TheImpact of Cultural on Conservatism
In1988, Professor Sidney Gray put forth a theory to try and define howthe accounting system of a country develops (Gray, 2013). Hepostulated that the culture of the people in the specific countryplays a crucial part in impacting the accounting system byinfluencing principles of accounting (Gray, 2013). Thus, the culturalpractices that were common for people within a select communityaffected the bookkeeping principles of the members of this community.The accounting subculture principles consequently influenced thefinancial findings and habits for the entire nation. When it comes toconservatism, the Professor set a hypothesis that said the level inwhich the country stands based on cultural boundaries of avoiding theunknown and long-term alignment, and the position of egoism andmasculinity determine the rank of conservatism (Gray, 2013).Conservatism is vivid in a nation’s accounting system by a habit ofneglecting the identification of assets and other property thatenhance the net earnings while promoting the identification ofliabilities and other items that reduce the net earnings (Gray,2013). A clear example of conservatism is a law that expects anunrealized venture liability to be identified even though in futureit is likely to cost more while leaving no room for any asset to berecognized (Gray, 2013).
Thesame principles of conservatism that Gray states in his theory can bean indication of how the accountants in the specific country operateas well (Gray, 2013).
CancanEnterprises Inc. is a company based in Canada. The organization hasbranches in Korea, Brazil, and Sweden. When developing the fullfinancial report, the company must use the Canadian GAAP. Thus, thedirectors of Cancan Enterprises have developed a universal accountingmanual that works based on the regulations of the Canadian GAAP.Annually, internal auditors have to check that these principles arefollowed in all the subsidiaries (Gray, 2013).
Theimplications for the global convergence of financial reportingstandard that was raised by Gray’s model include disruption of somefinancial markets and extra costs. The convergence will require adetailed plan for countries with different levels of conservatism.The change will need a lot of resource input, and this move will be agreat challenge. Some nations may also refuse to comply making itharder for the implementation process (Grossberg, 2014).
Theconservatism in a country also affects the manner in which theaccountants operate. The implication of the statement means that someof the nations may have financial reports that are significantlydifferent from the others. Thus, when it comes to convergence, theprocess will end up being costly (Mala & Chand, 2012). Theprinciples of accounting taught in the different countries will alsobe separate, and they cannot be applied everywhere. Areas withdifferences in cultural dimensions may include countries in the SouthPacific region and the Western countries. The cultural values ofthese regions are very different leading to various rules used infinancial reporting (Mala & Chand, 2012).
Theinternal auditors of Cancan Enterprises face a hard task of combiningthe financial reporting companywide. However, since it is the policyof the organization to work under the Canadian GAAP, every accountantin all the branches will have to operate under the same system. Thus,the auditors will have to receive the reports from the subsidiarycompanies and subject them to the rules of the Canadian GAAP. Theimplication will be that the work will be harder and will consumemore time (Heron, 2016).
Foreasy financial reporting to be achieved, global convergence has to beattained. The entire process is tedious and costly, however, in thelong run, it ends being a cheaper alternative. The bestrecommendation for the process is to outlay a detailed plan that willensure every aspect of the changeover is handled. With acomprehensive strategy, the convergence will occur without a snag.
Gray,S. J. (2013). National culture and international differences in thecost of equity capital. ManagementInternational Review, 53(6),899-916.
Grossberg,L. (2014). Wegotta get out of this place: Popular conservatism and postmodernculture.Routledge.
Heron,T. (2016). Governing the Formal Economy: The Convergence of Theoryand Divergence of Practice. In ThePalgrave Handbook of International Development (pp.169-183). Palgrave Macmillan UK.
Mala,R., & Chand, P. (2012). Effect of the global financial crisis onaccounting convergence. Accounting& Finance, 52(1),21-46