International Comparative Accounting Uni
International Comparative Accounting Uni
International Comparative Accounting Uni
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
CONCLUSION .......................................................................................................................................................... 14
REFERENCES CITED: ........................................................................................................................................... 16
APPENDICES ........................................................................................................................................................... 19
Appendix A ........................................................................................................................................................... 19
Appendix B ........................................................................................................................................................... 19
Appendix C ........................................................................................................................................................... 20
Appendix D ........................................................................................................................................................... 21
1
Jon Andre Pedersen 2101AFE 07/05/2015
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.
2
Jon Andre Pedersen 2101AFE 07/05/2015
INTRODUCTION
Gray's (1988) accounting framework has raised awareness about how culture
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
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
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).
understand how and why local values and national factors affects the accounting
system and financial disclosure. This paper will portray the significant distinct
cultural accounting dimensions, and portray the main environmental factors affecting
and reinforcing these dimensions – notably culture, legal system, economic structure
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).
3
Jon Andre Pedersen 2101AFE 07/05/2015
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
control, uniformity versus flexibility, conservatism versus optimism, and secrecy versus
transparency. Recent scholars also include short-term versus long-term focus as the
with prescriptive legal requirements and statutory control” (Gray, 1988, p. 8; Belkaoui,
1995).
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.
4
Jon Andre Pedersen 2101AFE 07/05/2015
Finance - and where the accountant’s role is concerned primarily with the
(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
between companies and for the constant use of such practices over time as opposed to
1988, p. 8).
In China, traditionally, there has been a concern with facilitating national planning, with
decisions, and thus a uniform accounting plan has been followed (Law, 2011), and as
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)
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).
5
Jon Andre Pedersen 2101AFE 07/05/2015
professional judgments often are practiced and encouraged (MacArthur, 2006, p. 10;
accounting concept (Sterling as cited in Law, 2011) – “as a preference for a cautious
approach”.
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
information about the business only to those who are closely involved with its
1988, p. 8). 5
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).
6
Jon Andre Pedersen 2101AFE 07/05/2015
companies in the US, are more public with their information as they do not have the in-
1996; Young, 2013). In general, in the US, true, fair and transparent financial
statements is the foundation of the accounting standards (Oluku & Ojeka, 2011).
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
Table 1. Conversion of Hofstede Data to Gray Accounting Value Dimensions for the United States and China
7
Jon Andre Pedersen 2101AFE 07/05/2015
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
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.
8
Jon Andre Pedersen 2101AFE 07/05/2015
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,
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
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
mind (Solas & Ayhan, 2007, p. 160), leading to uniform accounting systems (Doupnik &
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.
9
Jon Andre Pedersen 2101AFE 07/05/2015
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
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
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
(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.
10
Jon Andre Pedersen 2101AFE 07/05/2015
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
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
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
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.
standard setting (Doupnik & Perera, 2011), where accounting standards are mainly
11
Jon Andre Pedersen 2101AFE 07/05/2015
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
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.
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
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).
12
Jon Andre Pedersen 2101AFE 07/05/2015
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
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,
13
Jon Andre Pedersen 2101AFE 07/05/2015
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.
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
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.
14
Jon Andre Pedersen 2101AFE 07/05/2015
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
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
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.
15
Jon Andre Pedersen 2101AFE 07/05/2015
REFERENCES CITED:
Amat, O., Blake, J., Wraith, P., & Oliberas, E. (2002). Dimensions of national culture and the accounting
environment: The Spanish case. Working Paper. Retrieved from:
http://www.econ.upf.edu/docs/papers/downloads/394.pdf
Angun, N. P., Tower, G., & Rusmin, R. (2013). Risk disclosure during the global financial crisis. Social
Responsibility Journal, 9(1), 124 – 137.
Baydoun, N., & Willet, R. (1995). Cultural relevance of western accounting systems to developing
countries. Abacus, 31(1), 67-92.
Belkaoui, A. (1995). The cultural shaping of accounting. Westport, US: Quorum Books.
Belkaoui, A. (2002). Behavioral management accounting (1st ed.). London, UK: Quorum Books.
Bloom, R., & Solotko, J. (2003). The foundation of Confucianism in Chinese and Japanese accounting.
Accounting, Business & Finance History, 13(1), 27-40.
Borker, D. R. (2012). Accounting, culture, and emerging economies: IFRS in the BRICS countries.
Journal of Business & Economics Research, 10(5), 313-324.
Borker, D. R. (2013). Is there a favorable cultural profile for IFRS? An examination and extension of
Gray’s accounting value hypotheses. International Business & Economics Research Journal,
12(2), 167-178.
Chan, K., Lin, L., & Lai Lan Mo, P. (2003). An empirical study on the impact of culture on audit-detected
accounting errors. Auditing, 22(2), 281-295.
Chanchani, S. & Willet, R. (2004). An empirical assessment of Gray’s accounting value constructs. The
International Journal of Accounting, 39(1), 125-154.
Choi, F. D., Forst C., and Meek G., (2002) International Accounting, 4th ed., Prentice Hall.
Chow, L. M., Chua, G. K., & Gray, S. J. (1995). Accounting reforms in China: Cultural constraints on
implementation and development. Accounting and Business Research, 26(1), 29-49.
Cohen, J., Pant, L. W., & Sharp, D. (1993). Culture-based ethical conflicts confronting multinational
accounting firms. Accounting Horizons, 7(3), 1-14.
Dahawy, K., & Conover, T. (2007). Accounting disclosure in companies listed on the Egyptian stock
exchange. Middle Eastern Finance and Economics, 1(1), 5-20.
Deloitte. (N.D.). Adoption of IFRS by country. Retrieved from: http://www.iasplus.com/en/resources/ifrs-
topics/adoption-of-ifrs
Doupnik, T. S., & Perera, H. (2011). International accounting (3rd ed.). New York, US: McGraw-Hill Irwin.
Doupnik, T. S., & Riccio, E. L. (2006). The influence of conservatism and secrecy on the interpretation of
verbal probability expressions in the Anglo and Latin cultural areas. The International Journal of
Accounting 41(1), 237–261. Retrieved from:
http://www.tecsi.fea.usp.br/disciplinas/0522/textos/Doupnik-Riccio%20IJA%20paper.pdf
Doupnik, T. S., & Salter, S. B. (1995). External environment, culture, and accounting practice: a
preliminary test of a general model of international accounting development. The International
Journal of Accounting, 30(1), 189–207.
Elder, S. (2014). Does the GFC as a change agent of financial regulatory models and approaches
in Europe provide lessons for Asia? Asia Europe Journal, 12(4), 419-430.
Fah, F. Y. (2008). A cross-cultural study of accounting concepts applied in international financial reporting
standards. PhD thesis. Retrieved from: http://vuir.vu.edu.au/1506/1/Foo.pdf
Forzeh, F. M., & Nting, R. T. (2001). Harmonization of accounting standards-disclosure policies and
practices of European commercial bank. Master thesis.
Gao, S. S. &, Schlachler, H. M. (2003). The influence of Confucianism, Feng Shui and Buddhism in
Chinese accounting history. Accounting, Business & Financial History, 13(1). Retrieved from:
http://www.tandfonline.com.libraryproxy.griffith.edu.au/doi/pdf/10.1080/09585200210164566d
Gerhardy, R. (1990). An evolution of the role of culture in the development of accounting principles in
West Germany. Working Paper. Flinders University
Gray, S. J. (1988). Towards a theory of cultural influence on the development of accounting systems
internationally. Abacus. 1-15.
Gray, S.J., & Vint, H. M. (1995). The impact of culture on accounting disclosures: some international
evidence. Asia-Pacific Journal of Accounting, 2(1), 33–43.
Greg. S. (2011). Development of US accounting system. Retrieved from: http://greg-
accounting.blogspot.com.au/2011/12/development-of-us-accounting-system.html
16
Jon Andre Pedersen 2101AFE 07/05/2015
17
Jon Andre Pedersen 2101AFE 07/05/2015
Office of the United States Trade Representative. (2015). The People’s Republic of China. Retrieved
from: https://ustr.gov/countries-regions/china-mongolia-taiwan/peoples-republic-china
Velayutham, S., & Perera, M. H. B. (1996). The influence of underlying metaphysical notions on our
interpretation of accounting. Accounting, Auditing & Accountability Journal, 9(4), 65-85.
Xiao, J. Z., Weetman, P., & Sun, M. (2004). Political influence and coexistence of a uniform accounting
system and accounting standards: Recent developments in China. Abacus, 40(2), 193-218.
Xu, Y., & Xu, X. Q. (2003). Becoming professional: Chinese accountants in early 20th century.
Accounting Historians Journal, 30(1), 129-142.
Young, M. (2013). Cultural influences on accounting and its practices. Senior thesis. Retrieved from:
http://digitalcommons.liberty.edu/cgi/viewcontent.cgi?article=1396&context=honors
Yusoff, H., Othman, R., & Yatim, N. (2014). Culture and accountant’s perceptions of environmental
reporting practice. Business Strategy and Environment. 23(1), 433-446. Retrieved from:
http://onlinelibrary.wiley.com/doi/10.1002/bse.1793/pdf
Zarzeski, M. T. (1996). Spontaneous harmonization effects of culture and market forces on accounting
disclosure practices. Accounting Horizons, 10(1), 18–37.
Zeff, S. A. (2003). How the U.S. accounting profession got where it is today: Part I. Accounting Horizons.
Retrieved from: http://www.allbusiness.com/accounting/679147-1.html.
18
Jon Andre Pedersen 2101AFE 07/05/2015
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.
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).
19
Jon Andre Pedersen 2101AFE 07/05/2015
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).
20
Jon Andre Pedersen 2101AFE 07/05/2015
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).
21
Jon Andre Pedersen 2101AFE 07/05/2015
Figure D2. Factors influencing the evolution of Chinese accounting (Gao & Schachler, 2004, 52).
22