Question

In: Accounting

Research undertaken in the country of Acirfa (the country) has revealed the following: The country’s people...

Research undertaken in the country of Acirfa (the country) has revealed the following:

  1. The country’s people place considerable importance on their rights to have an input into the manner the country is governed. As such, the country has a federal system with a federal government which is responsible for governing the country as a whole and there are also state and territory governments and local councils. Elections for the federal government are held every three years while for state, territory governments and local councils elections are held every four years.
  2. The country’s federal government provides generous foreign aid to impoverished countries and reacts quickly to natural disasters in countries in close proximity by providing generous and effective disaster relief support.
  3. The country’s culture is characterised by strong emphasis on equalitarianism and egalitarianism. The importance placed by the country’s people on the principles of equalitarianism and egalitarianism is reflected in the norms such as the insistence on a "fair go" for everyone, contemporary social policies of multiculturalism, and the tradition of "cutting down tall poppies".
  4. The major political parties in the country believe in a free market economy and the country has signed free trade agreements with numerous countries. Additionally, the country has a well-developed economy (ranked 23rd in the world) which earns substantial revenue from exports such as iron ore, natural gas, coal, gold, and agricultural products. In 2017 the country’s exports amounted to $388 billion while imports amounted to $376.2 billion. In 2017 the country’s gross domestic product amounted to $1.390 trillion (13th in the world) while gross domestic product per capita amounted to $56,135 (18th in the world).
  5. The country’s legal system comprises a hybrid of statues such as for example the Income Tax Assessment Act (1936) and (1997), the Corporations Act (2001), and the application of court judgments. For example, in the Income Tax Assessment Act, terms contained in specific sections of the Act such as “incurred”, “capital nature” and “repair” are applied by reference to court judgments.
  6. The country’s Income Tax Assessment Act (1936) and (1997) (the Act) and the accounting standards are often but not entirely aligned. For example, the Act does not allow an allowable deduction for provision for annual leave and long service leave expense, but only provides for an allowable deduction for payments actually made in respect of annual leave and long service leave. A further example of a difference between the Act and accounting standards is the Act allowing a choice of valuing closing inventory namely cost, replacement cost which may exceed cost and or market value which may exceed cost. In contrast, the accounting standard on inventory requires inventory to be valued at the lower of cost and net realisable value.
  7. The country’s people place considerable importance upon encouraging women to run for federal, state and territory governments and local councils. Additionally, there is a strong drive to increase the number of women on the boards of publicly listed companies. The latest percentage of women on the top 200 company boards is 26.7% (28 February 2018). The percentage of women on boards of the top 200 listed companies and the proportion of women comprising new appointments increased significantly from a low base of 8.3 percent in 2009.
  8. Historically, the country’s people have had a relatively relaxed attitude regarding the future. However, following the Global Financial Crisis, slow growth in wages and the accumulation of record housing debt, the people have become more cautious in managing their financial affairs and have become more inclined to restrict their spending on retail goods. This has had a negative effect on retail sales which are currently growing at historically low rates.

Required

Based on the information provided:

  1. Identify and explain the environmental factors that are likely to have an influence on accounting practice in the country. Provide relevant explanation for each factor.
  2. With reference to Hofstede’s four original dimensions, assign a rating to the country. Justify each rating by providing relevant explanation for each dimension.
  3. Describe the accounting values model developed by Gray (1988) that would be expected to prevail in the country. Justify your answer for each accounting value.

Solutions

Expert Solution

1) Environmental Factors Affecting Accounting Practice-

  • Providing generous and effective disaster relief assistance.
  • Free market economy and sign Free Trade Agreements.
  • Developed Economies.
  • Exports from iron ore, natural gas, coal, gold, and agricultural products.

2) Hofstede’s four original dimensions-

Power Distance-

This dimension expresses that less powerful members of society expect a fair distribution of power in society because power is unevenly distributed. How society handles disparities between people. In societies exhibiting a greater degree of power distance, people accept a hierarchical order in which everyone has a place and which does not require further justification.

Individualism-

In the individualism side of this dimension, a loose social structure is defined as a preference in which individuals are expected to care only for themselves and their immediate families. Collectivism, in contrast, represents a preference for a stronger framework in society in which individuals can expect their relatives or members of a particular group to care for them in exchange for unquestioned loyalty.

Masculine-

The masculine side in this dimension represents a preference for success, heroism, assertiveness, and material rewards for success in society. Society at large is more competitive. On the contrary, femininity stands for the priority of care, modesty, care for the weak, and quality of life. The society at large is more consensus-oriented.

Uncertainty Avoidance

Members of this dimension society feel uncomfortable with uncertainty and ambiguity. Also, its effect on rulemaking is taken into consideration. How does this one society deal with the fact that the future can never be known: should we try to control the future or just let it happen? Countries with high uncertainty avoidance maintain rigid codes of trust and behavior and are intolerant of unconventional behavior and ideas. These countries often require multiple regulations to reduce uncertainty.

3) Accounting values model developed by Gray (1988)


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