Question

Given the cultural differences across the world, do you believe that having a single accounting system like IFRS will result in better accounting outcomes? Please let me know your thoughts. Please make sure to make you points and attempt to back them up with proper reasoning and/or other information.

Answer 1

Culture is said to be a powerful environmental factor that can affect the accounting system of a country and also how individuals perceive and use accounting information. A link between culture a

nd accounting was proposed first by Violet (1983). Violet’s paper attempts to explain that the

success of an attempt to create an international set of accounting standards, like IFRS in the current

accounting climate, would be limited by culture. He links this to cultural relativism, in saying that

fundamental attributes of countries are different from one society to another. This had led to the

believe that the culture of a country influences the choice of accounting techniques. Doupnik and

Tsakumis (2004) state that culture is important in saying that: ”in the context of financial reporting,

the important question is whether financial reporting models and practices are universal or if their

international applicability is constrained by difference in culture”. This is important to know because

cultural differences might serve as barriers to universal adoption of IFRS.

Their results indicate that the IFRS adoption decision is not influenced by cultural influences but they make the comment that their empirical measures do not adequately measure cultural diversity. They remain important even after controlling for firm -specific factors. This study shows that a nation’s culture and accounting tradition has a continuing and significant effect on firm’s measurement decisions and provide explanations of international accounting differences. Tsakumis (2007) conducted an experiment to investigate the impact of national culture on accountant’s recognition and disclosure decisions,researching differences between Greek and U.S. accountants, but he finds no relation for his first hypothesis. He used Gray’s framework and concludes that either the framework is flawed, or that other factors outweigh culture due to the experimental design. He does find an effect for his second hypothesis, providing evidence that cultural values may influence accountant’s disclosure decisions.They found that accountants with the same economic facts that are governed by similar financial reporting rules make different judgments, suggesting an impact of national culture.