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

2. 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

3. 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.

4. 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.

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. Authority and Enforcement

13. 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

14. 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

15. Accounting Values and Societal Values

16. 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

17. 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

18. 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

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

20. 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

21. 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

22. 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)

23. 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

24. 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

25. 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

26. 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

27. 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

28. 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

29. 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

30. 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

31. 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.