Problems of Accounting in Afghan Business

Since the annihilation of the country beginning the War on Terrorism by the United States, it has been very difficult to combat corruption in the country. The war itself had wiped out nearly all of the infrastructure in the country. Not much of it has been returned, even after a decade and a half of US military occupation. Also, we should not forget the stated goal by the US to help the Afghan people.

One of the biggest aspects of the problem of corruption has been the standards behind Certified Public Accountants (CPAs). Before the invasion, there was virtually no accountability whatsoever. Rumors persist that Imams would watch over them from time to time, but how true that is remains unverified. Since the invasion, there has been no accountability either. Most accountants are employees of foreign firms operating the country.

Another is their numbers which are still quite low. In fact, in only as far back as 2009 there were 20 CPAs in Kabul, a city for 4 million people. With such destruction in the air, administrative types of jobs fell by the wayside. Most educational efforts went into military, construction, and medical services. The priority in educating CPAs was left far at the back of the pack.

Good accounting is necessary more so in a country of high corruption than in low corruption. People are often afraid to invest in businesses due to the lack of transparency. Does anyone really know how well a business is doing if the business itself isn’t entirely sure? With no books to read regarding the financial health of a business, it’s hard to judge its worthiness for investment.

The same can be said for the banks in the country as well. There’s great doubt surrounding the valuation of collateral held by a company – a major point of interest for banks seeking to make loans. In a country with such a high level of corruption, it’s hard to build any kind of trust. If business in Afganistan needs anything, its greater transparency in government and the private sector to foster it. The effects of it are quite real for the financial industry. The credit market only accounts for 3% of the GDP as of last August.

A side effect of this is the fostering of organizaed crime. Small businesses and start-ups tend to be trusted the least by banks. As a result, they’re often locked out of start up capital. To get it, many are turning to the informal money lending sector – which usally entails organized crime elements.

What Afghanistan needs is strict standards in accounting. A set of rules enforced by the government, which would increase trust among firms. Second, would be to have state investment in education for new CPAs to do the job. Education is already a tough situation as it is. A new, larger generation of Afghans trained in the field would go a long way towards reducing dependency on foreign firms for such services, ones that are almost as like to be to be corrupt and syphoning money out of the country.

Afghanistan can solve its problem. All it needs is some oversight and some public education.