French Accounting System's Influence on Cambodia

Introduction

Cambodia stands out from its Southeast Asian neighbors by virtue of its unique history as a French colony and the fact that its accounting profession was virtually destroyed during the turbulent years following its independence, at the hands of Pol Pot and the Khmer Rouge regime. Consequently, the modern accounting profession in Cambodia was started with a tabula rasa, and it is reasonable to suggest that any legacy of the French colonial period would manifest in the practices that emerged in the years since independence. After all, the Cambodians were required to rely on some proven accounting methods to satisfy their trade relationships with other countries. To gain fresh insights in this area, this paper provides a review of the relevant literature to trace the impact of French accounting on its former colony, Cambodia, and to determine the extent to which Cambodia has moved away from French accounting and why. A summary of the research and important findings are presented in the conclusion.

With a colorful, robust, and violent history that dates to antiquity, Cambodia also enjoys a wide range of natural resources that predate the arrival of the French. Nevertheless, many of the very same issues that created divisiveness in the Cambodia of old are the same ones facing the country's current leadership. Competition over scarce resources among competing fiefdoms and kingdoms has always kept Cambodia at odds with its neighbors, and these same issues face the country today. For instance, U.S. security analysts report that "the major economic challenge for Cambodia over the next decade will be fashioning an economic environment in which the private sector can create enough jobs to handle Cambodia's demographic imbalance" (Cambodian economy, 2012, p. 3).

Cambodia's Historical and Economic Background

Across the board, Cambodia ranks low on many developmental metrics that would indicate future economic growth is likely, rather than a continuation of the existing fragile political economy. In this regard, U.S. government security analysts also emphasize that "more than 50% of the population is less than 25 years old. The population lacks education and productive skills, particularly in the poverty-ridden countryside, which suffers from an almost total lack of basic infrastructure" (Cambodian economy, 2012). This lack of basic infrastructure is a legacy of the Pol Pot and Khmer Rouge regime, which killed all accountants or caused them to flee for their lives following the regime's accession to power.

The French presence in Cambodia can be traced to 1863, when the Cambodian king requested French protection; in 1887, the country became part of French Indochina (Cambodia, 2012). Cambodia was occupied by Japan during World War II but was reclaimed by France thereafter, and it was not until 1953 that Cambodia gained full independence from France (Cambodia, 2012).

In the years that followed independence, French influence on the accounting profession and practices can be discerned in numerous areas, but most authorities appear to agree that there was a lack of a cohesive set of practices that could be described as a "Cambodian accounting system." For instance, Yapa (2000) reports that "professional institutions in Europe and the UK were clearly a product of existing cultures, institutions and values. It is also clear that institutions in developing, emergent and (post) colonial countries were a product of financial, political and colonial influences" (p. 3). Moreover, even given the influence France exerted during its colonial days, this influence was largely swept away in the violence that followed the Khmer Rouge's accession to power. According to Yapa, "given that many of the institutions and structures derived from the French colonial influences in Cambodia were destroyed by the Khmer Rouge or undermined by the indirect Chinese government, Cambodia provides an example as close to a blank slate as is achievable in the real world, to explore how a profession actually emerges in a contemporary setting" (2000, p. 3).

Notwithstanding some modest progress in recent years, Cambodia still languishes behind many of its neighbors in competing in an increasingly globalized marketplace. Yapa reports that "in recent years, Cambodia has gained accession to the World Trade Organization (WTO) and has emerged as an increasingly important actor in Southeast Asia and in trade given its geographic location in the lower Mekong region between Thailand in the west, Viet Nam in the east, and Lao PDR in the north" (2000, p. 7). Nevertheless, Cambodia remains an impoverished nation where most of the population remains tied to the land with limited prospects for economic development and diversification. Indeed, Yapa emphasizes that "Cambodia ranks as one of the poorest countries in the world. There have been relatively few studies of the role and place of accounting among the poor" (Yapa, 2000, p. 7).

A useful description of the French accounting system is provided by Levant and Nikitin, who report that in the French accounting system, "the integration of financial and cost accounting was quite natural up until the 1940s. After that date, State-imposed standardization of financial accounting led to separation of the two types of accounting" (2012, p. 439). Applying this definition to the accounting system that emerged following Cambodia's independence would be disingenuous, given the lack of a cohesive set of national accounting practices, but French influence is discernible nonetheless. For example, Wusterman (2004) reports that "traits of French corporate governance suggest that, from a broad perspective, the role of accounting in the French financial system is placed somewhere between the role attached by the German and the US financial systems to their accounting systems, respectively" (p. 5). Indeed, Wusterman suggests that it is difficult to codify a French accounting system that satisfies all authorities, noting that "in contrast to the German accounting system that is supposed to ensure its key financing parties are adequately informed to exert control, the institutional traits of the French financial system suggest that the role of accounting in France is a more ambiguous issue" (p. 35).

French Colonial Accounting Practices in Cambodia

Many authorities nonetheless appear to agree that the influence of French accounting practices during the colonial period was largely related to profit maximization at the local level rather than to any larger, coherent set of accounting practices. French influence in Cambodia extended well into the post-World War II era, and its legacy can be discerned throughout the country in various ways, including its accounting system. According to Roche (1986), "obviously the initial obstacle [to independence in Indochina] was French power, but France under the Fourth Republic was suffering from internal divisions and had never psychologically recovered from its abject defeat in 1940. In the U.S. State Department, Indochinese matters were not transferred from the French to the Southeast Asian bailiwick until the 1950s" (p. 26).

The legacy of French influence on the accounting profession and practice can be discerned in modern applications despite localized variations. Prior to 1953, the legal system in Cambodia followed the French civil code and its judges (Yapa, 2000, p. 16). According to Black's Law Dictionary, the Code Civil is "the code which embodies the civil law of France. It was promulgated in 1804. When Napoleon became emperor, the name was changed to Code Napoleon, by which it is still often designated, although it is now officially styled by its original name of Code Civil" (p. 257). The accounting system that was part and parcel of this code was applied in a strictly pragmatic fashion during the colonial era. Yapa (2000) reports that in Cambodia, "the political system was considered a French protectorate and the political power was held by the French. During this period the French colonial policy was to exploit the Cambodian natural resources to supply materials for French trading activities. There was no need for an indigenous accounting profession and commercial accounting in Cambodia" (p. 16).

This absence of need for local accounting talent was directly related to the fact that these professional positions were held by expatriates from France. In this regard, Yapa (2000) adds that "the accounting record keeping was performed for basic commercial activities by French accountants rather than locally trained professionals. Under French colonial rule no law defining an accounting and auditing system for private enterprises was established" (p. 16). Therefore, the influence of the French accounting system on the still-developing nation of Cambodia was less prominent during the years of the Khmer Rouge regime simply because there was no commerce to speak of. Yapa also emphasizes that "throughout the period of the Khmer Rouge and the Vietnamese occupation in Cambodia (1975 to 1989), there was a centrally planned communist regime which had no need for a commercial accounting profession. Therefore an indigenous accounting profession did not evolve in this period either and no accounting or audit rules were established" (2000, p. 16).

In this environment, it is difficult to discern any influence from the French accounting profession, except insofar as Cambodia's transactions with the international community required certain documentary practices to be followed. For example, according to a contemporaneous analysis by Steinberg (1959), the National Bank of Cambodia "still uses the French Union Stabilization Fund in Paris as a funnel for many of its foreign exchange transactions; the dollars Cambodia receives under the United States aid program are not kept in the Fund, but are controlled directly by the National Bank" (p. 191). At the time, the Cambodian National Bank's arrangements with the money market in France were administered by the Banque de France, which was responsible for clearinghouse negotiations to establish the relationship between the riel and other global currencies (Steinberg, 1959). The French influence in the early part of the twentieth century can also be discerned from Steinberg's observation that in 1959, the National Bank of Cambodia "regarded the large franc balance with which it began operations as partly an advantage and partly a weakness because any sudden fluctuation of the franc could importantly affect the backing of the riel" (1959, p. 191).

The Cambodian national bank was also compelled to develop at least perfunctory accounting practices to administer the increasingly important flow of minerals and other valuable exports. The level of indigenous accountancy being practiced can be discerned from Steinberg's report that "to minimize such vulnerability the bank hopes to build reserves of other transferable currencies — for example, from an expansion of exports to the dollar and sterling areas. The bank has also bought small amounts of gold; all gold produced in Cambodia must now be sold to the National Bank" (1959, p. 191).

Moreover, beyond this French influence at the international level, Yapa (2000) also reports that many French-based companies in Cambodia were following conventional French accounting practices in administering their own corporate affairs until the 1970s. During the period from 1953 to 1970, Yapa notes that "the stage of the development of accounting in Cambodia would seem to fit the argument about the relationship between the colonial powers and the development of accounting practice" (p. 10). Other indications of French influence on accounting practices in Cambodia during this seventeen-year period include Yapa's report that "despite the lack of accounting and auditing standards during this period it seems that a number of French-based and a few other international companies that operated in Cambodia produced and returned their financial statements to their parent company" (2000, p. 10). Nevertheless, these localized protocols did not rise to the level of even a modest formal accounting profession in Cambodia comparable to Western enterprises. Yapa also emphasizes that "clearly each of these complied with the appropriate accounting standards for their home jurisdiction. There was no evidence of the emergence of a recognisable accounting profession" (2000, p. 10).

Conclusion

Despite a turbulent and violent recent past that destroyed the country's accounting profession and infrastructure during the post-independence years, and being forced to begin from essentially scratch, Cambodia today appears to be better situated to join the international community in more meaningful ways in the future. The country has already entered into a number of bilateral and multilateral international agreements that indicate Cambodia's leadership recognizes the need for a well-educated and professional cadre of accountants who can help the country achieve its economic development goals.