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,Click to edit Master title style,Click to edit Master text styles,Second level,Third level,Fourth level,Fifth level,Chapter 6: International accounting,PPT t/a Carnegie et al; Financial and Organisational Decision Making,.,PPT t/a,Financial Accounting Theory,by Deegan,6.,*,Financial Accounting Theory,Craig Deegan,Chapter 6,International accounting and the effects of cultural differences and harmonisation effects,Slides written by Michaela Rankin,Learning Objectives,In this chapter you will be introduced to,an appreciation that there are many differences between some countries in the accounting policies and practices adopted,various explanations about why countries adopt particular accounting practices in preference to others,some of the arguments that suggest that it is appropriate that there are international differences in accounting practices,2,PPT t/a Carnegie et al; Financial and Organisational Decision Making. PPT t/a Financial Accounting Theory by Deegan,Learning Objectives,what is meant by the term harmonisation of accounting,some of the perceived benefits of harmonising accounting practices on an international scale,some of the obstacles to harmonisation, and the criticisms that efforts to harmonise accounting internationally have attracted,3,PPT t/a Carnegie et al; Financial and Organisational Decision Making. PPT t/a Financial Accounting Theory by Deegan,Three ways international accounting can be defined,universal or world accounting,considers issues associated with the implementation of a uniform set of accounting rules throughout the world,comparative or international accounting,differences in the ways different countries undertake the practice of financial accounting,parentforeign subsidiary accounting,practices employed in consolidating the financial statements of parent entities with overseas subsidiaries,4,PPT t/a Carnegie et al; Financial and Organisational Decision Making. PPT t/a Financial Accounting Theory by Deegan,Two main models of financial accounting,Anglo-American model,strongly influenced by professional accounting bodies rather than government, emphasises importance of capital markets, emphasises,true and fair, considerations of economic substance over legal form,Continental European Model,relatively small input from accounting profession, little reliance on qualitative,true and fair, strong reliance on government,5,PPT t/a Carnegie et al; Financial and Organisational Decision Making. PPT t/a Financial Accounting Theory by Deegan,Reasons for international accounting differences,Underlying laws and political systems,tax systems,level of education,level of economic development,nature of business ownership and financing system,colonial inheritance,taxation,culture,history,language,religion,6,PPT t/a Carnegie et al; Financial and Organisational Decision Making. PPT t/a Financial Accounting Theory by Deegan,The effect of culture on accounting systems,Impacts on legal systems, tax systems, and the way businesses are formed and financed etc.,previously used to explain differences in social systems,an expression of norms, values and customs which reflect typical behavioural characteristics,7,PPT t/a Carnegie et al; Financial and Organisational Decision Making. PPT t/a Financial Accounting Theory by Deegan,The effect of culture continued,culture reserved for societies as a whole or nations,subculture used for the level of an organisation, profession or family,international differences in accounting systems may be explained by a framework incorporating culture,8,PPT t/a Carnegie et al; Financial and Organisational Decision Making. PPT t/a Financial Accounting Theory by Deegan,Hofstedes cultural dimensions,Four underlying societal dimensions along which countries could be positioned:,Individualism,Power Distance,Uncertainty Avoidance,Masculinity,9,PPT t/a Carnegie et al; Financial and Organisational Decision Making. PPT t/a Financial Accounting Theory by Deegan,Individualism versus collectivism,Addresses degree of interdependence a society maintains among individuals,individualism,refers to a preference for a loosely knit social framework wherein individuals care for themselves and their immediate families,collectivism,stands for a tightly knit social framework where relatives, clan or other in-group look after each other,10,PPT t/a Carnegie et al; Financial and Organisational Decision Making. PPT t/a Financial Accounting Theory by Deegan,Power distance,Power distance is the extent to which members of a society accept that power in institutions and organisations is distributed unequally,large power distance societies accept a hierarchical order in which everyone has a place,small power distance societies strive for power equalisation,11,PPT t/a Carnegie et al; Financial and Organisational Decision Making. PPT t/a Financial Accounting Theory by Deegan,Uncertainty avoidance,The degree to which the members of a society feel uncomfortable with uncertainty and ambiguity,strong uncertainty avoidance societies maintain rigid codes of belief and behaviour,weak uncertainty avoidance societies maintain a more relaxed atmosphere where practice counts more than principles,12,PPT t/a Carnegie et al; Financial and Organisational Decision Making. PPT t/a Financial Accounting Theory by Deegan,Masculinity versus femininity,Addresses the way in which a society allocates social roles,masculinity stands for a preference for achievement, heroism, assertiveness and material success,femininity stands for a preference for relationships, modesty, caring for the weak, and quality of life,13,PPT t/a Carnegie et al; Financial and Organisational Decision Making. PPT t/a Financial Accounting Theory by Deegan,Societal dimensions and accounting subculture,The value systems of accountants are derived from related societal values,the values of the accounting subculture will in turn impact on the development of the respective accounting systems at national level,can accounting systems be developed in a one-size-fits-all approach?,14,PPT t/a Carnegie et al; Financial and Organisational Decision Making. PPT t/a Financial Accounting Theory by Deegan,Grays accounting values,Gray developed four accounting values deemed to relate to the accounting subculture, with the intention of linking them to Hofstedes four societal values,professionalism versus statutory control,uniformity versus flexibility,conservatism versus optimism,secrecy versus transparency,15,PPT t/a Carnegie et al; Financial and Organisational Decision Making. PPT t/a Financial Accounting Theory by Deegan,Grays hypotheses,H1: The higher a country ranks in terms of,Individualism,and the lower it ranks in terms of,Uncertainty Avoidance,and,Power Distance, the more likely it is to rank highly in terms of,Professionalism,H2: The higher a country ranks in terms of,Uncertainty Avoidance,and,Power Distance,and the lower it ranks in terms of,Individualism, then the more likely it is to rank highly in terms of,Uniformity,16,PPT t/a Carnegie et al; Financial and Organisational Decision Making. PPT t/a Financial Accounting Theory by Deegan,Grays hypothesescontinued,H3: The higher a country ranks in terms of,Uncertainty Avoidance,and the lower it ranks in terms of,Individualism,and,Masculinity, then the more likely it is to rank highly in terms of,Conservatism,H4: The higher a country ranks in terms of,Uncertainty Avoidance,and,Power Distance,and the lower it ranks in terms of,Individualism,and,Masculinity, then the more likely it is to rank highly in terms of,Secrecy,17,PPT t/a Carnegie et al; Financial and Organisational Decision Making. PPT t/a Financial Accounting Theory by Deegan,Grays hypothesescontinued,Gray further hypothesised relationships between accounting values and:,the authority and enforcement of accounting systems,the measurement and disclosure characteristics of accounting systems,18,PPT t/a Carnegie et al; Financial and Organisational Decision Making. PPT t/a Financial Accounting Theory by Deegan,Other research using Hofstedes cultural dimensions,Zarzeski (1996) used Hofstedes dimensions to explain greater levels of disclosure,Perera (1989) used Hofstedes cultural dimensions and Grays accounting subcultural value dimensions to explain differences in the accounting practices of European and Anglo-American countries,19,PPT t/a Carnegie et al; Financial and Organisational Decision Making. PPT t/a Financial Accounting Theory by Deegan,Other research usingHofstedes dimensions cont.,Baydoun and Willett (1995) investigated the use of the French United Accounting System in Lebanon,20,PPT t/a Carnegie et al; Financial and Organisational Decision Making. PPT t/a Financial Accounting Theory by Deegan,The effect of religion on accounting systems,Religion transcends national boundaries,impacts on global harmonisation of accounting standards,Hamid, Craig and Clarke (1993) examined how Islamic cultures have failed to embrace Western accounting practices,compliance with Islamic beliefs can affect the structure of business and finance,many Western accounting practices are incompatible with Islamic principles,21,PPT t/a Carnegie et al; Financial and Organisational Decision Making. PPT t/a Financial Accounting Theory by Deegan,The effect of religion on accounting systemscontinued,Religion can affect how people do business and how they make decisions, for example:,Islam precludes debt financing and prohibits payment of interest,the Western objective of financial reporting of rational economic decision-making (refer CFs discussed in Chapter 5) may not be a relevant objective in some societies,22,PPT t/a Carnegie et al; Financial and Organisational Decision Making. PPT t/a Financial Accounting Theory by Deegan,Business ownership and financing system,At a country level the financing system is relevant to the purpose of financial reporting,three types of financing systems:,capital market-based (eg. UK and US),credit-based system: governmental (eg. France and Japan),credit-based system: financial institutions (eg. Germany),23,PPT t/a Carnegie et al; Financial and Organisational Decision Making. PPT t/a Financial Accounting Theory by Deegan,Business ownership and financing systemcontinued,Systems relying upon equity markets will have greater demand for public disclosures,credit-based systems more concerned with the protection of creditors,colonial inheritance is also a major explanatory factor,24,PPT t/a Carnegie et al; Financial and Organisational Decision Making. PPT t/a Financial Accounting Theory by Deegan,Impact of international agencies,Examples of institutions or bodies which can impact on a countrys accounting policies are:,multinational companies,international accounting firms,large monetary organisations eg. World Bank,International Accounting Standards Committee,25,PPT t/a Carnegie et al; Financial and Organisational Decision Making. PPT t/a Financial Accounting Theory by Deegan,International Accounting Standards Committee (IASC),Formed in 1973,members are all the accounting professional bodies that are members of the International Federation of Accountants,143 members in 103 countries,has released more than 30 International Accounting Standards and undertaken work on a conceptual framework to date,26,PPT t/a Carnegie et al; Financial and Organisational Decision Making. PPT t/a Financial Accounting Theory by Deegan,Objectives of IASC,To formulate and publish accounting standards and to promote their worldwide acceptance,to work on the improvement and harmonisation of regulations, accounting standards and procedures,27,PPT t/a Carnegie et al; Financial and Organisational Decision Making. PPT t/a Financial Accounting Theory by Deegan,Aims of IASC,Short-term aimfor national accounting standards and IASs to converge,Long-term aim of global uniformitya single set of accounting standards for all listed and economically significant business enterprises around the world,28,PPT t/a Carnegie et al; Financial and Organisational Decision Making. PPT t/a Financial Accounting Theory by Deegan,Uses of IASs,Basis for national accounting requirements,international benchmark for countries developing their own standards,used by stock exchanges and regulatory bodies,used by supra-national bodies,used by the World Bank Group,used by a growing number of individual companies,29,PPT t/a Carnegie et al; Financial and Organisational Decision Making. PPT t/a Financial Accounting Theory by Deegan,Other international bodies,United Nations;,Organisation for Economic Cooperation (OECD);,European Economic Community (EEC); and,European Union (EU),have all called for moves towards uniform accounting,30,PPT t/a Carnegie et al; Financial and Organisational Decision Making. PPT t/a Financial Accounting Theory by Deegan,International Organization of Securities Commissions (IOSCO),Working with IASC and has assisted IASs to achieve widespread acceptance,developed a plan such that compliance with IASs will allow an organisation to have securities listed in all global markets,31,PPT t/a Carnegie et al; Financial and Organisational Decision Making. PPT t/a Financial Accounting Theory by Deegan,International Federation of Accounting Committee (IFAC),Concentrates on international issues associated with the practice of auditing and accounting education,also issues associated with ethical conduct,32,PPT t/a Carnegie et al; Financial and Organisational Decision Making. PPT t/a Financial Accounting Theory by Deegan,Harmonisation of accounting,Harmonisation refers to a process that attempts to make accounting standards released by different countries as similar as possible,does not imply absolute standardisation,Australia is one of the first to embark on a program to harmonise standards with those of the IASC,33,PPT t/a Carnegie et al; Financial and Organisational Decision Making. PPT t/a Financial Accounting Theory by Deegan,Harmonisation of Australian accounting standards,ASX imposed a 3% levy on annual listings to provide financial support to the AASB to assist in its harmonisation process,modification of existing standards and release of new standards related to harmonisation began in 1997,since 1998 over 20 new and revised standards have been released,34,PPT t/a Carnegie et al; Financial and Organisational Decision Making. PPT t/a Financial Accounting Theory by Deegan,Barriers to harmonisation,Effects on standard setting of different:,business environments;,legal systems;,cultures; and,political environments in different countries,IASs are strongly Anglo-American influenced,relevance of IASs to some countries is questioned,35,PPT t/a Carnegie et al; Financial and Organisational Decision Making. PPT t/a Financial Accounting Theory by Deegan,Arguments in favour of harmonisation,Promotes the attraction of foreign capital,cheaper for developing countries to establish a national system of accounting,reduced costs for companies listing on international stock exchanges,increased comparability between entities operating in different countries,enables multinational corporations to coordinate their efforts and more efficient consolidation of financial statements,36,PPT t/a Carnegie et al; Financial and Organisational Decision Making. PPT t/a Financial Accounting Theory by Deegan,
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