Grays framework is an extension of Hofstedes societal values

Culture is said to be an identifying symbol of any band of people. The impact of the identifying make is thought in exactly what is done for the reason that environment so that it is shown in their daily and operational activities. In detailing the impact of culture on activities, Hofstede (1980: 26) identified culture as the 'collective encoding of mind that distinguishes the associates of one group from another'. This distinguishing factor belies characteristics that are different to that particular group and can be found in all areas of life. Taking care of that is not overlooked is the field of accounting, the impact of culture is thought such it is shown in the accounting methods of particular environments and it defines the systems that guide the tactics done in that environment. This results in huge distinctions in international accounting practices even though the definition of accounting has one target- to provide decision useful information to users and give proof stewardship.

Outside the culture factor, other reasons have been help with to clarify the differences in accounting systems where they include legal, tax, funding system (Nobes, 2006), politics ideology ( Ezzamel et al, 2007). However, Gray argues that ethnic worth can better make clear the dissimilarities in accounting system and he bases his debate on Hofstede's theory. Heading by his debate, if cultural ideals as posited by Hofstede are mirrored in societal activities, then there must be an existing marriage such that a detailed style that between these societal worth and the accounting systems used in those environments can be discovered. He puts onward four significant accounting principles/values (professionalism, uniformity, conservatism and secrecy) that he web links with Hofstede's societal value constructs (individualism, electric power distance, uncertainty avoidance and masculinity/femininity). In other words, the accounting prices as distributed by Gray can be seen as a connective point between Hofstede's societal prices and accounting procedures. In explaining these links, he put forward four hypotheses. This newspaper seeks to assess the validity of the accounting concepts as put forward by Gray, seeking to establish their human relationships with Hofstede's societal constructs.

Gray's Theoretical Reasoning.

It is a favorite fact that the strength of a building is based on its foundation, where in fact the basis is faulty, then the building itself cannot be said to be strong. Making use of this reality to Gray's hypotheses means that the strength of his hypotheses lays on its basis which is the Hofstedian societal value constructs. Though Hofstede accumulated his data over the period of 1967 to 1973, presenting him plenty of time to incorporate changes in what he terms societal values, they have been through criticisms in research paperwork. These criticisms weaken in turn weaken Gray's accounting beliefs. A few of these criticisms are the proven fact that the Hofstedian value framework is outdated and a weak basis on which to bottom the accounting values construction (Jones, 2007). Furthermore, there is the problem of measurability of the societal value constructs, the equation of countrywide says with cultures, status of the observer, ethnical homogeneity and politics affects ( Baskervillle, 2003; Jones, 2007)

Based on the fact that Gray's platform is an extension of Hofstede's societal principles, it could be said that these criticisms apply to his accounting value theory as well, weakening the validity of his theory. Patterned after Hofstede's two dimensional societal value constructs, Gray put forward two dimensional accounting concepts as both ends of a continuum. He argues that a link is available between these ideas and each of Hofstede's societal worth, where Hofstede's beliefs are -Individualism vs Collectivism, Large ability distance vs Small power distance, Strong vs Weak uncertainty avoidance and Masculinity vs femininity. The fundamental issues in regards to these constructs are the degree of interdependence retained in a contemporary society, real human inequalities and associations with authority, reaction to uncertainties and role differentiation of gender respectively. As an expansion of these worth, Gray puts forward these accounting values-Professionalism vs statutory control, Uniformity vs Flexibility, Conservatism vs Optimism and Secrecy vs Transparency where the important issues in these concepts are specific judgements as opposed to statutory judgements, persistence in reporting standards as opposed to optioned standards, cautious measurements instead of optimistic measurements and a cautious method of disclosure respectively.

Critique of Gray's Hypotheses

All of Gray's hypotheses imply that accounting beliefs have a stationary nature as is also implied by Hofstede's societal beliefs and just as Hofstede used nations to equate culture, Grey used countries as a basis for comparability, thereby generalizing as country based on accounting values that can be subject to change. Baskerville (2003) notes that the use of nation states as items for assessment is wrong, stating that this has been the case in international accounting research. A further examination of Gray's hypotheses is listed below to examine its validity.

Hypothesis One

Gray hypothesized that the higher a country ranked in conditions of individualism and the lower it ranked in terms of doubt avoidance and electric power distance then the more likely it is to get ranking highly in terms of professionalism. Though empirical studies completed on this hypothesis have found support for it (Salter and Niswander, 1995 and Sudarwan and Fogarty, 1996), it can be argued that this hypothesis will not hold fully, specially when cognizance is directed at the continuous changes that take place even in these environments with distinguishable cultural values. In addition to this, empirical studies focused on the relationship that exist between the value construct chosen by Grey, but considering that the values given by Hofstede are two dimensional, it is also possible that the partnership posited by Grey to are present between professionalism and weak doubt avoidance can also can be found between professionalism and strong uncertainty avoidance. This discussion is dependant on the actual fact that the fundamental concept of uncertainty avoidance as distributed by Hofstede to be a reaction to uncertainties and ambiguities. Strong doubt avoidance society's offer with uncertainties through the established and rigid rules and it could be argued that high levels of professionalism are available in such societies. An example is Indonesia. Although country is probably the group classed as collectivist, strong doubt avoidant and large electricity distanced, Askary (2006) discovers that Indonesia tops the list for professionalism in his review of growing countries. In the case of Germany, Heidhues and Patel (2011) sees that the Gray's suggested marriage between low uncertainty avoidance and high professionalism will not hold. It is because Germany is seen a medium doubt avoidant country but it results on top of professionalism. Which means that Gray's accounting principles and Hofstede's societal values can hold on some countries however, not in some which limits the generalizability of hypothesis one. In addition, going by the definition of professionalism this means indie judgement, the findings of Braun and Rodriguez (2008) will not support this hypothesis. Income management which requires 3rd party judgement is meant to be related to professionalism but in their research, it relates to statutory control.

Hypothesis Two

The higher a country ranks in terms of doubt avoidance and electricity distance and the lower it ranks in conditions of individualism then the more likely it is to rank highly in conditions of uniformity. Empirical studies on Gray's argument for this hypothesis are combined in that not all the purported values given by Grey can be linked to uniformity. The issue of applicability limitations this hypothesis. Gray described uniformity as a choice for uniform accounting routines and countries in the western world are thought to have a preference for flexible expectations according with their recognized needs. However, the strength of this hypothesis is invalidated when the accounting requirements found in the developed countries are believed. Though these are classed as countries that favor flexible standards, the countries tend to use uniform expectations in the name of enhancing their comparability. In addition to this, there is the problem of global reporting requirements, which the UK and the united states are founding members. The desire by both countries for a uniform accounting specifications via global reporting standards reflects the weakness of the Hofstede-Gray platform. Consistent with this discussion, Roberts and Salter (1999) test the interactions on the top 6 at that time and find that uncertainty avoidance (reaction to ambiguities) is not favorably related to uniformity. The strength of any given hypothesis is in the positive associations of all factors found in forming the hypothesis. Considering that one of the relationships for this hypothesis will not hold, it can be argued that there are other prices which lead to uniformity of accounting methods. Which means that not all of the connections as hypothesized by Gray hold.

Gray states that both hypotheses are most highly relevant to the specialist and enforcement, however, this is of the terms limits the level of relevance that may be established. Gray identifies the accounting values as a inclination and not an exact activity completed by accountants (Baydoun and Willett, 1995; Heidhues and Patel, 2011). For example, professionalism is defined as a desire for individual professional judgement and exactly how this preference pertains to the exercise of expert is not clear. Who exercises the specialist? How many authoritative sources is there? Given the fact that professionalism and reliability belies opinionated judgement, this may refer to lots of individuals.

Hypothesis Three

The higher a country ranks in terms of uncertainty avoidance and the low it rates in conditions of individualism and masculinity then the more likely it is to get ranking highly in conditions of conservatism. Empirical studies support Gray's reasoning upon this hypothesis (Salter and Niswander, 1995; Sudarwan and Fogarty, 1996, Doupnik and Ritcher, 2004) specifically for the strong hyperlink but I would argue that the actual fact that a country dislikes ambiguous situations does not mean that it would be highly conservative, this is dependant on the fact that situations change and changing situations bring about a change in accounting methods used. That is an undeniable fact that the Gray's construction does not consider. In line with this discussion, Arnold et al (2001) confirms that an upsurge in uncertainty avoidance brings about a rise in materiality estimates. This supports the fact that changes in situations are designed into accounting activities and that a country that is highly conservative today wouldn't normally actually be conservative the next day. Regarding the partnership between conservatism and individualism, masculinity and uncertainty avoidance, it could be argued these associations are also subject to change. Heading by the definition of masculinity, a high desire for standard of living can also lead to flexibility in accounting standard. Along this type of thought, Sudarwan and Fogarty (1996) found no relationship between masculinity and conservatism. Which means that the accounting value of conservatism as described by Gray limits the amount of connection that may be made between your relationships. For example, the word mindful approach is seen to be a little muddy. Is it possible for the level of cautiousness taken by accountants to be put on the continuum such that the varying levels may be used to seek for a matching romance between the variables?

Hypothesis Four

The higher a country ranks in terms of uncertainty avoidance and power distance and the low it ranks in terms of individualism and masculinity then your much more likely it is to ranking in terms of secrecy. Empirical support for this hypothesis is inconclusive; Sudarwan and Fogarty (1996) discover that the relationship between doubt avoidance and secrecy is negative and a non significant marriage between vitality distance and secrecy (Salter and Niwander, 1995). This is viewed as rendering the practicability of Gray's debate as quite unfit and for that reason invalidates the hypothesis. The associations as argued by Gray is vague and can be argued to truly have a different interpretation.

Gray states that hypotheses three and four relate with way of measuring and disclosure. As mentioned in the first two hypotheses, the partnership between your conservatism and measurement or secrecy and disclosure remains unclear. Baydoun and Willett (1995) argue that the interpretation of the marriage is tenable due to the actual fact that secrecy is seen as a sociable characteristic and that its importance in deciding accounting beliefs is not evident. Other problems with Gray's theory include calculating the terms used in the hypotheses, the fact that it suitable in some countries and not in others as well as the implied presence of other ideals in identifying accounting techniques (Baydoun and Willett, 1995; Doupnik and Tsakumis, 2004; Heidhues and Patel, 2011).

Applicability of Gray's Theory in the usage of IFRS

Gray's theory is seen as a contribution to the books on the harmonization of accounting and the substance of most books in that type of research try to help the simple adoption and increasing use of the international financial reporting standards. Furthermore, a whole lot of countries are implementing the international financial reporting criteria (herein after referred to as IFRS) regardless of the differences in culture. The successful adoption and implementation of the IFRS in countries means that Gray's theory of ethnical affects is outdated in that culture is no longer deemed to be a hurdle to international accounting systems. However, to examine the usefulness of Gray's theory in supporting with the increasing use of IFRS, Spain will be utilized to check the applicability of Gray's theory. Spain is a country whose accounting system is thought as that of a Continental European standard, this is because of this to the fact that its legal system is Roman law which its accounting regulations are inserted in its legislation. Going by Hofstede's classification, Spain has a medium individualist culture, medium electric power distance, low masculinity and high doubt avoidance. Using Gray's construction to classify their accounting systems places them as a country with more emphasis on uniformity, more focus on conservatism, less emphasis on professionalism and less emphasis on secrecy. Going by Gray's construction, one significant problem with Spain's accounting systems is the desire for conservative measurements and reporting as opposed to the true and fair value ways of the IFRS. Moreover, the adoption of IFRS is meant to improve the quality of financial information, enhance comparability, and strengthen the integration and competitiveness of capital marketplaces (Zeghal and Mhedhbi, 2006). Although country has used IFRS, it has stumbled upon a few problems. Callao et al (2007) records that the adoption of IFRS in Spain hasn't improved upon comparability of accounts, it has worsened it. They also find out relevance of financial information hasn't advanced. This invalidates Gray's theory in that the cultural differences in accounting systems as discovered by his platform, though logical, it appears to have been ignored by the International Accounting Expectations Board. A credit card applicatoin of Gray's hypotheses is tabulated for Spain to check its overall validity and practicability.

Societal/ Accounting Values

Medium Individualism

Medium Ability Distance

Low Masculinity

High Uncertainty Avoidance

Strength of the Hypotheses















Semi- strong







Where ns: no marriage and pos. : positive relationship

From this desk, the practicability of Gray's theory is not strong. Hofstede's values make room for moderating along the continuum as can be seen from Spain been a medium individualist culture. Gray did make provision for countries like Spain who fall season in the center of the continuum. Splitting Gray's hypotheses into parts shows the weaknesses of his framework and indicates an impracticability of the construction. This also means that Gray's theory is country specific and since known by Heidhues and Patel (2011), the worth were designed using the united states and the UK as basics.


The practicability of Gray's hypotheses has been argued above; the problems have been outlined alongside the impact of the platform for the applicability of IFRS. As known above, there is certainly room for improvement if the idea is usually to be valid. Furthermore, Heidhues and Patel (2011) remember that Gray's construction was accepted in the academics world without criticism and they point to the actual fact that this might be therefore of his being viewed as one of the leading international accounting experts. The impact of changes had not been incorporated in to the framework which is vital considering that societal dynamism is constant. This together reduces the reasonability behind Gray's framework.

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