ACCOUNTING IN ASIA-PACIFIC REGION: HOFSTEDE-GRAY THEORY Abdullah Taman Yogyakarta State University, Indonesia Presented in APCEMaL 2011, UPSI Malaysia 29th - 30th Nov. and 1st Dec The Legend Hotel, Kuala Lumpur Malaysia.

ABSTRACT The objective of this paper is to describe that culture and social-economy can affect financial accounting in Asia-Pacific region. Explanation is based on Hofstede- Gray Theory which associates between accounting values and cultural dimension. The Hofstede-Gray Theory has been used by a number of writers as the basis of a framework trying to understand why national accounting practices take the form they do and in some cases to try to determine normatively whether accounting techniques are appropriate to particular societies (e.g. Baydoun and Willet, 1995).

INTRODUCTION Asia Pacific region is a promising area. For instance, Asia Pacific Economic Cooperation (APEC) is a region group consisting twenty one countries that have objective to develop its economic community to increase welfare in the region. COUNTRIES“ATTRIBUTES OR ENVIRONMENT” Hongkong, Sing, Jpn, Korea“Tiger” of Asia Peoples’s Republic of ChinaMassive restructuring of its socialist economy VietnamRapid economic and social change PhilippinesLong history of Spanish and latterly US colonial Malaysia and IndonesiaPopulous Muslim countries in the world BruneiAn oil rich Sultanate Papua New GuineaAdjusting to the demand of modern commerce MacauPortuguese dependency Australia and New ZealandDeveloped economies with European culture ThailandHas never been colonized by any European power

OBJECTIVE OF THIS PAPER Given the issue under discussion, the question should be posed as to whether one would expect environment affect accounting practice. So that, the objective of this paper is to describe that culture and social-economy can affect financial accounting in Asia-Pacific region. Furthermore, explanation is based on the Hofstede-Gray Theory which associates between accounting values and cultural dimension.

RELATED LITERATURES Several theories of their more immediate causes have been proposed, particularly in the international accounting literatures. The trait of strong governmental interference has been variously explained in term of weak professionalism, e.g. France (Nobes, 1990); type of political system, e.g. China (Chan, 1995), and pattern of funding enterprises (creditor versus investors), e.g. Japan (Radebaugh & Gray, 1993)

RELATED LITERATURES (cont’d) Cooke and Parker (1994) describe and classify financial reporting practices in some the West Asia Pacific Rim countries with drawing relationship fairly direct based upon the perceived affects of quite narrow economic factors. Probably the most well-known exponent of cultural approach to understanding the nature of accounting practices is shown by Gray (1988)

RELATED LITERATURES (cont’d) Gray attempted to relate a number of accounting values (preferences for conservatism, uniformity, secrecy, and professional judgment) to Hofstede’s (1980) dimensions of culture (power distance, uncertainty avoidance, individualism, and masculinity), so that, I called “The Hofstede-Gray Theory”. The theory has been used by a number of authors, such as Parera (1989), Gerhardy (1990), and Baydoun and Willet (1995) but they did not explicitly mention “The Hofstede-Gray Theory”

CULTURAL EFFECTS The existing literatures on the effects of environment on accounting practices referred to above may be divided into three categories: 1.The common sense analysis of the links between immediate economic and political causes and their perceived effects on accounting practices 2.“Cultural based” using theHofstede-Gray Theory 3.Combination of both approach (1 & 2)

CULTURAL EFFECTS (cont’d) With respect to category 1), examples have already done by Muller (1967, 1968), Siedler (1967), and Nair and Frank (1980) using single factor determining the specific characteristics of financial reporting. In Asia-Pacific region, the influence of Anglo-American accounting in countries such as Malaysia, Hong Kong, the Philippines, Australia, and New Zealand is obvious. The obvious characteristics of accounting practices seem to be primarily determined by colonial history (the Philippine by North America and Indonesia by the Netherland).

CULTURAL EFFECTS (cont’d) With respect to category 2), it can be seen how this involves quite naturally from (1). Gray’s theory (1988) took as its subject matter the preferences of account’s users and prepares. These preferences will be formed under the influence of broader cultural values and will affect the regulatory environment in which accounting takes place and the pattern of disclosure.

CULTURAL EFFECTS (cont’d) Gray’s accounting values and its effect on accounting systems/practices are shown below: Source: Radebaugh and Gray (1996) SOCIETAL VALUESACCOUNTING VALUESACC. SYST/PRACTS Individualism/ Collectivism Professionalism Uniformity/Flexibility Authority and enforcement Power DistanceConservatism/OptimismMeasurement of assets and profits Uncertainty Avoidance Masculinity/Femininity Secrecy/TransparencyInformation disclosure

CULTURAL EFFECTS (cont’d) Actually societal values in left-hand side column are values introduced by Hofstede, and accounting values in middle column are values introduced by Gray, meanwhile right-hand side column consists systems and practices in accounting.

SOCIETAL AND ACCOUNTING VALUES Societal Values: (Hofstede, 1980) 1.Individualism vs Collectivism 2.Power Distance (Large vs Small) 3.Uncertainty Avoidance (Strong vs Weak) 4.Masculinity vs Femininity

SOCIETAL AND ACCOUNTING (cont’d) Accounting Values: (Gray, 1988) 1.Professionalism vs Statutory control 2.Uniformity vs Flexibility 3.Conservatism vs Optimism 4.Secrecy vs Transparency Relationship between two values (societal and accounting) is shown below:

RELATIONSHIP BETWEEN SOCIETAL AND ACCOUNTING VALUES Source: Baydoun and Willet (1995) Hofstede’s Societal Values Gray’s Accounting Values ProfesslnUniformConsrvtSecrecy Power Distance NegativePositiven/aPositive Uncertainty Avoidance NegativePositive Individualism PositiveNegative Masculinity n/a Negative

POSITION OF SOME ASIA PACIFIC COUNTRIES IN ACCOUNTING VALUES FLEXIBILITY STATUTORY CONTROL Less Developed Asia -Indonesia -Taiwan -Thailand -Malaysia -the Philippine Japan Hong Kong Singapore Asian Colonial Anglo-Saxon Australia New Zealand PROFESSIONALISM UNIFORMITY Source: Baydoun and Willet (1995)

POSITION OF SOME ASIA PACIFIC COUNTRIES IN ACCOUNTING VALUES OPTIMISM SECRECY Less Developed Asia -Indonesia -Taiwan -Thailand -Malaysia -the Philippine Japan Hong Kong Singapore Asian Colonial Australia New Zealand Anglo Saxon TRANSPARENCY CONSERVATISM Source: Baydoun and Willey (1995)

CONCLUSION There is insufficient space to fully recount all the many environmental elements which have been felt to be influential in determining the forms which accounting practices take in different countries. In Asia-Pasific Region, accounting system and practices are also influenced by environmental element such as culture and social economic. This is reflected in relationship between societal and accounting values introduced by Hofstede and Gray

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