International Accounting Patterns, Culture and Development

1
Chapter 2

• International Accounting Patterns, Culture and
  Development

2
Classification of Accounting and Reporting Systems

• Classification aids in
• Describing, analyzing, and predicting the
  development of accounting systems
• Strategic planning and control decisions
• International systems integration

• The Challenge?
• Adapt past effective techniques to meet the
  demands of the global market
• Must understand international traditions and
  heritage

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Purposes of International Classification

• Describe and compare international systems
• Improved understanding of
• Similarities and differences of systems
• Development of systems and potential for change
• Dominance of some systems over others
• Assess issues of international harmonization
• Identify and solve problems

4
Purposes of International Classification

• Developing countries will be informed of systems
  in other countries
• Aid international accountants and auditors
• Problems with accounting and control systems for
  MNEs understood and solved

5
Classification Research

• Deductive or judgmental approach
• Environmental factors identified and linked to
  national accounting practices
• International groupings or development patterns
  are proposed

• Inductive or empirical approach
• Individual practices analyzed
• Development patterns or groupings identified
• Explanations based on economic, social,
  political, and cultural factors proposed

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Deductive approach

• Muellers four approaches to accounting
  development
• Macroeconomic pattern
• Business accounting is tied to national economic
  policies Examples Sweden, France, Germany
• Microeconomic pattern
• Accounting is a branch of business economics
  Example replacement-value accounting in Holland

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Deductive approach

• Muellers four approaches to accounting
  development
• Independent discipline pattern
• Accounting is a service function derived from
  business practice Examples U.S. and U.K.
• Uniform accounting pattern
• Accounting is an efficient means of
  administration and control Examples France,
  Germany, Sweden, Switzerland

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Nobess Hierarchial Classification
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Inductive Approach

• Nair and Frank (1980) findings
• 1973 data
• Four measurement groups
• British Commonwealth
• Latin America
• Continental European
• U.S.
• Seven disclosure groups
• Could not be plausibly described
• No explanation offered for difference in groupings

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Inductive Approach

• Nair and Frank (1980) findings
• Differences between measurement and disclosure
  groups
• Hypotheses not supported
• Cultural and economic variables associated with
  disclosure practices
• Trading variables associated with measurement
  practices
• Overall little attention given to influence of
  culture

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Cultural Influences on Accounting Systems
Culture, Societal Values, and the Accounting
Subculture Fig. 2.3
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Structural Elements of Culture

• Hofstede 4 Underlying societal dimensions
• Individualism
• Power Distance
• Uncertainty Avoidance
• Masculinity
• Countries grouped into culture areas
• Hofstede and Bond 5th dimension
• Confucion Dynamism

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Hofstedes Societal Dimensions

• Individualism versus Collectivism
• Peoples self-concept I or we
• Large versus Small Power Distance
• How a society handles inequalities among people
• Strong versus Weak Uncertainty Avoidance
• Control the future or just let it happen
• Masculinity versus Femininity
• The way a society allocates social roles to
  gender
• Confucian Dynamism
• Short-term or long-term orientation

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Accounting Values Gray

• Professionalism versus statutory control
• Uniformity versus flexibility
• Conservatism versus optimism
• Secrecy versus transparency

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Professionalism versus Statutory Control

• Accountants are perceived to have independent
  attitudes throughout the world
• Public regulation or self regulation
• U.K. rely on judgment of accountant
• France and Germany implement detailed legal
  requirements
• Link to societal value dimensions
  Professionalism
• Individualism
• Weak uncertainty avoidance
• Small power distance
• Masculinity
• Short-term orientation

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Uniformity versus Flexibility

• Uniform accounting plan and imposition of tax
  rules for measurement purposes
• France and Spain
• Facilitate national planning
• Pursue macroeconomic goals
• Intertemporal consistency and some degree of
  intercompany comparability b/c of flexibility
• U.S. and U.K.
• Link to societal value dimensions Uniformity
• Strong uncertainty avoidance
• Collectivism
• Large power distance

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Figure 2.4 Culture and Accounting Systems in
Practice
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Authority and Enforcement
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Conservatism versus Optimism

• Conservatism seen as a fundamental value
• Strongly conservative
• Japan, France, Germany, Switzerland
• Less conservative
• U.S., U.K., the Netherlands
• Link to societal value dimensions Conservatism
• Strong uncertainty avoidance
• Long-term orientation
• Collectivism
• Femininity

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Secrecy versus Transparency

• Stems from management and accountants
• Closely related to conservatism
• Secrecy relates to disclosure
• Conservatism relates to measurement
• Secrecy
• High Japan, France, Germany, Switzerland
• Low U.S. and U.K.
• Link to societal value dimensions Secrecy
• Strong uncertainty avoidance
• High power distance
• Collectivism
• Femininity

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Accounting Values and Societal Values
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Accounting Values and International Classification

• Accounting values most relevant to professional
  or statutory authority and enforcement
• Professionalism and Uniformity
• Both concerned with regulation and degree of
  enforcement or conformity
• Accounting values most relevant to measurement
  and disclosure
• Conservatism and secrecy
• Country groupings
• Optimistic and transparent
• Conservative and secretive

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Accounting Values and International Classification
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International Pressures for Accounting Change

• Growing international interdependencies
• Harmonization of the regulatory framework
  internationally
• Centrally planned economies embraces
  market-oriented approach
• Former U.S.S.R., Eastern Europe, China
• New opportunities for international investment,
  joint ventures, and alliances

25
Economic Groupings and International Organizations

• European Union
• Promotes economic integration/harmonization
• UN
• World Bank
• International Monetary Fund
• UN conference on Trade and Development
• World Trade Organisation
• OECD
• Foster international economic and social
  development in industrialized countries
• Code of Conduct for MNEs

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Impact of MNEs and Globalization

• Cultural and social
• Employment and consumption patterns
• Significantly influenced
• Pressure for more accountability
• Environmental impact

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Impact of MNEs and Globalization

• OECD, EU, IOSCO work for harmonization and
  internationalization of securities markets
• IASB and the International Federation of
  Accountants (IFAC)
• Professional organizations involved in
  harmonization