ASEAN FEDERATION OF ACCOUNTATNS (AFA):

REGIONAL HARMONIZATION IN ACCOUNTING

Prem Yapa
La Trobe University
School of Business
Victoria Australia

Accepted for Presentation at the

Fourth Asia Pacific Interdisciplinary Research in Accounting Conference
4 to 6 July 2004
Singapore

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 ASEAN FEDERATION OF ACCOUNTATNS (AFA):
REGIONAL HARMONIZATION IN ACCOUNTING

ABSTRACT

The ASEAN accountancy profession cannot be held to responsible for the twisting downturn
of economies in South East Asia. This has been partly attributed to the inadequacy of local
financial infrastructures and supervisory procedures. But the crisis has nevertheless brought
the role of the ASEAN accountancy profession and the ASEAN Federation of Accountants
(AFA) into severe criticism. Since 1977 the AFA has been the main proponent of regional
accounting harmonisation in the ASEAN. After two and a half decades of AFA’s existence
and largely unproductive debate on regional harmonisation, there is a growing recognition of
the urgency of enforcing a global accounting model to ensure that the financial information
upon which investors and other stakeholders base their decisions is transparent,
comprehensive, reliable, consistent and internationally comparable. The major argument is
whether each member of ASEAN should be aligned with a regional or global model of
financial reporting. This paper attempts to review the development of the professional
accounting environment in ASEAN Federation of Accountants (AFA) over last 25 years
using the process of colonialism and globalisation perspective.

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 ASEAN FEDERATION OF ACCOUNTATNS (AFA):
REGIONAL HARMONIZATION IN ACCOUNTING

IINTRODUCTION

ASEAN1 has achieved a satisfactory level of economic progress as a region and has attracted
a growing number of investors from many countries (AFA, 1977; Saudagaran and Diga,
1997a; 1997b; 2000; 1998; 2003). The ASEAN nations are also being assisted in their
financial needs by major development financing institutions such as World Bank and the
Asian Development Bank. Consequently, the professional accounting practices of the
ASEAN countries assume significance because they relate to the needs of investors and
creditors for adequately prepared financial statements and reports particularly with regard to
the overall extent and quality of financial disclosures. In this regard the ASEAN Federation
of Accountants (AFA) plays an important role in coordinating such efforts. The AFA was set
up in 1977 as the sole promoter of accounting harmonisation in ASEAN. The federation
originally intended to provide technical services to its member bodies in the formulation and
adoption of accounting and auditing standards and practices with the end view of establishing
an ASEAN philosophy for the accounting profession (AFA, 1977). However, with the on
going globalisation of services and the aftermath of East Asian financial crisis in 1997-98, the
AFA council has recently decided to encourage its members to go for harmonisation of
standards and global practices based on issuances of the International Accounting Standards
Board (IASB) and the International Federation of Accountants (IFAC). A growing body of
literature has examined various aspects of the accounting systems and their implications for
ASEAN (Briston 1990; Craig and Diga, 1996; Cruz, 1993; Yasuda 1993; Saudagaran and
Diga, 2000; 2003; Yapa, 1999; 2003). However, one aspect that has not received adequate
attention is the ASEAN national accounting associations/bodies and their national differences
which influenced on regional harmonisation efforts of AFA. Against such a background, this
paper attempts to review the development of the professional accounting environment in
AFA using a colonialism2 and globalization3 theory perspective.

The remainder of this paper is organised as follows. Section 2 provides a profile of AFA and
its existence, importance in general and then identified the research question. In section 3
analytical framework has been explained. In Section 4 data collection for the study has been

1ASEAN was formed in 8, August 1967 in Bangkok by the five original member countries, namely Indonesia,
Malaysia, the Philippines, Singapore and Thailand. Brunei Darussalam joined on 8 January 1984, Vietnam on
28 July 1995, Laos and Myanmar on 23 July 1997 and Cambodia on 30 April 1999.

2 Colonialism is a system in which a state claims sovereignty over territory and people outside its own
boundaries, often to facilitate economic domination over their resources, labor, and often markets. The term also
refers to a set of beliefs used to legitimize or promote this system, especially the belief that the mores of the
colonizer are superior to those of the colonized. Advocates of colonialism argue that colonial rule benefits the
colonized by developing the economic and political infrastructure necessary for modernization and democracy
(Wikipedia, the free encyclopedia).

3 People around the globe are more connected to each other than ever before. Information and money flow more
quickly than ever. Goods and services produced in one part of the world are increasingly available in all parts of
the world. International travel is more frequent. International communication is commonplace. This
phenomenon has been titled "globalization"(www.globalization.about.com)

3
described. In Section 5 discusses the issues emerged from the study. Finally, Section 6
concludes the paper.

A PROFILE OF THE ASEAN FEDERATION OF ACCOUNTANTS (AFA)

Over the last decade, a growing number of studies addressed the accounting profession and
financial reporting in ASEAN countries (Craig and Diga, 1996; Saudagaran and Diga,
2000:2003, Yapa 1999; 2003). With the establishment of ASEAN its declaration stated the
aims and purposes of the association as follows:

“The association represents the collective will of the nations of Southeast Asia
to bind themselves together in friendship and cooperation and, through joint
efforts and sacrifices, secure for their peoples and for posterity the blessings
of peace, freedom, and prosperity (The ASEAN Declaration, Bangkok, 8
August 1967 - Fact Sheet on ASEAN4).

The ASEAN region has a population of about 500 million, a total area of 4.5 million square
kilometers, a combined gross domestic product of US $ 737 billion, and a total trade of US
$720 billions (Fact sheet on ASEAN, 20005). The Secretary General of the United Nations
stated the importance of ASEAN to the rest of the world as follows:

Today, ASEAN is not only a well functioning, indispensable reality in the

region; it is a real force to be reckoned with far beyond the region. It is also a
trusted partner of the United Nations in the field of development” (16 Feb
2000).

The ASEAN Federation of Accountants (AFA) was set up in March, 1977. It was established
to serve as the umbrella organization for the national associations of accounting professionals
of the member countries of the Association of South East Asian Nations (ASEAN). AFA
originally had only five member bodies. These were the national accountancy bodies of
Indonesia, Malaysia, the Philippines, Singapore and Thailand6. In 1989, The Brunei Institute
of CPAs (BICPA) was admitted into the Federation. In the recent past AFA admitted the
national accountancy bodies of Vietnam and Myanmar7. Still outside AFA is the accounting
association of Cambodia.

There are two kinds of AFA members. Primary members are the national organization of
accounting professionals representing ASEAN member countries. Associate members are
internationally recognized accounting organizations of countries outside South East Asia,
which are friendly to ASEAN. In 1999, the first associate member was admitted into the
Federation-the Australian Society of CPAs (ASCPA)8 followed by Association of Certified

4 http://www.aseansec.org/history/overview.htm
5 http://www.aseansec.org/history/overview.htm
6 Primary member accounting bodies are: Brunei Darussalam Institute of Certified Public Accountants
(BICPA), Ikatan Akuntan Indonesia (IAI),Laos Institute of Certified Public Accountants (LICPA), Malaysian
Institute of Accountants (MIA), Malaysian Association of Certified Public Accountants (MACPA), The
Philippine Institute of Certified Public Accountants (PICPA),Institute of Certified Public Accountants of
Singapore (ICPAS),Institute of Certified Accountants and Auditors of Thailand (ICAAT).
7 Myanmar Accountancy Council (MAC), Vietnam Accounting Association (VAA).
8 Now CPAA

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Chartered Accountants (ACCA) of the U.K. The Mongolian Institute of Certified Public
Accountants was admitted to AFA as an associate member in 2000. Primary membership in
the Federation is by country – i.e., one member per country except for Malaysia9.

Regional accounting harmonization was an important objective for setting up of AFA

(Kondo, 1992). The Chairperson of the International Federation of Accountants (IFA) at the
time of setting up of AFA stated that:

“The formation of an ASEAN accountant’s organization…. will make it easier

to harmonize the accounting principles and practices in the region. We will
thus be complementing the efforts of the ASEAN private and government
sectors in the economic development of the region (SyCip, 1977)”.

Regional harmonization of accounting standards within ASEAN was encouraged through

various committees of AFA ever since its inception. For example, one of the prominent
committees set up by AFA in 1978 was the Committee on Accounting Principles and
Standards (CAPS). The role of this committee was to undertake programs to develop
accounting principles and auditing standards suitable for the conditions in ASEAN. As a
result of CAPS, a survey of accounting principles and practices in the ASEAN was conducted
and, as an outcome of this survey, an exposure draft called ASEAN Accounting Standards
(AAS) No.1- Fundamental Accounting Principles - was issued (ASEAN Federation of
Accountants, 1978(a), (b)) This exposure draft and AAS No.1 provided a suitable yardstick
against which to compare accounting standards and practices in ASEAN. As evidenced, there
have been no substantial differences existed between local accounting standards of ASEAN
national institutions and AAS No.1. Although, CAPS would have issued more ASEAN
accounting standards focusing on regional harmonization, they did not pursue it mainly due
to colonial influences and pressures placed by national accounting bodies of ASEAN.
Therefore, AFA’s impact on regional accounting harmonization had been demoralized and
slowed down (Donleavy, 1991).

In 1984, on a comprehensive survey of accounting and auditing practices in ASEAN,

revealed a wide range of accounting standards and practices existing in ASEAN (SGV,
1984). According to the report of SGV survey two groups of accounting practices appeared in
ASEAN region. One group of ASEAN members such as the Philippines, Thailand and
Indonesia apparently supported U.S accounting practices and the other group mainly
Malaysia, Singapore and Brunei adopted practice in the U.K. The apparent reason for this
practice in ASEAN countries is that they have adopted legal and micro-economic approach
with regard to financial reporting practices and regulations, not only because of their colonial
link, but also because it was perceived to be more convenient with the regulatory system of
their governments. In this context many researchers have argued that most developing
countries including ASEAN have adopted legislation of the colonial powers without due
regard to their local conditions even after their political and economic independence (Briston
1978). This inclination of colonial influence gave rise to national accounting professional
associations of most ASEAN countries partiality towards the colonial master. This partiality

9 AFA primary members must have been created under a specific statute or regulation. However, among
ASEAN members Malaysia is represented by both Malaysian Institute of Accountants (MIA-a government
body) and the Malaysian Association of Certified Public Accountants (MACPA- a private sector body). This
has happened mainly due to the absence of a specific statute or regulation in the case of Malaysia.

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towards colonial powers gave a significant influence over AFA’s non-implementation of
ASEAN accounting standards (AASs).

The East Asian financial crisis in 1977-78 also raised questions about the quality of
accounting and auditing in the affected countries. It seems that, as a result of the lack of
proper disclosure in the accounting reports of Asian enterprises, the users of accounting
information did not receive the early warning signals about deteriorating financial conditions
and were therefore not able to make adjustments accordingly. James D. Wolfensohn,
President of World Bank, while analysing the causes of the Asian financial crisis, summarised
disclosure problems as follows:

“The culture in the region has not been one of disclosure; if you go back
further it was a culture of a smallish number of wealthy people. It was an
agrarian society with a lot of people in the country and some significant
factors of power. It is reflected in the chaebols. It is reflected in groups that
come together. There were centres of power. There was little disclosure, and
there was a familial structure in the industrial and in the financial sector just as
there was in the ordinary sector (Wolfensohn, 1998, p.3).

Following from this view and the critics of the accounting and auditing profession, cited
incomplete financial information, lack of transparency, inappropriate accounting standards
and inconsistent application of those standards as factors contributing to the seriousness of
the crisis or to the delay in identifying and responding to it. Consequently, there seems to be a
growing recognition of the urgency of enforcing a core set of globally recognised standards to
ensure that the information upon which investors and other stakeholders base their decisions
is transparent, comprehensive, reliable, consistent and internationally comparable. This paper
aims to explain as to why AFA has failed in convincing ASEAN policy makers to focus on
regional harmonisation. Before the 1977 Asian financial crisis AFA’s coordination efforts
were hampered by ‘national’ differences reflecting differences in colonial history (i.e.,
whether the ‘colonising’ power was Britain or the USA). Since the crisis AFA has been
hampered by the swamping of regional ‘forces’ by global or international forces. These
forces cannot be ignored in AFA’s pursuit of regional harmony. This is the motivation of this
study. Analytical framework on the relevance of global accounting standards to developing
countries, in general terms, is explored in the next section.

ANALYTICAL FRAMEWORK

The professional accounting model emerged in Scotland in 1853 and it spread to England
during the 1870’s and extended up to Ireland during the 1880’s (Stacey, 1954; Kedslie, 1990:
Walker, 1995). The British accounting model was exported to the settler colonies of the
British Empire (Robinson and Gallagher, 1953). During the past, many developing countries
including the Association of South East Asian Nations (ASEAN) have shown significant
economic and political effect from the British or U.S colonial influences. In the early years of
the colonial period, trade and investment in these countries were set up by British, Dutch and
U.S. investors. Therefore, the law enforcement, government administration as well as the
education and training in ASEAN, were developed under the direct control of such colonial
powers. Almost all developing countries that were British colonies for a considerable length
of time inherited the British accounting system (Briston, 1978; Hove, 1986; Wijewardena and
Yapa, 1998).

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Some British accounting bodies set up examination centres in a few major cities in
developing countries allowing local people to obtain British professional accounting
qualifications while working in their own countries (Johnson and Caygill, 1971, 1972 a, b;
1973). In this context, the comparative analysis of national corporate and companies laws
within ASEAN suggests four patterns of development: (1) A British approach (adopted by
Brunei, Malaysia and Singapore); (2) A Dutch approach (adopted by Indonesia); (3) A U.S.
approach (adopted by the Philippines); and (4) A mixed-country approach (adopted by
Thailand) (Craig & Diga, 1996). Accordingly, Brunei, Malaysia, and Singapore (all former
British colonies), have each adopted a Companies Act modelled on the U.K. Companies Act
1948 and the Australian Uniform Companies Act 1961 (Pillai, 1984; Price Waterhouse, 1991,
1992a, b). However, the Companies Act of Singapore has undergone considerable changes
since first enacted in 1967 (CCH, 1990). Indonesian Commercial Code, 1848, was patterned
on the early Dutch Commercial Code with some minor amendments. Under this system, law
is codified, and company legislation prescribes rules in detail for accounting and financial
reporting. Unfortunately, many of the amendments that have been made in the Netherlands
since 1848 were not incorporated in the Commercial Code in Indonesia. As a result,
Indonesia was operating an out of date commercial code adopted in the nineteenth century
that is incompatible with today’s commercial environment. However, a new Companies law
was introduced in 1995 to take effect from 1996 (Samidjo, 1985; Briston, 1990; Diga &
Yunus, 1997). It is, therefore, obvious that company laws in ASEAN have been affected
strongly by each country’s former colonial links despite the appropriateness of such
legislation to its environment. British group (Brunei, Malaysia, Singapore) was mainly
influenced by Britain and non-British group (mainly the Philippines, Thailand and Indonesia)
was influenced by U.S., Japan, the Netherlands and Germany, reflecting its important trading
links with these major economic powers during the late 1800s and early l900s (Maolanond &
Yasuda, 1985; Yasuda, 1993). With this backdrop, it is obvious that accounting practice in
ASEAN has been structured based on the corporate legal environment created by the colonial
powers during their administration without due regard to local needs and conditions.

Over the last few decades, the tremendous growth of information technology and
telecommunications has resulted in increasing globalisation of business activities. The rapid
expansion of cross-border trading and takeovers has effectively effaced state boundaries. The
instant availability of information on movements in stock markets has caused investment
decisions to shift on a global basis. Globalisation can be defined in various ways (Higgott and
Reich, 1998). It is basically the international integration of production and markets. The key
feature that underlies the concept of globalisation is the erosion and irrelevance of national
boundaries in markets. For example, the securities markets of various countries are becoming
integrated into a global system through cross-border transactions and listings and the increase
in the number of multinational fund managers. The meaning of globalisation of the securities
markets was highlighted, when a major correction in the American market almost
immediately affected other markets around the world (Smith, 1990).

The experience of the Asian currency crisis of 1997-98, when the problems of a few
countries subsequently spread to many others, further signifies the global character of the
financial markets. In this context, the International Accounting Standards Board (IASB) has
played a leading role in the development of International Accounting Standards (IAS). The
ISAB has played the primary leadership role in the push for harmonisation of global
accounting rules. As Nobes (1994) points out harmonisation is the process of increasing the
consistency and comparability of accounts in order to remove the barriers to the international
movement of capital and exchange of information by reducing the differences in accounting

7
and company law. After the ISAB’s formation in 1973, it has 142 member accountancy
bodies throughout the world representing over 103 countries. ISAB, as yet, has promulgated
forty International Accounting Standards and a number of Exposure Drafts on a wide range
of financial accounting topics. Previous empirical research offers insight into the relevance
and importance of the International Accounting Standards in various countries around the
world. Many of those studies have recommended for customized adoption of IAS to meet
country’s local needs (Enthoven, 1969 and 1973; Perera, 1985 and 1989; Larson, 1993;
Mirghani, 1998; Hassan, 1998). Application of IAS without any modifications as national
standards in South East Asian countries has been criticised in some of the empirical
investigations (Wallace, 1993, Briston, 1990). Several studies investigated the similarities
between the U.K, U.S and IASB standards (for example Hove 1990; Hoarau, 1995; Larson
and Kenny 1998) and found that such similarity occurred mainly due to preoccupation of
both U.S and the U.K on the IASB and frail engagement of the developing countries. Apart
from the Western countries, some studies conducted in former communist economies have
criticised the roles of the Western accounting standards concerning the adoption process of
the IASs (Hassan, 1998; Points and Cunningham, 1998; Wallace and Briston, 1993; Perera,
1989; Samuels, 1990; Briston, 1990; Samuels and Oliga, 1982). The most crucial problem is
the inappropriate solutions suggested to developing countries by developed nations (Wallace
and Briston, 1993). They further argue that accounting and accountability problem would be
unique to each developing country and foreign aid agencies or donor agencies should
collaborate more closely with the recipient country to ensure that their assistance is delivered
only in accordance with the respective national accounting development plans.

Several studies (Hove, 1990; Hoarau, 1995; Larson and Kenny, 1998, 1996) investigated
the direct relationship between IASB standards and those of the U.K and U.S and argued that
this was by no means coincidental given the strong dominance of both the U.K and U.S on
the Committee and weaker association of the developing countries. These studies argue that
most of the IASB standards were carbon copies of standards originating from the U.K and
U.S with strong orientations towards maximising shareholders’ wealth rather than social
function of accounting. They have argued that accounting should not be treated as the object
of providing useful information to the investors only; accounting also serves the purpose of
divergent interested groups including the society. Therefore, the roles and the relevance of
the IASs in the developing countries are not clear and still are debatable. For example,
Woolley (1998) investigated the linkage between the adoption of IASs and economic growth
in a number of Asian countries. He observed that the mean economic growth rates of
developing countries when grouped by their approach to adoption or non-adoption of IASs
are not significantly different. Whereas, Larson (1993) observed adoption of IAS does not
necessarily imply that domestic financial accounting systems will be perceived to be of better
quality by international investors or will lead to tangible macroeconomic benefits
(Saudagaran and Diga, 1997). Some studies have examined various alternative harmonisation
options for emerging markets in ASEAN and colonial influence over ASEAN accounting
education and practice (Saudagaran and Diga, 2003; Yapa, 2003). Mason (1978, p.124) had
provided evidence that developing countries which are unable to mount their own standard-
setting programs are the ones who adopt IAS in many countries. For them, it seems apparent
that research and development costs associated with adopting IAS are minimal. Given other
pressing social and economic development projects and priorities, it is difficult for
developing countries to allocate resources for local accounting development projects.
Accordingly, contemporary accounting standards in the ASEAN draw heavily from foreign

8
sources, mainly U.K, U.S and IASB standards10. As far as the author is aware, no study has
ever been conducted to examine the swamping of regional forces by ‘international forces’ in
relation to professional accounting environment in AFA. Despite the setting up of AFA in
1977, regional harmonisation of accounting has not occurred apparently due to various
influences and pressures. This is the task of the sections which follow.

DATA COLLECTION FOR THE STUDY

The study is based on data collected from national accounting professional associations of
seven ASEAN members. The national representatives of the accounting professional
association were asked to respond to a questionnaire covering issues relevant to professional
accounting issues and regional harmonization of accounting in ASEAN. Table 1 provides
accounting associations that participated in the collection of data in each ASEAN member
country. All these associations are covered under the umbrella of AFA. The questionnaire
used an open question format to allow respondents to give more flexibility. The objective
behind the open questions was to give an opportunity for respondents to briefly describe the
back ground information to their responses. Moreover, many more questions were explicitly
asked to substantiate on the current professional accounting issues and regional
harmonization of accounting in the country of the respondents. Basic questions included in
the questionnaire were: the nature of current practice of accounting; opinions about the AAS
standards against U.K, U.S standards or IAS standards; history of accounting standards
formulation; accounting training and education; AFA’s role in regional harmonization of
accounting and globalization and accounting standards setting.

After scrutinizing the responses, some of the country specific issues required further
clarifications. Hence interviews were conducted in three ASEAN member countries-namely
Singapore, Malaysia (both MIA and MACPA) and in Brunei Darussalam. During these
interviews the researcher was able to gain a more in-depth understanding of their independent
views, opinions and suggestions on various aspects of the items covered in the questionnaire.
No formal interview schedule (a structured questions guide) was used for the interviews.
Instead, the discussion at each interview was initiated and conducted in a very informal way,
allowing the interviewee to express his/her ideas and observations more freely and
independently. However, the discussions at these interviews basically centred on those items
which were covered in the original questionnaire. The interviews varied in length from about
one to two hours.

[Insert table 1 about here]

This study covers seven member countries and eight professional institutions of ASEAN as
of December 1998. Myanmar and Laos were admitted into ASEAN on 23 July 1997. As they
are very new to AFA they are not included in this study. In Brunei Darussalam BICPA is the
private sector body and the Ministry of Finance is monitoring the current accounting
standards. Hence some key officials of the Ministry of Finance also were interviewed. The
next section discusses the outcome of respondents along with national accounting institutions
and their influence on IASs to focus direction in AFA.

10 In 2002, 17 out of 23 Thai accounting standards are based on the IAS. In Singapore, adopted IAS are referred
to as SAS. In Malaysia, most IAS are adopted as Approved Accounting Standards.

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 DISCUSSION

(1). All former British colonies (Brunei Darussalam, Malaysia and Singapore) in ASEAN have
each adopted the British model in their accounting practice. The British system of accounting
practice was imposed on these countries during the colonial period in a number of ways:
export of British accounting personnel; the export of British accounting qualifications; the
establishment of British accounting professional bodies’ examination centers; the
involvement of British experts in planning, directing, teaching and providing assistance in
one form or another in the local business development. It is therefore obvious that ASEAN
have been affected strongly by each member country’s former colonial links despite the
appropriateness of such direction to its environment. The U.S group (The Philippines,
Thailand, and Indonesia) was influenced by U.S. reflecting its important business
associations with North America. Among the U.S group the Philippines accounting system is
strongly influenced by U.S. The Philippine’s accounting practices date back to the pre-
Spanish period, when Filipinos conducted business with Chinese, Indians and Malays from
neighbouring countries. The Philippines has, for a significant part of its recent history, been
opened to many foreign influences. The Spanish brought substantial changes to language and
religion. However, the comparatively short American colonial period was the most
significant in influencing the Philippines’ major institutions—including the educational
system and the formalization of the professions. A number of American businesses
established themselves in the Philippines during the 1920s and 1930s. Their activities and
requirements influenced the establishment and initial growth period of the public accounting
profession. During this time, the passage of the “Accountancy Act 1923” created the Board of
Accountancy (BOA) and gave it the authority to issue Certified Public Accountant (CPA)
certificates (Narasimham and Reid, 2003). As such, it is obvious that accounting practice in
ASEAN has been structured based on the corporate legal environment created by the colonial
powers during their administration.

Without paying much attention to such colonial influences, AFA proposed moves on regional
harmonization of accounting since its inception in 1977(Saudagaran and Diga, 1997a).
Therefore, as suggested in the colonialism literature both formal and informal pressures
hampered the regional harmonisation efforts of AFA. This seems to be a valid argument for
most ASEAN members in the group. This has been further reinforced by some of the
respondents in this study revealed as follows:

"The original members of ASEAN preferred colonial – era accounting

systems as it facilitated their business practices. Therefore, the elites made all
the efforts to make it certain for accounting to operate in congruence with
their objectives and expectations - and if changes were to take place as
required by AFA, they would be mobilised in the pursuit of their (elites)
vested interests.”

As revealed by respondents most vested interests developed by local accounting associations

had a negative feeling about the implementation of a regional harmonisation project
introduced by the AFA since its inception. Furthermore, from the very beginning, Malaysia
and Singapore appear to have relatively more sophisticated financial accounting system than
those in Indonesia Thailand and the Philippines. These national differences apparently
hampered the motives of AFA.

10
(2). the institutional set up in AFA involves the national accounting associations/bodies of
ASEAN countries. The process initiated by AFA in 1978 was to harmonize the accounting
within ASEAN region. Committee on Accounting Principles and Standards (CAPS) was set
up to undertake this challenge. On the regional harmonization process, most of the
respondents consistently argued that professional accounting vary widely among member
nations hence there is a problem of harmonizing the accounting standards preventing the
cross-flow of professional expertise in the region. This view was supported by 70 th AFA
Council Meeting (AFA council meeting January 2001). Some respondents stated that:

“It is doubtful to believe that AFA is effectively coordinating the

harmonisation activities in the region - because AFA has a very limited
authority and official support of ASEAN. Therefore, the leadership of the
AFA has not shown itself capable of responding to regional harmonisation.”

“Malaysia has adopted the bulk of international accounting standards but there
are also a number of Malaysian rules that accord with national regulatory
requirements.”

“The IAS framework would help to develop financial standards for the
recognition, measurement and disclosure of transactions. But IASs are
adopted ignoring “Syariah principles” (based on Islamic culture) in Malaysia
and in Indonesia - which would not facilitate the development of the Islamic
Capital Market.”

Many opponents of regional harmonization of accounting believed that it is unnecessary and

in certain settings even detrimental because of imposition of accounting concepts and
techniques that originate in developed countries but are inappropriate in developing
countries. However, it is evident that Singapore, Malaysia and Thailand have already based
on IASs. For example, 17 out of 23 Thai accounting standards are based on IASs. Surely
these accounting professional bodies (i.e Singapore, Malaysia and Thailand) must have an
interest in the IASs exercise. Moreover, Singapore and Malaysia already had the British
pattern in accounting standards. As evidenced, Singapore and Malaysian professional bodies
are trying to convince AFA that IASs are much more suitable for ASEAN region. Over two
thirds of the respondents referred explicitly to compliance with IASs in their accounting
practices. Some respondents from Malaysia, Brunei and Singapore stated following:

“The member countries of AFA have already taken steps to adopt

international accounting standards. In this respect, most ‘tiger economies’
have been successful as most of its members have adopted a majority of
international accounting standards. This effort has been further advanced by
Malaysia currently serving on the Board of the IASB.”

“The belief of the member bodies of AFA is that national requirements or

practice conform in all material respects with a majority of IASs. The main
exceptions are in 'specialised' areas such as inflation accounting, which are not
considered applicable in many countries in ASEAN.”

This demonstrates that the international financial community and the ASEAN have begun to
feel that the use of a common accounting and reporting 'language', in which investors can
compare the results of the largest companies across the world, is particularly important. If

11
 global standards gain the support of both national standard setters and the world's securities
regulators, there will be a real benefit for companies preparing financial statements
domestically and seeking finance in several countries overseas in adopting an 'international
GAAP'. There will also be real benefits to investors through an ability to compare financial
statements much more reliably than has been possible in the past.

(3). Malaysia, Brunei Darussalam and Singapore have inherited their accounting education
through British universities and higher educational institutions. Historically Singapore,
Malaysia and Brunei were British colonies for a long period. Therefore, their general
education from primary to university level was inherited from the British education system.
The British system of accounting education and practice was imposed on these countries
during the colonial period in different ways such as export of British accounting
professionals; export of British accounting qualifications etc, therefore, early years of these
countries - most of the accounting professionals obtained their accounting education and
training from the U.K. At the setting up of most accounting associations in ASEAN
countries, the originators had British education and exposure in the setting up process. Hence
they followed a ‘carbon copy’ of British accounting system. In the interviews, it was revealed
that still Malaysian, Singapore and Brunei accounting academics proceed to the U.K,
Australia and New Zealand for their higher education such as masters and doctoral
programs11. Moreover, some respondents in this study indicated following:

“Institutes from non- ASEAN countries like The Institute of Chartered

Accountants in Australia (ICAA) are admitted as associate members based on
the criteria that they make a commitment to train the accounting profession
in the less developed countries”

“Within ASEAN, most countries follow accounting education and training

based on the auditing profession, rather than a more holistic approach to
accounting in society. Hence adoption of global system of accounting in
ASEAN may result standards be irrelevant to the needs of these countries.”

Most ASEAN (British group of countries) countries have student exchange programs and
staff exchange programs with some of the British universities. For example Brunei’s only
university revised its undergraduate program in business by introducing, inter alia, a major in
accounting and finance in 1995 and established a link program leading to an accounting
degree with Manchester University in the U.K. Moreover, external examiners for accounting
degree programs in the University of Brunei are annually visiting from the U.K. It is
obvious from the experience of most ASEAN countries that university accounting degree
programs have legitimised and created the normative pressure on AFA to go for U.K or U.S
accounting practice.

(4). another important aspect is that the British and U.S professional bodies have been very much
instrumental in setting up and organisation of local accounting associations in ASEAN. For
example in Malaysia ACCA has set up a joint program with MIA to produce accounting
personnel. ACCA has adopted local requirements in their accounting training e.g. Local
commercial law and taxation subjects. Another example is Brunei – where Brunei Shell
Company has liaised with the local BICPA to train accounting personnel with a few British

11 Malaysian and Brunei governments are offering scholarships for accounting academics to pursue their
postgraduate qualifications in the U.K, Australia and New Zealand.

12
 professional bodies. Singapore and Indonesian questionnaire respondents indicated the
following:

“AFA should promote cooperation with more developed countries. In

particular more support from Australia and the United Kingdom to coordinate
with the AFA in training accountants and auditors”.

“Most significant challenge for the AFA is to combine the expertise of

member bodies within ASEAN to bring about a strong and cohesive unit that
can contribute towards the enhancement of the skills and standards of the
profession. If the AFA can continue as a strong and effective regional body,
we will be well-placed to help accountants meet the growing demand for
cross-border expertise”.

Another interesting observation by some respondents was that the European Union’s decision
on their regional harmonization effort. Particularly Singaporean and Malaysian respondents
indicated the following observation:

Already European Union has given up its effort in regional harmonization of

accounting standards in their region. So why AFA is pursuing a regional
harmonization drive? It is time to concentrate national and international
efforts to develop and implement international accounting and reporting
standards’

Most professional associations of ASEAN have been patterned on Western model. Hence
personnel who received their professional training from such institutional set up prefer to
apply their competencies in ASEAN business activities with a similar orientation and
disposition.

(5). With the departure of the Dutch system in Indonesia the gradual adoption of U.S accounting
system was started in 1970’s. With the assistance of the Ford Foundation, the University of
California (Berkeley, USA) provided the teaching staff, on a five year contract to the
University of Indonesia, at the same time providing opportunities for Indonesians to study in
the U.S. The Ford Foundation also assisted Gadjah Mada University, which was affiliated
with the University of Wisconsin. From this time, the American influence began to gain
momentum in Indonesia. Some respondents confirmed the following:

“The AFA should be an ideal forum to discuss ideas and share experiences
among member countries…. Particularly, so far regional harmonisation has
been hindered due to various pressures…such as International donor agencies
and the World Bank….. The adoption of international accounting standards
would benefit in the long run. Accounting training in par with IASs is
mandatory in Indonesian case.”

In addition, some respondents in this study stated that in their view point the development of
global accounting standards was not an urgent issue in at least in the near future. They
believed that it would be very difficult to implement them in practice given the knowledge of
accountants on IASs. In this regard Briston (1990) is very much sceptical of the type of
accounting harmonisation taken place in ASEAN and asserts that the narrowly based concept

13
of harmonisation, which focuses on decision making by capital providers, is inappropriate for
ASEAN.

“Too much emphasis on harmonisation with its attention on financial

reporting will most likely divert resources away from other important areas of
accounting, such as management accounting and government accounting.
Those who cherish the thought of harmonisation in ASEAN becoming a
reality must appreciate the fact that attempting to standardise the practice in
all six countries from different political, social, educational and economic
backgrounds is no easy task and it may create more problems that it can ever
solve.”

However, the Indonesian government decided to develop accounting standards based on

IASs in response to the request from international financial institutions and foreign aid donor
agencies. According to donor agencies preference, the aid receiving country tends to follow
donor agency guidelines for financial reporting. This has already taken place in Indonesia.

CONCLUSION

Based on this study it is argued that AFA is under severe pressure from national accounting
associations of member ASEAN countries to focus its direction towards global practice. This
pressure has been mounted mainly from most influential emerging economies in ASEAN. As
discussed in the previous section, colonial influence inculcated among national accounting
associations through university accounting education and training has created a significant
pressure and impact on the adoption of global set of accounting standards in the region.
AFA’s effort in regional harmonization has been demoralized due to various pressures from
member countries. There are strong reasons for such a situation. One important reason is that
with the European Union’s decision in 1995 to give up their regional harmonization effort
and their decision to adopt IASs. According to this study it was found out that this fact has
been a significant impediment on AFAs direction on regional harmonization. Particularly
recent financial crisis and its aftermath raised serious questions on the AFAs role in regional
harmonization and criticized the ASEAN accounting profession. Incomplete financial
information, lack of transparency, inappropriate accounting standards and inconsistent
application of those standards have been some of the criticisms levelled against the current
practice in ASEAN. At the same token one should not neglect the ongoing politics among
national accounting bodies for their cultural and religious interests as well. Based on these
circumstances AFA’s effort in regional harmonisation over the last two and a half decades
have gained no effective results instead member institutions are favouring for much more
sophisticated financial reporting environment based on IASs.

ACKNOWLEDGEMENTS

Author wishes to thank Dr. Eko Sukoharsono and Mr. Melly Hindarto (Indonesia), Mr.
Junaidi Salle (Brunei Darussalam), Mr. Siva Navaratnam (Singapore), Mr.Methee Ratnasri
(Thailand), Mr. Lay Choon (Malaysia), Ruy Villamayor (The Philippines) and Mr. Teo
Moreno (Vietnam) for their assistance in collecting data for this study. This study was
financially supported by University of Brunei Darussalam.

14
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 TABLE 1 ASEAN member countries and professional associations that participated
in the data collection
Brunei Darussalam (1). The Brunei Institute of Certified Public Accountants
(BICPA)
(2). The Ministry of Finance – Brunei Darussalam
Indonesia Ikatan Akuntan Indonesia (IAI)- Indonesian Institute of
Accountants
Malaysia (1). The Malaysian Institute of Accountants (MIA)
(Government sector accounting body)
(2). The Malaysian Association of Certified Public
Accountants(MACPA) ( Private sector body)
The Philippines The Philippine Institute of Certified Public Accountants
(PICPA)
Singapore The Institute of Certified Public Accountants of Singapore
(ICPAS)
Thailand The Institute of Certified Accountants and Auditors of
Thailand (ICAAT)
Vietnam The Vietnamese Accounting Association (VAA)

20