Investigating the influence of culture on accounting

As accounting moves towards globalisation, harmonisation and convergence, the influence of civilization on accounting is being progressively recognized as an of import and controversial subject.

Accounting, being an artifact, constitutes portion of the every-day life of administrations ( Tomkins and Grove, 1983 ) . Inescapably, it ‘s significance and passage is culturally derived hypertext transfer protocol: % 206-7Culture & A ; ManagementAccounting.doc [ hypertext markup language ] . It is a societal concept which will accordingly reflect the society in which it has been developed. Accounting is an unreal device constructed by society to garner and pass on information ( hypertext transfer protocol: ) . Hence an accounting system can be said to be the methods, processs and criterions followed by an organisation or a state in roll uping, entering and describing concern minutess which are used in supplying fiscal information for decision-making.

Culture, on the other manus, is a manner of life, a manner of making things, the traditional belief and imposts of a group of people. Culture has been defined as the “ corporate scheduling of the head which distinguishes the member of one human group from another ” ( Hofstede, 1980 pp.25 ) . Every society portions its ain alone norms, which include common features like value system, which members of that society adopt. Hofstede ( 1980, pp.19 ) defined values as ‘a wide inclination to prefer certain provinces of personal businesss over others ‘ .

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Many surveies have been carried out to demo how the differences in civilization within national and international environment influence accounting patterns. Gray ‘s was the first to associate social values and accounting values and he advances that ‘accountants value systems are related to and derived from the alone social values in each state ‘ ( Finch, 2001b ; pp.2 ) . Besides, Mueller et Al ( 1994, pp.1 ) noted that, “ accounting is shaped by the environment in which it operates ” .

Similarly, Perera ( 1989 ) argued that, specific civilizations and environments influences the type of accounting system practiced. Furthermore, Dopunik and Tsakumis ( 2004, pp.1 ) stated that ‘culture is considered to be a powerful environmental factor that affects the accounting system of a state every bit good as how persons perceive the usage of accounting information ‘ .

This essay examines the likely impact of civilization in finding the accounting systems and criterions of a state, utilizing states such as Nigeria, France and Japan and comparing them with what is gettable in the United Kingdom ( UK ) as illustrations. Besides, it will see whether an apprehension of the function of civilization in accounting can assist to understand International Accounting Standards ( IAS ) . Furthermore, it will discourse the importance of civilization to the harmonisation and convergence of IAS.

CULTURE AND Accounting

Hofstede ‘s ( 1980 ) work on civilization represents the most extended research on national cultural differences to day of the month ( Doupnik & A ; Tsakumis, 2004 ) . From his survey, Hofstede ( 1980 ) identified four basic value dimensions with which states could be grouped. These cultural dimensions are individualism versus Bolshevism, power distance, uncertainness turning away and maleness versus muliebrity. The first two relates to authorization and enforcement of accounting pattern at a state degree while the 2nd two relates to the measuring and revelation of accounting information at a state degree ( Nobes and Parker, 2008 ) .

INDIVIDUALISM VERSUS COLLECTIVISM ( IDV ) : measures how self-interested and personal persons are as opposed to being closely knit and integrated into groups. In an individualist environment, people look after themselves and their immediate households and their rights supercedes that of the groups they may belong to. In a corporate environment, people are born into strong cohesive in-groups, frequently extended household or tribal communities who protect them in exchange for their truenesss

Power DISTANCE ( PD ) : this is the extent to which the less powerful members of organisation and establishment expect and accept power to be unevenly distributed. High PD civilizations normally have centralized top-down control, where a few are being seen as privileged while lower PD civilizations imply greater equality and authorization.

MASCULINITY VERSUS FEMININITY ( MAS ) : focal point on how a society allocates “ traditional ” gender functions to males and females. Masculine society prefers achievement, assertiveness, fight, gallantry and material success while feminine society prefers to be more soft, lovingness and are concerned with household and quality of life.

UNCERTAINTY AVOIDANCE ( UA ) : this defines the extent to which a state tolerates uncertainness and ambiguity. Strong UA states have strong traditions and rites and tend toward formal, bureaucratic constructions and regulations while weak UA states are more relaxed and are unfastened to new thoughts or constructs.

Cultural INFLUENCE ON Accounting

Hofstede ‘s ( 1980 ) survey attracted a batch of research workers from different academic subjects, including accounting. In position of this, Gray ( 1988 ) came up with a model set uping a nexus between cultural values and accounting values. Similarly, much empirical plant has followed. Parera ( 1989 ) examined the influence of civilization on the accounting patterns of developing states. Furthermore, Fechner and Kilgore ( 1994 ) related accounting values to accounting patterns and Baydoun and Willet ( 1995 ) tried to operationalize accounting values of assorted states in footings of GAAP qualitative features of good measuring and coverage patterns ( cited by Chanchani and Willet, 2004, pp.7 ) .

Based on Hofstede ‘s ( 1980 ) four cultural dimensions, Gray ( 1988 ) developed a probationary construction of four accounting values that are affected by civilization. These values are: professionalism versus statutory control, uniformity versus flexibleness, conservativism versus optimism and secrecy versus transparence and proposed that these values “ may be used to explicate and predict international differences in accounting systems and forms of accounting development internationally ” ( Grey 1988, pp. 5 ) .


This is defined by Gray ( 1988b, pp.8 ) as “ a penchant for the exercising of single professional opinion and the care of professional self-regulation as opposed to compliance with normative legal demands and statutory control ” . He argues that the higher a state ranks in footings of Individualism and the lower it ranks in footings of UA and PD so the more likely it is to rank extremely in footings of professionalism. Professionalism is considered a nucleus dimension of accounting values because comptrollers are required to do professional judgements sing rating and assorted facets of revelation in fiscal information. Such judgements are made by comptrollers to a lesser or greater extent in different parts of the universe, depending on assorted factors including legal and statutory demands and prevailing professional pattern ( Belkaoui, 1990, 1995 ) . At an organizational degree, the development of accounting organic structures in assorted parts of the universe reflects differing grades of self-regulation with professional organic structures ( Chanchani and Willet, 2004, pp.5 ) . Nigeria has a immense authorities intercession and control on the development of its accounting profession whereas UK possesses a larger grade of liberty and self-regulation. ( Uche, 2002 ) argued that the mode and procedure of allowing ANAN chartered position was non consistent with professional demand


This is ‘a penchant for the enforcement of similar accounting patterns between companies and for the consistent usage of such patterns overtime, as opposed to flexibleness in conformity with the sensed fortunes of single companies ‘ Gray ( 1988, pp.8 ) . He demonstrated that the higher a state ranks in footings of UA and PD and the lower it ranks in footings of Individualism, so the more likely it is to rank extremely in footings of uniformity. Uniformity versus flexibleness is a important accounting value dimension because the cardinal characteristics of accounting rules globally are uniformity, consistence or comparison ( Arpan and Radebaugh, 1985 ) . In France, for illustration, where, traditionally, there has been a concern with easing national planning, a unvarying accounting program has been followed. This is in contrast to patterns in the UK which allows more flexibleness ( Chanchani and Willet, 2004, pp.5 ) .


This is “ a penchant for a cautious attack to measurement so as to get by with the uncertainness of future events as opposed to a more optimistic, individualistic, risk-taking attack ” ( Gray, 1988, pp.8 ) . Sterling, ( 1967, pp.10 ) argues that ‘it is the most ancient and likely the most permeant rule of accounting rating ‘ . Therefore, the cardinal attitude of comptrollers worldwide is discretion in plus direction and the coverage of net incomes ( Chanchani and MacGregor, 1999b ) . Gray ( 1988 ) suggested that the higher a state ranks in footings of UA and the lower it ranks in footings of individuality, the more likely it is to rank extremely in footings of conservativism. He suggested that such differences are reinforced by the comparative development of capital markets, the differing force per unit areas of users ‘ involvements, and the influence of revenue enhancement Torahs on comptrollers in the states concerned.


This is the “ penchant for confidentiality and the limitation of revelation of information about the concern merely to those who are closely involved with its direction and funding as opposed to a more crystalline, unfastened and publically accountable attack ” . The higher a state ranks in footings of UA and PD and the lower it ranks in footings of Individualism and Masculinity so the more likely it is to rank extremely in footings of secretiveness ( Gray, 1988, pp.8 ) . Secrecy has to make with direction ‘s control on the measure of information disclosed to foreigners. These differences may besides be reinforced by the differential development of capital markets and the nature of portion ownership, which provide inducements for revelation ( Watts, 1977 cited by Chanchani and Willet, 2004, pp.6 ) .

Accounting in Japan is conservative, creditor-oriented and tax-based, with institutional constructions that rely on bank funding and close relationships between capital suppliers and investee houses. The Nipponese debt funding system allows tight statutory control instead than a looser professional based attack and places a strong accent on Bolshevism. Nipponese companies are mostly financed by Bankss ( Black and White, 2003 ) . Because of this, the Bankss frequently require a place in the Board of managers and therefore will hold information on the company ‘s public presentation without trusting on the published fiscal statements. Hence, the fiscal statements do non necessitate high sum of revelation ( Gray, 1980 ) . This is non the instance in the UK, where most of their companies are financed through equity, therefore necessitate a comparatively high degree of revelation ( Gray, 1980 ) . Besides, more accent is placed on the long-run stableness of the company instead than the short-run profitableness and as a consequence, much more value is placed on the Balance Sheet instead than the Net income and Loss Account ( Black and White, 2003 ) . The Nipponese are conservative in their attack to accounting in order to guarantee the long-run stableness of the company. In position of this, they are lawfully required by the Commercial Codes to reassign a part of their income to a modesty each twelvemonth ( Nobes and Parker, 2002 ) . Whereas the UK is good known for its less conservative attack to accounting compared with many other states ( Gray, 1980 ) . The revenue enhancement jurisprudence is one of the beginnings of accounting ordinance in Japan. It stipulates the disbursals to be deducted for revenue enhancement intents i.e. the points to be included in the fiscal statements. Hence, companies frequently apply accounting interventions that will give the highest revenue enhancement benefit instead than the 1 that best reflects the implicit in economic world ( Nobes and Parker, 2002 ) . This is different from the accounting pattern in the UK where the revenue enhancement system and the accounting system are wholly separate.

The difference in the cultural dimension of states and their consequence on accounting patterns has presented a major obstruction to the international accounting harmonisation and convergence attempts. The norm of these civilizations made states follow accounting patterns suited to their environment and civilization, ( Hamid et al 1993, 1996 ) . Ross ( 1989 ) argues that given the same information, comptrollers from different states will bring forth different consequence in line with their state ‘s accounting patterns. Given the mutuality of the economic system of states, transnational companies are listed in the stock market of different states. Therefore, there is demand for International Accounting Standards ( IAS ) that would supply a guideline for harmonisation since complete fusion has so far been hard.

A major failing of Hofstede ‘s ( 1988 ) methodological analysis is that the sample is non representative because the informations are derived from a individual company and hence do non supply dependable information on the cultural values of an full state ( Papadaki, 2005, pp.354 ) . Besides, his construct of national civilization is extremely simplistic and fails to take into history important within-country differences and ignores of import contextual factors such as legal, societal, political and economic influences on civilization ( Roberts and Boyacigiller, 1984 ; Mead, 1994, pp.48 ) . Furthermore, the current globalisation might hold rendered it out of day of the month ( Mead, 1994 ) . While Gray ‘s ( 1988 ) theoretical account has statistically important explanatory power, it is best at explicating existent fiscal coverage patterns and comparatively weak in explicating extant professional and regulative constructions from a cultural base ( Salter and Niswander, 1994 ) .

Furthermore the International Accounting Standards Board ( IASB ) though acknowledged for its attempts, research has criticized that harmonisation seems to imply enforcing Western accounting patterns upon states that are perceived to be less economically developed than in the West. Small attending is paid to the possibility that the accounting patterns of diverse communities might give penetrations to alternative, theoretically defendable accounting patterns ( Hamid et al, 1993 ) .


Culture plays a cardinal function in finding the accounting patterns of assorted states. Cultural values have resulted in the similarities and differences in the accounting patterns among states. With the universe going a planetary small town, the demand for harmonisation and convergence of accounting criterions with IAS should be given serious attending. An penetration into how cultural values may impact the accounting intervention and finally impact fiscal revelation is of import to guarantee the comparison of international fiscal coverage.


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