The Evolution of Financial Reporting in Kuwait Essay

The Evolution of Financial Reporting in Kuwait - Essay Example In general, the Kuwaiti government decided to take a macroeconomic approach to regulation, i.e., to take an active, interventionist position and dictate rules and regulations to the private sector. This paternalistic, protective approach is known as Kafala (Sponsorship of the State). Thus, laws were passed that outlined the responsibilities of companies to provide regular financial reports and to establish the enforcement agencies in the government. Explicit authority was given to the Registrar of Companies in Kuwait to regulate accounting. The Registrar has developed the detailed administrative guidelines indicating how companies should file their annual reports. In this way, the Registrar can control the quality of domestic accounting. In addition, the government began taking steps to monitor the economy and had to have accurate financial data. At the same time, the regulations should allow enough flexibility in the choice of financial accounting to not only provide a level playing field but also encourage entrepreneurs and venture capitalists. Businesses soon learned the value of accurate financial data. In this regard, the importance of private sector associations and regulatory bodies in the establishment of standards cannot be overestimated. Eventually, as the private sector grows and matures, more and more responsibility for accounting practices will fall to the private associations as long as they remain within the framework of reporting rules proscribed by the law, by administrative pronouncement, and by practices developed by International Accounting Standards (IAS). These accounting associations are crucial in maintaining proper standards and will become even more important in the future. Financial reporting has evolved along two separate but parallel lines: Accounting Securities and the Stock Exchange. 4.2: Laws Affecting Accounting: The first law concerning accounting defines the qualifications needed to practice the profession and was passed in 1962. At first, the authority was given to the Ministry of Finance and Economy, but a few years later, it was passed to the Ministry of Commerce and Industry which now issues the licenses. Many of the articles in this law outline requirements: registrants must be of good moral character,