ACCOUNTING IN ASIA-PACIFIC REGION:
HOFSTEDE-GRAY THEORY
Abdullah Taman
Yogyakarta State University, Indonesia
Presented in APCEMaL 2011, UPSI Malaysia
29th - 30th Nov. and 1st Dec. 2011
The Legend Hotel, Kuala Lumpur Malaysia.
ABSTRACT
The objective of this paper is to describe that culture
and social-economy can affect financial accounting in
Asia-Pacific region. Explanation is based on HofstedeGray Theory which associates between accounting
values and cultural dimension.
The Hofstede-Gray Theory has been used by a number
of writers as the basis of a framework trying to
understand why national accounting practices take the
form they do and in some cases to try to determine
normatively whether accounting techniques are
appropriate to particular societies (e.g. Baydoun and
Willet, 1995).
INTRODUCTION
Asia Pacific region is a promising area. For instance, Asia Pacific
Economic Cooperation (APEC) is a region group consisting twenty
one countries that have objective to develop its economic
community to increase welfare in the region.
COUNTRIES
“ATTRIBUTES OR ENVIRONMENT”
Hongkong, Sing, Jpn, Korea
“Tiger” of Asia
Peoples’s Republic of China
Massive restructuring of its socialist economy
Vietnam
Rapid economic and social change
Philippines
Long history of Spanish and latterly US colonial
Malaysia and Indonesia
Populous Muslim countries in the world
Brunei
An oil rich Sultanate
Papua New Guinea
Adjusting to the demand of modern commerce
Macau
Portuguese dependency
Australia and New Zealand
Developed economies with European culture
Thailand
Has never been colonized by any European power
OBJECTIVE OF THIS PAPER
Given the issue under discussion, the question
should be posed as to whether one would expect
environment affect accounting practice. So that,
the objective of this paper is to describe that
culture and social-economy can affect financial
accounting in Asia-Pacific region. Furthermore,
explanation is based on the Hofstede-Gray
Theory which associates between accounting
values and cultural dimension.
RELATED LITERATURES
Several theories of their more immediate causes
have been proposed, particularly in the
international accounting literatures. The trait of
strong governmental interference has been
variously explained in term of weak
professionalism, e.g. France (Nobes, 1990); type
of political system, e.g. China (Chan, 1995), and
pattern of funding enterprises (creditor versus
investors), e.g. Japan (Radebaugh & Gray, 1993)
RELATED LITERATURES (cont’d)
Cooke and Parker (1994) describe and classify
financial reporting practices in some the West
Asia Pacific Rim countries with drawing
relationship fairly direct based upon the
perceived affects of quite narrow economic
factors.
Probably the most well-known exponent of
cultural approach to understanding the nature of
accounting practices is shown by Gray (1988)
RELATED LITERATURES (cont’d)
Gray attempted to relate a number of accounting
values (preferences for conservatism, uniformity,
secrecy, and professional judgment) to Hofstede’s
(1980) dimensions of culture (power distance,
uncertainty avoidance, individualism, and
masculinity), so that, I called “The Hofstede-Gray
Theory”. The theory has been used by a number of
authors, such as Parera (1989), Gerhardy (1990),
and Baydoun and Willet (1995) but they did not
explicitly mention “The Hofstede-Gray Theory”
CULTURAL EFFECTS
The existing literatures on the effects of
environment on accounting practices referred to
above may be divided into three categories:
1. The common sense analysis of the links
between immediate economic and political
causes and their perceived effects on
accounting practices
2. “Cultural based” using theHofstede-Gray
Theory
3. Combination of both approach (1 & 2)
CULTURAL EFFECTS (cont’d)
With respect to category 1), examples have already
done by Muller (1967, 1968), Siedler (1967), and
Nair and Frank (1980) using single factor
determining the specific characteristics of financial
reporting. In Asia-Pacific region, the influence of
Anglo-American accounting in countries such as
Malaysia, Hong Kong, the Philippines, Australia, and
New Zealand is obvious. The obvious characteristics
of accounting practices seem to be primarily
determined by colonial history (the Philippine by
North America and Indonesia by the Netherland).
CULTURAL EFFECTS (cont’d)
With respect to category 2), it can be seen how
this involves quite naturally from (1). Gray’s
theory (1988) took as its subject matter the
preferences of account’s users and prepares.
These preferences will be formed under the
influence of broader cultural values and will
affect the regulatory environment in which
accounting takes place and the pattern of
disclosure.
CULTURAL EFFECTS (cont’d)
Gray’s accounting values and its effect on
accounting systems/practices are shown below:
SOCIETAL VALUES
ACCOUNTING VALUES
ACC. SYST/PRACTS
Individualism/Collectivism
Professionalism
Uniformity/Flexibility
Authority and
enforcement
Power Distance
Conservatism/Optimism
Measurement of
assets and profits
Uncertainty Avoidance
Masculinity/Femininity
Secrecy/Transparency
Information
disclosure
Source: Radebaugh and Gray (1996)
CULTURAL EFFECTS (cont’d)
Actually societal values in left-hand side column
are values introduced by Hofstede, and
accounting values in middle column are values
introduced by Gray, meanwhile right-hand side
column consists systems and practices in
accounting.
SOCIETAL AND ACCOUNTING VALUES
Societal Values: (Hofstede, 1980)
1. Individualism vs Collectivism
2. Power Distance (Large vs Small)
3. Uncertainty Avoidance (Strong vs Weak)
4. Masculinity vs Femininity
SOCIETAL AND ACCOUNTING (cont’d)
Accounting Values: (Gray, 1988)
1. Professionalism vs Statutory control
2. Uniformity vs Flexibility
3. Conservatism vs Optimism
4. Secrecy vs Transparency
Relationship between two values (societal and
accounting) is shown below:
RELATIONSHIP BETWEEN SOCIETAL AND
ACCOUNTING VALUES
Hofstede’s Societal Values
Gray’s Accounting Values
Professln
Uniform
Consrvt
Secrecy
Power Distance
Negative
Positive
n/a
Positive
Uncertainty Avoidance
Negative
Positive
Positive
Positive
Individualism
Positive
Negative Negative
Negative
Masculinity
n/a
n/a
Negative
Source: Baydoun and Willet (1995)
Negative
POSITION OF SOME ASIA PACIFIC COUNTRIES
IN ACCOUNTING VALUES
STATUTORY CONTROL
Less Developed Asia
-Indonesia
-Taiwan
-Thailand
-Malaysia
-the Philippine
FLEXIBILITY
Japan
Hong Kong
Singapore
Asian Colonial
Anglo-Saxon
Australia
New Zealand
PROFESSIONALISM
UNIFORMITY
Source: Baydoun and Willet (1995)
POSITION OF SOME ASIA PACIFIC COUNTRIES
IN ACCOUNTING VALUES
SECRECY
Less Developed Asia
-Indonesia
-Taiwan
-Thailand
-Malaysia
-the Philippine
OPTIMISM
Japan
Hong Kong
Singapore
Asian Colonial
Australia
New Zealand
Anglo Saxon
TRANSPARENCY
CONSERVATISM
Source: Baydoun and Willey (1995)
CONCLUSION
There is insufficient space to fully recount all the
many environmental elements which have been
felt to be influential in determining the forms
which accounting practices take in different
countries.
In Asia-Pasific Region, accounting system and
practices are also influenced by environmental
element such as culture and social economic.
This is reflected in relationship between societal
and accounting values introduced by Hofstede
and Gray
THANK YOU