International

Accounting
2101AFE
A Comparative Study of Accounting
and the Environmental Factors
Influencing Accounting in China and
the United States
By: Jon Andre Pedersen (S2821823)
Lecturer: Dr. Allen Huang
Date of submission: 07.05.2015
Word count main body:
2194 (excluded footnotes, synopsis,
titles, and in-text references)
Jon Andre Pedersen 2101AFE 07/05/2015

Contents
SYNOPSIS ...................................................................................................................................................................2
INTRODUCTION.........................................................................................................................................................3
GRAY’S ACCOUTNING VALUES ...........................................................................................................................4
Professionalism versus Statutory Control .....................................................................................................4

Uniformity versus Flexibility ..............................................................................................................................5

Conservatism versus Optimism .......................................................................................................................6

Secrecy versus Transparency ...........................................................................................................................6

Short-term versus Long-term ............................................................................................................................7

ENVIRONMENTAL FACTORS ................................................................................................................................ 8

Culture .....................................................................................................................................................................8

Legal System ....................................................................................................................................................... 11

Economic System and Structure .................................................................................................................... 12

Providers of Financing ...................................................................................................................................... 13

CONCLUSION .......................................................................................................................................................... 14
REFERENCES CITED: ........................................................................................................................................... 16
APPENDICES ........................................................................................................................................................... 19
Appendix A ........................................................................................................................................................... 19

Appendix B ........................................................................................................................................................... 19

Appendix C ........................................................................................................................................................... 20

Appendix D ........................................................................................................................................................... 21

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SYNOPSIS
Despite a growing emphasis on a convergence among national accounting practices
worldwide, there are still many barriers for the distinct accounting systems and practices
to reconcile with each other, which is especially due to the different cultural values and
environmental factors that reflects, shapes, and reinforces the unique accounting
environment.

This paper will aim to give a comparative analysis of the distinct accounting environment
in the world’s two largest economies, China and the United States (US). Firstly, it will
elaborate on the different accounting cultural values dimensions proposed by Gray (1988)
and how these manifest themselves in the aforementioned nations. It will then further
elaborate on specific environmental factors that has a large impact on the two nation’s
accounting system, focusing on culture, the legal system, the economic and political
structure, and the providers of finance.

Overall, in the US there are private-self regulations; a transparent, fair and true view
concepts; accounting practices are flexible; and accounting measurements are
approached by optimistic views. Whereas, in China, although gradually converging to
more Western accounting values, the accounting system is heavily regulated by the
government with uniform accounting practices, more secrecy, and it is considerably
guided by more conservative views.

Moreover, the fact that China’s culture is high in power distance, masculinity, and
collectivism and low in uncertainty avoidance reinforces itself in the subcultural
accounting culture in China. Whereas, the US, who is high in individualism, masculinity,
and relatively low in power distance and uncertainty avoidance manifests a different
reality.

In addition, the legal system in the US is relatively flexible and has relatively fewer
statuses that establishes limits which leads to less conservative and more innovative
approach to accounting measurement, especially as standards are developed mainly by
non-governmental organizations. Whereas in China, the government authorities set the
accounting standards and monitor compliance with these, which leads to a weaker
accounting profession where less professional judgment is allowed.

Moreover, in China, as the the government controls the major economic resources, the
decisions are made by – and often for – the government, resulting in a uniform and less
adaptive accounting system. Whereas, in the US, participants in the private sector make
most economic decisions, leading to more optimistic and transparent accounting
practices, further reinforced by the fact that taxation is largely separate from financial
statements.

Lastly, in the US the general public are the major providers of finance which ensures
flexible practices and a high level of information disclosure focusing on short-term
performance. Whereas, in China, the government is the major provider of finance, which
ensures a more conservative, uniform and long-term focused approach with a higher
degree of secrecy.

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INTRODUCTION
Gray's (1988) accounting framework has raised awareness about how culture

influences accounting practices at a national level. However, with the ever-increasing

globalization and global integration there are mixed, and often contrary, forces affecting

such practices; on the one hand there is a growing convergence to the International

Financial Reporting Standards (IFRS) standards issued by the International Accounting

Standards Board (IASB), whereas on the other hand there is an opposing force of

cultural and environmental factors posing a challenge for different accounting systems

to reconcile with each other. 1 Some major challenges remain where IFRS standards

may not be acceptable worldwide and may conflict with local regulations in various

countries – which is significantly related to culture (Hofstede, 1983; Belkaoui, 2002, p.

96), legal system (Salter & Doupnik, 1992), economic and political structure (Solas &

Ayhan, 2007; Sawani, 2009, p. 8; Nobes, 2006), and providers of finance (Watts, 1977).

Therefore, to better understand a nation’s contemporary accounting system and why

there are such noteworthy differences between nations, it is of paramount concern to

understand how and why local values and national factors affects the accounting

system and financial disclosure. This paper will portray the significant distinct

accounting practices in China and the US through Gray-Hofstede’s framework of

cultural accounting dimensions, and portray the main environmental factors affecting

and reinforcing these dimensions – notably culture, legal system, economic structure

and providers of finance.

1
Currently the United States is considering to adopt to IFRS, (Deloitte, N.D.) and is working with the IASB to converge (Huang,
2015). China, on the other hand, has committed to the adoption of IFRS and has set up a time frame for adoption (Borker, 2012).

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GRAY’S ACCOUTNING VALUES

Gray (1988) has put forward a hypothesis on how a national accounting environment

might reflect the cultural dimensions identified by Hofstede (1983), known as the

Hofstede-Gray theory (Amat et al., 2002; Dahawy & Conover, 2007) (see Appendix A, B

and C). 2 Gray identified four widely recognized accounting values that can be used to

define a country’s accounting subculture, referred to as professionalism versus statutory

control, uniformity versus flexibility, conservatism versus optimism, and secrecy versus

transparency. Recent scholars also include short-term versus long-term focus as the

fifth accounting value.

Professionalism versus Statutory Control

“Professionalism refers to a preference for the exercise of individual professional

judgment and the maintenance of professional self-regulation as opposed to compliance

with prescriptive legal requirements and statutory control” (Gray, 1988, p. 8; Belkaoui,

1995).

Professionalism greatly corresponds to accounting practices in the US, which manifests

itself though the importance of technical recommendations from the accounting

profession (Amat et al., 2002, p. 15; Law, 2011), and that financial statements relies

strongly on the judgment of the accountant (Borker, 2013, p. 171). In general, the

American accounting system, and in particular the American Institute of Certified Public

Accountants, are self-regulated bodies (Zeff, 2003). This is in contrast to China, where

the provision of guidance and regulation is set by the government - by the Ministry of

2
Many authors have found analytic evidence consistent with Gray’s cultural value theory, such as Mac Arthur (1996), Pourjalali and
Meekm (1995), Doupnik and Salter (199), Law (2011), Gerhardy (1990), and Baydoun and Willet (1995). However, Fah (2008)
argue against the use of Gray’s accounting values. Rather he emphasized the need to examine the values held by members of the
accounting sub-culture from a more fundamental perspective using Schwart’z (1992) universal values. Moreover, interestingly,
Yusoff (et al., 2014), find that there are significant deviations from Gray’s accounting values in Australia, where the accounting
subculture is not consistent with the national societal values.

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Finance - and where the accountant’s role is concerned primarily with the

implementation and compliance of relative prescriptive and detailed legal requirements

(Xu & Xu, 2003; InterChina, 2009; Doupnik & Perera, 2011, p. 243; Chow, Chua &

Gray, 1995). 3 This leads to an accounting profession in the US that has a high social

status and influence, contrary to China, where it is relatively weak, albeit increasing

(Huang, 2015; Xiao et al., 2004). 4

Uniformity versus Flexibility

“Uniformity refers to an inclination for the enforcement of uniform accounting practices

between companies and for the constant use of such practices over time as opposed to

flexibility in accordance with perceived circumstances of individual companies” (Gray,

1988, p. 8).

In China, traditionally, there has been a concern with facilitating national planning, with

accounting information intended for government authorities to make economic

decisions, and thus a uniform accounting plan has been followed (Law, 2011), and as

legal compliance is the priority, little professional judgment is allowed. Moreover, in

general, the emphasis on traditions in Confucianism involves an accounting system that

is characterized by form and structure, stressing conformity to customs and traditional

practices rather than innovative approaches (Borker, 2012, p. 318). Whereas, in the US,

there is a perceived need for flexibility in the accounting profession (Law, 2011)

reflected in the varying accounting practices between companies, and where

3
The Chinese Institute of Certified Public Accountants (CICPA) assumes some administrative authority, delegated by the MOF, to
serve as a bridge between the government and practicing accountants
4
Among others, most domestic professional accounting firms continue to have some government connection and truly independent
accounting firms are rarely seen in China (Doupnik & Perera, 2011, p. 240).

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professional judgments often are practiced and encouraged (MacArthur, 2006, p. 10;

Gray, 1988 as cited in Borker, 2013, p. 171).

Conservatism versus Optimism

Gray (1988, p. 8) defined conservatism - often cited as the most fundamental

accounting concept (Sterling as cited in Law, 2011) – “as a preference for a cautious

approach to measurement as opposed to a more optimistic, laissez-faire, risk-taking

approach”.

As Chinese cognitive attitudes are shaped by Confucian philosophy there is a

widespread focus on conformity to the status quo and traditional practices (Solas &

Ayhan, 2007), where accountants should show losses as soon as possible and defer

gains until they are clearly materialized. Whereas, in the US there is significant

optimism resulting in a higher tendency to report higher asset and profit figures and a

lower expense and liability figures (Borker, 2013, p. 171).

Secrecy versus Transparency

Secrecy refers to a preference for confidentiality and the restriction of disclosure of

information about the business only to those who are closely involved with its

management and financing as opposed to a more transparent, open approach (Gray,

1988, p. 8). 5

In China, Confucianism, together with strong nepotism, and collectivism, results in

secrecy and non-disclosure of business accounts (Solas & Ayhan, 2007). Whereas,

5
Secrecy versus transparency is an increasingly important accounting dimension in contemporary times (Atan and Maruhun, 2009)
as risk disclosures in financial statements have been exacerbated by the global shock of huge accounting irregularities of large
companies (Angun et al. 2013).

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companies in the US, are more public with their information as they do not have the in-

group or closely-held company atmosphere as a does a collectivist society (Zarzeski,

1996; Young, 2013). In general, in the US, true, fair and transparent financial

statements is the foundation of the accounting standards (Oluku & Ojeka, 2011).

Short-term versus Long-term

The different accounting practices also becomes apparent through the importance

attached to either short-term or long-term financial performance (Amat et al., 2002). In

the US there is greater emphasis attached to the income statement as the short-term

financial performance is seen as crucial; such as cash flow, revenue and profitability,

with the goal of quick results (Huang, 2015). However, the Chinese people have

traditionally taken a long-term perspective of life throughout history, and they have

emphasized tradition in order to secure a peaceful and reliable society (Solas & Ayhan,

2007; Bloom & Solotko, 2003, p. 31). Therefore, China is significantly more long-term

oriented, where the focus lies more on the balance sheet - emphasizing sustainability

and a healthy financial position.

Table 1. Conversion of Hofstede Data to Gray Accounting Value Dimensions for the United States and China

Country Professionalism Uniformity Conservatism Secrecy Short-Term

Versus Versus Versus Versus Versus
Statutory Flexibility Optimism Transparency Long-Term
Control
United States Professionalism Flexibility Optimism Transparency Short-Term
China Statutory Uniformity* Conservatism* Secrecy* Long-Term*
Control*
* As numerous authors (Young, 2013, p. 18; Fang, 2007) put forward, China is gradually moving towards a market
economy, opening up further to globalization, and incorporating more and more Western practices - thus gradually
moving towards the American accounting values of professionalism, flexibility, optimism and secrecy. Therefore, their
current accounting values are not as strongly manifested as they were in the past, but major cultural barriers
continuously exists in order for China to fully converge with Western practices (and the IFRS standards).

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ENVIRONMENTAL FACTORS
The international differences in accounting are also reflected, shaped, and reinforced,

by local elements such as culture, legal systems, economic and political structure

(Nobes & Parker 2008, pp.25-37; Lawrence, 1996, p. 5; Radebaugh as cited in Solas &

Ayhan, 2007) and providers of finance (Zarzeski, 1996; Jaggi & Lowy, 2000, p. 496).

Furthermore, there is often a high degree of correlation between these factors (Doupnik

& Perera, 2011, p. 30) (See Figure 1. below). 6

Figure 1. Culture, societal values and the accounting subculture. (Gray, 1988, p. 7).

Culture
Cohen, Pant & Sharp (1993) state that “accounting and management control systems

are manifestations of culture and reflect basic cultural assumptions”(p. 10), which is true

for both China (Hofstede, Gray, Mueller as cited in Solas & Ayhan, 2007, p. 147; Zhang,

2005, p. 5), as well as for the US (MacArthur, 2006). 7 Simply put, as demands, needs,

and cultural influences, vary from country to country, so will the way in which accounting

6
Other factors that scholars stress that will not be elaborated on extensively in this paper are, among others, inflation, education,
and colonization (Taman, 2011, p. 3). Colonization, is by many stressed as one of the strongest factors in determining the specific
characteristics of financial reporting (see Mueller, 1967; Nair & Franke, 1980), but is not regarded as essential in this paper’s
comparison. For more about the role of education, i.e. the higher education level of the US compared to China, see Fang (2007) and
Young (2013). Although, largely consistent and co-related, various authors have stressed different national environmental factors in
explaining national accounting distinctions. Doupnik and Salter (1995) focuses on six factors: legal system, providers of capital, tax
laws, inflation levels, levels of education and levels of economics development. Whereas, Meek & Saudgaran (1990) focuses on five
factors: legal system, taxation, providers of financing, inflation, and political and economic ties.
7
See Zhang (2005) for an interesting article that systematically analyzes how Chinese culture influences its accounting theory and
practice.

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is practiced (Chanchani and Willett, 2004; Forzeh and Nting, 2001, p. 10); the way

accounting standards are developed (Gray, 1988; Doupnik and Salter, 1995); and the

way corporate financial disclosure is practiced, vary (Zarzeski, 1996; Jaggi and Low,

2000; Young, 2013).8

Figure 2. Hofstede’s Six Dimensional Indices for the United States and China (Hofstede Centre, N.D.). Below, the
four first dimensions, which constitutes the core dimensions put forward in 1983 by Hofstede, will be elaborated on.
The fifth, time orientation, is covered in the section of Gray’s accounting values, and the sixth, indulgence, is
regarded to have empirical less relevance to accounting values and is not sufficiently researched due to its relative
novelty. Retrieved from http://geert-hofstede.com/united-states.html

Individualism versus Collectivism

China is a highly collectivist society (Hofstede & Boond, 1988, pp. 5-21; Chan et al.,

2003; Borker, 2012), whereas the US is strongly individualistic. In China, collectivism

represents a preference for a tightly-knit social framework” (Velayutham & Perera, 1996,

p. 72) where personal relationships prevail over task and company (Hofstede, Hofstede

and Minkov 2010), which have meant that the users of accounting information have

predominantly been government administrative bodies with macroeconomic interests in

mind (Solas & Ayhan, 2007, p. 160), leading to uniform accounting systems (Doupnik &

Perera, 2011, p. 241). 9 However, in the US, there is an emphasis on individual

8
See Appendix D for an elaboration on the influence of culture on Chinese accounting values and practices.
9
See Solas and Ayhan (2007) for an interesting article about the historical cultural influences and variables that has shaped
accounting practice in China, focusing on bookkeeping methods, accounting practices and accounting information.

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achievement (Law, 2011), which is firmly linked with professionalism, given the reliance

on the judgment of the individual professional and distaste for legal control (Gray as

cited in Amat et al., 2002, p. 15).

Power Distance
China is a country with high power distance, where inequalities among people are

relatively acceptable (Borker, 2012, p. 317), and where the imposition of rules are more

readily accepted (Amat et al., 2002, p. 7, 15) – which is heavily linked to the practice of

uniformity. Whereas, in the US, where there is lesser power distance and higher

individualism, the accounting environment has a higher preference for adoption and

innovation (Amat et al., 2002, p. 15).

Uncertainty Avoidance
The US has a relatively high score in individualism and low uncertainty avoidance –

evident in the acceptance of the inevitable variety in professional judgment (Amat et al.,

2002, p. 7; Borker, 2013, p. 169) - which has a positive association with accounting

disclosure (Yusoff et al., 2014, p. 443) leading toward high transparency and optimal

information (Law, 2011; Salter et a., 1995, p. 383). Whereas, the Chinese focus on

uniformity is reflected through its relatively strong uncertainty avoidance and low

individualism (Borker, 2013, p. 169), which manifest itself in financial disclosure through

a higher reliance on more conservatism and secrecy (Gray & Vint, 1995; Young, 2013;

Jaggi & Lowy, 2000; Amat et al., 2002, p. 7-15; Borker, 2013, p. 169).10

Masculinity versus Femininity

Both the US and China are quite masculine societies – success oriented and driven

(Hofstede, Hofstede and Minkov 2010; Borker, 2012, p. 317). However, in terms of

10
Salter et al. (1995) found that uncertainty avoidance correctly predicts a country’s level of professionalism, uniformity,
conservatism, and secrecy (in terms of financial reporting) in about eighty percent of the cases they analyzed.

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masculinity, China deviates from the framework, as it too has a relatively low uncertainty

avoidance and high masculinity, but does not possess transparency to the extent as the

US - which would have been inferred from Gray’s theoretical framework.

Overall, Salter and Niswander (1995) research showed that a country’s culture was

good at explaining actual financial reporting practices, but also noted that a country’s

professional and regulatory structures could be best explained by also analyzing the

legal system, development of financial markets, and providers of finance.

Legal System
There are two major types of legal systems around the world, which are common law

and codified Roman law. The legal structure of each country and the origins of its laws

deeply impact regulatory models and approaches (Helm as cited in Elder, 2014), and

their design is critical to accounting rules (Meek & Saudagaran, 1990), and accounting

system (Salter & Doupnik, 1992).

Common law, which is practiced in the US, has relatively fewer statuses that

establishes limits - and within these judgment is permitted. As such, the legal system in

the US has a significant impact on the American flexible approach to accounting which

fosters a more optimist (Law, 2011) and transparent approach (Jaggi & Lowy, 2000, p.

501). Importantly, it means that there is a quite non-legalistic approach to accounting

standard setting (Doupnik & Perera, 2011), where accounting standards are mainly

developed by non-governmental organizations, and accountants themselves holds a

stronger position within a relatively flexible system albeit detailed system.

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However, in China there is greater tendency to legislate accounting standards and

procedures and make them highly prescriptive and procedural, and government

authorities set the accounting standards and monitor compliance with these. This leads

to a relatively weak accounting profession, where the focus is on compliance and where

there is less, or no, professional judgment allowed, as the accounting practices have a

high degree of uniformity. 11

Studies also point to the significant role of the legal system on the economic structure

and development of capitalist markets and corporate ownership within nations (La Porta

& Lopez-de-Silanes, 1998), which will be further elaborated on in the next section.

Economic System and Structure

Economic systems and structures accompanied by different levels of government roles

and intervention in the economy can have impact on accounting systems and practices

in a country. Political systems can determine one country’s economic system and hence

determine its accounting patterns (Roberts et al., 2002; Greg, 2011; Solas & Ayhan,

2007). Simply put, in China, where the government controls the major economic

resources, the decisions are made by – and often for – the government. This results in

accounting practices that are uniform and less innovative (Xiao et al., 2004). Whereas in

the US, with a market economy, participants in the private sector make most economic

decisions. Market participants are many and varied and have different needs for

information. Therefore, accounting measurement practices are likely to be optimistic

and accounting disclosure is likely to be high and transparent. 12

11
Importantly, there is lacking a market-oriented legislative and judicial environment in China which contributes to a lack of
accounting infrastructure that results in a gap between accounting regulation and actual practices (Huang, 2015).
12
The US accounting framework has been transplanted from UK due to historical ties, although it has altered considerably since
then (Huang, 2015; Greg, 2011).

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Figure 3. Matrix of National Culture and Economic Ideology. Retrieved from Solas and Ayhan (2007, p. 152).

Taxation is also a crucial component to the economic structure affecting the accounting

environment. Wahrisch (as cited in Sawani, 2009, p. 3), among others, state that “tax

law has a significant influence on how businesses and individuals behave”, especially in

code law countries where it greatly impacts the measurement and disclosure policies

(Jaggi & Lowy, 2000, p. 501). In the US, in contrast, taxation has a minimum influence

as conformity between tax statement and financial statements is required only with

regard to the use of the last-in, first-out (LIFO) inventory cost flow assumption (Doupnik

& Perera, 2011, p. 29). This reinforces the optimism of accounting practices and

profitability measurement for accounting income in the US (Huang, 2015), whereas the

more “2 in 1 system” in China results in more conservative accounting.

Providers of Financing
The major providers of financing for business enterprises differ from country to country

and they include wealthy families, banks, governments, and the general public as

shareholders (Doupnik & Perera, 2011), and they all have great, albeit different,

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influence on the objectives of accounting information and practice (Watts as cited in

Law, 2011).

In the US, where the general public are the major shareholders and debt financing is

mainly provided by the public (Oluku & Ojeka, 2011), accounting information is intended

to provide financial information to the vast number of shareholders in the equity market

for them to make investment decisions (Borker, 2012, p. 320). This leads to more

innovative, flexible, detailed, and optimistic approaches and practices, with a high level

of information disclosure (Jaggi & Lowy, 2000), and a greater focus on short-term

performance.

Whereas, in China, where the government is the major provider, accounting is to a

greater extent concerned with calculating distributable income - to make sure creditors,

and the government, get their payment (Sawani, 2009; Oluku & Ojeka, 2011), as the

Chinese government has significant control over most aspects of society (Young, 2013,

p. 17). 13 This also ensures that the need to make financial statements public are of less

necessity and importance in China, making accounting practices less innovative, and

more conservative, uniform, long-term focused, and results in higher secrecy as there is

less pressure for public accountability (Doupnik & Perera, 2011).14

CONCLUSION
This paper has illustrated the distinct differences between the accounting environments

in the US and China. Firstly, this paper has elaborated on the accounting values by

Gray (1988), and shown that the US is largely comprised of professionalism, flexibility,

13
According to Sun et al., (2002) state ownership in China is present in more than 90 percent of listed companies, and the capital
market is in general controlled by the government.
14
However, importantly, as Yong (2013 and Fang (2007), point out, as the market continues to change and transform to market
economy, Chinese financial statements will gradually be geared more towards investors.

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optimism, transparency and short-term orientation, whereas China is enmeshed more in

an environment of statutory control, uniformity, conservatism, secrecy and long-term

orientation. Secondly, these accounting values are directly impacted by the nation’s

cultural values - where China is high in power distance, masculinity, and collectivism,

and low in uncertainty avoidance, and the US is high in individualism, masculinity, and

relatively low in power distance and uncertainty avoidance. Thirdly, this paper as also

shown how the legal system in the US is relatively flexible, with standards developed by

non-governmental organizations, whereas in China, the government authorities set the

accounting standards which leads to a weaker accounting profession where less

professional judgment is allowed. Fourthly, in China, as the the government controls the

major economic resources, the decisions are made by – and often for – the

government. Whereas in the US, participants in the private sector make most economic

decisions, leading to more optimistic and transparent accounting practices, further

reinforced by the fact that taxation is largely separate from financial statements. Lastly,

in the US the general public are the major providers of finance, whereas, in China, it is

the government, which ensures a more conservative, uniform, secretive, and long-term

focused approach.

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APPENDICES
Appendix A
Table A1. Gray's (1988) Hypotheses
The higher a country ranks in terms of individualism and the lower it ranks in terms of
HI uncertainty avoidance and power distance then the more likely it is to rank highly in terms of
professionalism.
The higher a country ranks in terms of uncertainty avoidance and power distance and the
H2 lower it ranks in terms of individualism then the more likely it is to rank highly in terms of
uniformity.
The higher a country ranks in terms of uncertainty avoidance and the lower it ranks in terms
H3 of individualism and masculinity then the more likely it is to rank highly in terms of
conservatism.
The higher a country ranks in terms of uncertainty avoidance and power distance and the
H4 lower it ranks in terms of individualism and masculinity then the more likely it is to rank highly
in terms of secrecy.
Directly extracted from Salter and Niswander (1995, p. 382-383).

Table A2. Direct & Inverse Relationship Between Gray’s Accounting Dimensions & Hofstede’s Cultural Dimensions
Professionalism Uniformity Conservatism Secrecy
Power Distance - + ? +
Uncertainty Avoidance - + + +
Individualism + - - -
Masculinity ? ? - -
Baydoun and Willet (1995) used a plus sign to indicate a “direct relationship” with Gray’s accounting dimensions and
Hofstede’s cultural dimensions, and a minus sign (-) to indicate an “inverse relationship. A question mark was used to
represent that the nature of the relationship is indeterminate.

Table A3. Expansion of Hofstede-Gray Relationships

Professionalism Uniformity Conservatism Secrecy
Power Distance - + + ++
Uncertainty Avoidance -- ++ ++ ++
Individualism ++ -- -- --
Masculinity ? ? - -
Long-Term Orientation - + + +
Indulgence vs. Restraint + - - -
Borker (2012) has later proposed a modification of the pairings of Gray values and Hofstede dimensions to
differentiate between relationships that Gray saw as being significantly strong are indicated by the use of a double
plus sign (+ +) or double minus sign (- - ) depending on whether the strong relationship is direct or inverse. He also
included the more recent cultural dimensions of long-term vs. short-term orientation and indulgence vs. restraint.

Appendix B
Gray (1988) incorporated accounting to Hofstede’s framework by depicting how accounting practices
influence and reinforce societal values. Gray's theory presents societal values at the level of the
accounting subculture, as these values permeate from the national level through to accounting
subculture, with varying degrees of integration. Thus, depending on the varying degrees of environmental
factors shaping societal values, different accounting systems develop, reflect, and reinforce these values
(Law, 2011).

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Figure B1. Culture and accounting systems in practice. Retrieved from Doupnik and Riccio (2006, p. 239).

Appendix C
As uniformity is heavily aligned with statutory control, and flexibility is greatly correlated with
professionalism, these two dimensions are often included together in a matrix to portray the significance
of each.

Gray (1988) summarized the relative position of the world’s major accounting culture groups for his four
accounting value dimensions in two graphs of intersecting axes forming quadrants in which he positioned
labels for these groups, given their dimensional coordinates (See figure B1 and B2 below).

Figure C1. Depicts the intersection of the Gray dimensions of Professionalism versus Statutory Control and
Uniformity versus Flexibility, dimensions associated with “Authority and Enforcement”. Retrieved from Borker (2013,
p. 171).

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Figure C2. Depicts the intersection of the Gray dimensions of Conservatism versus Optimism and Secrecy versus
Transparency, dimensions associated with “Measurement and Disclosure” issue. Retrieved from: Doupnik and Riccio
(2006, p. 242).

Appendix D
Gao and Schachler (2004) have attempted to more specifically indicate the influences of traditional
culture on Chinese Accounting system (See Figure C1 and C2 below).

Figure D1. Cultural factors rooted from tradition influencing Chinese accounting (Gao & Schachler, 2004, 53).

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Figure D2. Factors influencing the evolution of Chinese accounting (Gao & Schachler, 2004, 52).

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