3101AFE Accounting Theory & Practice
Workshop 8
International Accounting
___________________________________________________________________________
PART A: GENERAL QUESTIONS
QUESTION 1:
Does the adoption of IFRS by different countries necessarily mean that the accounting procedures and practices they adopt will be consistent and comparable internationally?
QUESTION 2:
Do you think it is realistic to expect that there will eventually be an internationally uniform set of accounting standards? What factors would work for or against achieving and maintaining this aim?
QUESTION 3:
Explain ba
iers to ongoing standardisation of financial accounting across all EU member states. Given these ba
iers, do you think that the European Union has been naïve in em
acing the standardisation process for all member states?
QUESTION 4:
In considering the relevance of IFRS to developing countries, Chand and White
(2007, p. 606) state:
While the forces of globalisation and convergence are moving accounting practices towards a unified, or at least harmonised regulatory framework for financial reporting, this is unlikely to best serve the diverse interests of the disparate user groups of financial reports.
Explain the reasons behind Chand and White’s claim.
T1_2022
2
PART B: ANALYSIS QUESTIONS
QUESTION 5:
Word limit: Between 200 and 500 words.
The study by Heidhues & Patel XXXXXXXXXXrefer article) highlights some limitations of Gray’s XXXXXXXXXXmodel of accounting values, as well as some concerns regarding the application of Gray’s model in accounting research.
Required:
a) Identify from the article, the concerns that have been raised regarding the use of Gray’s model as a theoretical basis for accounting research.
) Do you believe that these concerns are valid?
The answers to this question will be discussed in class during the workshop.
A critique of Gray's framework on accounting values using Germany as a case study
Critical Perspectives on Accounting XXXXXXXXXX–287
Contents lists available at ScienceDirect
Critical Perspectives on Accounting
journa l homepage: www.e lsev ier .com/ locate /cpa
A critique of Gray’s framework on accounting values using Germany as
a case study
Eva Heidhues ∗, Chris Patel
Department of Accounting and Finance, Faculty of Business and Economics, Macquarie University, NSW 2109, Australia
a r t i c l e i n f o
Article history:
Received 23 August 2009
Received in revised form 18 April 2010
Accepted 27 August 2010
Keywords:
International accounting
Culture
Accounting subculture
Hofstede–Gray theory
Germany
a b s t r a c t
In the move towards globalisation and convergence, the influence of culture on account-
ing has been increasingly recognised as an important and controversial topic. However,
quantified and na
owly focused approaches such as Gray’s XXXXXXXXXXand various extensions
of Gray’s framework of accounting values have largely dominated and strongly influenced
cross-cultural accounting research and education without a critical evaluation of their the-
oretical and methodological limitations. Indeed, a significant number of studies, cu
icula
and textbooks in international accounting have uncritically adopted Gray’s exploratory
framework. As such, the objective of this paper is to show the limitations of Gray’s
proposed hypotheses and the issues associated with the framework’s largely uncritical
adoption in international accounting literature. We provide evidence that Gray’s framework
gained authority and prominence in international accounting research largely because of
subsequent researchers’ unquestioning acceptance and application of this methodology.
Importantly, we propose that international accounting research may be further enhanced
y taking into account contextual factors such as political, legal, social and historical envi-
onments of countries. Using Germany as a case study, we apply this more holistic approach
to provide additional insights into the factors differentiating German accounting from othe
accounting models. We recommend that accounting research will be enhanced by a critical
examination of contextual environments of countries rather than a focus on measurement,
quantification, simplification and categorisation.
© 2010 Elsevier Ltd. All rights reserved.
1. Introduction
International harmonisation of accounting standards and the move towards convergence have revived an increasing
interest in the influence of culture in accounting and auditing. The growing number of countries adopting International
Financial Reporting Standards (IFRS) and the increasing acceptance of International Standards on Auditing (ISA) have furthe
aised researchers’ attention. For example, more than one hundred countries require or permit the use of IFRS with more
countries such as Canada, India and Korea planning to adopt IFRS by 2011 (Deloitte Touche Tohmatsu, 2007; IASB, XXXXXXXXXXThis
move towards convergence is driven largely on assumptions and assertions based on enhancing international comparability
of accounting and auditing information.
∗ Co
esponding author. Fax: XXXXXXXXXX.
E-mail addresses: XXXXXXXXXX (E. Heidhues), XXXXXXXXXX (C. Patel).
XXXXXXXXXX/$ – see front matter © 2010 Elsevier Ltd. All rights reserved.
doi:10.1016/j.cpa XXXXXXXXXX
dx.doi.org/10.1016/j.cpa XXXXXXXXXX
http:
www.sciencedirect.com/science/journal/ XXXXXXXXXX
http:
www.elsevier.com/locate/cpa
mailto: XXXXXXXXXX
mailto: XXXXXXXXXX
dx.doi.org/10.1016/j.cpa XXXXXXXXXX
274 E. Heidhues, C. Patel / Critical Perspectives on Accounting XXXXXXXXXX–287
However, it is important to note that IFRS and IAS strongly rely on the ‘substance-over-form’ approach with a strong
eliance on professional judgments. Importantly, there is ample evidence that professional judgments are influenced by
accountants’ and auditors’ cultural values. Indeed, a growing number of studies have analysed the influence of culture
on standard setting (Bloom and Naciri, 1989; Ding et al., 2005; Schultz and Lopez, 2001), auditor independence (Agace
and Doupnik, 1991; Hwang et al., 2008; Patel and Psaros, 2000) and accountants’ values and judgments (Doupnik and
Riccio, 2006; Doupnik and Richter, 2003, 2004; Patel, XXXXXXXXXXAlthough culture has long been recognised as an important and
controversial topic in accounting, a large number of cross-cultural accounting studies have failed to capture the complexity
and richness of cultural influences (Belkaoui and Picur, 1991; Lindsay, 1992; Patel, 2004; Welton and Davis, XXXXXXXXXXMoreover,
quantified and na
owly focused dimensional approaches such as Hofstede’s XXXXXXXXXXand Hofstede and Bond’s XXXXXXXXXXcultural
dimensions, Gray’s XXXXXXXXXXframework of accounting values and the various modifications of Gray’s XXXXXXXXXXframework have
largely dominated cross-cultural accounting research. Indeed, a significant number of studies such as Williams and Towe
(1998), Schultz and Lopez XXXXXXXXXXand Hope et al XXXXXXXXXXhave tested and applied Gray’s exploratory XXXXXXXXXXframework
without critically evaluating its relevance and soundness. Additionally, cu
icula and textbooks in international accounting
such as Mathews and Perera (1991, 1993, 1996), Roberts et al. (2002, 2005) and Doupnik and Perera XXXXXXXXXXhave also relied
heavily on Gray’s XXXXXXXXXXframework often without further questioning its assumptions. In the remainder of the paper Gray’s
(1988) framework of accounting values and the various modifications and extensions of Gray’s XXXXXXXXXXframework will be
efe
ed to as ‘Gray’s framework’.
Based on Hofstede’s XXXXXXXXXXfour cultural dimensions, Gray XXXXXXXXXXdeveloped an exploratory framework incorporating fou
accounting values of professionalism, uniformity, conservatism and secrecy and proposed that these values “may be used to
explain and predict international differences in accounting systems and patterns of accounting development internationally”
(Gray, 1988, p. 5). Specifically, Gray XXXXXXXXXXhypothesises that Hofstede’s XXXXXXXXXXcultural dimensions of power distance,
individualism, uncertainty avoidance and masculinity determine accounting values, which explain differences in accounting
systems internationally. Gray’s XXXXXXXXXXdeterministic and componential framework resulted in the formulation of simplistic
and na
owly defined hypotheses such as, “the higher a country ranks in terms of uncertainty avoidance and power distance
and the lower it ranks in terms of individualism and masculinity the more likely it is to rank highly in terms of secrecy”
(Gray, 1988, p. 11).
Since Hofstede (1980), Hofstede and Bond XXXXXXXXXXand Gray’s frameworks have significant influence on accounting research
and accounting education, it is important and timely that researchers critically evaluate such deterministic and na
owly
focused frameworks. As such, the objective of this paper is to show the limitations of Gray’s proposed hypotheses and
the issues associated with the framework’s largely uncritical adoption in international accounting literature. Indeed, we
provide evidence to show that Gray’s framework gained authority and prominence in international accounting research
largely because of subsequent researchers’ unquestioning acceptance and application of Gray’s methodology. In contrast
to this ‘oversimplification’ we propose that international accounting research can be further enhanced by emphasizing the
importance of contextual factors such as political, legal, social and historical environments of countries. Using Germany as
a case study, we apply this more holistic approach to provide additional insights into the factors differentiating German
accounting and particularly German financial disclosure from other accounting models and practices. Of the four accounting
values specified in Gray’s framework, the secrecy hypothesis has been formulated in a significant number of studies (Doupnik
and Tsakumis, 2004; Gray and Vint, 1995; Hope, 2003; Hope et al., 2008; Jaggi and Low, 2000; Wingate, 1997; Zarzeski, 1996).
Moreover, Gray’s secrecy and conservatism hypotheses are considered to be the most important accounting values because of
their potential to influence recognition, measurement and disclosure of financial items (Doupnik and Riccio, 2006; Doupnik
and Tsakumis, 2004).
Although Gray’s framework claims to include “ecological influences” and “institutional consequences”, these linkages
are not clearly explained and are largely neglected in the development of his na
owly focused two-dimensional account-
ing values (Gray, 1988, p. 7). Indeed, the importance of political, legal, historical, social and economic factors and thei
interdependencies in evaluating national accounting models is not evident in the hypothesis development that specifically
focuses on Hofstede’s XXXXXXXXXXfour societal values. It is our objective to show that valuable insights and greater understand-
ing of national accounting systems can be achieved by using holistic and richer perspectives to provide deeper insights into
culture, accounting values and its interdependencies. Using Germany as a case study, this paper critically examines the influ-
ence of political, legal, historical, social and economic factors on Germany’s accounting system and provides explanations
to why German accounting may be perceived to be more ‘secretive’ relative to accounting in other countries. Specifically,
we demonstrate that the largely oversimplified application of Gray’s framework may have led to misconceptions in the
explanation and prediction of differences and similarities between accounting values and systems internationally. We argue
that international accounting research should not be blinded by the simplicity of Hofstede’s XXXXXXXXXXand Gray’s framework,
ut should further focus on capturing the complexity of cultural and contextual influences on accounting by including more
holistic perspectives.
The remainder of this paper is organised as follows. The first section introduces Gray’s framework of accounting values
and evaluates its uncritical adoption and application by subsequent researchers. The second section focuses on examining
financial disclosure in the German accounting model. In light of this German case study, the final section concludes the pape
y highlighting various reasons for the popularity of Gray’s framework in mainstream international accounting research and
ecommends that international accounting research will be enhanced by taking into account historical, social, economic and
legal factors in a country rather than a na
ow focus on measurement, quantification, simplification and categorisation.
E. Heidhues, C. Patel / Critical Perspectives on Accounting XXXXXXXXXX–287 275
2. Gray’s theoretical framework of accounting