Accounting as defined by the American Accounting Association

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The difference in the accounting system of countries has been recognised for some time now and reasons has been put forward to explain these differences, but more recently culture has been put into the equation of factors that influences accounting systems and the reason why harmonization has been somewhat difficult.

Accounting as defined by the American Accounting Association (1966) are the provision of economic (financial) information for decision making, therefore accounting system might be seen as the procedures and controls adopted by a country or corporation for the identification and documentation of relevant transactions and events which are used in providing information in financial terms.

On the other hand, accounting harmonisation is the process of bring the accounting standards and requirements of countries as close as possible, since complete unification might be difficult.

Furthermore, culture has been defined as the "collective programming of the mind which distinguishes the members of one human group from another" (Hofstede, 1980 pp.25). Every country or society shares its own unique norms which are characteristics common among members of such society. Hofstede (1980) demonstrated that countries could be grouped into different cultural dimensions; power distance, Uncertainty avoidance, Individualism versus Collectivism, Masculinity and femininity. This difference in cultural dimension of countries and the effect it has on their accounting practices has made it difficult to completely harmonize the accounting system of countries. The peculiarity of national cultures made countries adopt accounting practices suitable to their environment and culture, (Hamid et al 1993, 1996). Ross, (1989) argues that given the same data, accountants from different countries will produce different result in line with their country's accounting practices, yet the world is a global economy and multinational companies are listed in the stock market of different countries. There is need for International Accounting Standards that would provide a guideline for harmonization since complete unification might not be possible yet.

A country's level of power distance depends on the extent individuals of the society expects and accepts that power is unequally distributed. High power distance countries are characterised by few individuals being seen as privileged. Individualism versus Collectivism measures how self-interested and personal individuals are as opposed to being closely knit and integrated into groups. In an individualistic society; people look after themselves and their immediate families while in a collective society individuals integrate into strong and cohesive groups. The tolerance of uncertainty and ambiguity places a country high or low in the uncertainty avoidance index. A high uncertainty avoiding country will not be open to new ideas or concepts, it will rather maintain what is known and believed (Status quo). Finally, masculinity and femininity measure how a country is disposed toward either the male traits or attributes of assertiveness, competition or the female qualities of care and modesty. In a masculine country there is likely going to be competition and showy display of achievements while in a feminine country one will likely notice good quality of life (Hofstede, 1980 pp.25). It should be noted that there could be different cultures in a particular country. Just as countries differ in their cultures, the accounting system of countries also differs. This easy essay will examine the influence that culture might have on the development of a country's accounting system by looking at accounting systems of Nigeria, Iran and Saudi Arabia and comparing them with what is obtainable in the USA and UK. It will also consider the implications on international harmonization of accounting practice before drawing a conclusion.

Theoretical Development

Gray (1988) has been presented as the first to clearly relate the cultural dimensions (Hofstede, 1980) of countries and the values that drives their national accounting system, but much empirical works has followed. Perera (1989) and Perera and Mathews (1990) examined the influence of culture on the accounting practices of developing nations. Furthermore, Radebaugh and Gray (1993) related accounting values to accounting practices and Baydoun and Willett (1995) and Willett et al (1997) extended Gray's work by trying to operationalize countries accounting values in terms of GAAP.

Gray (1988) suggested that the following accounting values are affected by culture; Professionalism versus statutory control, Uniformity versus flexibility, conservatism versus optimism and secrecy versus transparency.

Professionalism

This is the preference by accountants to excise individual professional judgement in undertaking their tasks as against statutory control which is the imposition of force on accountants to comply with legal requirement or be sanctioned for non-compliance. Gray (1988) argues that if a country ranks high in individualism and low in terms of uncertainty avoidance and power distance, it most likely will rank high in professionalism. It follows that in a country with high individualism, professional judgement by accountants will be highly desirous because by nature these accountants have had their minds programmed in a belief for individual decision and responsibility, whereas in collective and closely knit societies the emphasis will be on the group view. A strong uncertainty avoiding country will prefers the status quo, not be comfortable with new and unstructured information and therefore will not tolerate professional judgement but rather tend towards statutory control of accounting profession. The reverse will obtain in a weak uncertainty avoidance country were people are allowed to give their professional opinion. There is also a link between the power distance disposition of a country and its professionalism. Professionalism is likely to be high in a country with low power distance were individuals feel less afraid to say their mind than in a high power country where there is inequality. When compare to the UK, Nigeria has a huge government intervention and control on the development of its accountancy profession, which is in line with Gray's hypothesis based on Hofstede's classification of the countries. C.U.Uche (2002) [1] argues that the manner and process of granting ANAN chartered status was not consistent with professional requirement.

Disclosure

The level of secrecy or transparency is an important accounting value (Arpan and Radebaugh, 1985 cited by Gray 1988) that is impacted on by a country's cultural dimension. Disclosure varies among countries, the higher a country ranks in terms of uncertainty avoidance, power distance and the lower it ranks in terms of individualism and masculinity the more likely it will rank high in secrecy (Gray, 1988). The accounting disclosure in an uncertainty avoidance country would be low following the fact that such a country will restrict information flow to avoid conflict and competition. In Power distance society, information would be restricted and seen as the preserve of the highly placed as a result of inequality. In collective societies information are mainly for those involved; this will affect the level of information disclosure in the accounts for public consumption. It could then be said that countries with more individualism preference will has more disclosure in their accounts than countries with collective disposition. A feminine country that has an attitude of care for quality of life will likely provide information regarding environment and other social related issues. Because of the ownership of business (Watts, 1977), collectivism and trusting preference in Japan, the disclosure of accounting information will be less when compared to Nigeria or the UK

Uniformity and Flexibility

This is the preference to enforce a uniform accounting practices between companies and the consistent use of such practices over time as opposed to flexibility in accordance with a company's circumstance (Gray 1988). This is a fundamental accounting principle worldwide (Nobes and Parker, 1985; Choi and Mueller, 1984; cited by Gray 1988).

Gray (1988) demonstrated a link between the uniformity of a country's accounting system and its cultural dimension. He states that the higher a country ranks in terms of uncertainty avoidance and power distance and the lower it ranks in individualism then more likely it will rank highly in terms of uniformity. An uncertainty avoiding country would have strict rules and codes and there is likely to be respect for these rules ensuring uniformity of accounting practices. Furthermore collectivism, with its characteristic of high belief in organisation and regards for group norms, will increase uniformity. A country like Saudi Arabia is likely to have more uniformity in its accounting practices than Nigeria. UK allows more flexibility (e.g. Holzer, 1984)

Conservatism versus Optimism.

This is one of the most important concepts in accounting because of its impact on accounting valuation (Sterling 1967).Prudence in the measurement of assets and reporting of profit is termed conservatism and differs between countries based on their cultural orientation (see Beeny 1975, 1976; Arpan and Radebaugh, 1985).Gray (1988) suggested that the more uncertainty avoiding a country is and the lower it ranks in terms of individualism and masculinity, the more conservative it will likely be. The concern for security, need for a cautious approach to cope with the uncertainties of future event would make an uncertainty avoidance country to prefer conservative rules in its accounting system. Low individualism and masculinity will also encourage conservatism while the reverse will be the case in high individualism countries because of people's desire to show their achievements and the competition. Saudi Arabia will have a more conservative accounting system than a country like Nigeria.

Values and Ethics

Values in a broad sense are tendencies to prefer certain state of affairs over others (Hofstede, 1997), while ethics refer to values that identifies a professional body. There is a strong connection between national social value and professional values (ethics) that drives national accounting system; (Gray,1988).The Nigerian value dimension provides a breeding ground for corruption, which reduces professionalism and made hitherto corrupt practices acceptable and allowed by auditor. The 10 percent [2] concept is gradually becoming a recognised form of business development. The professional accountants are not unaffected, there have been cases of unethical practices and the professional bodies (ICAN and ANAN) did nothing to discipline their members. The case of connivance by Akintola Williams deloitte to over state the accounts of Cadbury PLC between 2003 and 2006 (O.M Bakre, 2007) in which ICAN did not act and the total of =N= 301b ($2.15) declared missing from the books of Nigerian National Petroleum Corporation in 2002 alone due to weak accounting practice (Guardian, 11 April 2002, cited by O.M.Bakre, 2007) are evidences of effect of value on professionalism. These cases would have been thoroughly investigated and culprits punished in countries with good value culture which translates into high level of accounting professionalism like in USA and the U.K.

Religion is another cultural aspect that impacts on how accounting issues are treated. In Saudi Arabia and other Islamic countries, accounting transaction such as interest on receivables, pension benefit, long-term debt amortization, lease capitalization and assets impairment are not allowed by Islam (Baydoun and Willett, 2000 p.82; Clarke et al 1996) and would be treated significantly different from the way these items would be treated in a more liberal country like the U.K and USA.

This difference in cultural dimension of countries and the effect it has on their accounting practices has made it difficult to completely harmonize the accounting system of countries. The peculiarity of national cultures made countries adopt accounting practices suitable to their environment and culture, (Hamid et al 1993, 1996). Ross, (1989) argues that given the same data, accountants from different countries will produce different result in line with their country's accounting practices, yet the world is a global economy and multinational companies are listed in the stock market of different countries. There is need for International Accounting Standards that would provide a guideline for harmonization since complete unification might not be possible yet.

Hofstede's (1980) cultural dimensions has been criticised on a number of issues ranging from the non-representativeness of the sample (Robin,1983) to bias by using only Americans and Europeans to conduct the survey (Roberts and Boyacigiller, 1984),yet the most outstanding is the fact that the current globalization might have rendered it out of date (Mead, 1994). Gray (1988) scored high marks on relating cultural influence to accounting practice but was weak in explaining professional and regulatory structures from a cultural base (Salter and Frederick, 1994).

Furthermore the International Accounting Standards Board though acknowledged for its efforts has been criticised for westernising the standards by concentrating on U.K and USA and not considering that there could be insight from the practices of other nations (Hamid, et al, 1993).

Conclusion

The effect of cultural dimensions on accounting practices cannot be overemphasised. The culture of countries has shape their preferences on ways of life and doing things, accounting practice inclusive. This has resulted in the divergence that is seen in the accounting practices among countries. The interdependence of the economy of countries has made the call by ISAB [3] for the harmonization and (or) convergence of accounting practices of countries with International Accounting Standards to enhanced comparability and understanding a welcomed development.

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