International Accounting and Financial Reporting
Critically examine the role that cultural differences play in the accounting differences found internationally. Answer with reference to at least 2 contrasting countries
Accounting practices tend to hold divergent views in different parts of the world; these differences are caused by various reasons some of which relate to the external environment such as political, social and financial. This paper is addressing these differences in accounting from cultural approach, by combining the cultural factors of a given nation provided by Hofestede with Gray`s Accounting values to reach an understanding of how can these cultural aspect lay effects on the profession of accounting. Hofestde Cultural values:
Hofestde came up with cultural factors touching the differences in accounting practices, by conducting a research that was based on over 100000 questions to employees in 72 countries (Guan and Pourjalili, 2010, P.101), and he reached four essential factors affecting the accounting profession in different countries. 1-Individualism:
It is the tendency of having loosely interdependence and relationships between the members of a society, in other words having personal freedom and less responsibility towards other people where each person has only to take care of him/herself and the close family (Lau & Mau, 1997, p.69) in (Guan and Pourjalili, 2010, P.101). 2-Power distance:
Represents the extent to which an individual accepts unequal distribution of power that maybe exclusive to few people. What is more, an individual living in large distance community accepts his/her position in the hierarchy while others living in small distance society long for equality in the distribution of power and seek justification otherwise (same source). 3-Uncertainty avoidance:
This dimension of Hofestede examines the level of acceptance of uncertainty or in other words the tolerance of risk. Furthermore, communities with high level of uncertainty avoidance tend to set lots of rules and regulations. While in societies where the risk avoidance level is low and are more flexible have less regulations resulting in more freedom and innovation in businesses (Guan and Pourjalili, 2010, P.101). 4-Masculinity:
The degree to which a society differentiates the role of and individual based on the gender of that person, in communities with high level of masculinity, males are given more power and control based on the traditional belief of man superiority. Hofestede also identified a fifth cultural factor that affects the practice of accounting which is” the Long term versus short term in life” (Hofestede.1991) in (Guan and Pourjalili, 2010, P.101).This factor is widely witnessed in Asian countries where the Confusion teachings are followed especially in China where people practice a conservative behaviour and tend to have large amounts of savings. Gray`s theory of cultural relevance (Chanchani, Macgregor .1999): By using Hofestede cultural values and analyzing their effects on accounting practices globally, gray`s theory defined the accounting subculture values through relating his work with hofestede. Additionally gray clearly presented the concept of how accountants’ performance may vary due wide-ranging factors that will be illustrated in the following figure which was taken from (Gray, 1988, p.7).
The factors that are affecting the ecological along with the physical environment are generated by the cultural values in different countries; these values play a major role in defining institutional structure within a given society, such values can be financial, political, legal and educational. Furthermore these factors tend to lay effects and reinforce other influences as shown in the previous figure. This construction is stable in a certain period of time unless other variables took place to change the...
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