The impact of cultural factors on the lobbying of the International Accounting Standards Committee on E32, comparability of financial statements: an extension of MacArthur to accounting member bodies

The Impact of Cultural Factors on the Lobbying of the International Accounting Standards Committee on E32, Comparability of Financial Statements: An Extension of MacArthur to Accounting Member Bodies

John B. MacArthur

This article investigates the impact of cultural factors on the comment letters sent by accounting member bodies on the International Accounting Standards Committee’s exposure draft 32 (E32). It extends my earlier study into corporate lobbying on E32 and reports a further test of Gray’s hypothesized linkages between accounting values and the cultural values identified by Hofstede. Economic consequence concerns are also investigated. The content analysis results generally support the research hypotheses and are consistent with, but stronger than, my earlier findings. For cultural values, the results strongly support the Power Distance, Individualism, and Strong Uncertainty Avoidance hypotheses, partly support the Collectivism and Femininity-Masculinity hypotheses, and do not support the Weak Uncertainty Avoidance hypothesis. For accounting subcultural values, strong support was found for the Anglo and Nordic member bodies’ hypotheses and moderate support for Germanic and More Developed Latin Accounting member bodies’ hypotheses. The results partly supported the accounting subcultural hypotheses for the African and More Developed Asian and the Asian Colonial member bodies. Economic consequence concerns also followed the pattern found in the corporate letters. The combined results suggest that cultural, accounting subcultural, and economic factors influence the accounting preferences of accounting member bodies and corporate management. © 1999 Elsevier Science Inc. All rights reserved. Key Words: Culture; Accounting Subculture; IASC

John B. MacArthur ● Department of Accounting and Finance, College of Business Administration, 4567 St. Johns Bluff Road, South Jacksonville, FL 33224 –2675; Phone: (904) 620 –2630; E-mail: [email protected]. Journal of International Accounting, Auditing & Taxation, 8(2):315–335 ISSN: 1061-9518 Copyright © 1999 by Elsevier Science Inc. All rights of reproduction in any form reserved.

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INTRODUCTION This article investigates the impact of cultural factors on the comment letters submitted by accounting member bodies on exposure draft 32 (E32), Comparability of Financial Statements, issued by the International Accounting Standards Committee (IASC, 1990). It is a direct extension of MacArthur (1996), which investigated the influence of cultural factors on the lobbying preferences of companies that submitted comment letters on E32. This article reports a further empirical test of Gray (1988), which hypothesizes linkages between accounting values and the societal values identified by Hofstede (1980, 1983). The comments of accounting member bodies are examined because they represent member professional accountants in various organizational settings throughout the world who would be directly affected by the implementation of the exposure draft proposals. Therefore, member bodies are an important subset of the lobbyists on IASC exposure drafts, and their influence could increase in the near future. If the recent Group of Four (G4) proposal to reduce the size of the IASC Board to a maximum of nine members is implemented (Street & Shaughnessy, 1998), the comment letters of accounting member bodies might carry more weight in the development of future International Accounting Standards (IASs). Furthermore, accounting member bodies from 23 countries lobbied the IASC on E32. This is significantly more than the nine countries represented in the corporate content analysis study by MacArthur (1996). The accounting member bodies subset of E32 lobbyists represents the largest number of nations and is thus a fertile resource for investigating the impact of cultural factors on international lobbying behavior. The proposals in E32 covered 12 major IASs and should therefore have been perceived by accounting member bodies to have had a far-reaching impact on the organizations in which their members worked. The topics covered by E32 were: inventory valuation and presentation; unusual and prior period items and changes in accounting policies; research and development activities; construction contracts; property, plant and equipment; leases; revenue recognition; retirement benefits in employers’ financial statements; changes in foreign exchange rates; business combinations; capitalization of borrowing costs; and investments. A further contribution of this study is the inclusion of organizations in countries both with Western cultures (e.g., Norway and the U.S.A.) and nonWestern cultures (e.g., Japan and Singapore). This complements international accounting culture studies that have focused only on Western nations (e.g., MacArthur, 1996) or on nonWestern nations only (e.g., Chang, Yeh, & Wu, 1995). The inclusion of countries with both Western and nonWestern cultures is consistent with the seminal culture studies of Hofstede and Gray. This study also avoids the confounding effects of transplanted national and organizational culture from parent organizations in other countries, as accounting member bodies are domestic-based organizations. Prior studies of accounting

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firms have noted the impact of home-country national and organizational culture on overseas operations in Western nations (Soeters & Schreuder, 1988; Pratt, Mohrweis, & Beaulieu, 1993) and in Taiwan (Chow & Hwang, 1995). Also, MacArthur (1996) observed that the comments of one French company and two of its subsidiaries (one French and one Swiss company) were identical in parts, which indicated the influence of the parent company’s organizational culture on the subsidiaries. Several approaches have been used to evaluate the impact of national culture and of various subcultures in society on accounting matters. (For a discussion, see MacArthur, 1996.) These studies include Soeters and Schreuder (1988); Perera (1989); Thomas (1989); Perera and Mathews (1990); Riah–Belkaoui and Picur (1991); Cohen, Pant, and Sharp (1993); Ho and Chang (1994); and Gray and Vint (1995). Gray (1988) and others (e.g., Bloom & Naciri, 1989; Choi & Levich, 1990, 1991; Fechner & Kilgore, 1994; Montagna, 1987; Ray & Gupta, 1993; Salter & Niswander, 1995; Tang, 1994; Zarzeski 1996) recognized that economic (e.g., tax aspects) and other forces (e.g., political factors) affect accounting preferences as part of, or separate from, cultural factors. Given the importance of noncultural factors in explaining accounting choice, accounting member bodies’ comments that reflect economic concerns are noted in this study, along with cultural statements.

METHODOLOGY Following MacArthur (1996), the accounting member bodies’ comment letters on E32 were examined using content analysis. This entailed reading the comment letters to identify statements indicating the cultural values identified by Hofstede (1980, 1983) and the related accounting subcultural values suggested by Gray (1988). With the aid of eight tables in Hofstede (1991), phrases and words were noted that indicated the cultural and subcultural values illustrated in the hypotheses section of this article. Also, comments that indicated concern for economic consequences (e.g., cost-benefit aspects) were noted because of their likely influential nature in determining accounting member bodies’ comments (Watts & Zimmerman, 1986; MacArthur, 1993, 1996). The accounting member bodies’ comment letters were copied onto a floppy diskette for further content analyses, such as word searches, using word-processing software. Content analysis methods have been utilized in other international accounting studies (Freedman & Stagliano, 1992; MacArthur, 1993, 1996). The comment letters on the E32 proposals are publicly available from the IASC. The high level of concern over E32 is indicated by the IASC’s receipt of comment letters from 27 accounting member bodies, representing 23 different countries, as follows: (numbers of accounting member bodies in parentheses): Australia (2), Brazil (1), Canada (2), Cyprus (1), France (2), Germany FR (1),

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Hong Kong (1), Italy (1), Japan (1), Kenya (1), The Netherlands (1), New Zealand, (1), Nigeria (1), Norway (1), Singapore (1), South Africa (1), Sweden (1), Switzerland (1), Trinidad and Tobago (1), U.K. (2), U.S.A. (2), and Zimbabwe (1) (see Appendix). Excluding Cyprus, Trinidad and Tobago, and Zimbabwe, which were not included in Hofstede’s or Gray’s research, the remaining 19 countries are grouped into the following eight culture areas for the development of the research hypotheses: Anglo (Australia, Canada, New Zealand, South Africa, U.K., and the U.S.A.), Asian-Colonial (Hong Kong and Singapore), East African (Kenya), Germanic (Germany FR and Switzerland), More Developed Asian (Japan), More Developed Latin (Brazil, France, and Italy), Nordic (The Netherlands, Norway, and Sweden), and West African (Nigeria). This is twice the four culture areas used in MacArthur’s (1996) study. The classification of the lobbyist countries into the eight culture areas follows Hofstede’s groupings as reproduced in Gray (1988). The inclusion of Singapore in the Asian-Colonial culture area, however, can be challenged because in 1957, Singapore obtained political independence from the U.K. and by 1990 was economically self-sufficient. Of course, the cultural hypotheses may not be affected by Singapore’s political and economic changes since 1957, but the possibility of some effect should be considered in interpreting the results reported. The other country included in the Asian-Colonial culture area, Hong Kong, was also economically strong despite its political ties to the U.K. To test Gray’s accounting subcultural values hypotheses, East and West Africa are combined as Africa, the term used in Gray’s research. Culture areas with the same hypothesized accounting values are grouped together, resulting in four research hypotheses. Because of the lower variety of cultural areas represented by corporate commentators on E32, MacArthur (1996) tested only two accounting subcultural values research hypotheses.

HYPOTHESES The development of the research hypotheses parallels MacArthur (1996) and is divided into two parts. First, hypotheses are developed for the cultural values identified by Hofstede (1980, 1983). Second, hypotheses are developed for the accounting subcultural values to test Gray’s (1988) proposals. Cultural Values Hypotheses Large Versus Small Power Distance. Hofstede (1991) defined power distance in the following way: Power distance can therefore be defined as the extent to which the less powerful members of institutions and organizations within a country expect and accept that power is distributed

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unequally. ‘Institutions’ are the basic elements of society like the family, school, and the community; ‘organizations’ are the places where people work.

Phrases in E32 comments indicating a large power distance culture include those that convey a need for, or expectation of, authoritarian standards. Accounting member bodies in small-distance societies are likely to support participation and the need for general acceptance of international accounting standards. It is expected that: H1:

The comments on E32 from Asian Colonial, East African, More Developed Asian, More Developed Latin, and West African accounting member bodies are consistent with a large power distance society and the comments of Anglo, Germanic, and Nordic accounting member bodies are consistent with small power distance societies.

Individualism Versus Collectivism. Hofstede (1991) defined the individualism dimension as follows: Individualism pertains to societies in which the ties between individuals are loose: everyone is expected to look after himself or herself and his or her immediate family. Collectivism as its opposite pertains to societies in which people from birth onwards are integrated into strong, cohesive ingroups, which throughout people’s lifetime continue to protect them in exchange for unquestioning loyalty.

Examples of E32 comments that convey an individualistic perspective include phrases such as “in our opinion” and “we believe.” Also, individualistic accounting member bodies show greater recognition of the needs of users of accounting information, readers of financial statements, stockholders, shareholders, creditors, customers, and other individual parties. Collectivist comments from accounting member bodies emphasize the collective interests of their society and include statements that emphasize accounting and business practices that are generally accepted within their own country. Statements that refer to legislated accounting practices are excluded, because collectivism refers to the power of the group and not to the power of the state (Hofstede, 1991). It is expected that: H2:

The comments on E32 from Asian Colonial, East African, More Developed Asian, More Developed Latin (Brazil only), and West African accounting member bodies are consistent with a collectivist society. The comments of Anglo, Germanic, More Developed Latin (France and Italy only), and Nordic accounting member bodies are consistent with individualism in their societies.

Femininity Versus Masculinity. Hofstede (1991) defined the masculinityfemininity cultural dimension in the following way: masculinity pertains to societies in which social gender roles are clearly distinct (i.e., men are supposed to be assertive, tough, and focused on material success whereas women are supposed to be more modest, tender, and concerned with the quality of life); femininity

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pertains to societies in which social gender roles overlap (i.e., both men and women are supposed to be modest, tender, and concerned with the quality of life).

Feminine comments include statements that exhibit concern over the effect E32 proposals would have on other countries. Masculine comments include statements that emphasize the importance of progress in harmonization and choice of accounting principles over their effect on other nations. It is hypothesized that: H3:

The comments on E32 from Asian Colonial (Singapore only), East African, More Developed Latin (Brazil and France only), Nordic, and West African accounting member bodies are consistent with “feminine” societies. The comments of Anglo, Asian Colonial (Hong Kong only), Germanic, More Developed Asian, and More Developed Latin (Italy only) accounting member bodies are consistent with “masculine” societies.

Strong Versus Weak Uncertainty Avoidance. Hofstede’s (1991) definition of uncertainty avoidance is: the extent to which the members of a culture feel threatened by uncertain or unknown situations. This feeling is, among other things, expressed through nervous stress and in a need for predictability: a need for written and unwritten rules.

Comments that reflect uncertainty avoidance include statements on ambiguity, subjectivity versus objectivity, verifiability, arbitrariness, certainty versus uncertainty, and doubt. It is expected that: H4:

The comments on E32 from Germanic, More Developed Asian, and More Developed Latin accounting member bodies are consistent with strong uncertainty avoidance societies. The comments of Anglo, Asian Colonial, East African, Nordic, and West African accounting member bodies are consistent with weak uncertainty avoidance societies.

Accounting Subcultural Values Hypotheses The accounting subcultural values hypotheses will be presented after a discussion of the four accounting subcultural dimensions. Professionalism Versus Statutory Control. According to Gray (1988), professionalism versus statutory control is: a preference for the exercise of individual professional judgment and the maintenance of professional self-regulation as opposed to compliance with prescriptive legal requirements and statutory control.

Comments in support of professionalism include statements: ●

in support of the work of the IASC towards harmonizing accounting standards worldwide.

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indicating the need for professional judgement. in support of a conceptual framework for accounting standards. that invoke accounting principles and concepts to support stated preferences.

By definition, comments in support of statutory control exhibit a preference for mandated accounting standards. Uniformity Versus Flexibility. According to Gray (1988), uniformity versus flexibility is: a preference for the enforcement of uniform accounting practices between companies and for the consistent use of such practices over time as opposed to flexibility in accordance with the perceived circumstances of individual companies.

Comments in support of flexibility include statements: ●

●

● ●

in support of more than one accounting option to meet the different needs of countries and companies. that express concern that meaningful reporting must not be sacrificed in the search for mechanical uniformity. that harmonization is not the same as rigid standardization. that point out the need for evolving accounting principles to adapt to changing needs.

Consistent with Gray’s definition and MacArthur (1996), comments that support specified accounting methods (e.g., capitalization or expensing) for particular circumstances (e.g., the degree of certainty as to future events), are included as indicating accounting member bodies’ support for flexibility. Comments that support uniformity emphasize the need to eliminate or to reduce alternatives (e.g., to enhance the comparability of financial statements). Conservatism Versus Optimism. According to Gray (1988), conservatism versus optimism is: a preference for a cautious approach to measurement so as to cope with the uncertainty of future events as opposed to a more optimistic, laissez-faire, risk-taking approach.

As explained in MacArthur (1996), clear preferences for inclusion of credit items (e.g., gains) in the income statement or exclusion/deferral of debit items (e.g., losses) from the income statement are considered in this research to be optimistic measurements. Clear preferences for the exclusion/deferral of credit items from, or the inclusion of debit items in, the income statement are considered to be conservative measurements. Preferences for LIFO inventory valuation are considered to be conservative, while statements supporting elimination of LIFO are considered optimistic. Preferences for projected benefit valuation methods are considered to be conservative,

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and preferences for accrued benefit valuation methods, optimistic. Also, comments expressing concern that a proposal in E32 is too conservative (insufficiently conservative) are classified as optimistic (conservative). Secrecy Versus Transparency. According to Gray (1988), secrecy versus transparency is: a preference for confidentiality and the restriction of disclosure of information about the business only to those who are closely involved with its management and financing as opposed to a more transparent, open and publicly accountable approach.

Comments that support disclosure of information are considered to reflect transparency, whereas statements in favor of restricting disclosures are considered to be evidence of secrecy. Accounting member body comments in favor of maintaining “hidden reserves” also reflect secrecy. Hypotheses. Based on Gray (1988), in regards to accounting subcultural values, it is expected that: H5:

The comments on E32 from African and More Developed Asian accounting member bodies exhibit a predominant preference for statutory control and uniformity (in regards to authority and enforcement) and conservatism and secrecy (in regards to measurement and disclosure).

H6:

The comments on E32 from Anglo and Nordic accounting member bodies exhibit a predominant preference for professionalism and flexibility (in regards to authority and enforcement) and optimism and transparency (in regards to measurement and disclosure).

H7:

The comments on E32 from Asian Colonial accounting member bodies exhibit a predominant preference for statutory control and flexibility (in regards to authority and enforcement) and optimism and transparency (in regards to measurement and disclosure).

H8:

The comments on E32 from Germanic and More Developed Latin accounting member bodies exhibit a predominant preference for professionalism and uniformity (in regards to authority and enforcement) and conservatism and secrecy (in regards to measurement and disclosure).

CONTENT ANALYSIS RESULTS The comment letters on E32 from the 24 accounting member bodies contained 182 pages with an average letter length of 7.6 pages per member body (182 pages/24 member bodies). This is higher than the average corporate comment letter length of 5.1 pages per company in MacArthur (1996). The relatively high

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TABLE 1

Cultural Content Analysis Classifications of the Comment Letters Sent by Accounting Member Bodies on E32, Compared with the Culture Hypotheses in Numbers and Percentagesa,b Number of Member Bodies in Number Countries (Percentage) of Expected Cultural Hypothesized to Member Bodies Characteristic Show the Culture With Comments (Hypothesis) Characteristic as Hypothesized Large Power Distance (H1) Small Power Distance (H1) Total Individualism (H2) Collectivism (H2) Total Masculinity (H3) Femininity (H3) Total Strong Uncertainty Avoidance (H4) Weak Uncertainty Avoidance (H4) Total Average Number (Percent) of Member Bodies

Number (Percentage) of Number Member Bodies (Percentage) of With Comments Member Bodies That are Opposite With Comments to That That are Hypothesized Culturally Neutral

9

7 (77.8%)

1 (11.1%)

1 (11.1%)

15

11 (73.4%)

2 (13.3%)

2 (13.3%)

24 18 6 24 15 9 24 7

18 (75.0%) 18 (100.0%) 3 (50.0%) 21 (87.5%) 7 (46.7%) 5 (55.6%) 12 (50.0%) 6 (85.7%)

3 (12.5%) 0 (0.0%) 2 (33.0%) 2 (8.3%) 1 (6.6%) 1 (11.1%) 2 (8.3%) 0 (0.0%)

3 (12.5%) 0 (0.0%) 1 (17.0%) 1 (4.2%) 7 (46.7%) 3 (33.3%) 10 (41.7%) 1 (14.3%)

17

2 (11.8%)

9 (52.9%)

6 (35.3%)

24 24

8 (33.3%) 15 (62.5%)

9 (37.5%) 4 (16.7%)

7 (29.2%) 5 (20.8%)

a

Where there are conflicting statements in the comment letters (e.g., some that suggest individualism and some that suggest collectivism), the classification is made according to the dominant statements. b In the case of Australia and France, two member bodies sent a joint comment letter and, in each case, they are counted as two member bodies in this study. The Norwegian Institute of State Authorized Public Accountants (a member body), The Norwegian Accounting Standards Board, and The Oslo Stock Exchange sent a joint lobby, and this is included as one member body in this study. Separate comment letters were received from two member bodies in the case of Canada, the U.K., and the U.S.A.

average number of pages is consistent with the expectation intimated in the opening section of this article that accounting member bodies were likely to be concerned about the widespread impact of the many E32 proposals on their membership. Culture Results The culture results are summarized in Table 1. The bottom row of Table 1 shows that, on average, 15 of the 24 member bodies (62.5 percent) exhibited the hypothesized cultural characteristics in their comment letters, 4 (16.7 percent) reflected unexpected cultural characteristics, and 5 (20.8 percent) were neutral with respect to the cultural characteristics.

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Large Versus Small Power Distance Results. The content analysis results strongly support the power distance hypothesis, H1. Of the nine member bodies in large power distance (LPD) countries, the comments of 7 (77.8 percent) were consistent with LPD in their comment letters, 1 (11.1 percent) exhibited small power distance (SPD) (Hong Kong), and 1 (11.1 percent) did not exhibit either LPD or SPD (Kenya). Of the 15 member bodies in SPD countries, the comments of 11 (73.4 percent) were consistent with SPD, and only two comment letters (13.3 percent) indicated LPD (South Africa and Germany FR). The comment letters from the member bodies in New Zealand and Switzerland, the remaining two SPD countries (13.3 percent), exhibited neither LPD nor SPD. South Africa was classified by Hofstede (1991) as both an LPD and an SPD country and, therefore, a borderline LPD/SPD nation. Gray’s (1988) portrayal of Hofstede’s culture areas considered South Africa an identifiable subgroup within the Anglo culture area. In Table 1, South Africa is included with the other Anglo countries in the SPD group. This is in line with MacArthur (1996). The South Africa power distance result is not consistent with the hypothesis and may reflect an inaccurate placement of this country among the SPD nations due to the difficulty of precisely classifying this marginal LPD/SPD country. The German member body’s comment letter was peppered with 13 LPD statements, such as references to the German Commercial Code. This finding is consistent with the content analysis of the German corporate comment letter (MacArthur, 1996). Individualism Versus Collectivism Results. The content analysis results partly support the individualism/collectivism hypothesis, H2. All 18 member bodies in individualistic countries exhibited individualism in their comment letters. The strong support of the hypothesis by these results is consistent with MacArthur (1996). (Collectivism was not considered in this earlier study.) The results were less supportive in the six collectivist nations, with the comment letters of 3 (50 percent) as expected, 2 (33 percent) exhibiting individualism (Brazil and Hong Kong), and 1 (17 percent) indicating neither characteristic (Nigeria). Perhaps it is not surprising that, in general, the professional persons administering accounting member bodies and constituting their membership would exhibit more individualism than the IBM employees who resided in societies classified as collectivist and who provided the attitude survey data that were studied by Hofstede (1980, 1983). Occupational culture may be a dominant influence on the administrators and members of accounting member bodies. Femininity Versus Masculinity Results. Like companies (MacArthur, 1996), the member bodies’ content analysis results were more supportive of H3 in the feminine countries than in the masculine nations, but overall member body results were more consistent with H3 than the former study. Of the 9 member bodies in feminine countries, the comments of 5 (55.6 percent) indicated femininity, while 1 (11.1 percent) evidenced masculinity (The Netherlands), and three

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(33.3 percent) exhibited neither masculinity nor femininity (Kenya, Nigeria, and Norway). Seven (46.7 percent) of the 15 member bodies in masculine countries exhibited masculinity in their comments, 1 (6.6 percent) indicated femininity (Japan), and 7 (46.7 percent) were not clearly aligned in their comments with either group (Germany FR, Hong Kong, New Zealand, Switzerland, one of the U.K. bodies, and the U.S.A. [two bodies]). Strong Versus Weak Uncertainty Avoidance Results. Consistent with MacArthur (1996), the content analysis results partly support the uncertainty avoidance hypothesis, H4. Six (85.7 percent) of the seven member bodies in strong uncertainty avoidance (SUA) nations exhibited this characteristic in their comment letters. The exception was the Brazilian member body, which exhibited neither SUA nor weak uncertainty avoidance (WUA) in its comments. The comment letters of member bodies in WUA nations were generally not as hypothesized. Only 2 (11.8 percent) of the 17 member bodies’ comment letters exhibited WUA (Singapore and South Africa). The comments of 9 member bodies (52.9 percent) were consistent with a SUA society (Australia [two bodies], Canada [two bodies], The Netherlands, Nigeria, Norway, Sweden, and one of the U.S.A. bodies), and 6 comment letters (35.3 percent) did not indicate either SUA or WUA (Hong Kong, Kenya, New Zealand, the U.K. [two bodies], and one of the U.S.A. bodies). In Hofstede (1991), however, 5 of the 9 member bodies with unexpected SUA comments were near the line of demarcation between SUA and WUA countries (Nigeria, The Netherlands, Australia [two bodies], and Norway). Also, the administrators and members of accounting member bodies in WUA countries may generally be more cautious than the IBM employees included in the attitude survey data analyzed by Hofstede (1980, 1983). This is consistent with the widespread belief that accountants tend to be more conservative and riskaverse than the general population. Accounting Subculture Results Accounting subculture results are reported for the African and More Developed Asian and the Asian Colonial culture areas despite the low numbers of member bodies who submitted comment letters, for two main reasons. First, these two culture areas have international importance, and second, their inclusion helps to offset the relative paucity of published research on accounting choice factors in these cultural areas of the world. The small number of commentators, however, makes it more difficult to interpret and generalize the results. The accounting subculture results are presented in Table 2. African and More Developed Asian Accounting Member Bodies’ Results. For H5, the results indicate strong support for uniformity (two bodies, 67 percent), weak support for conservatism (one body, 33 percent) and secrecy (one

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TABLE 2

Member Bodies’ Accounting Subcultural Content Analysis Classifications for the Four Cultural Groupings in Numbers and Percentagesa Number (Percentage) of Accounting Member Bodies’ Comment Letters That Reflect Gray’s Authority and Enforcement Accounting Subcultural Values Authority Culture Group (Hypothesis) African and More Developed Asianb (H5) Anglo and Nordicc,d (H6) Asian Coloniale (H7) Germanic and More Developed Latinf,g (H8) Total

Enforcement

Professionalism (row %)

Statutory Control

Neutral (row %) Total

Flexibility (row %)

Uniformity Neutral (row %) (row %) Total

1 (33%)

0*

2 (67%)

3

1 (33%)

2* (67%)

0

3

13* (100%) 2 (100%) 6* (100%)

0

0

13

0

0

13

0*

0

2

0

0

6

3* (50%)

1 (50%) 1 (17%)

2

0

13* (100%) 1* (50%) 2 (33%)

22 (92%)

0

2 (8%)

24

17 (71%)

5 (21%)

2 (8%)

24

6

Number (Percentage) of Accounting Member Bodies’ Comment Letters That Reflect Gray’s Measurement and Disclosure Accounting Subcultural Values Measurement Culture Groups (Hypothesis) African and More Developed Asianb (H5) Anglo and Nordicc,d (H6) Asian Coloniale (H7) Germanic and More Developed Latinf,g (H8) Total a

Optimism (row %)

Disclosure

Conservatism Neutral Transparency (row %) (row %) Total (row %)

Secrecy Neutral (row %) (row %) Total

0

1* (33%)

2 (67%)

3

1 (33%)

1* (33%)

1 (33%)

3

12* (92%) 1* (50%) 0

0

13

11* (85%) 0*

0

6

4 (67%)

1 (50%) 2* (33%)

2 (15%) 1 (50%) 0

13

4* (67%)

1 (8%) 1 (50%) 2 (33%)

5 (21%)

6 (25%)

24

16 (66%)

4 (17%)

4 (17%)

24

13 (54%)

0

2

2 6

Where there are conflicting statements in the comment letters (e.g., some that suggest uniformity and others that indicate flexibility), the classification is made according to the dominant statements. b The countries represented are (African): Kenya and Nigeria; and (More Developed Asian): Japan. c the countries represented are (Anglo): Australia, Canada, New Zealand, South Africa, the U.K., and the U.S.A; and (Nordic): The Netherlands, Norway, and Sweden. d Two Australian member bodies sent a joint comment letter, and this is counted as two member bodies in this study. The Norwegian Institute of State Authorized Public Accountants (a member body), The Norwegian Accounting Standards Board, and The Oslo Stock Exchange sent a joint lobby, and this is included as one member body in this study. Separate comment letters were received from two member bodies in the case of Canada, the U.K., and the U.S.A. e The countries represented are: Hong Kong and Singapore. f The countries represented are (Germanic): Germany and Switzerland; and (More Developed Latin): Brazil, France, and Italy. g Two French member bodies sent a joint comment letter, and this is counted as two member bodies in this study. * Hypothesized accounting subcultural value preference.

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body, 33 percent), and no support for statutory control of the accounting profession. Perhaps it is not too surprising that professional accounting member bodies would not desire statutory control of accounting matters, even in societies where support for statutory control of accounting is hypothesized to be popular. The Japanese member body indicated an unexpected preference for professional control of accounting issues. Perhaps this is a reflection of the U.S. influence on the formation of the Japanese Institute of Certified Accountants in 1948 during the Allied administration of Japan following the Second World War (see Campbell & Nobes, 1995). The Nigerian member body comment letter suggested a preference for transparency in disclosure over secrecy. Possibly this is at least partly due to the influence of the U.K. over this former colony and current member of the British Commonwealth. Anglo and Nordic Accounting Member Bodies’ Results. The results strongly support H6. All member bodies’ comment letters included statements that indicate professionalism and flexibility. The preferences of 12 (92 percent) of the 13 member bodies are consistent with optimism in measurement, 11 (85 percent) support transparency in disclosure, and the remainder are neutral. The results are consistent with MacArthur (1996) but are more supportive of the hypothesis. Asian Colonial Accounting Member Bodies’ Results. The results are only partly consistent with H7. Both countries exhibited a preference for professionalism rather than statutory control in their comments. Although this result was not expected, the outcome may not be too surprising given that the organizations studied are professional accounting member bodies. Perhaps this is another case of professional influences dominating cultural effects (Ho & Chang, 1994). The comments of one member body exhibited the expected preference for flexibility, while the other did not reveal a preference for flexibility or uniformity. One member body supported optimistic measurements in line with the hypothesis, and the other did not express a preference. An unexpected preference for secrecy was indicated in one comment letter, while the other was neutral. For example, one of the statements in support of less disclosure by the member body that indicated support for secrecy was a suggestion for fixed assets “that revaluations should be continued to be allowed as a ‘required or preferred treatment,’ without the need to reflect the historical cost method for income and balance sheet items” (IASC, 1990). Germanic and More Developed Latin Accounting Member Bodies’ Results. For H8, the results indicate unanimous support from the 6 member bodies’ comment letters for professionalism, some support for uniformity (3 bodies, 50 percent), strong support for conservatism (4 bodies, 67 percent), but

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only weak support for secrecy (2 bodies, 33 percent). The comments of the 2 member bodies in the Germanic countries, Germany FR and Switzerland, indicate an unexpected preference for flexibility. As was suggested for the corporate support for flexibility (MacArthur, 1996), perhaps the administrators and members of the two member bodies were influenced by the needs of the multinational companies in their countries for flexibility in accounting practices to accommodate the different circumstances that exist in the various nations of the world where these companies operate. The comment letters from the Brazilian, French, and Italian member bodies suggested a preference for transparency that was not expected. This may reflect the recognition of the administrators and members of these member bodies of the pressures faced by multinational companies in their countries to provide the information needs of securities markets around the world. The prominence of transparency in nations hypothesized to be secretive is consistent with meeting the needs of the global culture rather than the home culture (see Zarzeski, 1996). Also, France is a “medium high” secrecy country whereas Germany is a “high” secrecy nation, according to Fechner and Kilgore (1994). Consistent with this classification, the German FR member body comments exhibited a preference for secrecy, as did the German FR company that commented on E32 (MacArthur, 1996). Accounting Member Bodies’ Versus Corporate Cultural and Accounting Subcultural Content Analysis Results. In general, the accounting member bodies’ content analysis results are consistent with the corporate content analysis results of MacArthur (1996), but the former more strongly support the cultural and accounting subcultural hypotheses. On average, 62.5 percent of the member bodies’ comment letters exhibited the expected cultural characteristics (Table 1, bottom row). The same calculation using MacArthur’s (1996) results reveals that an average of 43.1 percent of the corporate comment letters were in line with the cultural hypotheses. Four of the seven cultural results (with hypotheses in both studies) are more consistently in line with expectations in the member bodies’ study (Table 3). The results are about the same in the case of Strong Uncertainty Avoidance and are consistent and not too far apart in terms of Large Power Distance and Femininity, where the corporate results are more supportive of the hypotheses (Table 3). For countries hypothesized to be masculine, the member bodies’ results were far more supportive of H3 than the corporate results (Table 3). This is not too surprising, because professional accounting bodies in masculine countries might be expected to be more concerned that accounting standards are based upon sound accounting principles than with what effect accounting principle choices would have on other nations. In the case of the Anglo and Nordic countries, the accounting subcultural results of member bodies are uniformly more consistent with the hypotheses than

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TABLE 3

Percentage of Content Analysis Classifications Consistent with the Culture Hypotheses for Member Bodies and Companiesa Expected Cultural Characteristic Large Power Distance Small Power Distance Individualism Collectivism Masculinity Femininity Strong Uncertainty Avoidance Weak Uncertainty Avoidance

Member Bodies (From Table 1) (N ⫽ 24)

Companies (MacArthur, 1996) (N ⫽ 47)

77.8% 73.4% 100.0% 50.0% 46.7% 55.6% 85.7% 11.8%

100.0% 47.7% 83.0% No hypothesis 9.8% 66.7% 87.5% 7.7%

a

The 9 countries represented in both studies are Australia, Canada, France, Germany, The Netherlands, South Africa, Switzerland, the U.K., and the U.S.A. The 10 countries represented in the member bodies study only are Brazil, Hong Kong, Italy, Japan, Kenya, New Zealand, Nigeria, Norway, Singapore, and Sweden.

the corporate results (Table 4). The accounting subcultural results of member bodies are also more supportive of the hypotheses than the corporate results in the case of the Germanic and More Developed Latin countries, with the exception of the level of support for the Uniformity hypothesis, which is the same (50 percent) in both studies (Table 5). No companies submitted comment letters corresponding to the other culture areas included in the member bodies’ content analysis. Perhaps the member bodies’ results are generally more supportive of the hypotheses because their comment letters reflect the needs of members in many different organizational contexts, thus more precisely reflecting national cultural and subcultural characteristics. On the other hand, corporate management are more likely to take a more parochial, single organizational viewpoint that may not so accurately reflect the general cultural and subcultural philosophies of their nation of residence.

TABLE 4

Percentage of Content Analysis Classifications Consistent with the Accounting Subculture Hypotheses for Anglo and Nordic Member Bodies and Companiesa Expected Accounting Subcultural Characteristics

Member Bodies (From Table 2) (N ⫽ 13)

Companies (MacArthur, 1996) (N ⫽ 39)

Professionalism Flexibility Optimism Transparency

100.0% 100.0% 92.0% 85.0%

97.4% 76.9% 51.3% 56.4%

a

The Anglo and Nordic countries represented in both studies are Australia, Canada, The Netherlands, South Africa, the U.K., and the U.S.A. The Anglo and Nordic countries represented in the member bodies study only are New Zealand, Norway, and Sweden.

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TABLE 5

Percentage of Content Analysis Classifications Consistent with the Accounting Subculture Hypotheses for Germanic and More Developed Latin Member Bodies and Companiesa Expected Accounting Subcultural Characteristics

Member Bodies (From Table 2) (N ⫽ 6)

Companies (MacArthur, 1996) (N ⫽ 8)

Professionalism Uniformity Conservatism Secrecy

100.0% 50.0% 67.0% 33.0%

75.0% 50.0% 50.0% 13.0%

a

The Germanic and More-Developed Latin countries represented in both studies are France, Germany FR, and Switzerland. The Germanic and More Developed Latin countries represented in the member bodies study only are Brazil and Italy.

STATEMENTS OF ECONOMIC CONSEQUENCES COMMENT LETTERS

IN

E32 MEMBER BODIES’

The Anglo (17) and Nordic (3) member bodies’ comment letters included 20 (83.3 percent) of the 24 statements on the perceived economic consequences of implementing the E32 proposals (Table 6). The high proportion of economic consequence expression in the comment letters of the Anglo/Nordic member bodies is consistent with the high percentage (95.7 percent) of economic effects statements in the comments of companies in Anglo/Nordic countries (MacArthur, 1996). The member body from Singapore, an Asian Colonial country with a strong Anglo heritage, also mentioned two economic consequences. The Anglo/Nordic and Asian Colonial member bodies’ disclosure of concern over economic effects may not be too surprising, because these nation groupings are expected by Gray (1988) to be transparent in disclosing information. The Italian member body mentioned the other two economic consequences from E32 and was the only member body from a country in a culture area classified as secretive to make such statements. Concern over income volatility was expressed by both Canadian member bodies and by one of the U.S. member bodies. This is consistent with MacArthur (1996) and may also reflect significant political sensitivity in these two countries to potential adverse publicity from wide swings in reported income numbers.

SUMMARY

AND

CONCLUSIONS

This study investigates the impact of cultural factors on the accounting member bodies’ comment letters sent concerning the IASC’s E32, to further test Gray’s hypothesized linkages between accounting values and the cultural values identified by Hofstede. The member bodies included in the content analyses are from 19 countries in 8 culture areas, as compared to the 9 countries from 4 culture

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TABLE 6

Number of Economic Consequences Mentioned in E32 Comment Letters from Accounting Member Bodies Country (# of Member Bodies in Parentheses; Total ⫽ 24) Australia (2)a Canada (2) New Zealand (1) South Africa (1) U.K. (2) U.S.A. (2) Anglo Total (10) Hong Kong (1) Singapore (1) Asian Colonial total (2) East Africa: Kenya (1) Germany FR (1) Switzerland (1) Germanic Total (2) More Developed Asian: Japan (1) Brazil (1) France (2)b Italy (1) More Developed Latin total (4) Netherlands (1) Norway (1)c Sweden (1) Nordic total (3) West Africa: Nigeria (1) Total # of Economic Concerns

Total # of Extra Economic Cost-Benefit Work/Costs Tax Effects Volatility Concerns 1 2

1 1 1 2 1 6

1

1 2 6

2

1 3

0 0

1 1 0

1 1 0

0

0 0

0 0

0 0

0 0

1 1

1 1 1

0

0

1 1 2 0 5

0 0 3

0 0 7

1 0 9

1

2

2 6 0 2 3 4 17 0 2 2 0 0 0 0 0 0 0 2 2 1 1 1 3 0 24

a

One joint comment letter from two accounting member bodies One joint comment letter from two accounting member bodies c The Norwegian Institute of State Authorized Public Accountants (a member body), The Norwegian Accounting Standards Board, and The Oslo Stock Exchange sent a joint lobby. b

areas in MacArthur’s (1996) corporate study. The larger number of culture areas in the current study enabled four accounting subcultural hypotheses based on Gray (1988) to be tested, versus two hypotheses in MacArthur’s (1996) study. In terms of cultural values, the content analysis results strongly supported the power distance, individualism, and strong uncertainty avoidance hypotheses, only partly supported the collectivism and femininity-masculinity hypotheses, and did not support the weak uncertainty avoidance hypothesis. For accounting subcultural values, strong support was found for the Anglo and Nordic member bodies’ hypotheses and moderate support for Germanic and More Developed Latin Accounting member bodies’ hypotheses. The content analysis results for the African and More Developed Asian member bodies and the Asian Colonial member bodies only partly supported the accounting subcul-

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tural hypotheses. In particular, there was no support for the statutory control hypothesis. In the research group, there were only 3 African and More Developed Asian and 2 Asian Colonial accounting member bodies, versus 13 Anglo and Nordic member bodies and 6 Germanic and More Developed Latin member bodies. A larger number of member bodies from the African and two Asian culture areas might have produced results more consistent with the hypotheses. Nonetheless, all member bodies from the More Developed Asian country (Japan) and Asian Colonial countries (Hong Kong and Singapore) included in Gray’s (1988) analysis, submitted comment letters on E32. Therefore, the two Asian research groups could not be expanded. Also, the two African nations that submitted comment letters are from a culture area classified as secretive by Gray. A low number of comment letters from the African culture area could be interpreted as evidence of the secretive nature of East African and West African nations and therefore be not too surprising. Overall, the results were consistent with the findings of MacArthur (1996), but the member bodies’ results more strongly supported the research hypotheses. It was suggested that a reason for the stronger results could be that fewer organization-specific concerns are reflected in member bodies’ comment letters, which represent accountants in many organizational settings, than might be expected of the managers of individual companies who formulated the corporate comment letters analyzed by MacArthur. The economic consequence concerns expressed by member bodies also followed the pattern found in the corporate letters (MacArthur, 1996). Member bodies in the more transparent nation groupings (Anglo/Nordic and Asian Colonial) were dominant in disclosing concerns over the potential economic effects of E32. Only one member body in a nation classified by Gray (1988) as secretive (Italy) mentioned concern over economic consequences from the implementation of E32. The consistent findings reported in this article and in MacArthur (1996), which generally support the research hypotheses, suggest that cultural, accounting subcultural, and economic factors influence the international accounting preferences of two important groups: accounting member bodies and corporate management. The results provide evidence that, to varying degrees, cultural, accounting subcultural, and economic differences between culture groups are likely to act as constraints on efforts towards the global harmonization of accounting standards. This evidence is important information for international accounting standard-setting bodies, such as the IASC, to consider in their deliberations. For example, in terms of the enforcement of accounting standards, the findings indicate that member bodies and companies in Anglo and Nordic culture groups strongly preferred flexibility (i.e., more options), whereas 50 percent of the member bodies and companies in Germanic and More Developed Latin culture areas favored uniformity (i.e., fewer options). Growth in the importance of the

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global marketplace over time, however, may gradually dilute the influence of local cultural, accounting subcultural, and economic preferences and concerns. Given the consistent content analysis results thus far, further studies seem to be warranted to extend this line of research to other groups and time periods. Acknowledgments: The author wishes to thank Bruce Fortado and other colleagues at the University of North Florida, as well as anonymous reviewers, for their helpful comments on this article.

APPENDIX Member Bodies That Submitted Comment Letters on E32 (Countries in Parentheses) (IASC, 1990) Australian Society of Accountants and the Institute of Chartered Accountants in Australia (Australia) Instituto Brasileiro de Contadores (Brazil) Canadian Institute of Chartered Accountants (Canada) Certified General Accountants Association of Canada (Canada) Institute of Certified Public Accountants of Cyprus (Cyprus) Compagnia Nationale des Commissaires aux Comptes and Ordre des Experts Comptables et des Comptables Agrees (France) Institut der Wirtschaftprufer (Germany FR) Hong Kong Society of Accountants (Hong Kong) Consiglio Nazionale dei Dottori Commercialisti (Italy) Japanese Institute of Certified Public Accountants (Japan) Institute of Certified Public Accountants of Kenya (Kenya) Nederlands Instituut van Registeraccountants (The Netherlands) New Zealand Society of Accountants (New Zealand) The Institute of Chartered Accountants of Nigeria (Nigeria) Norges Statsautoriserte Revisorers Forening (Norway)1 Institute of Certified Public Accountants of Singapore (Singapore) South African Institute of Chartered Accountants (South Africa) Foreningen Auktoriserade Revisorer FAR (Sweden) Schweizereische Kammer der Bucher-Steuer-und Treuhandexperten (Switzerland) Institute of Chartered Accountants of Trinidad and Tobago (Trinidad and Tobago) United Kingdom and Republic of Ireland- Consultative Committee of Accountancy Bodies: The Accounting Standards Committee (U.K.)2 Chartered Association of Certified Accountants (U.K.)3 American Institute of Certified Public Accountants (U.S.A.) National Association of Accountants (U.S.A.) Institute of Chartered Accountants of Zimbabwe (Zimbabwe)

NOTES 1. 2.

A joint lobby from: The Norwegian Institute of State Authorized Public Accountants (a member body); The Norwegian Accounting Standards Board; and The Oslo Stock Exchange. This comment letter was prepared by The Accounting Standards Committee (ASC) of the Consultative Committee of Accountancy Bodies (CCAB). The ASC was supervised by the

334

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following six U.K. chartered accountancy bodies: The Institute of Chartered Accountants in England and Wales, The Institute of Chartered Accountants in Scotland, The Institute of Chartered Accountants in Ireland, The Chartered Association of Certified Accountants, The Chartered Institute of Management Accountants, and The Chartered Institute of Public Finance and Accountancy. The ASC‘s comment letter is included in the content analysis as a representative accounting member body. In 1990, the ASC was replaced by an independent Accounting Standards Board that can issue Financial Reporting Standards in its own right without seeking the approval of the chartered accounting bodies (Parker, 1995). The Chartered Association of Certified Accountants, a British CCAB body, submitted its own comment letter “in part because of significant differences between our response and that of the ASC” (IASC, 1990).

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