It has been recognised ages ago that there are many forces could affect the culture, but this article examine the importance of cultural influence on international accounting with various aspects by giving reference of Hofstede's and Gray's framework. This essay also shows us about the impact of religion on culture and accounting.


In this essay, we will explore the issues about cultural affects on accounting. Many economists and business experts defined the term 'culture' in various ways. According to (Agyris & Schon, 1978) "culture is the shared espoused values of a group" and Hofstede (1991) referred culture as "Software of the mind" which influences the way in which people of a particular group interpret and operate in native environment.

Culture has meaningful effects on accounting practices that has not been investigated thoroughly in the past. In this essay, after little explanation of international accounting standards, cultures, and subcultures we will discuss the influence of culture on accounting by keeping Hofstede, Gray theories in mind, consisting of four cultural dimensions (Individualism, power distance, uncertainty avoidance, and universalism). After this we will highlight some important impacts of religion on accounting practices. Finally, we will look for some prior researches on cultural effects on accounting and then we will finish with suggestions for future researches.


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According to Bloom (1997) "accounting is very much a function of a country's culture. Since each country has a unique culture, each has a somewhat different accounting system too." Accounting practices have historically varied by country (Nobes, 2000). The formation of Accounting Standard Committee (IASC) in 1973 was the first move towards global accounting standards. In 2001, IASC changed his name to IASB (International Accounting Standards Board) which issues International Financial Reporting Standards (IFRS). According to (Deloitte Touche Tohmatsu, 2007) around 100 of countries have a policy of convergence with IFRSs, but the fact is that these standards are not identical with GAAP of USA but has similar provisions (Houston & Reinstein, 2001; Reason, 2002; Blanco & Osma, 2004).

In the recent years there is a much focus on the convergence of national accounting standards to a single set of world's accounting standards and also emphasising on the activities of United State's FASB (Financial Accounting Standards Board) and its potential convergence. (Business Wire, 2002; Gornik-Tomaszewski & McCarthy, 2003; Goldberg et al, 2006; Taub, 2006).


It's very hard to define culture in short terms. Experts define it according to their relevant field of knowledge and we can find around 160 definitions of culture from difference sources. For example, business literature discussed culture as arising from a shared set of values, using the framework of Agyris & Schon (1978). The most prominent researches and theories in the relation of business studies include Hall (1976), Trompenaars and Hampden-Turner (1998), Hofstede (2001), Spector et al (2002), Bhagat et al (2003), House et al (2004), Chao and Moon (2005), and Javidan et al (2006). Most importantly Hofstede's identified four different levels of cultures like Symbols, Heroes, Rituals and Values.

Culture in terms of shared beliefs and value existence at many levels is called as subculture. There could be many subcultures within the country differentiated on the basis of religion, ethnic, wealth etc.


In 1988, Gray identified 4 accounting dimensions, can be used to define country's accounting (sub) culture: professionalism versus statutory control; uniformity versus conformity; conservatism versus optimism, and; secrecy versus transparency. In here, first two dimensions are associated with authority & enforcement of accounting practice, and others are related with the measurement & disclosure of accounting information at national level.

After that Gray (1988) through light on Hofstede's model by saying that the accountant's value systems are related to and derived from the unique values in the country. Basically cultural factors directly influence the development of accounting and financial reporting systems at a country level (Doupnik & Tsakumis, 2004).


Hofstede divide the culture in 4 dimensions Power distance, Uncertainty Index, Individualism, and Masculinity/Femininity.

Power distance measures how much the less powerful members of institutions and organization expect and accept the power is distributed unequally. Uncertainty Index measures how much members of a society attempt to cope with anxiety by minimizing uncertainty. In cultures with high uncertainty avoidance, people prefer explicit rules (e.g. about religion and food) and formally structured activities, and employees tend to remain longer with their present employer. Individualism measures how much members of the culture define themselves apart from their group memberships. In individualist cultures, people are expected to develop and display their individual personalities and to choose their own affiliations. In contrast in collectivist people act mostly as a member of a long-term group, such as the family, a religious group, a town, or a profession, among others. Masculinity/Femininity measure the value placed on traditionally male or female value. In 'masculine' cultures, people value competitiveness, assertiveness, ambition, and the accumulation of wealth and material possessions. In 'feminine' cultures, people value relationships and quality of life. This dimension is often renamed by users of Hofstede's work, e.g. Quantity of Life vs. Quality of Life.

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A summary of the significant literature attempting to extend or refine the Hofstede's Gray framework and its understanding on the influence of culture on accounting is shown in the Table II.


This is not easy to test this hypothesised relationship but it is also known that there are different problems with Hofstede's model as well, because his model is based on employees of IBM in the period 1968 - 1973, but these scores may not be valid in 2000s and another thing is that he totally ignored the religion which can also especially affect attitudes towards the business and accounting.


Religion is very important aspect when we are discussing about culture but the fact is that the influence of religion on accounting has been ignored many times and it's not surprising considering that how infrequently issues of faith and accounting are integrated. Chewning (1990) explained in his introduction to the chapter "A Theological Perspective on Accounting" in Biblical Principles and Business: The Practice, identifies this bias that many Christians bring to the discussion of faith and accounting by noting: I cannot help wondering how many of those who read it will have ever thought that biblical principles could be applied to accounting. The chapter also shows how God's revealed moral principles are so encompassing as to include something that seems, on the surface at least, to be so removed from theology. (p. 105)

But what we can see in reality is that accounting standards are not unaffected from religious influence. Actually accounting harmonisation is focusing on bringing world's seven accounting systems into harmony with the collaboration of IAS, which is totally based on Western standards, and also infers Judaic-Christian culture and values and not accommodate other religions, such as Islam.

"Islamic law influence the ways of businesses in a manner not accommodated automatically by Anglo-American accounting practice and many Western accounting practices draw upon assumptions which conflict with the belief of Islam" (Hamid et al., 1993, p. 134). The Islamic studies tell us the importance of individual to society and not the rights of the individual. By comparing it with Western accounting systems, Islam focus on Unity of God. The whole community and environment requires accounting information focusing on social accountability rather than narrow focus on personal accountability. Under Muslim code of law, the principle of full disclosure is interpreted to mean the disclosure of any information that should be made available to all the members of community (Baydoun and Willett, 2000).


There are some similarities in accounting practices around the globe and countries are using various methods and techniques for keeping accounting & financial information, but some researchers believe that culture is related to tax structure system development or budgeting systems. Two researchers Rose (1985) & Wildavsky (1985) looked at universalism, national culture, tax specific influences, and political inertia and they suggested that fatalism, individualism, and egalitarianism cause budget deficits in Western nations through their effects on the way tax systems are structured.

Gray (1988) worked on Hofstede's model to develop financial accounting subculture and identified that accounting values were reflected in accounting systems around the globe. Researchers and experts from all around the world appreciated the work of Gray (1988). (Eddie, 1990; Gray & Vint, 1995; Hope, 2003; Jaggi & Low, 2000; Salter & Niswander, 1995; Sudarwan & Fogerty, 1996; Wingate, 1997; Zarzeski, 1996) are famous in that list.

In short we can say that Hofstede and Gray framework build the foundation of cultural dimensions, some people support them and few were agree on 3 dimensions and rest criticise as well.


In my opinion, the first and important thing to understand is that how diversity in national standards arose after globalization and emergence of international accounting standards. How gradually and efficiently different countries adopt new international standards. In addition, even if the IASB achieves ideal harmonization and acceptance of its standards, societal culture will still have a strong influence on how investors from different cultures process that accounting information. Gray's (1988) framework has raised some hopes that how culture influence on accounting at national level.

The second thing is that religion is an important cultural variable that exerts extensive influence on both ways; how financial information is formed and how it is utilized.

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