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Pertemuan 4

International Accounting Patterns, Culture and

Development

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Classification Research

Deductive or judgmental approach Environmental factors identified and linked

to national accounting practices International groupings or development

patterns are proposed

Inductive or empirical approach Individual practices analyzed Development patterns or groupings identified Explanations based on economic, social,

political, and cultural factors proposed

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Deductive approach

Mueller’s four approaches to accounting development Macroeconomic pattern

Business accounting is tied to national economic policies – Examples: Sweden, France, Germany

Goals of Corporation follow rather than lead national economic policies (e.g., might smooth earnings to promote economic stability)

Microeconomic pattern Accounting is a branch of business economics – Example:

replacement-value accounting in Holland Maintenance in real terms of monetary capital invested in

entities.

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Mueller’s four approaches (continued) Independent discipline pattern

Accounting is a service function derived from business practice – Examples: U.S. and U.K.

Accounting is considered to be capable of developing its own conceptual framework from business practice – self regulating like other professions

Uniform accounting pattern Accounting is an efficient means of administration and

control – Ex: France, Germany, Sweden, SwitzerlandIn addition, other influences such as the legal system, political system, and social climate impact (Eg. Sarbanes Oxley) – witch hunt for poor practices.

Deductive approach

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Cultural Influences on Accounting Systems

Importance of Culture/Historical roots on accounting systems is increasingly being recognized

Culture is considered an essential element in the understanding norms / values

Culture/Societal values at nat’l level permiate organizational/occupational subcultures

Accounting systems and practices can influence/reinforce values

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Structural Elements of Culture

Hofstede – 4 Underlying societal dimensions Individualism Power Distance Uncertainty Avoidance Masculinity

Hofstede and Bond – 5th dimension Short v. Longterm Orientation: Confucion

Dynamism

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Hofstede’s Societal Dimensions Individualism versus Collectivism

People’s self-concept: “I” or “we” : U.S. v Europe? Large versus Small Power Distance

How a society handles power inequalities among people / organizations – distributed unequally. Large power distance: accept hierarchical structure Small power distance: strive for me equality

Masculinity – preference for achievement, heroism, assertiveness, material success

Feminism: preference for relationships, modesty, caring Allocation of social roles (not biological) to the sexes

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Hofstede’s Societal Dimensions - Continued

Strong v. Weak Uncertainty Avoidance Degree to which society is OK with ambiguity Strong: demand uniformity, intolerant of deviation Weak: more relaxed, practice > principle, deviance from

norm OK

Short v. Long-term Orientation: Confucion Dynamism ST: respect for tradition, social obligations regardless of

cost / quick results LT: adaptation of traditions to meet modern needs / thrifty

sparing approach to resources

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Accounting Values v. Societal Values – Gray

Professionalism versus statutory control preference for individual professional judgment / self

regulation

Uniformity versus flexibility Preference for enforcement of uniform practices

Conservatism versus optimism Preference for cautious approach / less risky approach to

measurement.

Secrecy versus transparency Preference for confidentiality v. transparency

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Professionalism versus Statutory Control Accountants are perceived to have independent

attitudes throughout the world Public regulation or self regulation

U.K. – rely on judgment of accountant France and Germany – implement detailed legal

requirements Link to societal value dimensions – Professionalism

Individualism Weak uncertainty avoidance Small power distance Masculinity Short-term orientation

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Uniformity versus Flexibility Uniform accounting plan and imposition of tax rules

for measurement purposes France and Spain

Facilitate national planning Pursue macroeconomic goals

Intertemporal consistency and some degree of intercompany comparability b/c of flexibility U.S. and U.K.

Link to societal value dimensions – Uniformity Strong uncertainty avoidance Collectivism Large power distance

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Authority and Enforcement

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Conservatism versus Optimism Conservatism seen as a fundamental value

Strongly conservative Japan, France, Germany, Switzerland

Less conservative U.S., U.K., the Netherlands – though changing post Sarbanes Oxley -

Link to societal value dimensions – Conservatism Strong uncertainty avoidance Long-term orientation Collectivism Femininity

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Secrecy versus Transparency Stems from management and accountants Closely related to conservatism

Secrecy relates to disclosure Conservatism relates to measurement

Secrecy High – Japan, France, Germany, Switzerland Low – U.S. and U.K.

Link to societal value dimensions – Secrecy Strong uncertainty avoidance High power distance Collectivism Femininity

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Accounting Values and Societal Values

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Accounting Values and International Classification

Accounting values most relevant to professional or statutory authority and enforcement Professionalism and Uniformity

Both concerned with regulation and degree of enforcement or conformity

Accounting values most relevant to measurement and disclosure Conservatism and secrecy

Country groupings Optimistic and transparent Conservative and secretive

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International Pressures for Accounting Change

Growing international interdependencies Harmonization of the regulatory framework

internationally Centrally planned economies embraces

market-oriented approach Former U.S.S.R., Eastern Europe, China

New opportunities for international investment, joint ventures, and alliances

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Economic Groupings and International Organizations

European Union Promotes economic integration/harmonization

UN World Bank International Monetary Fund UN conference on Trade and Development World Trade Organisation

OECD Foster international economic and social development in

industrialized countries “Code of Conduct” for MNEs

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Impact of MNEs and Globalization

Cultural and social Employment and consumption patterns

Significantly influenced Pressure for more accountability Environmental impact

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Impact of MNEs and Globalization

OECD (Organization for Economic Cooperation and Development), EU (European Union), IOSCO (International Organization of Securities Commissions) work for harmonization and internationalization of securities markets

IASB and the International Federation of Accountants (IFAC) Professional organizations involved in

harmonization

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Anglo-American Accounting Less conservative and more transparent

Pre-Sarbanes Oxley – what about post? United States

Focused on large corporations and interests of investors Securities markets are the dominant influence on

accounting regulation SEC has authority to formulate and enforce accounting

standards Delegated to the FASB

Only listed corporations are required by law to comply with GAAP

Very public standards-setting process – solicit input before rules go into place

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Anglo-American Accounting

United Kingdom Focus on information needs of investors Securities markets dominate the process of acctg.

Regulation. Commercial/Company law has a much wider remit Accounting requirements are for all LLCs and corporations

Why LLCs too? Accounts present a “true and fair view” of company results Accounting Standards Board (ASB) recently incorporated

International Financial Reporting Standards (IFRS)

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Anglo-American Accounting

Australia English influence Focus on investors rather than tax needs Australian Securities & Investments Commission

Regulate and enforce company law Australian Accounting Standards Board – creates

standards Urgent Issues Group (UIG) Financial Reporting Council oversees AASB Provides guidance for public and private sector

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The Netherlands Though Nordic, more similar in approach to U.S. and U.K. Business economics approach to accounting – focus on investors and

other uses access and disclosure - voluntarily Tradition of

Public ownership of shares International business outlook

“Generally Acceptable Accounting Principles” – mandating true and fair concept in financial reporting. Provided by Council for Annual Reporting

Members from the accounting profession (NIVRA) and others Not mandated by law, but followed by most companies

Influence of Commercial law supplemented by case law is increasingly present in setting accounting standards.

IFRS required for listed companies in 2005

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Nordic Accounting Nordic Countries: Denmark, Finland, Iceland, Norway, and

Sweden Sweden

Focus on creditors, government, and tax authorities Also heavily involves accounting profession in standard setting. Capital Markets important to accounting and disclosure req’ts Two-tier approach

Individual accounts – traditional basis Consolidated accounts of major groups – international capital

market needs The law provides a framework rather than detailed requirements

Accounting Standards Board and Accounting Council provide guidance in the context of company law

IFRS required for listed companies in 2005

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Germanic Accounting Germany / Austria

Focus on needs of creditors and tax authorities MNEs are becoming more investor-oriented Commercial law is predominant influence

Accounting rules amend the Commercial Code Annual accounts are the basis for tax accounts

Tax rules dominate legal accounting issues Limited impact of accounting profession

German Accounting Standards Board Fair and true standard = transparent and reliable for in

German viewpoint. IFRS required for listed companies in 2005

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Germanic Accounting Switzerland -

Favors needs of creditors and authorities More companies are making further voluntary disclosures – as

Swiss Securities Markets grow./ Swiss companies face competition

Very secretive and conservative system Dominated by commercial law and tax regulations

New law – 1992 Improved disclosure and protection for investors

Secret reserves are still allowed Accounting profession consists of – still relatively small

Foundation for Accounting and Reporting Recommendations – supervises the Accounting Standards Board

Recommendations elaborate and supplement company law

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Latin Accounting France

Focus on needs of creditors and tax authorities Consolidated groups can report in U.S. GAAP or IAS Commercial law/tax law are the predominant influences

Focus on national economic planning Tax laws tend to override accounting rules

Small accounting profession established by law OECCA (Ordre des Experts Comptables et des Comptables Agrees)

and CNCC (Compagnie Nationale des Commissaires aux Comptes) for public accounting and auditing

Small stock market Most capital contributed by banks, government, or family French equivalent of the SEC – Commission des Opérations de

Bourse (COB) IFRS required for listed companies in 2005

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Latin Accounting Italy

Focus on interests of government and tax authorities Focus is shifting because of globalization

Accounts are used as the basis for taxation Tradition of conservatism to minimize taxes

Italian equivalent of the SEC – CONSOB (Commissione Nazionale per le Societa e la Borsa)

Slow to adopt EU directives because External investor interests are seen as less important than

family and state interests Tendency to protect the right of companies to keep

business secrets Professional accounting bodies are advisory IFRS required for listed companies in 2005

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Asian Accounting Many countries have a colonial accounting history or

foreign influence Japan

Focus on needs of creditors and tax authorities Commercial Code (similar to Germany) Corporate tax law is very influential

Leads to conservative accounting Government institutions are directly involved in standard-

setting Ministry of Finance – responsible for securities and

exchange law Ministry of Justice – responsible for application of

Commercial Code

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Asian Accounting Japan continued

Accounting for business combinations is a source of concern Keiretsu – system of interlocking directorates of related

businesses formed to work together Small accounting profession

Makes recommendations on the practical application of legal accounting rules

Tendency for secrecy and a lack of disclosure Increased international focus

ASBJ in Japan is similar to the FASB in the U.S. Approximately 30 Japanese companies listed in the U.S.

prepare financial statements in accordance with U.S. GAAP.