“Accounting is not a science: It has been developed to serve a purpose”. A statement
that might be controversially discussed nowadays since the collapse of the socialism,
growing globalisation and the convergence of international financial markets have
forced national accounting systems to change during the last decades. This paper
will examine the validity of this statement in particular on the example of the recent
development in Poland. First it will briefly introduce the social and economic
environment in Poland under socialism, its transition to a market economy and the
current situation and future prospects. Second, the economic and social development
of Poland will be related to changes in the polish system of accounting and financial
reporting. A short view on the development of the accounting profession will be
given. Finally, a conclusion will compare the given statement with the polish situation
and give proof for its validity. After World War II Poland introduced a planned economy urged by the Russian
paradigm. Private property was restricted to agriculture, manufacturing and few
business services. In the late 70th Poland went into serious economic struggles
emerging from a high level of public debt from reinforcing the industrial sector.
Poland had to face sustainable inflation problems which finally lead to the breakdown
of the communistic regime (Roberts et al, 1998b). It was replaced by a coalition
government under leadership of the trade union movement „Solidarnosc“ in 1989. [...]
Table of Contents
II. Table of Figures
1. Introduction
2. The economic situation in Poland
2.1 Poland under socialism
2.2 Poland in transition
2.3 The current situation and future prospects
3. The change in accounting
3.1 Accounting under socialism
3.2 Accounting in transition
3.3 The new accounting and future development
4. The Auditing Profession
5. Conclusion
III. Appendix
IV. Table of Literature
IV.a Books
IV.b Journals and Newspapers
IV.c Websites
II. Table of Figures
Figure 1: Economic Data of Poland
Figure 2: reasons for issuing qualified reports 1992 - 1996
1. Introduction
“Accounting is not a science: It has been developed to serve a purpose”. A statement that might be controversially discussed nowadays since the collapse of the socialism, growing globalisation and the convergence of international financial markets have forced national accounting systems to change during the last decades. This paper will examine the validity of this statement in particular on the example of the recent development in Poland. First it will briefly introduce the social and economic environment in Poland under socialism, its transition to a market economy and the current situation and future prospects. Second, the economic and social development of Poland will be related to changes in the polish system of accounting and financial reporting. A short view on the development of the accounting profession will be given. Finally, a conclusion will compare the given statement with the polish situation and give proof for its validity.
2. The economic situation in Poland
2.1 Poland under socialism
After World War II Poland introduced a planned economy urged by the Russian paradigm. Private property was restricted to agriculture, manufacturing and few business services. In the late 70th Poland went into serious economic struggles emerging from a high level of public debt from reinforcing the industrial sector. Poland had to face sustainable inflation problems which finally lead to the breakdown of the communistic regime (Roberts et al, 1998b). It was replaced by a coalition government under leadership of the trade union movement „Solidarnosc“ in 1989.
2.2 Poland in transition
In December of that year, the new government started several reform programmes in order to establish a social market economy. The package included a convertible currency, the free trade of goods and the privatizing of most governmental companies (Economic Analysis for Eastern Europe [online], 1999).
Restructuring rapidly rose the level of unemployment, but increasing production, shrinking levels of unemployment, reduced inflation and a sustainable growth of purchasing power, indicate that Poland is on his way out of the crisis.
As a member of the WTO, OECD, and NATO – and soon of the EU - Poland’s goal is to raise its living standard closer to the EU’s average. The government’s role in the economy is to reduce the budget deficit and to eliminate it by the year 2003 (European Commission for Enlargement [online], 2001).
2.3 The current situation and future prospects
Market reform has brought about the economic growth and stability necessary for foreign investors to operate successfully in the Polish market.
illustration not visible in this excerpt
Figure 1: Economic Data of Poland sources: economagic/ onvista
Poland's real GDP has grown by more than 5% a year since 1992. It is the only country in either Eastern Europe or the former Soviet Union whose economy has grown by more than 25% since 1989. Poland now generates 160 billion USD in annual output. It has the largest capital market in Eastern Europe, with 222 companies valued at 25 billion USD, or one-sixth of GDP. However, continuing political instability still damages the image of Poland among foreign investors (Nobes et al, 2002).
3. The change in accounting
The economic crisis in the 80s, the collapse of the regime and the change to a market economy required accounting and financial reporting to change, in order to provide a basis for Poland’s recovery in the 90s and its way into the EU. In order to figure out if these changes served a purpose, the explained economic development will be related to changes in accounting in the following.
3.1 Accounting under socialism
The former Polish accounting system was under the direction of the Ministry of Finance. Instead of having general principles from the commercial code and taxation laws there was financial laws. These laws covered financial accounting. Accountancy was reduced to economic record keeping and financial statements produced but not published. The uniform chart of accounts was used during the period of 1940-1989 (Bailey, 1988).
Even though some of their accounting principles in this period were based on valid accounting theory; the subsidies and excessive taxation made the measurement of entity results unreliable:
Going concern was not an issue because of state guarantees. A manager of an inefficient company could be fired or its employees denied a customary bonus. Financial losses did not lead to bankruptcy because the government would provide an infusion of capital or subsidize sales prices on an ongoing basis.
Cost of goods sold was displayed separately from state subsidies. No real need existed for an allowance for bad debts because banks assured payment for goods sold via a system of direct transfers of funds based on submitted sale invoices. The lower-of-cost-or-market principle was unnecessary – chronic shortages of all merchandise created a steady demand.
[...]
- Quote paper
- Markus Bruetsch (Author), 2003, Accounting and Socio-economic changes in Poland, Munich, GRIN Verlag, https://www.grin.com/document/14845
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