Question

Research undertaken in the country of Yarrabung (the country) reveals the following:

1. • The country is a democratic, federal parliamentary republic, and federal legislative power is vested in the country’s parliament. The government is elected by the people in elections where everyone has an equal vote.

• As the country is a federal country, much of the work of government is done by the 16 states. Power is shared between the federal government and state governments. The national government cannot abolish the state governments.

• The constitution emphasizes the protection of individual liberty in an extensive catalogue of human and civil rights and divides powers both between the federal and state levels and between the legislative, executive and judicial branches.

2. • The country follows a civil law system which places little reliance on court decisions. As such, the country’s courts generally decide cases using legal provisions on a case-by-case basis without referring to other judicial or even superior judicial decisions. Therefore, the civil law system contrasts with common law system in which law is derived from judicial decisions of courts and similar tribunals.

3. • The major political parties in the country believe in a free market economy and the country has signed free trade agreements with numerous countries.

• The country is the world’s fourth-largest economy with GDP of US$3.7 trillion in 2017. It is the third-largest exporter, with goods and services exports in 2016 worth US$1.6 trillion, accounting for more than a third of its total GDP. The country’s export strengths are in manufacturing such as motor cars and medical equipment, while services exports are less developed.

• As the largest economy in its region, the country is often regarded as an economic leader of its region. Its economy recovered faster than most in the region after the global financial crisis.

4. • The country’s Commercial Code (Corporations Law) contains provisions emphasising the importance of creditor protection. Therefore, accounting practices adopt conservative balance sheet valuations with the tendency to understate assets and overstate liabilities thereby ensuring creditor protection. Thus, the country’s accounting is designed to compute conservative amounts of income that leaves creditors unscathed after distributions are made to shareholders.

• Accounting practices include historical cost (revaluation model is not permitted), choice of First In First Out or Last In First Out inventory valuation, amortisation of goodwill, expensing of development costs. The use of provisions is widely accepted.

• Taxation law is closely aligned with commercial accounting. For example, tax provisions are eligible for deduction only if they are fully booked for accounting purposes meaning there is no distinction between financial statements prepared for taxation purposes and those published in financial reports. However, under the Commercial Code, accounting requirements are gradually moving into line with international accounting standards.

5. • The country’s people place a high priority on structure, privacy and punctuality. The country’s people emphasise the values of prudence, attention to detail and there is great emphasis on ensuring that public transport runs on time. According to an authoritative trade publication the country’s people are most comfortable when they can organize and compartmentalize their world into controllable units. Additionally, the country’s people manage time carefully, and demand that calendars, schedules and agendas be respected.

• The country’s people comfortably accept pains or hardships without complaint and strive for perfectionism and precision in all aspects of their lives. They prefer not to admit faults and rarely do they hand out compliments. At first impression, their attitude may seem unfriendly, however, the people have a keen sense of community, social conscience and a desire to belong.

Required Based on the information provided:

a. Identify and explain the environmental factors that are likely to have an influence on accounting practice in the country. Provide relevant example/s for each factor.

b. With reference to Hofstede’s four original dimensions, assign a rating to the country. Justify each rating by providing relevant example/s for each dimension.

c. Describe the accounting values model developed by Gray that would be expected to prevail in the country. Justify your answer for each accounting value.

Answer 1

Answer (a): The environmental factors will highly influence the accounting practice in the country of Yarrabung. This is because, the accounting practices in the country are done using the historical cost which had been derived many years ago. Revaluation is not permitted in the country. We must note here, that accounting of the changes in the environmental factors such as the development of infrastructure of a particular area, the impact of natural calamities in a particular area, or change of living sustainability in a particular area are critical grounds on which the accounting can be derived. However, since the country works on historical data, therefore, we will not see perfection in the countries accounting process.

  Answer (b): As per Hofstede’s dimensions :

1. The country fulfills the condition of Power distance. This is because in this country the Central Government and the State Government together constitute the federal governance structure. The States usually carry out most of the functions of the Central Government and the Center and State ensure that there is no distance of power distribution among them
2. The Uncertainty avoidance of the country is acceptable. The federal structure and the Governance of the country looks to be efficient which has made the country with the fourth largest economy in the world.
3. Individualism vs collectivism is perfect for the country as the country seems to feed out of the collective nature of governance and economic structure. The country is a democracy and people elect their leader through a voting system, where every citizen has the equal power of vote.
4. Masculinity vs Femininity: Both men and women in the country are given equal importance and weightage. Both men and women are given equal rights in the country, and exercise equal decision making powers.

Therefore, the country will get a rating of 5/5.