The affect of culture on accounting


Many studies have confirmed that culture variety had inspired accounting practice within national and international borders. Accounting can therefore be said to have been influenced by its environment, which include the culture of the country in which it has been managed (Nobes & Parker, 2008)

Mueller et al. (1994), cited in Alexander. et al, also stipulate that each accounting system is a product of its specific culture and environment, and that different patterns of accounting are associated with a variety of social factors such as societal worth, religion, political systems and historical values. It is however no thought that those countries with same or similar ethnic values or history are exercising accounting likewise.

The reason for this newspaper is to critically take a look at the degree to which these ethnic values effect the practice of accounting and the way the understanding of the role of culture in accounting can help us understand international accounting criteria. The work of Hofstede's ethnical value dissimilarities and Gray's accounting beliefs will be the major center point of this newspaper. The partnership that is accessible between cultural principles, accounting beliefs and financial reporting will be examined as well.

Key words: Social values; Accounting Worth; Financial Reporting


Culture is a means of life of a group of people, which include the behaviours, beliefs, principles, and symbols that they agree to, generally without considering them, and this are handed along by communication and imitation from one generation to the next. The positioning that the ideas, meanings, values and worth people learn as people of contemporary society determine human aspect.

To support this classification, Hofstede, one of the greatest researchers of culture differences, described culture as the collective programming of the mind which distinguishes users of one individual group from another, ( cited in Nobes & parker 2008. p 25)

For the goal of comparability, this paper will starting its analysis on Hofstede's work on ethnic value difference and gray's work on accounting beliefs to see their impact on accounting practice and reporting. (Hofstede, 1984 p. 83, 84) identified and summarized four Social measurements as, individualism and Collectivism, Large versus small vitality distance, Strong versus weak doubt avoidance, masculinity versus femininity. He also stipulates that there exist specific romantic relationship in these social dimensions.

Individualism versus collectivism is how in a population one group will favor a much closed down family system while the other group choose owned by an broadened family system. This social dimension talks about how population handles interdependence among individuals.

The second cultural dimension, large versus small electric power distance looks for to split a world between those few powerful organizations of people who prefer power to be distributed unequally through organizations and organizations and the ones who feel that electric power should be allocated equally. This dimension addressed how a modern culture handles inequalities among a people when they appear.

The third cultural aspect by Hofstede, is the strong versus weak doubt avoidance which is, the amount to which users of a world feel uncomfortable with doubt and ambiguity. This emotions leads those to believing in encouraging certainty and also to maintain institutions protecting conformity. He described that a contemporary society with strong doubt avoidance maintained rigid rules of idea and behavior and are intolerant of deviant people and ideas. The weak uncertainty maintain a far more relaxed atmosphere where practice counts more than rules and deviance is more tolerated.

Masculinity and femininity, which is the previous but not minimal of the four cultural dimensions, describes masculinity as the choice, in a Culture for achievements, heroism, assertiveness, and material success. Femininity on the other palm was said to represent a society where preference for human relationships, modesty, looking after the weak and the quality of life is high.


It is dependant on these Hofstede's classification of social dimensional differences that Gray (1988) also proposed a link between those cultural sizes and accounting prices by specifically figuring out four accounting values which includes; professionalism and reliability(implies self-regulation by the accounting profession itself) versus statutory (means control by the federal government), uniformity (adherence to consistency and in depth legislation) versus overall flexibility (implies in a position to amend or adapt to suite a situation), conservatism (signifies the tendency to under state profit and property) versus optimism and secrecy (suggests a preference for confidentiality) versus transparency ( means disclosure of true state of affairs). The first two pertains to authority and enforcement of accounting practice at a country level while the second two relates to the dimension and disclosure of accounting information at a country level as (cited in Nobes and Parker, 2008).

Gray's accounting worth and Hofstede's ethnical difference can be group into two categories. This newspaper should to make reference to these two groupings as ''the collectivism category'' and ''the individualism category''. The individualism category comprises of Professionalism, versatility, transparency, optimism, individualism, small electric power distance, weak doubt avoidance and femininity. This category gets the characteristic of self-reliance or self-interest and for that reason in a modern culture where individualism, small electric power distance, weak doubt and femininity dominate, accounting practice and financial reporting is likely to be professional, flexible, translucent and optimistic. Secondly the individual's quest for information to make decision on purchases to satisfy his/her personal needs will favor detailed report of an financial record. This paper will like to associate this category compared to that of any capitalist society where in fact the accounting regulations aren't part of the common law but instead are in the hands of professional organisations of the private sector as stipulated in Alexander et al. (2009 p. 28). For instance in the united kingdom, accounting laws and regulations are control by professional body including the ACCA, CA, CIMA, and IASB. It can again be said that countries that practice the common regulation are also likely to practice accounting the same way. They are considered to be capitalism countries since they raises cash from the administrative centre. They include, United Kingdom, Ireland Canada, Australia and america of America

The second category of Hofstede cultural value difference which of gray's accounting beliefs ''The collectivism category'' is made up of collectivism, large ability distance, strong doubt avoidance masculinity and gray's accounting principles of statutory control, uniformity, conservatism and secrecy. This category gets the characteristics of being control from one common source or being centrally planned. Countries or societies found to be dominant with these cultural and accounting beliefs are more likely to practice accounting in the same way. The practice of accounting in this modern culture or country is control by statutory companies with detailed rules and regulations. The practice of accounting and reporting in these societies or countries will be geared towards the dictates of those in forces or in control. No in depth accounting is necessary and secrecy and conservatism dominates in the financial reporting (Kosmala-Maclullich, 2003). Here again this newspaper will affiliate this category of a population or a country to that of any socialist country where accounting laws and regulations are enshrine in the coded laws of the country. Governments in these countries use financial reports for their own purpose.

The Democratic Republic of Germany followed the Soviet Union's socialist ideologies following the Second World Warfare. This adaptation included a methodological guidance in building accounting information systems (Berry, 1982: 1890). Bailey (1990) also stipulates that the Marxism Theoreticians view the western-style accounting as an instrument for the exploitation of personnel by the capitalists, accounting and financial reporting was therefore intended for the dictates of those in expert. Young and David (1999) argued that Accounting activities at the enterprise level were focused exclusively on the preparation of reports required by the look bureaucracy, and during this period, accounting was only regarded as a primary way to obtain information for the provision of financial statistics for the use in the prep of budget; it was therefore a list of quantities instead of beliefs. Accounting was more or less reduced to a clerical job; there is no professionalism in the practice. Judgement of reviews (true and fair) was not entertained; standardisation was non-existence therefore was the concept of profit, in short accounting criteria and procedures weren't in existence.

Accounting in China

Another country worthy of considering is china which has a long background of social value which is characterise with collectivism, saturated in ability distance, strong doubt avoidance and femininity. The Chinese will not mind restricting himself for the good collectivism or country (Yao F. 2007).

The practice of accounting and reporting is control by the state under the auspices of the ministry of financing and the aim of this control is to tools the practice towards the general advantage of the planned market. The user of accounting information is principally the government, because most enterprises in china are owed by the state. The few individual who try to do some ventures have no idea much about accounting and finance. (Yao F. 2007). Even though the state experienced accounting specifications for BUSINESSES, they were just mere basic guidelines which were given together with basic standards, as argued by Lin et al. (2001). There where however restrictions on some important accounting ideas such as making provision for debt and obsolete inventories, recognition of impairments of investments, disclosure of financial information and many more. Secrecy and conservatism was dominant in financial reporting. Professionalism and reliability, transparency and versatility were non-existence. Accounting profession was reduced to an extremely low position.

The dynamics of ethnical values caused a change in financial reporting by these countries with strong social values. As a result of the globe becoming a tiny town and the growing of Multinational companies around the world, there is the necessity for comparability of financial Reports since its purpose is to help traders make enlightened and sensible decisions. Based on the actual fact that the entire world is becoming a little place and countries need the other person for their success, most of the socialists' countries like the East Germany, Portugal, Poland, Italy, and France have all used the capitalism system of financial reporting. The Chinese administration, also have realise the need for adopting the international financial reporting standard (IFRS) which is being champion by the International Accounting Standard Plank (IASB), but yet it only discussed the convergence of the accounting standard rather than a totally approval. (Yao F. 2001)


It is quite evident that cultural values have inspired the practice and reporting of accounting and countries with similar cultural values doing accounting similarly. Together with the world learning to be a global community and the fast ethnic changes around the world, the necessity for harmonization and convergence of accounting requirements was given a serious consideration by centrally prepared countries, but a country like China, although have made efforts to embrace international financial reporting system, continues to be holding on to some of its cultural accounting practices. This is an indication that as far as cultural values stay different, accounting practice will be affected and the only way out is the harmonization and convergence of accounting benchmarks.

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