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History of Iraq

Iraq is a Middle-Eastern country that has been, since 1980, a center of three wars. The country was also home to a number of great civilizations, such as Assyria, Sumer, and Babylonia. The contemporary Iraqi state came into existence in 1920 at a time when the British forces occupied the region during the First World War. The nation is officially known as the Republic of Iraq, and has Baghdad as its capital, as well as the largest city. The nation is located in the Persian Gulf, and has a coastline running for about 30 km, 19 miles. This means that the country is almost landlocked. In fact, her only port is Umm Qa%u015Fr, a small gateway which is located in shallow waters that allow only small crafts to dock (Abd-Elsalam & Weetman, 2003).

Having enormous natural gas and petroleum deposits, Iraq is potentially one of the richest nations. Unlike other countries of the region, Iraq is endowed with substantial water resources, such as the Euphrates and the Tigris, the nation’s main rivers, as well as their tributaries. The nation’s location between the two rivers led to the coining of the ancient Greek name of Mesopotamia, a name that stands for “a land located between the rivers”. Most Iraqis are Arabs, and in this regard, the nation is politically active, at least in the Arab world. Most of the Iraqi regimes tried to promote pan-Arabism or, at least partial Arab political unification. They also wanted to place pan-Arabism under the Iraqi control and leadership (Biddle & Saudagaran, 1991).

Iraq has had some tense relationships with Iran, a situation that began after a costly war that took place in the 1980s. Iraq once claimed ownership of the neighboring Kuwait , which resulted in the first Gulf War. Additionally, Iraq has engaged in almost every Arab-Israeli conflict, except for the Suez Crisis of 1956. However, after the capture and execution of Saddam Hussein, the new Iraqi regime has changed most of the international policies and adopted a sort of a free market economy. This is amid the Iraq resistance to the American occupation, as well as the sectarian conflict, which almost resulted in a civil war.

History of the Iraqi Currency

The Iraqi dinar came into circulation at the start of 1932, a scenario that led to the replacement of the Indian rupee. The Indian rupee had been the nation’s official currency from the time of the British occupation of Iraq during the First World War. The inaugural exchange rate was set at one dinar to 13%u2153 rupees. The Iraqi dinar was linked to the British pound, and this rate remained constant until 1959. After 1959, without altering the value, the Iraqi dinar was switched to the United States dollar.  The switching was done at the rate of about one dinar to 2.8 dollars. By avoiding the devaluations that the American currency went through in 1971 and 1973, the Iraqi dinar did rise to a value of about $3.3778. This happened before a five percent devaluation that led to the reduction of the dinar value to $3.2169, and this rate remained until the First Gulf War. Nevertheless, in the late 1989 and early 1990, the black market economic rate happened to be at between five and six times higher than the official rate, i.e. at 3 dinars for the US dollar (Financial Accounting Standards Board, 1999).

Following the First Gulf War of 1991, as well as the United Nation sanctions, the Swiss printing became unavailable. New but inferior quality currency notes were produced, and the previously issued notes came to be known as the Swiss dinar. The so called Swiss dinar remained in circulation, especially in the Iraqi Kurdish region. As a result of sanctions that the USA, as well as the international community, placed on Iraq, the Iraqi dinar devalued very quickly, and by 1995, a the US dollar became valued at about 3,000 dinars (Samuels & Oliga, 1982).

After Saddam Hussein was deposed in 2003, the Coalition Provisional Authority began issuing new Iraqi dinar notes and coins. The new notes were printed using the modern anti-forgery techniques by De La Rue company. This created a single and most unified currency that could be used all over Iraq. This was meant to make the new currency convenient for use in everyday’s life. The old banknotes began to be exchanged for the new ones at a rate of one-to-one. Those exchanged involved all Iraqi currencies except for what was referred to as the Swiss dinars. The exchange rate stood at one Swiss dinar for 150 new dinars (Haqiqi & Poneranz, 1987).

The new banknotes prompted a new industry where the new Iraqi dinars were being sold to several oversea investors who began flocking to Iraq in the hope of profiting from the country’s economy, as well as its new currency. The provisional government in Bagdad championed the legality of such transactions, although the banknotes were being exchanged at very different rates by those companies that waited for an opportunity to make a profit. As a result of the success that the program had, the Iraqi dinar became widely counterfeited. Nevertheless, there are about six unique security features on every 25,000 Iraqi dinar note, and this makes counterfeiting difficult to accomplish (Financial Accounting Standards Board, 1999).

Although the initial value of the Iraqi dinar did appreciate after the new banknotes were introduced at 4,000 dinars for the U.S. dollar, the specification of the International Monetary Fund resulted in an exchange rate of 980 dinars per one dollar. The Iraqi Central Bank exchanges at an average rate of between 1190 to 1200 dinars per the U.S. dollar. However, there has not been a set rate of international exchange, and so several international banks are yet to begin exchanging the Iraqi dinar.

Cultural influences on Business and Accounting Practices

The Iraqi people include several ethnic groups. About 77% of the entire citizenry is comprised of individuals of the Arab origin, 19% are Kurds, while the rest is made up of a variety of ethnic groups who include the Assyrians, Armenians, and Turkmens. The country is also home to a distinct sub-category of Iraqi Arabs commonly referred to as the Marsh or Ma'dan Arabs. The Ma’dan Arabs inhibit the marshy area, which is just next to the point where the Euphrates and Tigris join together (Richardson & Hutchinson, 1999).

The dominant religion amongst the Iraqis, irrespective of ethnicity, is Islam. Before Saddam Hussein came to power, the nation was more of a secular state. However, President Hussein transformed this in a manner that would enable him to prop up the demeaning actions of his government. Hussein ordered the incorporation of the words “Allahu Akbar” to the flag. Additionally, he ensured that only Sunni Muslims held important positions of power. Even after the overthrow of President Hussein, Islam has continued to guide the manner in which the nation is governed. Islam influences the social, legal, and political behavior amongst the Iraqis. It organizes individuals’ daily life through the provision of moral guidance to everyone in the society. In this regard, economic activities take place in accordance with the Quran and the sayings of Prophet Muhammad (Financial Accounting Standards Board, 1999).

Basically, Iraqis, just like many other Arabs, are hospitable people with rich traditions and culture. Visitors are accorded utmost respect and treatment, and these include those who visit the country for business purposes. In fact, it is rare for anyone to be turned away as extending an invitation to someone is perceived to be an act of honor. Loyalty to one’s family supersedes any other social or even business relationship. In Iraq, families have been known to hold errant members responsible for their demeaning conduct, as such wrongdoings are perceived to be shameful to the entire social unit. Nevertheless, nepotism is prevalent, and in that case, jobs are offered to family members as they are seen to be trustworthy (Haqiqi & Poneranz, 1987).

Business Etiquette and Protocol

Iraqi business community engages in their activities in a relatively formal manner. It is common for businessmen to shake hands while making direct eye contact. Their handshakes are rather prolonged, and each one attempts to wait for the other to be the first to remove the hand. Business cards are also commonly given out, and in most instances, one side of the card is translated into Arabic. Display of emotions during business engagements is perceived negatively, and keeping one’s word is always encouraged. Businesspeople are encouraged not to make promises that they are not sure that they can keep. In this regard, one should not be afraid of probing on an issue bluntly. The probing may be on an individual, the company, as well as the intentions that one have on an issue (Haqiqi & Poneranz, 1987).

As a result of the hierarchical organisation of enterprises, companies or departments engage the services of eloquent Iraqis who do much of the talking on behalf of an enterprise. Subordinates are also engaged so that they can corroborate the information being dispatched, as well as for the purpose of providing counsel and technical advice, whenever necessary. In Iraq, it has been business tradition for teams to send agendas or any other information in Arabic in advance. Moreover, titles, names, as well as brief business bios of the attendees are forwarded in advance. Decisions are made at the topmost level of hierarchy of the company, although this is based upon the recommendations that technical experts, as well as pertinent stakeholders provide. Usually, there are serious interruptions as the meetings proceed, and during this time, phone calls could be taken, and people could enter the same room for other matters. Such movements are not perceived negatively. Iraqis engage in several side deliberations during formal meetings. Attendees may even interrupt the speaker, especially when the attendees wish to make some additions. They are, at times forceful and loud as they attempt to get their contributions across (Haqiqi & Poneranz, 1987).

Accounting Standards in Iraq

Since the fall of the Hussein regime, Iraq has made strides towards the adoption of the standards that are issued by US GAAP. Previously, Iraqi companies used different accounting regulations and rules during their disclosure, recognition, and measurement of financial positions, as well as the results of operations. This has helped remedy the impairment of financial results that different companies from other parts of the world faced. In fact, adopting US GAAP has facilitated the economic development of the country, a situation which has enabled it to return to the global business fold with vigor (Haqiqi & Poneranz, 1987).

Standards of financial accounting facilitate the preparation of financial statements. These standards include constraints, assumptions, methods, and principles that facilitate the availing of an enterprise’s practices into conformity with the practices of the global business environment. Companies in Iraq have the option of choosing from a variety of standards. Under Saddam Hussein, especially during the sanction period, the country lacked well-defined standards, and as such, companies selected from multiple global standards, a situation that resulted in chaos within the business community. Following the invasion of Iraq, various studies have been conducted in an endeavor to assess the value of adopting western accounting standards, and in particular US GAAP.

The objectives of US GAAP are:

  1. To establish and publish accounting standards that can facilitate the presentation of statements, as well as promote global acceptance and observance of those standards;
  2. To improve and harmonize procedures, accounting standards, as well as those regulations that relate to presentations of those statements.

Harmonization involves recognizing variations in accounting standards amongst countries to reconcile these variations with US GAAP objectives. This is necessary, as accounting standards ought to be established in a manner that meets the requirements of the global business community. US GAAP refers to a set of procedures and standards, which are developed in the US for the purpose of application in the accounting profession. It is widely believed that the objectives of US GAAP are to guide accounting practitioners in accumulating, as well as reporting financial information regarding a business enterprise (Ndubizu & Wallace, 2003).

Examining the variations between the Iraqi accounting standards and US GAAP necessitates consideration of three major domains, such as: accounting alternatives, measurement, and recognition. As explained in the section on cultural influences and business etiquette, the Iraqi way of doing business is less detailed, and, therefore, these standards are seen as being inadequate, especially when compared to US GAAP standards. Studies have indicated that different accounting standards end up producing varying financial statements disclosures and figures. The choice of US GAAP as a preferred standard has been influenced primarily by the American political dominance, economic affiliation, as well as colonization link. Nevertheless, the cultural heritage of Iraqis has facilitated the adoption, as the Iraqis are accommodative, especially when the adjustment is to help obtain agreement (Haqiqi & Poneranz, 1987).

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