International Accounting Patterns, Culture and Development

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Presentation transcript:

International Accounting Patterns, Culture and Development Pertemuan 4 International Accounting Patterns, Culture and Development

Classification Research Deductive or judgmental approach Environmental factors identified and linked to national accounting practices International groupings or development patterns are proposed Inductive or empirical approach Individual practices analyzed Development patterns or groupings identified Explanations based on economic, social, political, and cultural factors proposed

Deductive approach Mueller’s four approaches to accounting development Macroeconomic pattern Business accounting is tied to national economic policies – Examples: Sweden, France, Germany Goals of Corporation follow rather than lead national economic policies (e.g., might smooth earnings to promote economic stability) Microeconomic pattern Accounting is a branch of business economics – Example: replacement-value accounting in Holland Maintenance in real terms of monetary capital invested in entities.

Deductive approach Mueller’s four approaches (continued) Independent discipline pattern Accounting is a service function derived from business practice – Examples: U.S. and U.K. Accounting is considered to be capable of developing its own conceptual framework from business practice – self regulating like other professions Uniform accounting pattern Accounting is an efficient means of administration and control – Ex: France, Germany, Sweden, Switzerland In addition, other influences such as the legal system, political system, and social climate impact (Eg. Sarbanes Oxley) – witch hunt for poor practices.

Cultural Influences on Accounting Systems Importance of Culture/Historical roots on accounting systems is increasingly being recognized Culture is considered an essential element in the understanding norms / values Culture/Societal values at nat’l level permiate organizational/occupational subcultures Accounting systems and practices can influence/reinforce values

Structural Elements of Culture Hofstede – 4 Underlying societal dimensions Individualism Power Distance Uncertainty Avoidance Masculinity Hofstede and Bond – 5th dimension Short v. Longterm Orientation: Confucion Dynamism

Hofstede’s Societal Dimensions Individualism versus Collectivism People’s self-concept: “I” or “we” : U.S. v Europe? Large versus Small Power Distance How a society handles power inequalities among people / organizations – distributed unequally. Large power distance: accept hierarchical structure Small power distance: strive for me equality Masculinity – preference for achievement, heroism, assertiveness, material success Feminism: preference for relationships, modesty, caring Allocation of social roles (not biological) to the sexes

Hofstede’s Societal Dimensions - Continued Strong v. Weak Uncertainty Avoidance Degree to which society is OK with ambiguity Strong: demand uniformity, intolerant of deviation Weak: more relaxed, practice > principle, deviance from norm OK Short v. Long-term Orientation: Confucion Dynamism ST: respect for tradition, social obligations regardless of cost / quick results LT: adaptation of traditions to meet modern needs / thrifty sparing approach to resources

Accounting Values v. Societal Values – Gray Professionalism versus statutory control preference for individual professional judgment / self regulation Uniformity versus flexibility Preference for enforcement of uniform practices Conservatism versus optimism Preference for cautious approach / less risky approach to measurement. Secrecy versus transparency Preference for confidentiality v. transparency

Professionalism versus Statutory Control Accountants are perceived to have independent attitudes throughout the world Public regulation or self regulation U.K. – rely on judgment of accountant France and Germany – implement detailed legal requirements Link to societal value dimensions – Professionalism Individualism Weak uncertainty avoidance Small power distance Masculinity Short-term orientation

Uniformity versus Flexibility Uniform accounting plan and imposition of tax rules for measurement purposes France and Spain Facilitate national planning Pursue macroeconomic goals Intertemporal consistency and some degree of intercompany comparability b/c of flexibility U.S. and U.K. Link to societal value dimensions – Uniformity Strong uncertainty avoidance Collectivism Large power distance

Authority and Enforcement

Conservatism versus Optimism Conservatism seen as a fundamental value Strongly conservative Japan, France, Germany, Switzerland Less conservative U.S., U.K., the Netherlands – though changing post Sarbanes Oxley - Link to societal value dimensions – Conservatism Strong uncertainty avoidance Long-term orientation Collectivism Femininity

Secrecy versus Transparency Stems from management and accountants Closely related to conservatism Secrecy relates to disclosure Conservatism relates to measurement Secrecy High – Japan, France, Germany, Switzerland Low – U.S. and U.K. Link to societal value dimensions – Secrecy Strong uncertainty avoidance High power distance Collectivism Femininity

Accounting Values and Societal Values

Accounting Values and International Classification Accounting values most relevant to professional or statutory authority and enforcement Professionalism and Uniformity Both concerned with regulation and degree of enforcement or conformity Accounting values most relevant to measurement and disclosure Conservatism and secrecy Country groupings Optimistic and transparent Conservative and secretive

International Pressures for Accounting Change Growing international interdependencies Harmonization of the regulatory framework internationally Centrally planned economies embraces market-oriented approach Former U.S.S.R., Eastern Europe, China New opportunities for international investment, joint ventures, and alliances

Economic Groupings and International Organizations European Union Promotes economic integration/harmonization UN World Bank International Monetary Fund UN conference on Trade and Development World Trade Organisation OECD Foster international economic and social development in industrialized countries “Code of Conduct” for MNEs

Impact of MNEs and Globalization Cultural and social Employment and consumption patterns Significantly influenced Pressure for more accountability Environmental impact

Impact of MNEs and Globalization OECD (Organization for Economic Cooperation and Development), EU (European Union), IOSCO (International Organization of Securities Commissions) work for harmonization and internationalization of securities markets IASB and the International Federation of Accountants (IFAC) Professional organizations involved in harmonization

Anglo-American Accounting Less conservative and more transparent Pre-Sarbanes Oxley – what about post? United States Focused on large corporations and interests of investors Securities markets are the dominant influence on accounting regulation SEC has authority to formulate and enforce accounting standards Delegated to the FASB Only listed corporations are required by law to comply with GAAP Very public standards-setting process – solicit input before rules go into place

Anglo-American Accounting United Kingdom Focus on information needs of investors Securities markets dominate the process of acctg. Regulation. Commercial/Company law has a much wider remit Accounting requirements are for all LLCs and corporations Why LLCs too? Accounts present a “true and fair view” of company results Accounting Standards Board (ASB) recently incorporated International Financial Reporting Standards (IFRS)

Anglo-American Accounting Australia English influence Focus on investors rather than tax needs Australian Securities & Investments Commission Regulate and enforce company law Australian Accounting Standards Board – creates standards Urgent Issues Group (UIG) Financial Reporting Council oversees AASB Provides guidance for public and private sector

The Netherlands Though Nordic, more similar in approach to U.S. and U.K. Business economics approach to accounting – focus on investors and other uses access and disclosure - voluntarily Tradition of Public ownership of shares International business outlook “Generally Acceptable Accounting Principles” – mandating true and fair concept in financial reporting. Provided by Council for Annual Reporting Members from the accounting profession (NIVRA) and others Not mandated by law, but followed by most companies Influence of Commercial law supplemented by case law is increasingly present in setting accounting standards. IFRS required for listed companies in 2005

Nordic Accounting Nordic Countries: Denmark, Finland, Iceland, Norway, and Sweden Sweden Focus on creditors, government, and tax authorities Also heavily involves accounting profession in standard setting. Capital Markets important to accounting and disclosure req’ts Two-tier approach Individual accounts – traditional basis Consolidated accounts of major groups – international capital market needs The law provides a framework rather than detailed requirements Accounting Standards Board and Accounting Council provide guidance in the context of company law IFRS required for listed companies in 2005

Germanic Accounting Germany / Austria Focus on needs of creditors and tax authorities MNEs are becoming more investor-oriented Commercial law is predominant influence Accounting rules amend the Commercial Code Annual accounts are the basis for tax accounts Tax rules dominate legal accounting issues Limited impact of accounting profession German Accounting Standards Board Fair and true standard = transparent and reliable for in German viewpoint. IFRS required for listed companies in 2005

Germanic Accounting Switzerland - Favors needs of creditors and authorities More companies are making further voluntary disclosures – as Swiss Securities Markets grow./ Swiss companies face competition Very secretive and conservative system Dominated by commercial law and tax regulations New law – 1992 Improved disclosure and protection for investors Secret reserves are still allowed Accounting profession consists of – still relatively small Foundation for Accounting and Reporting Recommendations – supervises the Accounting Standards Board Recommendations elaborate and supplement company law

Latin Accounting France Focus on needs of creditors and tax authorities Consolidated groups can report in U.S. GAAP or IAS Commercial law/tax law are the predominant influences Focus on national economic planning Tax laws tend to override accounting rules Small accounting profession established by law OECCA (Ordre des Experts Comptables et des Comptables Agrees) and CNCC (Compagnie Nationale des Commissaires aux Comptes) for public accounting and auditing Small stock market Most capital contributed by banks, government, or family French equivalent of the SEC – Commission des Opérations de Bourse (COB) IFRS required for listed companies in 2005

Latin Accounting Italy Focus on interests of government and tax authorities Focus is shifting because of globalization Accounts are used as the basis for taxation Tradition of conservatism to minimize taxes Italian equivalent of the SEC – CONSOB (Commissione Nazionale per le Societa e la Borsa) Slow to adopt EU directives because External investor interests are seen as less important than family and state interests Tendency to protect the right of companies to keep business secrets Professional accounting bodies are advisory IFRS required for listed companies in 2005

Asian Accounting Many countries have a colonial accounting history or foreign influence Japan Focus on needs of creditors and tax authorities Commercial Code (similar to Germany) Corporate tax law is very influential Leads to conservative accounting Government institutions are directly involved in standard- setting Ministry of Finance – responsible for securities and exchange law Ministry of Justice – responsible for application of Commercial Code

Asian Accounting Japan continued Accounting for business combinations is a source of concern Keiretsu – system of interlocking directorates of related businesses formed to work together Small accounting profession Makes recommendations on the practical application of legal accounting rules Tendency for secrecy and a lack of disclosure Increased international focus ASBJ in Japan is similar to the FASB in the U.S. Approximately 30 Japanese companies listed in the U.S. prepare financial statements in accordance with U.S. GAAP.