Factors Influencing the Difference in Accounting System in Qatar and France - Case Study Example

Factors Influencing the Difference in Accounting System in Qatar and France of the of the Table of Contents Introduction 3 Accounting System in Qatar 3 Accounting System in France 3 Factors Influencing the Differences in the Accounting Systems in both the Countries 4 Legal System in Qatar 6 Legal System in France 6 Differences in the Legal System in both the Countries 7 Common Law versus Code Law Accounting 7 Conclusion 8 References 9 Introduction The analysis of various accounting systems and their dissimilarities in different organizations is a vital issue in the last few years. Accounting systems includes computerized or manual records of the financial transactions especially for the use or purpose of analyzing, recording, reporting and categorizing timely financial information for the management decision. It also includes applications which are industry-specific. There is various significance of having sound accounting system such as it helps in the effective planning and decision making, assist in obtaining confidence and trust of the providers or suppliers, assists to take precise decision at the correct time and boost the competitiveness of business (Cassia, Paleari and Redondi, 2005). The major role of the accounting system is to scrutinize the results and to provide some feedback to the supervisors (Open, 2015). A distinctive legal system exists in Qatar which will be explained in the later section. France follows the ‘Civil Law’ system of law (France, 2015). The main aim of this essay is to analyze the factors which are accountable for the dissimilarity in the accounting system of France and Qatar. Accounting System in Qatar The banking sector in Qatar was considered as the most excellent performing sector in 2008 and many banks also accounted for substantial profits. It reflects the good accounting practice of the banking sector. However, this sector is facing some liquidity problem which has resulted in the declining confidence of customers. The finance sector has done well in 2008 by adopting feasible accounting practices and was expected to grow in the near future. This raised the interest or awareness of investors towards investing the Qatar financial sector. The companies are regulated by the “Commercial Companies Law of 2002” (Ecovis, 2015). The aim of “Qatar Financial System” (Ecovis, 2015) which was founded in the year 2005, is to offer a business and financial centre especially in Doha in order to attract global corporations and international institutions of financial services, which would further contribute in the economic expansion of Qatar (Ecovis, 2015). Accounting System in France In France, bookkeeping is obligatory for all the commercial organizations and the records are based on the method of double-entry. Each commercial organization has to maintain some accounting books such as a ledger, journal, and a book or volume of inventory. The French companies have to follow “The Commercial Code” and “The French Authority for Accounting Standards” (Accounting Report, 2011), while carrying out their business operations. Accounting obligations of small companies vary depending on their accounting practices. All legal types of businesses and activities are needed to prepare a statement of profit and loss and a balance sheet in accord with the German GAAP (Accounting Report, 2011). Factors Influencing the Differences in the Accounting Systems in both the Countries Figure 1: Rankings provided by World Bank for the simplicity of executing business France Qatar Simplicity of executing business 31 50 Commencing a business 28 103 Dealing with the construction permits 86 23 Getting electricity 60 40 Registering property 126 36 Getting credit 71 131 Defending minority investors 17 122 Paying taxes 95 1 Doing business across borders 10 61 Enforcing contracts 10 104 Resolving insolvency 22 47 (Source: World Bank Group, 2015) The ranking which has been shown above is out of 181, provided that 1 is the best and 181 is the worst. France is ranked high that Qatar in terms of simplicity of executing business because of its good accounting practices. An excellent accounting system assists in carrying on business in an efficient way. France is also ranked high in terms of getting credit and defending the minority investors. The good accounting system permits France to get credit easily. The good accounting system assist the country to take help from the government which further result in ease of carrying out business across borders. However, the rank of Qatar is better than France in terms of paying taxes. Figure 2: Assessment of Market Capitalization of Qatar and France 2010 2011 2012 France 1,926,488,295,470 1,568,729,793,722 1,823,339,266,082 Qatar 123,591,804,449 125,412,934,586 126,371,321,066 (Source: World Bank, 2015) The accounting rules of the French companies are generally based on the legal structure or framework, which is known as ‘French Commercial Code’ (Accounting Report, 2011). The companies which follow the accounting rules and the legal framework maintain good revenues and market capitalization. It has been clearly observed that the companies of France follow the accounting rules because their market capitalization is more than the companies of Qatar. However, the companies in Qatar are also improving their business practices which are revealed by the increase in the market capitalization from 2010 to 2012. Legal System in Qatar Qatar has a highly organized and evolved legal system. The country follows the legal system which is based on two types of law. It is established on the “Islamic Law” and on the other hand the country has also adopted the principles of “Napoleonic Civil Code” (Qatar law, 2015a). The new legislative process of Qatar was started in the year 1961. The “Al-Thani family” (Qatar law, 2015b) has ruled Qatar since 19th century. The Ottoman rulers instituted system of justice which was based on the teaching of “Hanafi school of Islamic Law” (Qatar law, 2015b). In 1916, Qatar and Britain signed a pact by which the state became a British territory. In 2003, the state enacted the novel judicial law which unified and revolutionized the judicial system. The Commercial Companies Law was founded in the year 2002. It covers governance, structure and establishment of the private businesses. Two characteristics describe the particularity of this state. As a customary Muslim society, citizens settled their disagreements according to Islamic court (Sharia court), which applies Muslim law (Sharia law). Second, Qatar’s interdependence marked the lapse or termination of the British protection as well as the British authority on the non-Muslim inhabitants. As a result, Civil Court (Adlia court) was established to meet the problems and needs which have taken place from the lapse of the British jurisdiction (Cass, 2015). Civil law is followed in Qatar even though the principles of Common law have some impact on the state; given it was a British territory or protectorate (Healthy consultant, 2015). The Civil Law deals with elucidation and interpretation of ownership responsibilities, contractual responsibilities, contracts, liability for individual acts, responsibility for third party acts, surety, insurance, lease, unjust enrichment and rights which is attached to mortgage, legacy, property, gains, land law and privileges. Civil law also discusses compensation, performance, innovation, obligation of rights, decrees of limitation and unfeasibility of performance (Qatar law, 2015c). Legal System in France Most of the countries use Common Law system but France follows the Civil Law system. The systems of Common Law are developed over the centuries, and are extensively based on precedent and consensus. The Civil Law is mostly based on the ‘Code of Law’. The foundation of legal system of France is known as Code Napoleon or Code Civil i.e. the Napoleonic code or Civil code (France, 2015). The Civil code remains the foundation stone of the French law until recently, though the law has been extended and updated many times in order to take into consideration the changing form of society. The country also uses another code such as the Penal code and it describes the criminal law (France, 2015). France uses dual or double legal system which is the Public law and Private law. Public law describes the codes of operation of public bodies and state. It is applied usually through the “public law courts” (France, 2015) which is known as Administrative court. Private law is generally applied to the private bodies and also to the private individuals (France, 2015). It is the fundamental law of land. Litigation or complaints concerning the public officials are heard in Administrative courts (France, 2015). Differences in the Legal System in both the Countries Egyptian procedure and jurisprudence have profound impact on the judicial and legal system of Qatar (Qatar law, 2015a). The judicial history of Qatar was influences by various events beginning with Ottoman occupation in the 19th century (Qatar law, 2015b). In Qatar, dual or double courts system is prevailing until today, which are Sharia law and Adlia law. In Qatar, the courts do not depend on the formal system and there is also no proper reporting of the court decisions. It results in the unpredictability in the controversial matters (Healthy consultant, 2015). The judiciary system of France is not dependent on government i.e. it is free of legislative authority. The dual or double legal system of France is the Public law and the Private law. It has various forms of courts in which dissimilar types of cases are being heard (France, 2015). Common Law versus Code Law Accounting In the system of Common law, accounting standards instigate by becoming generally accepted benchmarks of practice as well as are enforced through the civil litigation. This system usually place more importance on the public information as compared to the system of Code law (Ball, 2002). The system of Common law encourages supervisors to take prompt action in order to improve strategies and investments that are misplacing or losing money. In this way, it makes the organization more efficient (Ball, 2002). In the system of Code law, the government enforces and writes the code of accounting, with infringements carrying the criminal penalties. Countries which uses the system of Code law depends more on the private information rather than on the public information. The accounting system of Code law gives supervisors considerable caution in making different accounting estimates (Ball, 2002). Conclusion The essay has been prepared to lay emphasis on the accounting and legal system of France and Qatar. It has been analyzed that the finance sector of Qatar has done well in the previous years by adopting feasible accounting practices and was expected to grow in the near future. However, the financial sector is also facing some liquidity problem which has resulted in the declining confidence of customers. In France, the system of bookkeeping is obligatory for all the commercial organizations. It helps them to maintain a good record of the financial practices. On the basis of rankings provided by World Bank, it has been noticed that France is ahead of Qatar in several aspects. It market capitalization is also in a better position than Qatar which signifies an efficient accounting practice in the companies of France. Both the countries use dual or double legal system; however their laws differ from each other. The essay also focuses on the fact that both of them follow the Civil law system. References Accounting Report, 2011. France. Retrieved from http://ec.europa.eu/enterprise/policies/sme/business- environment/files/annexes_accounting_report_2011/france_en.pdf. Ball, R., 2002. Accounting Abroad – How to keep Managers and Auditors in Line. Retrieved from http://www.chicagobooth.edu/capideas/spring02/accountingabroad.html. Cass, F., 2015. Qatar: The duality of the legal system. Retrieved from http://ddc.aub.edu.lb/projects/pspa/qatar.html. Cassia, L., Paleari, S. and Redondi, R., 2005. Management Accounting Systems and Organizational Structure. Journal of Small Business Economies, 25(4), pp.373-391. Ecovis, 2015. Doing business in Qatar. Retrieved from https://www.ecovis.com/fileadmin/countries/qatar/doing-business-qatar.pdf. France, 2015. The French legal system. Retrieved from http://about-france.com/french-legal- system.htm. Healthy consultant, 2015. Qatar – Accounting and Legal. Retrieved from http://www.healyconsultants.com/qatar-company-registration/accounting-legal/. Open, 2015. Organizations and management accounting. Retrieved from http://www.open.edu/openlearn/money-management/organisations-and-management- accounting/content-section-2. Qatar law, 2015a. Introduction – Legal System in Qatar. Retrieved from http://www.qatarlaw.com/introduction-legal-system-in-qatar. Qatar law, 2015b. Background - Legal System in Qatar. Retrieved from http://www.qatarlaw.com/background-legal-system-in-qatar. Qatar law, 2015c. Civil Law - Legal System in Qatar. Retrieved from http://www.qatarlaw.com/civil-law-legal-system-in-qatar. World Bank, 2015. Market capitalization of listed companies. Retrieved from http://data.worldbank.org/indicator/CM.MKT.LCAP.CD/countries. World Bank Group, 2015. Economy Rankings. Retrieved from http://www.doingbusiness.org/rankings. Read More