1. International Accounting Patterns, Culture and Development
Chapter 2
International Accounting Patterns, Culture and Development

2. Classification of Accounting and Reporting Systems
Classification aids in
Describing, analyzing, and predicting the development of accounting systems
Strategic planning and control decisions
International systems integration
The Challenge?
Adapt past effective techniques to meet the demands of the global market
Must understand international traditions and heritage
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black

3. Purposes of International Classification
Describe and compare international systems
Improved understanding of
Similarities and differences of systems
Development of systems and potential for change
Dominance of some systems over others
Assess issues of international harmonization
Identify and solve problems
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black

4. Purposes of International Classification
Developing countries will be informed of systems in other countries
Aid international accountants and auditors
Problems with accounting and control systems for MNEs – understood and solved
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black

5. 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
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black

6. Deductive approach Mueller’s four approaches to accounting development
Macroeconomic pattern
Business accounting is tied to national economic policies – Examples: Sweden, France, Germany
Microeconomic pattern
Accounting is a branch of business economics – Example: replacement-value accounting in Holland
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black

7. Deductive approach Mueller’s four approaches to accounting development
Independent discipline pattern
Accounting is a service function derived from business practice – Examples: U.S. and U.K.
Uniform accounting pattern
Accounting is an efficient means of administration and control – Examples: France, Germany, Sweden, Switzerland
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black

8. Nobes’s Hierarchial Classification
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black

9. Inductive Approach Nair and Frank (1980) findings 1973 data
Four measurement groups
British Commonwealth
Latin America
Continental European
U.S.
Seven disclosure groups
Could not be plausibly described
No explanation offered for difference in groupings
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black

10. Inductive Approach Nair and Frank (1980) findings
Differences between measurement and disclosure groups
Hypotheses not supported
Cultural and economic variables associated with disclosure practices
Trading variables associated with measurement practices
Overall – little attention given to influence of culture
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black

11. Cultural Influences on Accounting Systems Culture, Societal Values, and the Accounting Subculture – Fig. 2.3
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black

12. Structural Elements of Culture
Hofstede – 4 Underlying societal dimensions
Individualism
Power Distance
Uncertainty Avoidance
Masculinity
Countries grouped into culture areas
Hofstede and Bond – 5th dimension
Confucion Dynamism
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black

13. Hofstede’s Societal Dimensions
Individualism versus Collectivism
People’s self-concept: “I” or “we”
Large versus Small Power Distance
How a society handles inequalities among people
Strong versus Weak Uncertainty Avoidance
Control the future or just let it happen
Masculinity versus Femininity
The way a society allocates social roles to gender
Confucian Dynamism
Short-term or long-term orientation
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black

14. Accounting Values – Gray
Professionalism versus statutory control
Uniformity versus flexibility
Conservatism versus optimism
Secrecy versus transparency
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black

15. 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
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black

16. 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
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black

17. Figure 2.4 Culture and Accounting Systems in Practice
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black

18. Authority and Enforcement
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black

19. Conservatism versus Optimism
Conservatism seen as a fundamental value
Strongly conservative
Japan, France, Germany, Switzerland
Less conservative
U.S., U.K., the Netherlands
Link to societal value dimensions – Conservatism
Strong uncertainty avoidance
Long-term orientation
Collectivism
Femininity
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black

20. 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
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black

21. Accounting Values and Societal Values
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black

22. 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 Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black

23. Accounting Values and International Classification
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black

24. 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
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black

25. 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
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black

26. Impact of MNEs and Globalization
Cultural and social
Employment and consumption patterns
Significantly influenced
Pressure for more accountability
Environmental impact
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black

27. Impact of MNEs and Globalization
OECD, EU, IOSCO work for harmonization and internationalization of securities markets
IASB and the International Federation of Accountants (IFAC)
Professional organizations involved in harmonization
International Accounting & Multinational Enterprises - Chapter 2 - Radebaugh, Gray, Black