Solutions to Additional Practice Questions

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Topics: Culture
Deegan & Unerman – Financial Accounting Theory 2e

Chapter 4
Answer 4.1: Chapter 4 has provided a number of factors which have been suggested to explain why different countries use different systems of accounting. These include: o The extent of economic development within a country. It is argued that as countries become more ‘wealthy’ they tend to develop their own accounting standards (which can be costly). Less developed countries often adopt accounting standards issued by the IASC (which may, or may not actually be relevant to the information needs of the local people). o It has been argued that the nature of the domestic business ownership and financing systems can influence the accounting methods being used within a country. For example, in countries which have companies that rely relatively more on equity capital (funds from many ‘outsiders’) there will be a tendency to provide greater disclosures than in countries with companies that rely relatively more on debt capital. o It has been argued that the colonial inheritance or history of a company will impact the accounting methods employed. o Invasion is another factor that can affect accounting practices. A country invaded by another may have a particular method of accounting imposed upon it. o A commonly mentioned reason for international differences in accounting is tied to the broad notion of ‘cultural difference’. Culture itself could be expected to influence other things (some already discussed above), such as legal systems, tax systems, and how businesses are formed and financed, which will in turn influence the types of information demanded. o Sources of aid or finance might also influence the accounting methods used. For example, an international funding organisation (such as the World Bank) might require that particular accounting rules be used as a condition of providing funds to a country. o Religion, which is obviously linked to culture, has also been found to provide explanations

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