Accounting
Effects of cultural differences on accounting differences

Critically examine the role that cultural differences play in the accounting differences found internationally. Answer with reference to at least 2 contrasting countries.

 

To understand how cultural differences will affect accounting practices in the international context, two theoretical frameworks developed by Hofstede and Gray are often used. According to Gray, a society’s structure influence societal values, which in turn influence family patterns, social class structure, political system, business ownership, organization and educational system. Gray provided a framework, which consisted of four identifiable and distinctive accounting values and subcultures that are related to societal values. Gray extended the cultural dimensions of Hofstede as shown in table below.

 

Table: Relationships between Gray’s accounting values and Hofstede’s Cultural Dimensions

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The four difference accounting values or subcultures are as discussed follow:

  1. Professionalism versus statutory control.
    1. In certain countries, people prefer individual professional judgment and the maintenance of professional self regulation; while in other countries, people simply prefer to stay in compliance with the legal requirements and statutory control.
    2. Example:
      1. “Professionalism” – UK, US
      2. “Statutory control” – France, Japan, Germany
    3. Uniformity versus flexibility.
      1. In different nations, management may prefer towards the enforcement of a uniform set of accounting practices for consistency, while in other nation, management may prefer flexibility in the accounting and reporting presentation style, depending on the perceived needs of a situation.
      2. Example:
        1. “Uniformity” – UK, US
        2. “Flexibility” – Egypt, Indonesia, China and many other emerging countries.
      3. Conservatism versus optimism.
        1. Conservative accounting practices versus aggressive accounting practices is nothing new in the accounting field. However, Gray change the wordings, and refer to the more aggressive accounting practices as a value of optimism.
        2. Aggressive accounting practices means more optimistic approach to revenue recognition, inventory accounting practices as well as restatement of assets value. In contrast, estimates are more conservative when the society is perceived as having conservatism values.
        3. Example:
          1. “Optimism” – UK, US
          2. “Conservative” – France, Japan, Germany.
        4. Secrecy versus transparency.
          1. The society with secrecy values prefers confidentiality and the restriction of disclosure of information about the business only to specific executives involve in the management of the company; while in contrast, transparency argued for more open and publicly accountable approach.
          2. Example:
            1. “Transparency” – UK, US
            2. “Secrecy” – France, Japan, Germany.

 

 

 

 

 

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