Chapter 2
International Accounting
Patterns, Culture and
Development
Classification of Accounting
and Reporting Systems

Classification aids in
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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
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black
Purposes of International
Classification
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Describe and compare international systems
Improved understanding of
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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
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black
Purposes of International
Classification

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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
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black
Classification Research

Deductive or
judgmental approach
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Environmental factors
identified and linked to
national accounting
practices
International groupings
or development patterns
are proposed

Inductive or empirical
approach
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Individual practices
analyzed
Development patterns or
groupings identified
Explanations based on
economic, social,
political, and cultural
factors proposed
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black
Deductive approach

Mueller’s four approaches to accounting
development
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Macroeconomic pattern
 Business accounting is tied to national economic policies –
Examples: Sweden, France, Germany
 Goals of Corporation follow rather than lead national
economic policies (e.g., might smooth earnings to promote
economic stability)
Microeconomic pattern
 Accounting is a branch of business economics – Example:
replacement-value accounting in Holland
 Maintenance in real terms of monetary capital invested in
entities.
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black
Mueller’s classification system

Mueller’s four approaches (continued)
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Independent discipline pattern
 Accounting is a service function derived from business
practice – Examples: U.S. and U.K.
 Accounting is considered to be capable of developing its
own conceptual framework from business practice – self
regulating like other professions
Uniform accounting pattern
 Accounting is an efficient means of administration and
control – Ex: France, Germany, Sweden, Switzerland
In addition, other influences such as the legal system,
political system, and social climate impact (Eg. Sarbanes
Oxley) – witch hunt for poor practices.
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black
Cultural Influences on
Accounting Systems
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Importance of Culture/Historical roots on
accounting systems is increasingly being
recognized
Culture is considered an essential element in
the understanding norms / values
Culture/Societal values at nat’l level permiate
organizational/occupational subcultures
Accounting systems and practices can
influence/reinforce values
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black
Structural Elements of Culture

Hofstede – 4 Underlying societal dimensions
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Individualism
Power Distance
Uncertainty Avoidance
Masculinity
Hofstede and Bond – 5th dimension

Short v. Longterm Orientation: Confucion
Dynamism
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black
Hofstede’s Societal
Dimensions
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Individualism versus Collectivism
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Large versus Small Power Distance
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People’s self-concept: “I” or “we” : U.S. v Europe?
How a society handles power inequalities among people /
organizations – distributed unequally.
 Large power distance: accept hierarchical structure
 Small power distance: strive for me equality
Masculinity – preference for achievement, heroism,
assertiveness, material success
Feminism: preference for relationships, modesty,
caring

Allocation of social roles (not biological) to the sexes
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black
Hofstede’s Societal
Dimensions - Continued
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Strong v. Weak Uncertainty Avoidance
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Degree to which society is OK with ambiguity
Strong: demand uniformity, intolerant of deviation
Weak: more relaxed, practice > principle, deviance from
norm OK
Short v. Long-term Orientation: Confucion
Dynamism
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ST: respect for tradition, social obligations regardless of
cost / quick results
LT: adaptation of traditions to meet modern needs / thrifty
sparing approach to resources
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black
Accounting Values v. Societal
Values – Gray
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Professionalism versus statutory control
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Uniformity versus flexibility
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Preference for enforcement of uniform practices
Conservatism versus optimism
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preference for individual professional judgment / self
regulation
Preference for cautious approach / less risky approach to
measurement.
Secrecy versus transparency
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Preference for confidentiality v. transparency
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black
Professionalism versus
Statutory Control
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Accountants are perceived to have independent
attitudes throughout the world
Public regulation or self regulation
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U.K. – rely on judgment of accountant
France and Germany – implement detailed legal
requirements
Link to societal value dimensions – Professionalism
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Individualism
Weak uncertainty avoidance
Small power distance
Masculinity
Short-term orientation
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black
Uniformity versus Flexibility
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Uniform accounting plan and imposition of tax rules
for measurement purposes
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Intertemporal consistency and some degree of
intercompany comparability b/c of flexibility

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France and Spain
 Facilitate national planning
 Pursue macroeconomic goals
U.S. and U.K.
Link to societal value dimensions – Uniformity
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Strong uncertainty avoidance
Collectivism
Large power distance
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black
Authority and Enforcement
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black
Conservatism versus
Optimism
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Conservatism seen as a fundamental value
 Strongly conservative
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Less conservative
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Japan, France, Germany, Switzerland
U.S., U.K., the Netherlands – though changing post Sarbanes Oxley -
Link to societal value dimensions – Conservatism
 Strong uncertainty avoidance
 Long-term orientation
 Collectivism
 Femininity
Sarbanes Oxley – impact: authority enforcement / Measurement
disclosure figures 2.5 / 2.6
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black
Secrecy versus Transparency
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Stems from management and accountants
Closely related to conservatism
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Secrecy
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Secrecy relates to disclosure
Conservatism relates to measurement
High – Japan, France, Germany, Switzerland
Low – U.S. and U.K.
Link to societal value dimensions – Secrecy
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Strong uncertainty avoidance
High power distance
Collectivism
Femininity
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black
Accounting Values and
Societal Values
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black
Accounting Values and
International Classification
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Accounting values most relevant to professional or
statutory authority and enforcement
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Accounting values most relevant to measurement
and disclosure
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Professionalism and Uniformity
 Both concerned with regulation and degree of enforcement
or conformity
Conservatism and secrecy
Country groupings
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Optimistic and transparent
Conservative and secretive
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black
International Pressures for
Accounting Change
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Growing international interdependencies
Harmonization of the regulatory framework
internationally
Centrally planned economies embraces
market-oriented approach
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Former U.S.S.R., Eastern Europe, China
New opportunities for international
investment, joint ventures, and alliances
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black
Economic Groupings and
International Organizations
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European Union
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UN
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Promotes economic integration/harmonization
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
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black
Impact of MNEs and
Globalization

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Cultural and social
Employment and consumption patterns

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Significantly influenced
Pressure for more accountability
Environmental impact
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black
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
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black