THE INFLUENCE OF Traditions ON ACCOUNTING
The impact of way of life on the social institutions like accounting cannot be underestimated. Before the upsurge in immigration and cross-border businesses, culture has been around the domain of anthropology and archaeology. This do the job considers whether culture influence unified global accounting procedures and whether a knowledge of cultural part in accounting can help understand international accounting expectations. These prove will be made evidence using the Anglo-American and Euro-Continental accounting models (Canada and France) as research study. Although there are various other factors (historical, economic, and institutional, legal system, the tax regulations etc) that may affect accounting harmonization, culture is a major obstacle.
SOME DEFINITIONS OF CULTURE
There is no typically accepted definition of way of life. Violet (1983a) sees culture as something that encompasses and determines the evolution of social establishments and interpersonal phenomena. Perera (1989) regarded culture as a manifestation of norms, values and customs that reflect regular behavioral characteristics within a precise social grouping. Kuper 1999, (cited in Baskerville, p.2) basically defines it as “a matter of suggestions and ideals, a collective cast of mind”.
Hofstede 1997 defined traditions as “the collective development of your brain which distinguishes the participants of one group or category of individuals from another.”He views cultural dissimilarities at four different amounts – symbols, heroes, rituals, and values.
From the definitions, it implies that tradition is shared among persons belonging to an organization or contemporary society, formed over a relatively long period and comparatively stable.
In accounting context Askary, Saeed (p.2) identified tradition as those environmental elements that strongly impact countrywide accounting systems – a likely causal factor of distinct national accounting methods in accord with differing national cultures.
It is a near impossibility to discuss culture without mentioning Hofstede. He executed the most comprehensive analysis of how workplace values are influenced by customs from 1967 to 1973, while operating at IBM as a psychologist. He analyzed info from over 100,000 individuals from 40 countries. In 1980 he identified four distinct contrasting pieces of dimensions of traditions which has enjoyed considerable focus. They are: (1) Ability distance, showing way of measuring interpersonal power between people, (2) Individualism versus collectivism showing measure of personal autonomy between people and collectives, (3) uncertainty avoidance showing anxiety level of society members towards the future and (4) Masculinity-allocation of roles between sexes. In 2007, he added a 5th dimension that is not as well relevant for our analysis which is definitely Long-Term Orientation – LTO; which is associated with perseverance. His analysis was regarded as a catalyst in foreign accounting research which after accounting researchers like Gray 1988, Perera 1989, Wuthnow 1994 followed into accounting context. According to Sudarwan and Fogarty (1996, p.2), his job has got been cited in 583studies from 1981-1992 which justifies its employ in accounting research.
Gray (1988) designed significant accounting hypotheses applying cultural values as developed by Hofstede to determine relationship to accounting ideals. He addressed cultural affect on accounting of diverse countries from the distinctive societal values point of view. He determined the possibility of drastically relating accounting ideals, at the amount of the accounting subculture, to societal ideals, by giving the following ‘accounting’ values for consideration;
(1) Professionalism; meaning preference on specific professional judgment and self regulation instead of prescriptive legal requirements and statutory control. It connected Hofstede’s high individualism, poor uncertainty avoidance, masculinity, presented the concept of assertiveness, and small vitality distance.
(2) Uniformity; He shows desire for uniform accounting procedures between firms as against flexibility of specific circumstance of a organization. It reflects societies with great uncertainty-avoidance and large power-distance indexes of Hofstede.
(3) Conservatism: Here there is choice for caution to measurement, since it helps one to cope with potential uncertainty. It contrasts with a “more optimistic, risk spending approach”. This links large uncertainty-avoidance, individualism, and masculinity sizes by Hofstede.
(4) Secrecy; Below information is shared amidst the close managers and financiers as against even more open up, transparent, publicly accountable strategy. That is associated with societies which have strong uncertainty-avoidance and power-distance dimensions.
Chua 1988 (cited in Askary p.5) like Gray stated that “Values and beliefs enjoy a fundamental role in the constitution of accounting understandingâ€¦.”therefore, tradition and accounting will be inextricably linked.
Perera 1989 (cited by Askary p.6) sees two associated means of analyzing the cultural influences on accounting practices: determining a set of specific societal values/cultural factors apt to be directly associated with accounting practice and verification of any association mixed number fractions calculator between societal ideals and specific accounting methods. To him accounting practices/systems of numerous countries will be influenced by their cultural values that, in turn, form their accounting practices.
Applicability of Hofstede’s framework provides been questioned in accounting context. Critics check out his cultural dimension in accounting analysis as causing misleading reliance on cultural indices. Gernon and Wallace 1995 (cited in Ding Y., Jeanjean T., & Stolowy H.p.9) described his cultural analyses in international accounting exploration as “trapped by a paradigm myopia by its reliance on the framework advised by Hofstede” partly because his study was of one organization therefore do not provide reliable information on the cultural ideals of an entire country. Baskerville 2003(cited in Ding Y., Jeanjean T., & Stolowy H.p.9) also criticizes him for equating culture with country. From the Encyclopedia of Globe Cultures O’Leary & Levinson, 1991 (cited in Baskerville 2002) identified that in the centre East the Individual Relations Area Data files identify 35 distinct cultures in 14 countries.
Gray’s indices are also criticized. Willett et al. 1997 (cited in Chanchani & Willett, 2004)while criticizing Gray identifies culture as most clearly affecting those elements of the accounting environment that will be essentially social and in addition stated that traditions influences disclosure practices a lot more than measurement practices.
Despite these criticisms, the designs have some uses. According to Ding et al. (2005), Hofstede’s model, though strongly criticized, is still widely used as a result of its extensive international coverage, and robust results have been generated. His result continues to be used to explain national diversities in accounting although research sample was designed and selected in order to avoid diversity. Chanchani & Willett (2004) mentioned that Gray’s theory continues to be referred to in on-going analysis, and a number of recent studies have related accounting
judgement on various concerns to cultural influences.
Hofstede/Gray’s analysis have attemptedto understand the distinctions in national accounting criteria from cultural backdrop view-point, and has been beneficial in establishing a link between accounting and cultures. Analyses in this article even more buttress the argument that lifestyle plays a major part in shaping a country’s accounting standards.
CULTURAL INFLUENCE AND ACCOUNTING HARMONIZATION
Cultural impact in accounting environments has been a subject in accounting analysis and features been examined by various scholars: (Violet (1983), Belkaoui (1990, 1996 & 1997), and Doupnik and Salter (1995); Harrison and Mckinnon (1986), Belkaoui; and Culture and international accounting devices by Gray (1988), Perera (1989)and Fechner and Kilgore (1994) (all cited by Askary pp.2-3). They mostly established a primary facie case that culture influences accounting practices.
Accordingly, Perera 1989 (cited by Askary p.2) sees each accounting system as a product of its certain environment. Mueller, Gernon and Meek 1994 (cited by Askary p.2) as well noted, “Accounting is formed by the environment where it operates”. Also in reporting practice, Radebaugh and Gray (1997) through a comparative study concluded that each country reporting practice is definitely influenced by tradition despite existence of regular.
Jaggi 1975 (cited by Askary p.3) valued that the cultural environment was an independent adjustable that could influence economic disclosure practices in response to benefit orientations. Violet 1983a (cited by Askary p.3) perceived accounting as something “. . . of its culture”.
Gambling and Abdel-Karim 1986 (cited by Askary p.3) reasoned that:
. . . accounting theory is usually part of the personality and hence section of the culture. If the
individuals will be Muslims, their personalities are Islamic and their tradition is Islamic.
Therefore, their accounting theory is normally Islamicâ€¦.
From the foregoing, you can conveniently state that accounting theory and procedures is a product of individuals who happen to be influenced by their beliefs.
Some cultural elements that influence accounting involve language, religion, morals, values, attitudes, rules, education, politics, social firm and technology. The query now is just how do culture effect accounting? One cannot underestimate the power of culture. Beliefs most times guide what you do and accounting is not an exception. Moral judgment, value system, frame of mind towards anything, legal system, Religion and even educational background are effective forces underlying behaviours. It is therefore certainly not questionable that the earlier mentioned factors shapes accounting value, accordingly impacts the accounting environment internationally. A good example is Islamic culture that will not inspire borrowing as against western lifestyle that’s anchored on borrowing.
This cultural impact has proved to include made accounting harmonization tricky. A major harmonization attempt may be the setting up of the International Accounting Specifications Board (IASB), under the oversight of the International Accounting Expectations Committee (IASC) via an agreement made by professional accountancy bodies from designed countries. Its goal is to develop a couple of global accounting standards that require high quality, transparency, and comparability of personal statements of unique countries (iasplus 2007). But its efforts have already been frustrated by constraints like traditions, education, taxation, political climate, and economic development of many countries.
Comparison of Canada and France accounting models
Hofstede’s cultural dimensions’ as utilized in accounting by Gray (1988) will be used to classify Canada and France. Canada and France employ different accounting devices and work within socio-economic environments that have many distinguishing features that may effect accounting.
Canada offers Anglo-American accounting and auditing tradition therefore flexibility and professionalism prevails. Her system and ideals safeguards shareholder interests. In contrast, French accounting program as in most Continental European countries relies upon the “Plan Comptable” and codified rules that fulfill stakeholders’ information needs in fact it is characterized by ideals of uniformity and statutory control (Gray, 1988).
Canada and France recognized International Accounting Benchmarks (IAS, known as International Financial Reporting Requirements, IFRS) since 2001 but Gray and Street 2001(cited by Othman H. B and Zeghal. D 2006) still find dissimilarities between them regarding IAS/IFRS implementation. Leuz, and Wysocki 2000 (cited by Othman H. B and Zeghal D. 2006) argue that it’s because “IASC standards have no enforcement rules and rely on regional auditors and country-specific legal remedies to enforce criteria.
Applying Gray’s four accounting values as discussed above, Canada is seen to have bigger professionalism, overall flexibility, optimism and transparency that have shaped the finance mode and shareholder corporate-governance model. There is also insufficient interaction between financial reporting as a result of its large individualism, low uncertainty-avoidance and power-distance index. France has higher statutory control, uniformity, conservatism, and substantial uncertainty avoidance which in contrast show strong government effect in accounting regulation. France has a stakeholder corporate-governance model, which is dominated by banks, government, or families.
Canada has a common-law accounting system which include the accounting expectations used to prepare financial data. The provincial and federal law kept the regulation of accounting benchmarks to the Canadian Institute of Chartered Accountants (CICA). There is no uniform plan of accounts; rather expectations evolve by becoming commonly accepted in practice, but with a significant degree of uniformity which the CICA regulates. Accordingly, accounting and tax guidelines are kept separate. Monetary reports are used according to accounting benchmarks.
In France, “Plan comptable standard” which Governmental imposed on accounting have strongly influenced accounting methods (Perera, 1989). This Accounting Plan is typically prescriptive, in depth, and procedural. Personal accounting is very much a public-sector activity, administered by governmental (or quasi-governmental) bodies.
This essay has looked at how lifestyle influences the accounting specifications and sees that customs in fact shapes the accounting standards of any particular nation. Many countries place superb emphasis on their own accounting specifications, as a result of the societal values and norms which these standards have already been designed. This is of tradition and how it impacts national/international accounting specifications were offered, citing the exemplification essay analyses of Hofstede and Gray. Our analyses applying Canada and France as sample countries build the much ignored link between way of life and accounting. The essay as well looked at international accounting harmonization initiatives of the IASB, and how traditions has afflicted its goals. Although there happen to be other factors affecting national accounting standards, culture in fact plays a pivotal purpose in deciding national accounting standards. With the analyses, it is hoped that customs and accounting will be looked at side-by-part when decisions will be being manufactured globally.