Accounting Developments in Poland free essay sample

The total area of Poland is 312,679 square kilometers (120,726 sq mi), making it the 69th largest country in the world and 9th in Europe. Poland has a population of over 38 million people, which makes it the 33rd most populous country in the world. WBO, 2010) Historical Background A national accounting chart for Poland did not exist before the 1930s although an accountants’ Association was already established in the year 1907. However, there has been evolution on the Poland’s accounting system over the decades. This is largely due to the reason that they have long undergone a major change in their historical background. The effects of World War II had far-reaching implications for most of the world and Poland is not an exception.The history hit Poland on 1 September 1939 when the World War II entered Poland and this has made begins of an era of Communist rule for Poland. The period up to Second World War was strongly influenced by the German system at that time. We will write a custom essay sample on Accounting Developments in Poland or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page And the rules of the uniform German General Plan of accounts were in force. This system was, however, changed after the Russian occupation and a centrally planned economy was introduced. Since 1989 when Poland moved away from Russian dominance, the accounting system was also changed.This change was undertaken gradually because already at this stage it was recognized that the process of change and the guiding principle of legislation would stretch over a considerable time span needing numerous changes, corrections and adaptations. (McGee, 2008) Poland under the socialist ruling (1942-1989) The exposure of Poland to German, Russian and Western European accounting practices was caused by the breakout of the World War II and successive events in circumstances far from being called facile.In early of the 40s, Russia exerted major influence due to its self establishment within the Polish boarders and the German Reich’s mandatory accounts schedule was required in the other half of the country. A brief independence period of 1944 to 1945 was a time when individually drawn accounts by accountants employed in business entities were developed and utilized. However, the story from the year 1946 to 1956 is that, of strict legal regulation of accounting principles and methods. Yet again, when the times are tough the Polish spirit looks for areas that can be exploited.Major contributors to accounting of that period and great thinkers ahead of their time were Stanislaw Skrzywan, Tadeusz Peche and Jozef Skowronski. S krzywan as early in the year 1947 prepared the most comprehensive definition of registry based accounting. Starting from the year 1946, Uniform Plans of Accounts (UPA) were introduced as the methods to deal with accounting. The first UPA which is based on German solutions was obligatory for state-owned industrial and trade enterprises and used as a model in development of Plans of Accounts for new enterprises created in remaining sectors of economy.However, because of its shortcomings of â€Å"excessive flexibility† in defining the economic content of accounts, it has been considered as a failure in satisfying the uniformity needs of socialist economy. As a result, in the year 1950, Poland developed its very own UPA which the solutions enacted are said to be very advanced. This is due to the fact that they allowed for the preparation of various national income balances for macroeconomic purposes, and constituted a basis for central planning methodology.However, it was again deemed unable to be exercised in a way to cater for the transitory requirements into a centrally planned sys tem from a free-market and thus lead to a replacement by Soviet Framework Plans of Accounts in the year 1951. This resulted in significant changes in the principles of construction of Accounting Plans. In the year 1956, the socialist-communist ruling in Poland was lessened and it has created certain level of autonomy for state-owned enterprises and enabled the management and other personnel to participate in profit distribution. Consequently, Institute of Audit Experts was established in 1957.The appointed State Authorised Accountants (SAA) was to serve the purpose to verify the accounts of state owned enterprises with a view to ascertain appropriation of profits and also the achievement of the centrally planned targets. Three years later the longest UPA in operation (1960 -1975) was implemented based upon the previous Uniform Plans of Accounts, Branch Accounting Plans and Enterprise Accounting Plans 15. This change has allowed firms to devise accounting systems to meet their individual needs. The last Uniform Plan of Accounts was enacted in the year 1976.This gives strong grounds to believe that the accounting body, in a system based on rigid law regulations was still capable of developing a broader perspective, professional view and ability to use professional judgment. It is visible that under socialist ruling management accounting was the main area of growth since ‘nominal profitability’ and improvement of internal ‘efficiency’ were the main objectives of the practitioners. No specific or detailed rules were provided for cultural and historical events and the nature of codified law affect IFRS adoption, acceptance and operation in Poland.Therefore, despite being thought of as one of the close to ‘zero base’ countries, Polish accounting once again proves an outlier to the rule. Even so, the effort to regain independence has once again forced a shift in accounting practice. (Moczarska, 2009) Independence years leading to EU accession (1989 – 2004) After the year 1989, the Polish Ministry of Finance developed a framework for regulating the accounting system. In this process, the Ministry revived the commercial code of 1934 as the framework developed by the plan economy was useless in the new situation.Be cause of lack of professionals the state acquired a dominant position in defining the process to reform the new system. The Ministry used the accounting system that was previously seen as an instrument of administrative control over state enterprises to become a tool for control and monitoring of privatization process. Subsequently, the Polish legal accounting document of greatest authority, the Commercial Code, 1934 remained during socialist times and was re-enacted in 1989 with minor changes and as such remained in force until superseded in 2000 by the Commercial Company Code.Alongside the Code, the decrees of Minister of Finance were regulating the accountancy in Poland between 1991 and 1994, when in 1994 the Act on Accounting was introduced. On the 15 January 1991 the Decree on the Principles of Accounting was issued as the first official document directing the now free-market economy of Poland. It was based on delegations derived from Act on Financial Management of State Enterprises (January 1989), Cooperative Law (December 1982), Act on Tax Obligations (December 1980) and Budgetary Law of Janua ry 1991. The cultural shift and arket pressures prompted birth of the first truly comprehensive regulation of the independent Poland which is the Act on Accounting, 1994 (CPAA). This document was noticeably modeled on the 4th Directive (Formats and Rules of Accounting), 7th (Consolidated Accounting), and 8th (Qualifications and work of Auditors) EU Directives. As it is visible the concepts and notions included in the Accounting Act also relate to the last issued decree of 1983. Therefore, for accounting 1994, it determined the Western oriented direction in line with socio-political movement with simultaneous.The next important regulation is the Decree of Minister of Finance of August 1995 which resolved amongst other the issue of auditing the budgetary sector. Noticeably, solutions unique to Poland, feeding from West, East and within were developed. Very important requirements of this act, were recognition of only ‘acquired goodwill’ and use of ‘purchase method’ only when accounting for mergers and acquisitions. In these respect it can be noted that the solutions offered in IAS 38 IFRS 3 Business Combination.Additionally Poland already then was strongly recommending the cost method, which the current IAS 40 requires, even though the solutions at the time (ED 40) were recommending the equity method for long term i nvestments measurement. Moreover already then, not in line with either EU 4th Directive or IAS 7 at the time, Poland was one of the few in Eastern Europe countries requiring the Cash Flow statement presentation, which now is a requirement as in IAS 1 and IAS 7. The changes it introduced touch on 27 areas and are said to generally focus on two stands.The last document introduced was the Accounting Act 2000 (NPAA) which was in force from January 2002 onwards. This Act bought changes on 27 areas and are said to generally focus on two stands. In short, entrance to the EU has pushed Poland to introduce an accounting system in line with the accounting systems used in the EU. These accounting systems provide a key instrument which is harmonization of the financial reporting systems with the European Directives and with the International IAS. (Moczarska, 2009) IFRS adoption (2005 to present)In the year 2005, the compulsory introduction of IFRS for all listed companies is arguably the most crucial and important st eps that affects the accounting in Poland. As a candidate of EU in 2004, Poland is forced a shift in accounting practices for public listed companies into the use of EU approved by IAS and IFRS. ? Summary of the governmental acts regulating accounting in Poland from 1934 to 2000 Culture and Classification In accounting, the importance of culture and its historical roots is now increasingly being recognized.In multiple studies, it has been proven that culture is crucial in all aspects of information sharing and underlies ethical and decision making issues. (Finch, 2010) Culture may be defined as ‘the collective programming of the mind which distinguishes the members of one human group from another’. Each human group shares its own societal norms, consisting of common characteristics, such as a value system which is adopted by the majority of constituents. Values are defined by Hofstede (1980, p. 19) as ‘a broad tendency to prefer certain states of affairs over others’. It is these definitions that have been widely adopted in accounting research to develop a cultural framework to investigate international accounting differences. Hofstede’s work on culture represents the most extensive research on national cultural differences to date. From attitude surveys collected from approximately 116,000 IBM employees across 39 countries, Hofstede identified four underlying value dimensions along which each country can be positioned. These societal values include individualism versus collectivism, large versus small power distance, strong versus weak uncertainly avoidance, and masculinity versus femininity.Across these dimensions, Hofstede’s framework provides quantitative measures for each of the sample countries. This broad sample of quantitative data has attracted many researchers studying cross-cultural differences because the measures are seen as reliable for use as independent variables in statistical analysis. Some of these empirical studie s will be examined later in this paper. Hofstede indicated that Poland respondents score high in power distance and uncertainty avoidance, average in individualism, and are moderately above average in masculinity. Finch, 2010) From the literature and practice, Gray (1988) identified four accounting value dimensions that can be used to define a country’s accounting (sub)culture namely professionalism versus statutory control, uniformity versus conformity, conservatism versus optimism, and secrecy versus transparency. The first two dimensions relate to authority and enforcement of accounting practice at a country level whereas the second two relate to the measurement and disclosure of accounting information at a country level.According to Gray (1988), the culture framework considers Poland to have a high degree of uniformity and low degree of professionalism in context of authority and enforcement. This would indicate that the Poland prefers uniform accounting standards. Also, Gray (1988) indentified Poland as a coun ting secrecy and conservatism in the context of measurement of disclosure. This indicates that the accounting practice in Poland require low levels of disclosure in financial statement and take more on conservatism in terms of valuation adapting to the changing business environment through the use of professional judgment. Finch, 2010) Gray (1988) extends Hofstede’s model by overlaying accounting values and systems and their links to societal values and institutional norms. Gray posits that accountants’ value systems are related to and derived from the unique societal values in each country. Essentially, accounting values, in turn, affect accounting systems, therefore cultural factors directly influence the development of accounting and financial reporting systems at a country level.Gray introduced four propositions that hypothesis relationships between Hofstede’s cultural dimensions and his accounting value dimensions. Gray argues that shared cultural values within a country lead to shared accounting values, which in turn influences the nature of a nation’s accounting system. However, Gray never conducted the hypothesis or empirical tests to support his framework. Since there is no hypothesis done to support his framework, other accounting researchers have been carrying ou t studies to prove the validity of his framework. Thus, the greater international convergence of financial reporting was achieved. Also, since Poland’s accession to the EU, investors’ interest and confidence in doing business in Poland has significantly increased. As such, Poland may probably attract more multinational companies to invest in their countries. This is because the multinational companies can enjoy benefits of getting cheaper resources and lesser restrictive barriers to trade yet able to gain profitable return. In short, the accounting practices in Poland play a vital role in determining the development of their own accounting systems.