Chapter 2
Causes of International
Differences
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Note
• Your textbook gives a number of causes
of international differences in financial
reporting
• Bear in mind that these differences appear
because accounting:
– Uses estimation – e.g. net income
– Uses valuation – e.g. plant and property
– Targets several audiences – investors,
bankers, customers, suppliers, etc.
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External Environmental &
Culture
– Individual versus Collectivism
• degree of interdependence between individuals
– Large versus Small Power Distance
• the relative acceptance of the unequal distribution of power
– Strong versus Weak Uncertainty Avoidance
• the degree to which people feel uncomfortable with
uncertainty
– Masculinity versus Femininity
• Masculinity – a preference for achievement, heroism,
assertiveness and material success
• Femininity – a preference for relationships, modesty, caring
for the weak, and quality of life
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Values in Accounting Practice
• Gray’s pairs of contrasting accounting
values:
–
–
–
–
professionalism vs. statutory control
uniformity vs. flexibility
conservatism vs. optimism
secrecy vs. transparency
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Secrecy
Less-developed
Latin
Germanic
Near Eastern
Japan
Less-developed
Asian
More-developed
Latin
African
Optimism
Conservatism
Asian
colonial
Nordic
Illustration
Anglo-American
Transparency
Figure 3.2.1 Accounting Systems: Measurement and Disclosure
Source: Gray, S. J. (1988) ‘ Towards a Theory of Cultural Influence on the Development
of Accounting Systems Internationally’, Abacus, March, p. 13
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Statutory Control
Asian
Colonial
LD Latin
LD Asian
Near Eastern
African
Japan
Germanic
Flexibility
MD Latin
Uniformity
Nordic
Illustration
Anglo-Saxon
Professionalism
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Linking Cultural and Accounting
values
• Many researchers have tried to link
cultural values with accounting values
– Examples:
• High uncertainty avoidance  Conservatism
• This research stream has only be
moderately successful
– Declining validity in the context of MNEs
and globalization
– Other variables have to be considered
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Michel Leseure
Linking Cultural and Accounting
values
Hofstede Values
Gray Sub-Values
IND
UA
PD
MASC
Professionalism
Proposed
Relationship
+
-
-
-
Uniformity
Proposed
Relationship
-
+
+
-
Conservatism
Proposed
Relationship
-
+
-
-
Secrecy
Proposed
Relationship
-
+
+
-
Notes: IND = Individualism, UA = Uncertainty Avoidance, PD = Power
Distance, MASC = Masculinity
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The Case of Morocco
• Individual versus
Collectivism
• Large versus Small
Power Distance
• Strong versus Weak
Uncertainty
Avoidance
• Masculinity versus
Femininity
• professionalism vs.
statutory control
• uniformity vs.
flexibility
• conservatism vs.
optimism
• secrecy vs.
transparency
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Other Sources of Differences
•
•
•
•
•
•
•
Legal systems
Providers of finance
Taxation
The accounting profession
Accounting theory
Inflation
Accidents
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Michel Leseure
Legal Systems
– Common Law
•
•
•
•
Limited statute law,
Interpreted by the courts,
Case law then supplements the statutes,
Less abstract than codified law, company
laws/commercial codes do not establish specific rules
for accounting, assumes flexibility
– Codified Law
• General rules for the future (does not address specific
cases as in common law),
• Uniform company laws/commercial codes establish
specific rules for accounting, assumes less flexibility
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Providers of Finance
• Market Based Systems
– Large capital market, large constituency of
investors, requires broadly distributed investor
information
• Credit Based Systems
– Financial resources provided by the state or
by banks, limited distribution of selected
information
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Taxation
• Taxation regulations determine
accounting practice
• Taxation regulations have little
influence on accounting practice
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The Accounting Profession
• The size and strength of the profession
does have some influence on the
country’s accounting system
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Inflation
• Where inflation is relatively high,
accounting systems generally adjust
(in varying degrees) to account for
inflation
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Accounting Theory
• Limited impact
• Some in the Netherlands
• Minor influence in the U.S.
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