Cultural Influences on Accounting and Its Practices

heathen entrances on be and Its Practices1. Introduction youthful research in comparative explanation governance has light-emitting diode to a enactment of interesting theories and influences that have attempted to analyse the causal factors behind the evolution of dissimilar news report and financial systems in disparate countries. These diverse ship substance of accounting are in the process of being harmonised because of orbicular stage business imperatives, and international accounting bodies are trying to bring round convergence ming take with the accounting systems of several(predicate) countries.1 The work of Geert Hofstede2 on cultural effects on accounting development, expanded and elaborated by Gray3 ulterior in his theory of cultural relevance in the formation of accounting systems is one of the more discussed models of comparative accounting.It is the purpose of this assignment to elaborate on this model and use it to analyse the differences in the d evelopment of accounting in China and lacquer in the late 19th century.2. The Hofstede-Gray FrameworkThe giving fabric for this model was created by Hofstede, but later adapted by Gray to explain the influence of affableization on accounting systems. While, the expression practice is to treat these two models separately, a phrase reference makes it oft simpler to explain and use. The Hofstede-Gray model fist lays down the argument and then goes on to elaborate the various premises that support the theory. It is essentially deductive in nature and logical in its approach.Hofstede, in 1980, authentic a model of culture that distinguishes members of one human grouping from other and stated that culture manifests itself at four levels, symbols, heroes, rituals and cheers, all of which work towards accounting systems to vary on national cultural lines4 His theory was further modified during the next decennium years. In1984 he expounded the four in truth interesting dimens ions of culture, which vary from one group to another and consist of Individualism V Collectivism, Large V gauzy Power Distance, Strong V Weak Power Avoidance and masculinity V Femininity. These, he said are the most common social elections that distinguish one bon ton from another.Societies which prefer individualism consist of stack who live in small units and prefer to look after their really own, whereas collectivism re grants a social structure where relationships are interlinked and stack prognosticate their prodigiousr extended clan of relatives to look after them in change over of loyalty. Power distance represents the extent to which its members accept the inequality in diffusion of provide. Large function distance societies are thus essentially unquestioningly hierarchical in nature. Uncertainty avoidance represents the degree to which members of society are ready to accept uncertainty and vagueness. The lesser the acceptance of uncertainty the stronger is th e inflexibleness of thought and belief in a particular society and its opposition to change. Masculinity, in a society, stands for its dominant preference for achievement, heroism and similar symbols speckle femininity is associated with qualities like compassion, care for the weak and quality of life. In 1991,5 Hofstede added another dimension that dealt with abruptly Term V Long Term Orientation. Short term orientation stood for values like speedy achievement of social status, overspending and a concern for quick results whereas long term orientation looked at gradual achievement of results, a thrifty approach towards savings and an reading of tradition to meet modern fatalitys.In 1998, Gray took up Hofstedes cultural hypotheses and linked them to the development of accounting systems in a meaning(prenominal) way, stating that cultural or societal values permeated through organisational and occupational subcultures, and fault versa, though obviously the degree of integrati on differed from place to place. Accounting systems and practices merchant ship influence and reinforce societal values.6 These basic premises were succeeded by the formulation of four hypotheses on the relationship ming take with specifically identify cultural characteristics and the development of accounting systems.a) Professionalism versus statutory control This cultural value denotes an drop for the exercise of individual professional judgment and self-regulation as conflicting to observance of authoritarian lawful needs and legislative writ. As such, the high(prenominal) a body politic targets in terms of individualism and the minusculeer it prescribes in terms of uncertainty avoidance and power distance, the more likely it is to rank highly in terms of professionalism.b) Uniformity versus flexibility This reflects a preference for the enforcement of similar accounting practices between firms, and for the unswerving use of such practices, vis a vis flexibility in acco rdance with the perceived circumstances of individual companies, e.g., the higher a country ranks in terms of uncertainty avoidance and power distance and the lower it ranks in terms of individualism, the more likely it is to rank highly in terms of uniformity. c) Conservatism versus optimism This value results in an inclination for cautiousness in measurement that enables systems to handle the ambiguity of future flushts, as opposed to a positive, risk-taking approach, thus implying that the higher a country ranks in terms of uncertainty avoidance, the more likely it is to be conservative and revolting to change. d)Secrecy versus transparency This premise states that an inclination for confidentiality and revelation of information about businesses only to those who are closely concerned with its administration and financing, is linked to higher societal preferences for uncertainty avoidance, power distance and masculinity,The Hofstede-Gray model stands out among various models o f comparative accounting for its comprehensiveness in linking culture with the development of various scotch tools like accounting systems.3. The Development of Accounting Systems in China and japan in the Nineteenth CenturyGlobal accounting systems, including the various country GAAPs and the IFRS, is sorrowful towards convergence of accounting systems spurred by the requirements of all transnational players to present one set of financial statements and eliminate multiple reconciliations. charge China, with the establishment of the Chinese Accounting Standards (CAS) is stickting its state controlled accounting practices aside and moving towards the IFRS. This assignment deals with a similar historical station in the nineteenth century when aggressive horse opera businesses had begun to dominate eastern trade and occupation and western accounting systems were establishing their predominance in vastly different business cultures.At this time both China and Japan had account ing systems that had veritable through centuries and served the purposes of businesses in both countries. In China a ill-mannered method of double penetration existed, which permitted the extraction of trial balances and the determination of gelt on a cash basis. The country had developed a four-leg accounting system that allowed for the recording of cash and non cash transactions in journals and posterior posting in ledgers, using double-entry techniques. Despite their availability, these systems were utilise mainly by banks and large state enterprises. The bulk of businesses continued to use mavin entry recording techniques and did not provide for differentiation of private and business accounts. Even though the systems were adequate for the running of normal business operations, the needs changed with the return of business enterprises from the west and the establishment of joint stock enterprises for coal mine and iron manufacture. The structure of the new business ente rprises take the computation of remuneration and loss for the purpose of dividends, and asset and depreciation accounting. The indigenous book property systems proved to be deficient because of existing practices that depended on trust, the absence of black-tie source documents, unnumbered books, lack of cross referencing and sequence, lack of differentiation between capital and receipts expenditure and relative unimportance of profit determination. In view of their weaknesses, the indigenous bookkeeping systems were of limited use as a basis for internal control. 7The development of accounting in neighbouring Japan, had also developed significantly, though on dissimilar lines. While accountants did use a system of double entry in some of the bigger businesses, there was no uniform method of accounting and separate bookkeeping methods were developed and unploughed secret by independent economic powers, such as the Tomiyama, the Tanabes, the Nakais, the Hyogos, the Kondohs, the Honmas, the Hasegawas, the Ishimotos, the Onos, the Kohnoikes, and the Mitsuis. Methods used thus ranged from the primitive to those that were reasonably adequate.Although the double-entry concept was applied, most Japanese merchants do single-entry bookkeeping, called the daifukucho There was no systematic classification of accounts, nor any distinction between capital and r neverthelessue expenditures, and the cash basis of accounting was adopted. As in China, the indigenous accounting systems were adequate in a feudal rescue where production and distribution were on a small scale Nishikawa, 1956 Someya, 1989. 8The accounting systems of the two countries towards the middle and latter part of the nineteenth century, though developing independently, thus had many things in common. These deficiencies do them inadequate for the purposes of larger joint stock business corporations, brought in by the proliferation of British imperialism in Asia and the first base of business with t he United States.In subsequent years, the responses of China and Japan to these challenges were vastly different. The Chinese businesses steadfastly refused to adopt western accounting technologies and the majority remained with the single entry, four pillar balancing method until the twentieth century even in companies that made use of large scale western machinery. This led to numerous difficulties and the emergence of widespread defalcation because of lack of control, and also unfortunately to the gradual takeover of businesses by western companies, because of lack of control. Not surprisingly, from 1884, the opportunity to gain mercantile support for private investment in kuantu shangpan joint-stock enterprises vanished Chan, 1996 9In Japan, the response was enormously different. Japanese students travelled in large amount to the west to to imbibe science, technology and entrepreneurial skills. Accounting modernisation occurred promptly and western-style double-entry bookkee ping was introduced as the foundation on which a capitalist deli real could develop.10 A number of western accounting books, adequately translated, found their way into japanese markets and nationalised Banks adopted British balance sheets. Legislation was introduced for businesses to adhere to standardized accounting systems and a number of accounting schools started providing qualified accountants to service businesses.The large scale adoption of western accounting by Japan and its rejection by the Chinese has exercised the curiosity of business historians for many years. The answers are now approach path through and are related mostly to differences in culture, as put forward by the Hofstede-Gray model. In China political power was centralised, the society was resistant to change, learning was narrow and restricted to Confucianism, and society was in a state of bureaucratic feudalism. The economic system was self sufficient and isolationist. In Japan, however, political power was dispersed the society was open to change and very much dependent on foreign trade. Learning was broad base and the culture pro-merchant. While the continuous political conflict in Japan kept it perpetually unstable it also reduced intolerance and made it much more open to accepting western techniques in accounting. The reasons for the Japanese adoption and Chinese rejection of western accounting principles were by and large cultural and social. While, they contributed generally to the flow of foreign capital and formation of much larger companies in Japan, they also inversely led to the gradual impoverishment of the Chinese economy and the emergence of the communist regime.4. The relevancy of the Hofstede-Gray Model to the Chinese and Japanese Accounting SystemsThe Hofstede-Gray model of the influence of culture on the development of accounting systems expects to be perfectly valid in evaluating the divergent behaviour of two different cultures to the same stimuli. Social an d cultural patterns in China led to very high levels of Uncertainty Avoidance and Power Distance. The central government had furthest reaching powers and control. The main activity was agriculture and the primary source of revenue came from land. The scholar bureaucrats were inward looking and not willing to progress beyond Confucian tenets. Bureaucracy was all pervasive and stability in society was maintained despite intermittent conflict. The whole system thus turn around age old customs and levels of uncertainty avoidance were super high. Similarly the land based feudal bureaucracy ensured large levels of power distance and these two factors, along with the isolationist, closed inlet approach of centuries led to inflexibility, conservatism and secrecy and the consequent non-adoption, if not downright rejection of modern western accounting principles.Japan, on the other hand, though not far forth from China, had a very different social and cultural milieu. There were a number of economically and politically powerful landowners and these, along with the priesthood that controlled independent Buddhist shrines, were able to successfully disperse political power. The country, unlike China was largely dependent on foreign trade, which resulted in an intellectual open door policy and flexibility towards the requirements of trading partners. The country thus had very low levels of uncertainty avoidance and the dispersion of political power had made people more independent and thereby reduced the power distance. All these factors led to high levels of flexibility, forward thinking optimism and openness to new ideas, as required by the Hofstede-Gray framework, making it much easier to adapt to western accounting systems when the situation demanded.5. ConclusionResearch into comparative accounting is a recent phenomenon and placid under great discussion and debate. In fact, Grays framework is less than a decade old and has been questioned at length by other expe rts, with people arguing that the conclusions are subjective and capable of different interpretations. The fact remains that accounting systems have grown in divergent ways between countries that, though physically proximal, are culturally quite divergent. Another major example is that of the UK and The Netherlands, where, despite similar trading, commercial and expansionist practices, accounting systems grew differently, and remained so, until the emergence of the EU and globalisation initiated moves for convergence.The Hofstede-Gray theory thus does appear to give some of the answers to the enigma concerning the adoption of different accounting, financial and even auditing systems between countries which have divergent social and cultural norms.BibliographyDoupnik, T.S., Tsakumis, G .T., and George,t, 2004, A critical review of Grays surmisal of Cultural Relevance and Suggestions for future research, Retrieved November 18, 2006 from findarticles.com/p/articles/mi_qa3706/is_20040 1/ai_n13602153/pgDr. Geert Hofstede, 2006, The global Business plaza, Retrieved November 18, 2006 from geert-hofstede.international-business-center.com/index.shtmlGray, S. J. 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Abacus, Vol. 24 Issue 1, p1-15 skirt 1988environmental Influence on Accounting Development, 2001, Retrieved November 18, 2006 from https//ep.eur.nl/bitstream/1765/1888/5/Chapter+2.doc.The need for International Accounting Standards, 2000, International Accounting, Retreieved November 18, 2006 from http//wwwfp.mccneb.edu/intercultural/Documents/2003/InternationalAccounting.doc.Nobes, C., 1998, Towards a general model of the reasons for international differences in financial reporting Abacus Volume 34 21Footnotes1 The need for International Accounting Standards, 2000, International Accounting2 Dr. Geert Hofstede, 2006, The International Business center3 Doupnik, T.S., Tsakumis, G .T., and George,t, 2004, A c ritical review of Grays Theory of Cultural Relevance and Suggestions for future research4 Doupnik, T.S., Tsakumis, G .T., and George,t, 20045 Environmental Influence on Accounting Development, 20016 Environmental Influence on Accounting Development, 20017 Environmental Influence on Accounting Development, 20018 Doupnik, T.S., Tsakumis, G .T., and George,t, 20049 Doupnik, T.S., Tsakumis, G .T., and George,t, 200410 Doupnik, T.S., Tsakumis, G .T., and George,t, 2004