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.
  1. 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

Accounting values model developed by Grey (1988)

Grey (1988) developed four accounting values describing the accounting subculture and linked them to Hofstede’s four organizational Cultural dimensions. Grey’s accounting value model throw light on impact of cultural values of a country on financial reporting practices followed in that country. He argues that there is a cultural dimension to the accounting values and system of each country. Social values always have influence on accounting system adopted. This can be seen in four accounting values provided by Grey.

Following are those 4 accounting values:

1. Professionalism verses statutory control:

The accounting professionals have the cultural core value and follow their ethical instinct rather than just following legal and regulatory requirement in force. They are self-derived to give free judgment and maintain self-regulatory professionalism.

Since, in the country of Acirfa, people assume their rights to participate in governance of the country, it shows their responsibility towards ethics to be maintained in their profession also. The prompt act to provide aid to the country in need shows ethical side of the people there.

2. Uniformity verses flexibility:

As per this model, emphasis is given to adopt uniform accounting practices among enterprises and to follow such practice over time rather than changing the practice according to circumstances and needs of each enterprise.

The strong culture of Acirfa of following equalitarianism and egalitarianism, fair rights for everyone and multicultural society strongly supports this model of Grey.

Its very culture does not support favourism to anyone rather than equality to all is its motto. What applies to one will apply to all. In the same way, Grey’s model also promotes equal treatment to all enterprises.

3. Conservatism verses optimism :

This model of Grey promotes adoption of cautious approach to future uncertainties. We must be prepared to cope up unseen events that may disrupt the growth and take less risk.

The conservatism approach of people of Acirfa is also similar to this model of Grey. The native people of the country are more cautious to save rather than spend to tackle unforeseen future financial crises.

4. Secrecy verses Transparency:

This model of grey does not promote much transparency to the general public or the outsiders to the enterprise rather it prefers to keep the company’s information a closed affair. The access to most of the vital information is provided only to those who are involved with its management and financial business.

This model is supported in the form of spending nature of Acirfa people.

Conclusion:

From the above discussion it is clear that the culture of country has significant influence on the accounting practice adopted in that country. the changes in culture and the cultural practice followed in a country influence its reporting requirement and information disclosure norms.

Since we found extream similarity in the cultural environment of Acirfa and the 4 models given by Gre (1988), we could say that his model would be expected to prevail in that country.


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