Journal of Accounting & Organizational Change

The use of costing information in Egypt: a research note

Sander van Triest Mohamed Fathy Elshahat
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note", Journal of Accounting & Organizational Change, Vol. 3 Iss 3 pp. 329 - 343
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The use of
The use of costing information in costing
Egypt: a research note information
Sander van Triest
Amsterdam Business School, University of Amsterdam, Amsterdam, 329
The Netherlands, and
Mohamed Fathy Elshahat
Accounting Department, Benha University, Benha, Egypt

Abstract
Purpose – This paper aims to investigate the use of costing information in Egypt.
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Design/methodology/approach – A survey was carried out of 40 Egyptian privately held firms in

four sectors (pharmaceutical, foodstuff, chemical, and packing and wrapping industries).
Findings – The paper finds that the use and sophistication of costing information in Egypt is limited.
No advanced accounting techniques seem to be applied, activity-based costing concepts are largely
unknown, and the main purpose of costing information is pricing decisions, rather than performance
measurement, process improvement or cost reductions.
Research limitations/implications – Considerable problems were encountered in obtaining
responses to the questionnaire. The results suggest that not all questions were understood by the
respondents, which could be caused by the use of Western management (accounting) terms and
concepts in the questionnaire with which the respondents were unfamiliar.
Originality/value – The paper is one of few surveys of management accounting practices in Africa,
and (to the best of one’s knowledge) the first in Egypt.
Keywords Egypt, Developing countries, Management accounting, Surveys
Paper type Research paper

1. Introduction
Research on management practices in general, and accounting practices in particular,
in non-Western countries is limited in volume[1]. This is a problem, since a lack of
knowledge of the current state of these practices limits the possibilities to improve
management practices in non-Western countries. Furthermore, without adequate
empirical data, it is not clear whether the findings on this subject in Western (especially
US) organizations are universally applicable. Parnell and Hatem (1999) refer to the
experiences of expatriate managers, which are well documented and show substantial
problems in applying Western concepts in a non-Western business environment.
In this paper, we present the results of a survey study on the use of management
accounting information in Egypt. Egypt is an important country in the Arab world,
both in terms of political influence and economic impact (Abd-Elsalam and Weetman,
2003). Furthermore, the Egyptian business environment has experienced substantial
reforms in the past few decades (HassabElnaby et al, 2003). Owhoso et al. (2002)
document that after South Africa, Egypt was the most popular African country for US Journal of Accounting &
Organizational Change
Vol. 3 No. 3, 2007
The authors thank participants at the 29th EAA Congress in Dublin 2006 and the referees and pp. 329-343
q Emerald Group Publishing Limited
the guest editors of this special issue for helpful comments, and Jan Bilderbeek for his guidance. 1832-5912
This research was partly financed by a grant from the Egyptian Government. DOI 10.1108/18325910710820328
 JAOC listed firms to start activities in during the period 1975-1997. However, as Parnell and
3,3 Hatem (1999, p. 403) state, “[although] Egypt has a rich cultural and commercial
tradition, most scholars agree that its present business and management practices lag
behind its Western counterparts. None the less, Western influence in Egypt has grown
recently.”
Our sample consists of 40 industrial firms, and the survey results are complemented
330 by interviews and field visits. We report on the costing systems used, and on the
application of costing information in strategic planning and decision making. The
results indicate that acquaintance with modern management (accounting) techniques
is limited. The most salient detail is the almost complete absence of advanced
costing techniques such as activity-based costing. The most important use of costing
information is in pricing decisions, implying a cost-plus approach to pricing.
Next to this, we report on the problems of doing survey research in the non-Western
setting of Egypt. We ran into substantial difficulties in gathering the data. The original
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method of using a postal survey resulted in an almost zero response rate. Only personally
collecting the questionnaires at the sample firms worked in obtaining responses.
Furthermore, much of the terminology used in the questionnaire – taken from the
literature – seemed unknown, or not clear to the respondents. Based on our experiences,
we suggest that survey research in non-Western countries requires the involvement of at
least one native researcher. Also, it is prudent not to assume that the Western management
terminology is known or understood in non-Western countries.
As a result of the practical problems encountered, the study ultimately plays out as
a pilot study. We discuss methodological issues and pitfalls that researchers should
be aware of, and suggest some avenues for further research. The paper is structured as
follows. In Section 2, we review the relevant research in non-Western countries, and
Egypt in particular, with respect to (management) accounting practices and also from a
methodological point of view. The research design is presented in Section 3. In Section
4, we present the empirical results. We close with a discussion of our findings.

2. Literature review
2.1 Empirical research on management accounting in non-Western settings
Within the field of accounting, attention for the financial accounting practices in
non-Western countries has increased in recent years, partly because international
accounting standards are being introduced in these countries (Uche, 2002;
Abd-Elsalam and Weetman, 2003; Ashraf and Ghani, 2005). Research focusing on
management accounting practices in non-Western countries is limited. For example,
Lee (2002) reviews the literature on activity-based costing adoption and theory
development in an international context, but he only cites studies carried out in Europe,
the USA, Japan, and Australia. Granlund and Lukka (1998, p. 154) argue that
management accounting practices over the world are more similar than different, but
they refer to studies of “British, German, American, Japanese, etc. management
accounting practices” indicating a focus on Western settings. Results from countries
that are less well developed in terms of GDP or GDP growth are hardly available,
although there is a limited tradition of case research in less developed countries
(Hopper et al., 2003). Nevertheless, to get an idea of the state of management accounting
practices in non-Western countries, we briefly discuss a number of studies, focusing on
the costing system and the use of activity-based costing.
 Firth (1996) investigates the use of managerial accounting procedures in China. The use of
His questionnaire was administered in 1993, at which time the Chinese economy was costing
opening up substantially to both market forces and foreign investments, Western but
still at the beginning of its ongoing transformation into a market economy in close information
contact with firms and practices (O’Connor et al., 2004). The sample firms consisted of
partners in international joint ventures (foreign and Chinese firms) as well as a control
group of Chinese firms that did not cooperate with foreign firms. The non-cooperating 331
Chinese firms show lower levels of adoption of accounting techniques than the Chinese
joint venture partners. Use of multiple cost pools and multiple allocation bases for
costing purposes is 10 percent or lower for non-cooperating firms, while joint venture
partners have usage rates of up to 20 percent. The application of activity-based costing
is 2 percent for partners, and 1 percent for the other group (although it should be noted
that activity-based costing was relatively new in 1993 – on the other hand, 15 percent
of the foreign firms in the sample report using it). The costing information is used by
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12 percent of non-cooperating firms for decision-making purposes such as make or

buy, and by 17 percent for setting prices. The use is considerably higher for the joint
venture partners, with 39 percent using it for decision making and 28 percent for
pricing.
Like China, India has made major steps towards becoming a fully-developed market
economy, and there are a number of firms (most notably in the software sector) that are
competitive players on the world market, providing high level services to Western
companies at lower costs. Joshi (2001) reports on a survey administered in 1998 among
60 Indian industrial firms. Overall, the level of sophistication seems high: 65 percent of
the respondents uses multiple allocation bases, and ABC adoption in the sample is 20
percent. Especially, the ABC adoption seems high, given that reported adoption rates
in Western countries range between 10 and 20 percent (Brown et al., 2004, p. 330).
Eastern European countries are also relative newcomers to the Western management
culture. Haldma and Lääts (2002) report on a 1999 survey of 62 Estonian firms. Of their
sample, 7 percent use ABC. Multiple allocation bases for costs are used by 70 percent of
respondents. Haldma and Lääts (2002, p. 395) also observe that within their sample, the
“level of sophistication is of a cost accounting system tends to increase in line with
company size”. Szychta (2002) surveyed 60 Polish firms in 1999. Multiple cost allocation
bases are used by 13 percent of firms, and although three respondents report using
activities as a cost classification basis, Szychta (2002, p. 408) states that “this does not
mean that they have implemented activity-based costing.”
Not surprisingly, the extent of application of Western management accounting
practices appears to be related with the exposure to Western firms, regulations and
market structures. For example, Firth (1996) and O’Connor et al. (2004) find a
relationship between the use of foreign partners in joint ventures and the adoption of
advanced accounting practices. Haldma and Lääts (2002) stress the impact of changes
in reporting regulations (such as moving away from compulsory full costing) next to
the introduction of market forces; 74 percent of their sample of Estonian firms report
making changes in their cost accounting system during 1996-1999. Likewise, Szychta
(2002, p. 408) reports that 76 percent of her sample introduced or changed its cost
accounting system in the 1990s, when the market economy in Poland was restored.
All this concurs in the observation of Anderson and Lanen (1999, p. 407) that transition
to a more Western economic structure leads to “an overall increase in the use of
 JAOC fact-based decision making and increased demand for data that, in Western firms,
3,3 are provided by management accountants.”

2.2 Empirical research in Egypt

To our knowledge, there is no empirical data on the use of management accounting
information in Egypt other than a case study by Hassan (2005) in a hospital setting.
332 Empirical data from other Middle East or African countries is not readily found in
Western accounting journals, with the exception of South Africa (Luther and Longden,
2001; Waweru et al., 2004). Parnell and Hatem (1999) give a number of reasons for the
absence of a substantial literature on Egyptian management practices. Among these
reasons are the problems of understanding the (Egyptian) Arabic language by
Westerners, and the lack of substantial numbers of Egyptian researchers working in
Western academic environments – as opposed to especially China and India.
According to Parnell and Hatem (1999, p. 405):
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. . . [the] shortage of management research may result from the fact that studies in Egypt that
involve primary data collection through field surveys, interviews, and opinion polls often,
depending on their nature, require special and tedious governmental permission. Cultural
differences are often manifested in the differences in indicators used in scales designed to
measure the same constructs. Those who seek secondary data must consider the frequent
lack of availability of accurate and current data.
Despite these problems of doing empirical research in Egypt, reported response
rates for mail surveys in Egypt are not always low. Parnell and Hatem (1999) obtain
a response rate of 26 percent on a sample of 411 “top executive members” of the
American Chamber of Commerce in Egypt. However, only 20 percent of the
respondents are Egyptian nationals, and the questionnaire was sent out in English
rather than translated into Arabic. Humphreys (1996) used a sample of 75 principals of
technical schools, obtaining 57 replies for a response rate of 76 percent. Notably, the
questionnaires were delivered personally to the sample. Mady (2000) surveyed
49 state-owned manufacturing enterprises in Egypt using a mailed questionnaire. He
obtained 37 questionnaires for a response rate of 76 percent. Rice (2006) investigates
the impact of values and context on creativity by performing a survey of employees in
nine organizations in Cairo. She succeeds in obtaining a response rate of 84 percent out
of a total sample of 240 questionnaires by using a drop-off, pick-up method where the
chief executive of each organization was asked to distribute the questionnaire in such a
way that a representation of all departments would be obtained. There was no check
whether this representation actually was achieved. Finally, Douglas et al. (2007) report
a response rate of 76 percent in a survey of ethical positions and budgetary slack; their
sample consists of Egyptian managers at the US and Egyptian firms “located in
Egypt” (Douglas et al., 2007, p. 104), but no further information on size, industry or
sample selection procedure is given.

2.3 Applying Western concepts in non-Western countries

The question whether Western management concepts are applicable in non-Western
settings is one which is asked frequently. For example, Humphreys (1996) scores
Egyptian managers on the well known scales of Hofstede (1980). He finds that
Egyptian managers show high uncertainty avoidance, extremely low individualism,
and a moderate power distance. Based on his empirical results, he concludes that
 management theory is not necessarily transferable across cultures. These cultures The use of
differ in issues such as motivation, resistance to change, attitude to appraisal, the use costing
of delegation, risk-taking behavior and expected career structure (Humphreys, 1996, p.
39). On the other hand, HassabElnaby and Mosebach (2005) investigate the use of information
accounting-based debt covenants in private debt agreements in Egypt over the period
1978-1997, and find that this use increases over the years. Interpreting these covenants
as a tool to reduce agency costs, they suggest that as a country’s economy becomes 333
more developed it begins to adopt tools used by Western management.
Abd-Elsalam and Weetman (2003) provide some information on the impact of
non-familiarity with business and management concepts on the use and understanding
of these concepts in non-Western settings. They study the compliance with IAS
disclosure requirements upon implementation of certain standards in Egypt. They
expect that familiarization with accounting regulation depends on the relative
knowledge of the contents of the standards, as well as on the availability of the
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regulations in the language of the country. They identify three groups of disclosure
requirements:
(1) a group that is similar to existing Egyptian disclosure rules and available in
Arabic;
(2) a group that is new, and available in Arabic; and
(3) a group that is new and not available in Arabic.

The level of compliance was significantly higher for the first group than for the
second group, which in turn had a significantly higher level of compliance than
the third group. This is quite convincing evidence that both language and familiarity
impact the implementation of accounting standards. Although, this conclusion cannot
be extended directly to accounting concepts in general, such activity-based costing, it
does convey a warning not to assume that such concepts will automatically be
understood in non-Western settings.
Mady (2000) provides some results on the understanding of Western management
techniques by Egyptian respondents. He investigates the sales forecasting practices of
Egyptian firms. One of his findings is that an advanced technique called demand
composition, which is rarely used in the USA, scores relatively high in his sample,
leading him to conclude that “[although] a brief explanation for each technique was
included in the questionnaire, the author has some doubt that the decomposition
method was fully understood by all respondents.” Furthermore, the finding that two
thirds of the sample uses some sort of probabilistic confidence interval in forecasting is
qualified by the statement that “the author doubts that these probabilistic estimations
were done through the conventional quantitative methods” (Mady, 2000, p. 362).
Finally, the study by Rice (2006) mentioned above also shows problems in
transferring Western concepts to an Egyptian setting. She tries to measure
organizational context through constructs such as “structure, control, and hierarchy”
and “atmosphere” by using multiple question per construct. However, the questions
per construct do not load as expected (i.e. Cronbach’s a is below the threshold value).
Therefore, she has to revert to choosing individual items instead of constructing values
from multiple items, indicating that the survey population did not interpret the
questionnaire as she expected.
 JAOC 3. Methodology
3,3 We use a mail survey to obtain our data. The questionnaire was discussed with
academics and consultants in Egypt before it was sent out, and we did not encounter
major problems. We mailed the questionnaires (in Arabic) to 100 firms randomly
selected from the public and private sector. However, we obtained responses from only
two firms after four weeks. This forced us to take a different approach. We selected
334 40 firms in four sectors: ten each in the pharmaceutical, foodstuff, chemical, and
packing and wrapping industry. These sectors were chosen because of their presence
in the Egyptian economy, their development and growth, and their diversity in
technology. All firms are privately held firms, meaning that there is no state
ownership. This choice was based on the expected bureaucratic problems in dealing
with state-owned firms, as indicated by Parnell and Hatem (1999). These 40 firms were
all visited personally to drop off the questionnaire and take it in after being filled out.
Thus, access was the essential criterion for inclusion in the sample. Obviously, this
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influences any generalization attempts.

Next to the questionnaire, we interviewed some 30 people in Egypt. They were
active as academics (12), but also in industry: financial accountants (6), production
managers (2), sales and marketing managers (3), and management accountants (7).
These interviews were used to gain perspective on the questionnaire results.

4. Survey results
4.1 General characteristics of the sample
As indicated in the methodology section, the sample is limited to firms from four
sectors. Table I presents information on the size distribution of the sample. Although,
the food sector companies are somewhat smaller, there is no statistical difference
between the sectors with respect to the distribution of firm size according to a x 2-test.
Information on overhead costs is shown in Table II. The average overhead as a
percentage of total costs is 35 percent. This is comparable (though somewhat high) with
findings from the literature of 30.5 percent for a sample of the US firms (Krumwiede, 1998),
21-25 percent for a sample of UK and New Zealand (Lamminmaki and Drury, 2001), and
33.5 percent for a sample of Polish firms (Szychta, 2002). Although, the food sector seems
somewhat lower in its average overhead percentage, the averages do not differ
significantly between the sectors: a one-way ANOVA test leads to a p-value of 0.218.
We analyze the relationship between firm size and overhead by computing
bivariate correlations. We take the natural log of sales to correct for the skewed
distribution. The results in Table II are somewhat mixed. Although, the normal

Industry Below 100 100-150 Over 150 Average Minimum Maximum

Pharmaceutical 4 4 2 145 75 440

Food 7 3 0 84 56 120
Chemical 4 5 1 120 54 305
Packing 7 1 2 106 55 210
Total 22 13 5 114 54 440
Table I.
Sales size distribution of Note: Numbers are in millions of Egyptian £. at the time of the research, Egyptian £1 was
sample approximately e0.14 or $0.16
 The use of
Overhead as percent of total costs Correlations
Industry Average Minimum Maximum Pearson Spearman costing
Pharmaceutical 38.7 15 70 0.384 2 0.082
information
Food 28.9 18 41 20.529 2 0.555 *
Chemical 35.8 19 54 0.459 0.419
Packing 36.4 20 52 0.150 0.201 335
Total 35.0 15 70 0.332 * * 0.107
Notes: *Indicates significant at 10 percent; * *at 5 percent. Overhead as a percentage of total costs; Table II.
correlations: bivariate correlations between the log of firm size and percentage overhead Overhead statistics

(Pearson) correlation shows a significant positive relationship between firm size and
overhead, this is not apparent at the sector level. The non-parametric Spearman
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correlation has no overall relationship between firm size and overhead, and a weakly
significant negative one for the food sector. This is the sector with the smallest firms.

4.2 Costing system

The cost objects in the costing system in general are products: only three of the
40 firms stated that products were not costed. Nine firms use the customer as cost
object, and ten the (production) department. The number of cost pools used is 1 for
10 percent of the firms, 2 for 12.5 percent, 3 for 22.5 percent, and 55 percent of the firms
used four or more cost pools in their costing system. Multiple allocation bases for costs
are used by 90 percent of the firms; only 10 percent report using a single allocation
basis. The number of cost pools and allocation bases are higher than those reported by
the studies discussed in Section 2.1.
Firms were asked to assess their costing system on four aspects:
(1) Specificity. To what extent is the costing system tailored specifically to the
firm’s operations instead of using standard systems? On a scale of 1 (low) to
4 (high), the average is 2.13, indicating that firms do not analyze their
operations to design a unique costing system.
(2) Accuracy. To what extent do firms consider the costing information provided by
their costing system to be accurate? Accuracy is measured on a scale of
1 (inaccurate) to 5 (completely accurate). The average score is 3.28, which
indicates that firms realize their costing system does not provide information
which is completely correct.
(3) Satisfaction. Are firms satisfied by the numbers? This question is asked using a
scale anchored by completely satisfied versus refusing to depend on them.
While seven firms are completely satisfied with the numbers, 13 are satisfied,
and 20 use the figures because they are available, no firms indicate that they do
not use the numbers because of inaccuracies. Apparently, even inaccurate
information is better than no information.
(4) Development plans. Do firms want to develop the cost information system?
Of the respondents, 45 percent want to develop the existing costing system
(scoring 4 on the scale), and a further 35 percent want to make adjustments
gradually or in the future (scoring 3 or 2); 20 percent do not want to take on the
costing system at all (scoring 1).
 JAOC Table III presents bivariate correlations of the assessments of the costing systems, and
3,3 also relates them to the average number of cost pools, the overhead percentage and
firm size. We use non-parametric Spearman correlations to control for the different scale
sizes. We see that the specificity of the costing system has a positive correlation with
satisfaction, and a negative one with development plans (meaning that more specific
costing systems lead to less need for developing the costing system). However, the
336 number of cost pools has a negative correlation with accuracy. This seems strange, since
in general an increase in the number of cost pools leads to more accuracy. This finding
might suggest that the concept of cost pools is not completely understood. On the other
hand, it may also be the case that firms that use more cost pools are more aware of the
difficulties in establishing correct cost prices, and better realize the shortcomings of their
current system. The correlations with firm size are somewhat contradictory: larger firms
are less satisfied, but also less inclined to develop their costing system.
The concept of activity-based costing is almost completely unknown in Egypt.
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Of the 40 firms, only two indicate that they are working on implementing it. All other
firms did not reply to any of the questions regarding ABC, this while the questionnaire
part on ABC contained 12 questions. The implications of this go further than the
observation that only 5 percent of the sample is trying to apply ABC: the other firms do
not seem to have heard of it at all. This inference is perhaps somewhat strong, but
answers to other questions reinforce the feeling that knowledge on modern
management accounting techniques is rather limited. On the question whether
products differed in their usage of firm resources, only six firms answered. The other
34 did not provide any answer. Since, the notion of resource usage and differences in
consumption of resources is central to the logic behind ABC, this suggests a lack of
familiarity with the basic concepts involved in ABC. A related question asked whether
overhead costs are assigned to cost centers, again a standard procedure in any
advanced costing system. Seven firms answered yes, two no, and 31 did not give an
answer. The unfamiliarity with accounting concepts such as ABC could also extend to
the concept of cost pools, as suggested above. This also qualifies the reported use of
multiple allocation bases and cost pools by 90 percent of the firms.
The size of the respondents’ firms could be a factor in the use of advanced costing
techniques. In Western countries, ABC usage is often found to be related to firm size
(Chenhall and Langfield-Smith, 1998); larger companies also attach more importance to
cost information (Hoque, 2000). Within the sample, firm size has no correlation with
costing system characteristics such as specificity, accuracy or number of cost pools
(Table III). This could imply that all firms fall within the category of small,

Variable 1 2 3 4 5 6 7

1. Specificity 1.00
2. Accuracy 0.15 1.00
Table III. 3. Satisfaction 0.34 * * 0.25 1.00
Bivariate non-parametric 4. Development plans 20.28 * 20.09 2 0.25 1.00
Spearman correlations of 5. No of cost pools 20.05 20.32 * * 2 0.14 0.08 1.00
several assessments of 6. Overhead percent 0.27 * 0.18 0.27 * 20.17 20.14 1.00
the costing system, the 7. Firm size 20.14 20.14 2 0.45 * * 20.38 * * .02 .11 1.00
number of cost pools and
overhead percentage Notes: *Indicates significance at 10 percent; * *at 5 percent
 unsophisticated firms. On the other hand, the average sales number of Egyptian £114 The use of
million translates into e15 million, which suggests that we are not dealing with corner costing
shops or start-ups. Also, the pharmaceutical and chemical industries require certain
levels of sophistication. Thus, it seems that the unfamiliarity with ABC, and the almost information
total absence of ABC usage in practice, cannot be explained solely from a size effect.

4.3 Use of costing information – functions and purposes 337

Respondents were asked to score the use and application of costing information on a scale
of 1-6. Functions using costing information are especially top management and marketing
(Table IV). Both functions score significantly higher than the other three at the 1 percent
level using paired samples tests (this holds for the t-test and the Wilcoxon test). The
difference between the marketing and the top management functions is not significant.
The application of costing information reflects the focus on these two functions (Table V).
Pricing decisions are the most important area where costing information is used at an
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average of 4.48, followed by customer profitability at 4.23. Performance measurement,

which can be important for control purposes of top management, is also important with an
average of 4.13. These three all score significantly higher than the other applications of
costing information using paired sample tests: both the t-test and the Wilcoxon test result
in significant differences at the 1 percent level between product mix decisions,
adding/deleting products and activity analysis on the one hand, and pricing decisions,
customer profitability and performance measurement on the other. The difference of the
latter three with make or buy decisions is less substantial, but still significant at 10 percent
for both tests. Noteworthy again is the low score on activity analysis, an application that is
typically associated with advanced management accounting techniques.

Function Mean Median Pharmaceutical Food Chemical Packing

Top management 4.22 5 3.80 4.60 4.50 4.00

Marketing 4.13 4 3.80 4.10 3.90 4.70
Production 3.30 3 3.10 3.20 3.20 3.70
Engineering 2.93 3 2.50 2.90 2.90 3.40
Finance 2.38 2 2.40 2.40 2.70 2.00 Table IV.
Usage of costing
Note: Mean and median are for total sample, industry numbers are means information per function

Purpose Mean Median Pharmaceutical Food Chemical Packing

Pricing decisions 4.47 5 4.10 3.80 5.00 5.00

Customer profitability 4.20 5 3.50 4.00 4.50 4.80
Performance measurement 4.13 4 3.80 4.20 3.90 4.60
Make or buy decisions 3.75 4 3.70 3.60 3.90 3.80
Product mix decisions 3.30 3 3.30 2.90 3.70 3.30
Adding or deleting products 2.93 3 3.00 2.30 3.20 3.20
Activity analysis 2.38 2 2.20 2.30 2.50 2.50 Table V.
Application of costing
Note: Mean and median are for total sample, industry numbers are means information
 JAOC In all, this suggests that costing information is used mainly for marketing and
3,3 measurement purposes. This would imply that using costing information in obtaining
production process improvements, cost price reductions or efficiency increases is less
important. Perhaps, this reflects the state of the Egyptian economy: whereas in a fully
developed economy market prices are leading, the influence of the government on the
economy of Egypt leads to less impact of market forces. We can relate this to the
338 finding of Szychta (2002, p. 415) in her survey of Polish firms, where 70 percent reports
using the cost-plus method for pricing purposes, “due to the nature of data available
and the strong reliance of many practitioners on this method”.
This is also suggested by the lack of differences between sectors. For example,
product mix decisions, or decisions on adding or deleting products presumably are less
important in the chemical industry where the process characteristics lead to a relatively
stable set of products. However, with one exception, no significant differences were
found between the sectors with respect to the importance attached to either the usage per
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function or the purpose of costing information based on an ANOVA test. The only
exception is the importance of pricing decisions, which scored significantly lower in
the food sector relative to the packing and the chemical sector. Related to this, the
industry-level means for functions and purpose of costing information presented in the
tables show largely comparable patterns with respect to the ordering. For the functions
using costing information, all orderings are identical except for the packing industry
where marketing is more important than top management. The pattern of the purposes
is somewhat more varied, but the lowest scoring items are decisions on product mix,
adding or deleting products, and activity analysis in all industries.
Furthermore, the results are not necessarily consistent with the information about
the costing system that respondents provided. For example, firms that use costing
information for customer profitability calculations can be expected to use the customer
as cost object. However, no significant difference is found between the score on using
costing information for customer profitability calculations and the use of the customer
as a cost object.

4.4 Notes from interviews

Next to the survey results, a number of interviews were conducted. These interviews
reinforce the message from the survey: the application of costing methods is in a state
which can be characterized as primitive at best. There is a focus on cost-plus pricing,
and that seems to be the main reason to compute cost prices. Activity-based costing is
largely unknown, although at least one consulting academic indicated that he was
involved with firms where ABC-projects were being considered or even in a
preliminary phase. Other advanced techniques, such as customer profitability analysis,
are probably not applied in ways that are common in Western countries. Specifically,
according to several interviewees, customer profitability is interpreted as product
profitability times sales per customer, rather than including customer-specific
activities that differ in usage per customer. In fact, several interviewees from industry
indicated that the goal is to increase the profitability of products regardless of to whom
these products will be sold. Usage of multiple performance measures (beyond costing
information) is not wholly absent. For example, some companies indicated that they
use customer surveys to learn their customers’ opinions. On the other hand, several
interviewees stated that returns to research and development activities require such
 a long time to be realized that they are not undertaken. Yet there has been substantial The use of
interest in performance measurement in research and development in the Western costing
literature exactly to counter this issue. Apparently, this newer application of
performance measurement has not gained ground in Egypt. information
The use of information technology is becoming more widespread. However, it
is difficult to attract good people to work with IT at a good level. In this respect, it is
problematic for this area, as for most other areas in business, that Egyptian experts can 339
earn more in countries such as Saudi Arabia or Kuwait. Thus, there is a lack of experts
in many advanced fields in Egypt.
Finally, an overall issue was the unfamiliarity with the Western management
terminology. This extends to a very basic level. For example, the cost pool concept
is inherent to the advanced costing methods (whether it is activity-based costing,
or the allocation of multiple service departments using different allocation bases).
This means, that if there is no tradition in these advanced methods, an Arabic
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equivalent is not available. We had to describe the concept, rather than being
able to refer to a more or less well-known term from the Egyptian accounting
tradition – although some interviewees knew the English term “cost pool” as such.
This is problematic in applying the concepts (and even more in doing empirical
research on their usage).

5. Discussion and conclusion

5.1 Cost accounting in Egypt
We surveyed cost accounting practices in Egypt. Based on the results from a sample of
40 industrial firms, we conclude that cost accounting is still very much in a developing
stage in Egypt. Activity-based costing is virtually unknown, and accounting concepts
such as cost pools and resource consumption seem unfamiliar to the respondents. The
findings from interviews with academics, accountants and managers reinforce this
interpretation. Furthermore, as Lee (2002, p. 75) states in a review on international
developments in ABC: “Since, ABC has gained the image of being up-to-date and
strategically resourceful, practically all executives would like to say that they are
applying these ideas.” If this were true, it only reinforces our inference that ABC is
almost unknown in Egypt. Relating this to the thesis of Granlund and Lukka (1998,
p. 155) with respect to a global convergence of management accounting practices, their
confinement of management accounting’s small world to the “industrialized/post
industrial” nations is a necessary caveat.
In our Egyptian sample, costing information is used mainly for pricing purposes,
implying a cost-plus approach to pricing. This is an approach that can be fitted to the
economic circumstances in Egypt: with the Egyptian Government retreating from the
economy more and more, firms are increasingly faced with market forces. However, it
is very likely that market prices are not yet completely determined by these market
forces, and that firms are not yet used to the market determining the price. Overall, the
use of costing information for efficiency improvement seems less important. The use of
any advanced accounting techniques, such as activity-based costing, seems absent.
Thus, our contribution to the management accounting literature is limited, but clear:
cost accounting information in Egypt is available at a basic level at the most, and used
more for external (pricing) purposes than for internal (performance) purposes.
 JAOC 5.2 Methodological issues
3,3 During the research, we have encountered a number of methodological problems that
are related to the familiarity of Egyptian firms with Western management concepts.
One of these concepts is the mail survey as a tool of empirical data gathering. As is
clear from the 2 percent response rate in the initial stage of the research, mail surveys
do not seem to be useful in this respect. We obtained responses only by visiting firms,
340 dropping off the questionnaires and picking them up in person. This is possibly related
to certain aspects of the Egyptian culture, one of which is a tendency towards secrecy
(Dahawy et al., 2002).
Even more problematic is the fact that most of the concepts that are researched
seemed unfamiliar. This holds for the accounting concepts mentioned above, but also
for more general concepts like strategy or environmental uncertainty. For example, we
tried to measure the construct strategy using questions that would indicate whether
firms followed a cost leadership strategy in the line of Porter (1985; Frey and Gordon,
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1999), but the internal consistency as measured with Cronbach’s a was way below
acceptable standards. Obviously, this does not mean that Egyptian firms have no idea
about strategy, but we can conclude that the Western terminology used to describe
strategy is not interpreted by our respondents as we expected. Another example is in
the measurement of environmental uncertainty. We tried to measure this construct
with a number of questions on the importance of, e.g. suppliers’ actions, government
regulations and technology developments (Gul and Chia, 1994; Hoque, 2004), but again
we did not obtain an acceptable Cronbach’s a[2]. As such, we ran into the same
problems as Rice (2006), who also could not arrive at good constructs (Section 2.3). The
use of data reduction methods such as factor analysis also did not lead to results that
were readily interpretable. Furthermore, the number of responses is too low to justify
the use of factor analysis: Fabrigar et al. (1999, p. 274) strongly advise a minimum
sample of 100 observations.
Based on our experience, we have serious doubts that straightforward application of
Western concepts in doing empirical research on management accounting is useful in
the Egyptian setting. As other authors have experienced or remarked, Egyptian
respondents do not always react to questions in ways that are comparable with
Western firms (Rice, 2006), or else they seem to interpret the questions differently
(Mady, 2000). Coupled with the unfamiliarity with questionnaires and a tendency
towards secrecy, this makes doing survey research in Egypt a daunting task. It seems
essential to include a form of personal contact, which means at the very least visiting
organizations in person to drop off questionnaires in order to obtain any responses.
Furthermore, because of the unfamiliarity with Western accounting and managerial
concepts, it may be more useful to conduct a series of interviews to assess their use and
usefulness. Should a questionnaire be used, it would seem advisable to include
definitions and explanations of the main terms. An example of such an approach is
provided by Guilding et al. (2000). They anticipate possible misconceptions with
respect to accounting concepts such as life cycle costing, strategic management
accounting, and target costing by including a glossary in the questionnaire – this
while their questionnaire was mailed to New Zealand, UK and US companies.
Even then, it is wise to take into account the following remark of Van der Stede et al.
(2005, p. 678) which they make after assessing the quality of recent management
accounting survey research:
 Conducting high-quality survey research requires a set of conditions that are not all within The use of
the researcher’s control. It requires a population that has good access; that uses a common
language; that is willing to discuss a wide-range of subjects with strangers; and that trusts costing
pledges of confidentiality. . . information
All four criteria they list are not met in the case of Egypt.

5.3 Suggestions for future research

341
There are ample possibilities for further research on the use of accounting information
in Egypt. Based on our results, we suggest that it is more useful to start taking stock of
the current management accounting practices, also with respect to internal control
mechanisms such as the use of budgets, performance measurement and management,
capital budgeting decisions, etc. As discussed before, we would advise to take care in
the use of terminology. Also, it is important to gain more insight into the actual needs
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of Egyptian firms. Given the current state of cost accounting, simply trying to
implement advanced accounting techniques does not seem useful. Finally, the
difficulties in obtaining responses means that it is impossible to conduct empirical
research with the “average” (non-international) Egyptian firm without input from
native researchers, especially with respect to the language barrier.

Notes
1. The nominator “non-Western countries” is defined differently by different researchers;
also used are terms like “less developed countries” or “emerging countries”. For this
research, the essential quality of non-Western countries is that they are relatively new to
both the economic structures of Western countries, specifically the absence of wide-ranging
government regulations in favor of market forces, and to the management theory and
practices of Western countries.
2. For example, our measure of environmental uncertainty coincides with Hoque (2004), using
eight statements on the importance of suppliers, customers, etc. Hoque (2004, p. 493) finds a
Cronbach’s a (of 0.70, while this measure is negative in our sample.

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Corresponding author
Sander van Triest can be contacted at: s.p.vantriest@uva.nl

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