
some individuals may feel pressure to participate in government funded research
supported by their employer. Please make every effort to ensure that individuals do
not feel any pressure to participate.
Ethics Number:
Project Title: The role of accounting systems in developing countries: Libya, a
Case study
Name of Researchers:
Approval Date: 7 June 2004
Date for Renewal: 6 June 2005
This certificate relates to the research protocol submitted in your original application.
Please note that the Committee must review research projects of long duration
annually and it will be necessary for you to apply for renewal of this application if this
project is to continue beyond one year.
Yours Sincerely,
Assoc. Prof.
Chairperson
Human Research Ethics Committee
Cc. Prof. Funnell, Accounting
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University of Wollongong Thesis Collections

University of Wollongong Thesis Collection

The role of accounting systems in

This paper is posted at Research Online.

and Control in a Developing Country: The Case of Libya

BA in Accounting from University of Garyounis, Benghazi,Libya

MA in Accounting from University of Garyounis, Benghazi,Libya

School of Accounting and Finance

I, Bubaker F. Shareia, declare that this thesis, submitted in partial fulfilment of

Key words: accounting systems, Developing Countries, Qualitative case study,

ACKNOWLEDGEMENT .................................................................................................. iii

LIST OF TABLES ............................................................................................................... xii

Appendix III. The IS Interview Schedule................................................................ 308

Appendix IV. Fieldwork Plan.................................................................................... 309

Appendix VI. Final Approval .................................................................................... 311

Table 1-1 Summary of the Structure of the Study ..........................................................13

CHAPTER 1 THE RATIONALE AND PURPOSE

Economic development in a developing country is based on a successful and

monitored planning process (Belkaoui 1994, p. 69). A well-established planning

and macro information for measuring, allocating, utilizing and controlling

economic activities and economic resources. The absence of such information

makes the achievement of successful economic development difficult, if not

economic activities through the preparation of relevant accounting reports will

the above discussion, it seems reasonable to believe that accounting objectives

and practices in Libya have the potential to affect Libya’s economic

development. Thus, the identification and resolution of accounting objectives

and problems of accounting practice will increase Libyan awareness of the

meeting of Libyan economic development needs.

1998) have provided information on the status of accounting systems in Libya.

However, the focus of these researchers has generally been a description of

those accounting systems and not an identification of the cultural and

institutional individuality of the country, the resultant problems faced in

developing accounting systems or the strategies available to resolve these

Libyan public enterprises have been highly influenced by accounting practices

unquestioned and uncritiqued, with no attention given to its potential to

advance the particular economic interests of Libya.

1.2 The Study’s Aims and Objectives

of accounting information systems at present and their potential role in the

contribution to the development of accounting systems in Libya, specifically

focusing on accounting systems in the public sector, in order to assist the

ongoing economic development of the country.

1. How significant are AIS in developing countries in a global economy?

2. What role do AIS play in developing countries at present?

shaped its development?

4. What is the present role of AIS in assisting Libya’s development needs?

Secretariat (IS) is a government body responsible for oversight of all Libyan

of those industrial companies. By focusing on these two different, but inter-

related organisations, insights will be gained about how information is

development environmental context. As can be seen from the diagram,

environment have a profound effect on Libyan development policy, its national

in a globalised economy being influenced by external, global factors.

Accounting information systems (AIS) are integral to these functions, both

This chapter first provides a brief introduction to the present state of

this study as qualitative research, exploring what is distinctive about qualitative

conclusions. The chapter concludes with an overview of the structure of the

1.3 Accounting in Libya, a Developing Country

made of accounting information as an aid to managerial decision-making and

internal accounting systems of most companies in such countries provided

inadequate assistance to management and that this had adverse consequences

for the economies of the countries concerned.

In a number of the less developed countries, information systems which

provide reliable financial data are few in number …. Each time a

production, pricing or investment decision is made without adequate