Gray's Accounting Values
Professionalism vs. Statutory Control
Uniformity vs. Flexibility
Conservatism vs. Optimism
Secrecy vs. Transparency
The Impact of Culture on Conservatism
- conservatism = Recognizing expenses and liabilities as soon as possible when there is uncertainty about the outcome, but to
only recognize assets and revenues when they are assured of being received.
- Gray's Hypothesis: Conservatism of a country is dir
Reasons for Accounting Diversity
legal system
taxation
providers of financing
inflation
political and economic ties (think imperialism)
Correlation of factors within accounting diversity
- a relatively high degree of correlation between the legal system, tax conformity, and source of financing
ex: code law countries are more likely to conform to taxes but they have fewer investors, whereas common law countries have more investors but do n
Hofstede's Cultural Dimensions
power distance, individualism (vs collectivism), masculinity, uncertainty avoidance, long-term orientation
Problems caused by accounting diversity
(1) preparation of consolidated financial statements
(2) access to foreign capital markets
(3) comparability of financial statements
(4) lack of high-quality accounting information
Problems when preparing consolidated financial statements (thinking from international business point of view)
-local regulations usually require companies to keep books in local currency using local accounting principles
So companies have to determine to have two sets of books using different standards or reconcile their books
Preparation of consolidated financial statements requires
- considerable effort and costs are involved (parent companies must convert foreign operations to U.S GAAP/ foreign operation have to keep two sets of books)
- companies personnel must develop an expertise in different country's accounting standards
Access to foreign capital markets
- requires financial statements as per local accounting standards or provide a reconciliation
- Considerable effort and costs are involved
comparability of financial statements
this adversely affects:
- investment decisions
- lending decisions
- performance analysis
- foreign acquisition decisions
what are some of the results of lack of high- quality accounting information?
- in this case high quality= a lot of disclosure/ detail
- lack of accounting standards/ disclosure can hurt both domestic and foreign investment
- investors are exposed to higher risk
What is the equivalent of the common stock account on a U.S balance sheet on the balance sheet of a British Company?
A) Capital redemption reserve
B) Share premium account
C) own shares held
D) Called-up share capital
Called-up share capital
The accounting Standards in code law countries tend to be
A) very detailed
B) formulated by organizations such as FASB
C) stated generally without much guidance on accounting procedures
D) very conservative
Very conservative
What is likely to be the source of accounting standards in common law countries?
A) tax law
B) non-government entities such as FASB
C) federal and local legislatures
D) the international accounting standards board
Non- government entities such as the FASB
If most of a country's business financing comes from families, banks, and the government what should we expect in terms of information disclosure to the public?
A) relatively little disclosure because the public isn't a major factor
B) a great deal of dis
relatively little disclosure because the public isn't a major factor
Historical cost is the primary basis for asset valuation under U.S. GAAP. Why is historical cost NOT as important in the accounting systems of Latin American as in the U.S?
A) historical cost are too difficult to calculate in the currencies used in centra
the countries of Latin America have experienced very high rates of inflation, which would make historical costs meaningless to readers of financial statements.
In some countries, financial accounting and tax accounting are so closely related that there is very little need to account for deferred income taxes. Which of the following countries has financial accounting systems that is different from its tax laws?
A
United States of America
The extent to which hierarchy and unequal distributions in institutions and organizations are accepted within a culture is referred to as:
A) uncertainty avoidance
b) masculinity
c) individualism
d) power distance
power distance
A culture preference for a loosely-knit social fabric rather than a tightly-knit social fabric is referred to as:
A) uncertainty avoidance
b) masculinity
c) individualism
d) power distance
individualism