Accounting Profession in Libya

The accounting profession of (internal or external functions) in general plays a fundamentally important role in contributing to the development of the country’s economy, as has been indicated by the statement that “as an integral facet of society, the accounting profession has a role in the state and the corporate sector, and is also expected to serve the public interest” (Kaidonis, 2008, p. 1). The accounting profession serves community interest by contributing to investor confidence, improving economic

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growth and, in the end, will improve the financial wellbeing of society (International Federation of Accountants, IFAC, 2010).

There is no doubt that more sophisticated and effective professional accountants will contribute impressively in enhancing the development process through the useful and reliable information they provide. Certainly, providing useful and accurate financial and non-financial information about the economic entity’s financial position, performance, and changes is an absolute necessity and is helpful in making any economic decision, or particular investment decision, which means there should be an efficient accountant and auditor capable of providing such information. According to the IFAC (2010, p. 6) high quality financial information, prepared by professional accountants and certified by auditors, will contribute to national economic growth by:

Encouraging investment.

Assisting the government in economic planning and taxation decisions. Helping to avoid damaging accounting scandals.

Supporting anti-fraud and anti-corruption efforts. Assisting good governance and management control. Supporting poverty reduction.

In the Libyan context, a number of factors have significantly influenced the improvement of the accounting profession in Libya, since the state of Libya achieved its independence in 1951. These include: the inputs from graduates of the Libyan accounting education system; the teaching of accounting academics; the preferences of international firms; the expertise of international accounting companies, as well as, to a certain extent, the rapid changes in the Libyan social, economic, political and legal environment (Mahmed and Russell, 2003).

Additionally, foreign companies or branches, specifically American and British, which were operating in the country in a different field, had a positive influence on the development of the accounting and auditing profession in Libya in two ways, as pointed out by Bait El-Mal et al. (1973, p. 90): (i) Libyan employees in these companies are exposed to contemporary accounting in practice; (ii) there is a “tric ling-down effect” in that dealings between these companies and local enterprise lead to significant improvements in the generally less-developed accounting systems of the latter.

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Up to the beginning of the seventies, there was no structured public accounting profession in Libya (Bait-El-Mal et al., 1973). The Ministry of Treasury was only the accounting authority in Libya who was responsible for offering licenses to individuals who wished to practices the profession of accounting and auditing, with the requirement to obtain a bachelor’s degree in accounting and two years of post-qualifying practical accounting experience (Mahmed and Russell, 2003).

The result of the rapid increase in the number of accounting graduates from the University of Libya and the return of numerous Libyan graduates from abroad, as well as Libyan-run accounting companies, is the rising demand for the creation of a professional body to take the responsibility for developing a general framework of accounting (Ahmad and Gao, 2004). As a result, the Libyan Union of Accountants and Auditors (LUAA) was established in June 1975, after the Law No. 116 of 1973 was passed as the first law regulating the accounting and auditing profession in the country; it was an important event for the accounting profession, and the profession became formally organised in Libya.

The law covered a number of issues including the establishment of the LUAA, registration of accountants, exercise of profession, fees, pensions and contribution funds, obligations of accountants and auditors, penalties and general and transitional provisions. The LUAA pronounced that its mission was to achieve the following objectives:

• To organise and improve the settings for the accounting profession and to develop the standards of accountants and auditors professionally, academically, culturally and ethically;

• To organise and participate in the seminars, conferences, and workshops relating to national and international accounting, and to keep up to date with new education and training programmes in the field;

• To establish a retirement pension fund for its members;

• To increase collaboration between its members and to protect their rights; and • To take disciplinary action against members who violate the traditions and

ethics of the profession.

Remarkably, the founding of the LUAA has had a relatively certain influence on the organisation and improvement in the performance of professional accounting practice in

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Libya. Consequently, the Certified Public Accountant (CPA) system was presented officially for the first time in the country; only CPA is permitted to conduct statutory audit services. The members of LUAA are divided into two key groups: (i) working accountants, which split into two categories; (a) accountants, and (b) assistant accountants. (ii) non-working accountants, also split into two categories; (a) non- working accountants, and (b) non-working assistant accountants.

According to the requirements of the law, all members of LUAA must hold Libyan nationality, have obtained a university degree in accounting, enjoy civil and political rights, and have a decent conduct, reputation and respectability, commensurate with the profession. In addition to these, an accountant who wants to register as a working accountant must have no less five years’ experience in accounting wor in an accounting office after obtaining a university degree.

The accountant who has a bachelor’s degree in accounting without experience will be only able to register as a working assistant accountant and, after two years of experience, will have the right to practise in the accounting profession with some restrictions. Accountants who hold a university degree with practice experience and do not intend to practise in the profession are entitled to list as non-working accountants; accountants without experience also have the right to register as non-working assistant accountants. n accountant who obtains a master’s or doctoral degree in accounting is exempt from the five years’ experience requirement. Members of LU , who are registered as accountants in practice, are entitled to audit and certify financial statements of all types of companies and taxpayers.

In summary, although the LUAA has clear objectives and regulations, it has not done enough to pass a code of professional ethics or to stipulate particular accounting and auditing standards and principles that will be expected to be adopted by Libyan professional accountants (Buzied, 1998). The LUAA remains, up to the present, only a single professional accounting body, and has a relatively low social status in Libya. It is worth noting that the ITNC has issued decree No. 12, dated 29th of March 2011, after the Libyan popular revolution starting on the 17th of February 2011, to freeze the activities of all unions and professional associations that affiliate to the General People’s Congress, which include the LU ; thereby the LU after this date has no legal role in the country.

179 5.4 Summary and Conclusions

This chapter has reviewed, in Section 5.2, the current Libyan laws and regulations, which provide a legal basis for corporate financial accounting and reporting practices. Five governmental laws were discussed in this chapter, namely the Commercial Activity Law (5.2.1), the Income Tax Law (5.2.2), Petroleum Law (5.2.3), Banking Law (5.2.4), and Libyan Stock Market Law (5.2.5).

The chapter has founded the fundamental legal framework for corporate financial reporting and auditing practice in Libya is the Commercial Activity Law and Income Tax Law, which in particular covered issues such as accounting records and some aspects of financial accounting and corporate reporting practices, as well as auditing practice.

Otherwise, Petroleum Law and Petroleum Regulations provided a legal basis for the oil industry, and also specified accounting rules that must be applied for financial accounting and reporting by oil and gas companies operating in Libya. In addition, the Libyan Banking Law No 46, 2012,provides a framework for regulation and supervision of the banking sector.The provision of the Libyan Banking Law governing the banking disclosure requirements was limited to a provision in Article 84.

It failed to specify the required financial statements, and neither the form nor the content of these statements specified which accounting standards should be applied. Furthermore, Libyan Stock Market Law and its regulations included specific requirements concerning financial disclosure by listed financial and non-financial companies in the market. However, Libyan Stock Market Law and its regulations do not include the form of the financial statements or the information required to be disclosed in these statements or in their notes.

Lastly, Section 5.2 has explored the background and evolution of the accounting profession in Libya, and it has been observed that the accounting profession in Libya has been established since 1973 as a legal body. However, up to the present day the impact of the profession on the development of accounting regulations and standards in Libya has been inadequate and very limited. Moreover, the accounting profession has a relatively low social status in Libya. The subsequent chapter will discuss in detail the research methodology and research methods applied for the empirical analysis.

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Chapter Six