The relationship between accounting and economic development was largely absent in centrally planned economies, and even after the 'velvet revolution' of 1989-91 in Central and Eastern Europe. Centrally planned economies of Central and Eastern Europe used accounting only as a tool to satisfy national planning requirements, and political propaganda objectives. In addition, many accountants in post Soviet Central and Eastern Europe believed that transformation to a market-oriented accounting system could be accomplished simply by modernising the existing chart of accounts.
Nevertheless, as an integral part of economic transformation, accounting reform in Central and Eastern Europe has had a direct impact on:
(i) the banking system, which relies on accurate financial statements for lending procedures;
(ii) the small and medium enterprise sector, which requires the application of a reliable accounting system for efficient enterprise management;
(iii) capital markets, which rely on an adequately informed investment community and,
(iv) overseas investors, who utilise financial data to inform investment decisions.
Accounting reform has also been critical to establishing bankruptcy procedures, applying competition policy and effecting privatisation.
However, while attempting to induce stable politico-economic conditions for sustainable economic growth, Central and East European countries found their efforts impeded by the absence of robust accounting institutions, such as the policy making or/and standard setting bodies, regulatory agencies and professional associations.
If institution building lags behind other aspects of economic transition (as in Albania), such immaturity results in malfunctioning accounting system and non-enforcement of existing accounting laws. These, amongst other factors, led to Albania's 1997 financial crisis. Such problems are still pervasive.
Thus, it is essential for contemporary Albania to have
a robust system of accounting institutions (policy making or/and standard
setting agencies, regulatory bodies and professional associations) to promulgate,
implement, monitor and enforce accounting practices effectively.