QUESTION
Research Argument
“Accounting is all about developing the “best” set of standards irrespective of contextual factors such as political, legal, social and historical environments of countries and cultural values of accountants. Researching the influence of national contextual factors and cultural values of accountants on accounting and corporate governance is useless and does not enhance our understanding of accounting and corporate governance theories, practices and policies.”
You are required to evaluate the above statement clearly stating your reasons for agreeing or disagreeing with the statement. Use relevant examples and empirical evidence to support your arguments. In answering this question you should also make reference to at least five relevant research papers from the following journals:
Accounting, Organization and Society; Accounting Review; Contemporary Accounting Research; Journal of Accounting Research; Abacus; Accounting and Business Research; Accounting and Finance; Accounting, Auditing and accountability Journal; Accounting Horizons; Advances in Accounting; Auditing: A Journal of Practice and theory; Behavioral Research in Accounting; British Accounting Review; European Accounting Review; Critical Perspectives on Accounting; International Journal of Accounting; Journal of Accounting Literature; Accounting forum; Accounting Research Journal; Journal of International Accounting Research; Advances in International Accounting; Australian Accounting Review; International Journal of Accounting, Auditing and Performance Evaluation; Pacific Accounting Review and Journal of International Financial Management and Accounting. Note that articles in the above journals can be sourced from the Macquarie University library website.
You are required to undertake independent research to write this research argument.
You are required to research, use and include as a reference at least five research papers in the specific scholarly journals outlined above in addition to the prescribed custom publications. (Do not use Wikipedia or essays from a Google search that are not peer reviewed).
SOLUTION
“Accounting as the language of business is practiced differently within varying historical, political, economic and social environments. However, largely because of the development of global capital markets and the growth of multinational enterprises, a call for a uniform set of international accounting standards emerged in professional and academic accounting debates in the 1980s”. (Hellman, Perera &Patel, 2010)
As per the above citation, affects of external factors to an entity such as political, legal, socio-cultural and historical environments of countries cannot be ignored while formulating policies, practices and standards related to business activities including accounting. An understanding of the contextual factors as well as individual disposition of accountants is crucial to formulating best practices and policies pertaining to corporate governance.
The above viewpoint has been elucidated by considering the findings presented in the following journal articles:
Given in article “A critique of Gray’s framework on accounting values using Germany as
a case study”,(Heidhues &Patel,2011), as per Hofstede “the collective programming of the mind that distinguishes one group or category of people from others”
According to Hofstede the culture and sub culture of major groups of population , as of countries and regions is based on the norms and values of the groups hence it can be inferred that the institutions and their functioning, growth and existence are effected by social values.
As per Hofstede cultural values of countries can be compared with each other on the basis of four dimensions, which are:
Power Distance
Individualism
Uncertainty Avoidance
Masculinity
Each of the four dimensions has been referred by Hofstede in the following context:
Power Distance: The extent of acceptance of unequal power distribution, in institutions and organizations, by the society members.
Individualism: It refers to preference for self dependence and self reliance. Individualistic societies as compared to collective societies have preference for smaller families, comprising of the individual and his/her spouse and children. The individual can have expectations regarding personal welfare from himself or from his/her immediate family members. In collective societies people have preference for sharing and living in groups with their kin or clan. The family members provide support to each based on a feeling of loyalty and kinship.
Uncertainty Avoidance: refers to the uncertainty avoidance behavior of societies. Societies that have well defined rules for belief and behavior, depict low tolerance towards uncertainty and hence avoid uncertainty, whereas societies that have flexible attitude towards principles, beliefs and behavior and gives more importance to practice as compared to principles, are said to depict greater tolerance towards uncertainty and do not shun uncertainty.
Masculinity: Gender based social rules mainly refers to the social roles allocated by societies to the male and female gender. Achievement, heroism, assertiveness, materialism are accepted as masculine traits, whereas affiliation, kinship, humility, empathy, preference for wellbeing, are thought of as feminine traits.
Based on Hofstede’s social dimensions, Gray developed his hypothesis for explaining Accounting Values; As per Gray, the accounting values proposed by him can be helpful in understanding and predicting differences in international accounting practices. Gray’s hypothesis has been summarized in the table below:
Accounting Values Societal Values
Power Distance Individualism Uncertainty Avoidance Masculinity
Professionalism L H L
Uniformity H L H
Conservatism L H L
Secrecy H L H L
In the above table ‘H’ denotes High, whereas ‘L’ denotes Low.
Based on his hypothesis, Gray proposed that countries can be categorized into ten different clusters, which are:
i. Anglo
ii. Nordic
iii. Germanic
iv. More Developed Latin
v. Less Developed Latin
vi. African
vii. Asian Colonial
viii. Less Developed Asian
ix. Japan
x. Near Eastern
The four accounting values as proposed by Gray can be used for comparing national accounting practices when contrasted with their anti.
The following table brings out the contrast of preferences pertaining to the above mentioned four accounting values and their anti:
Value Vs Anti Value
Professionalism Statutory Control
Individual professional judgment Compliance with prescribed statutory requirements
Maintenance of professional self regulation
Uniformity Flexibility
Uniform accounting practices between companies Adjustment of practices with the circumstances/situation of companies.
Consistent use of uniform accounting practices
Conservatism Optimism
Cautious approach Laissez-faire outlook, risk taking approach
Transparency Secrecy
Open and publicly accountable approach Confidentiality
Restriction of disclosure of information
Disclosure of information based on involvement with management and financing
As per Gray, the accounting value of Conservatism, most significantly impacts accounting practices pertaining to measurement, and the accounting value of Secrecy, most significantly impacts accounting practices pertaining to information disclosure.
Example of Germany
As per Hofstede, in Germany:
Individualism is high
Power distance is low
Uncertainty avoidance is medium
Masculinity is high
Gray has put forward a comparative proposition for Germany with respect to other regions
Germany depicts less professionalism as compared to US and UK but more than France.
Germanic cluster depicts greater preference for secrecy as compared to Anglo, Nordic and Asian Colonial clusters.
As per article, “Contextual issues of the convergence of International Financial Reporting Standards: The case of Germany”, Germany is characterized by risk averseness and conservatism. There is a great emphasis on planning and measurement so as to avoid risks as far as possible. The main sources of finance in Germany are Bank Credit and Retained Profits and hence there is lesser pressure to publish detailed financial information.
Transparency, in Germany has not been a major issue as banks can get the information they require through lending covenants or through their own managers who are appointed in the supervisory board of the loan seeking firms; further since the governance and economic structures of companies are influenced by networks, the requirement for transparency is less.
Accounting Practices in Germany are characterized by:
Codification
Influenced by EU Legislation
Non flexible Accounting Standards
Preparation of financial statements even permissible by accountants who are not associated with any professional organizations.
Inconsistency in application of standards pertaining to financial reporting
As per the article “Perceived international environmental factors and corporate voluntary disclosure practices: An empirical study”, (Elsayed & Hoque, 2010) ,multiple regression analysis on data collected from 100 Egyptian non financial listed companies, revealed that the extent of voluntary disclosure made by companies is significantly and positively affected by the following
Association with international socio political institutions (for eg UNO,EU,ASEAN,WTO,OECD)
Emphasis on adoption of international standards and practices pertaining to accounting.
Association with financial institutions at international level, such as WB, IMF.
As per the article the extent of corporate financial disclosure regulation is more influenced by internal factors than external factors, for the developed countries and in the case of developing countries it is vice versa. With respect to transition economy, specifically China, International Financial Reporting Standards (IFRS) did not significantly impact the disclosure quality of accounting practices. But on the other hand data from 22 countries, in the transition state showed that the IFRS significantly and positively affected accounting practices, such as disclosure, adherence to accounting standards and accuracy of future estimates.
As per article “An analysis of the factors affecting the adoption of international accounting standards by developing countries”, (Zehgal & Mhedhbi, 2006), developing countries that have greater likelihood of adopting International Accounting Standards, have higher literacy, developed capital markets and Anglo-American culture.
Status of IAS Adoption in Developing Nations:
Countries that have adopted IAS Countries that have not adopted IAS
Africa Americas Asia Europe Africa Americas Asia Europe
South Africa(1993) Brazil (1999) Cambodia (1998) Armenia (1998) Algeria Bolivia Saudi Arabia Albania
Egypt(1998) Ecaudor(1996) China(1993) Croatia (1992) Angola Chile Iraq Slovakia
Kenya(1998) Haiti(1997) India (1998) Estonia (1995) Benin Columbia Kazakhstan
Tunisia(1996) Hondura (1997) Indonesia (1994) Georgia (1999) Botswana Nicargua Krygystan
Jamaic(2000) Malaysia (1997) Macedonia (1997) Burkina Faso Venezuela Myanmar
Mexico(1995) Nepal (1996) Moldavia (1998) Burundi Turkministan
Panama(2000) Sri Lanka (1995) Poland (1997) Congo Vietnam
Peru(1998) Thailand (1999) Romania (1999) Cote d’ Ivoire
Dominician Republic (2000) Ukraine (2000) Libya
Salvador (1999) Madagascar
Uruguay (1991) Mali
Niger
Uganda
Rwanda
Senegal
Tanzania
Chad
Togo
As per the article, “Development of accounting regulation in Jordan”, (Akra,Ali & Marashdeh, 2009) ,in the case of Jordan, the culture of the country has been significantly influenced by Islamic values with preference for collectivism and confidentiality and hence with respect to disclosure of information, Jordan has lacked transparency. Lack of transparency in Jordan has been also attributed to it being a code –law country, banks being the major source of company finance and weak shareholder rights.
Nevertheless due to British colonization, till the mid of the twentieth century and trading with Britain and other western countries led to adoption of western accounting practices and consequently IAS/IFRS
After the 1997, the Jordanian Government has introduced economic reforms, by way of encouraging privatization, protection of shareholders’ rights and recognizing their role in corporate governance. Due to the introduction of economic reforms Jordan increasingly adopted IFRS, and the quality of financial reports of Jordanian listed companies, with respect to disclosure, significantly improved.
As per the article “Major Factors Affecting Launching and Implementing Activity Based Costing System”, (Khozein, Dankoob & Barani, 2011), in addition to factors such as organizational, individual and technical, environmental factors also played a significant role in the adoption of Activity Based Costing in companies.
Table : Ranking major criteria implementing and launching ACTIVITY BASED COSTING SYSTEM by FAHP
Weight of Criterion Criterion
0.324 Organizational Criterion
0.211 Managerial Criterion
0.183 Environmental Criterion
0.147 Individual Criterion
0.136 Technical Criterion
Reference:
Andreas Hellmann , Hector Perera, Chris Patel,2010. Contextual issues of the convergence of International Financial Reporting Standards: The case of Germany.Advances in Accounting, incorporating Advances in International Accounting, 26, 108–116, Available through Science Direct database [Accessed 14 April 2012].
Eva Heidhues, Chris Patel, 2011. A critique of Gray’s framework on accounting values using Germany as a case study. Critical Perspectives on Accounting,22,273-287.Available through Science Direct database [Accessed 14 April 2012].
Ali Khozein, Morteza Dankoob, Ghasem Barani, 2011. Major Factors Affecting Launching and Implementing Activity Based Costing System. International Research Journal of Finance and Economics [e-journal] 71,112-117.Available through Business Source Complete database [Accessed 14 April 2012].
Daniel Zehgal, Karim Mhedhbi, 2006. An analysis of the factors affecting the adoption of
international accounting standards by developing countries. The International Journal of Accounting [e-journal],41,373-386. Available through Science Direct database [Accessed 14 April 2012].
MahmoudAl-Akra ,Muhammad JahangirAli ,OmarMarashdeh,2009. Development of accounting regulation in Jordan. The International Journal of Accounting [e-journal], 44 ,163–186. Available through Science Direct database [Accessed 14 April 2012].
Mohamed Omran Elsayed, Zahirul Hoque, 2010. Perceived international environmental factors and corporate voluntary disclosure practices: An empirical study. The British Accounting Review
[e-journal], 42, 17–35. Available through Science Direct database [Accessed 14 April 2012].
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