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Effects of Culture on Accounting

Autor:   •  March 5, 2018  •  2,109 Words (9 Pages)  •  604 Views

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By using a tax-based system it portrays a picture of being compliant to tax matters which in turn will hold off any audits that are deemed unnecessary. However, if an error is discovered by the IRS, it will seem less suspicious. The proper selection of a tax accounting system is dependent upon the goals and the company’s business plan. For a small business using a cash based tax system would be more beneficial that an accrual method. An accounting tax system is much different from the previous two systems discussed. The previous two systems depend on managers and accounting principles whereas, a tax system is dependent upon tax legislations. Tax legislations are different within each country which is why there are differences in the systems because of different backgrounds and the role that culture plays into those systems (Wisna, 2015).

Cultural Impacts on Accounting Systems

Holfsteade’s definition of culture provides the background for the investigation of culture as a variable for the progression and examination of accounting systems. The main differences are that are present in national accounting systems include economic, legal, political, and cultural factors (Kucta & Sukpen, 2011). Each national accounting system is a representation of a country’s economic, cultural and social specifications. Even though accounting may be universal, it still takes on the characteristics of the society in which it is located. The attitudes of accountants are based upon society and work-related values that are important within their country which in turn explains the different accounting practices in different countries. To be able to truly access the impact of culture on accounting one must take into consideration the four most fundamental value dimensions: individualism, power distance, uncertainty, and masculinity (Kolesnik, 2013).

Impacts of culture on financial accounting systems

Financial accounting information is prepared for external purposes, therefore, there are many ways in which culture could impact financial systems. Professionalism is a value of accounting that can be tied to individualism. Professionalism is also linked to power distance. It is more acceptable in small power distance societies because there is a high concern for equal rights (Fen, et.al, 2004). This is the reason why nations have developed legislation to monitor accounting practices, while others are given freedom to operate. The idea of avoiding uncertainty is influenced by culture in financial systems. There is an overall concern for law and order, codes of behavior, and rules and regulations. The measure of profits and assets are treated conservatively due to the uncertainty avoidance. Another aspect of culture on accounting to consider is secrecy versus transparency. The level of secrecy differs from country to country. This too can be tied to uncertainty avoidance when there is a need to limit disclosure information to external users to avoid conflict or competition.

Impacts of culture on management accounting systems

In management accounting systems, they focus on technical, behavioral, and cultural attributes. The technical portion involves measurement-related qualities and helps with decision making and understanding (Wisna, 2015). The behavioral components look at the affect that the measurements have on behavior. Management-accounting measures can change people’s perceptions and thought processes, cause changes in attitudes and dreams, and motivate behavior (Kolesnik, 2013). They can also impact beliefs, values, and mindsets. Values help to interpret the meaning of various accounting measures. If the measures are in line with an individual’s beliefs, values, and they are important to the groups in which they belong, then the measure is an acceptable practice. One example is meeting a budget, if an individual believes that meeting a budget means that they are disciplined and responsible then they will hard to meet the budget.

The results of management accounting are used by management to evaluate employees. The way in which these results are handled is heavily impacted by culture. An individual’s culture on management decisions are impacted by their beliefs and their values. Cultures also impact the processes by which they accomplish goals that are set by the organization. Studies have also shown that relying on accounting performance measures using a strong evaluation style is associated with higher job satisfaction.

Impacts of culture on tax accounting systems

Tax accounting is based upon tax culture which consist of all institutions that are associated with the national tax system and the execution of tax policies (Kucta & Sukpen, 2011). Execution of policies is based upon the country’s culture and interactions. Tax accounting is the same as financial accounting in that it is prepared for external users. Anytime information is prepared for individuals outside of the organization it will be heavily influenced by culture. The conservatism of accounting measures internationally is present in the development of capital markets, and the influence that they have on tax laws and accounting practices (Hoxha & Tartaraj, 2014).

Conclusion

The main systems within accounting have been examined as to what they do, how they do it, and how culture impacts each of them. Developing a strong corporate culture will facilitate a common understanding of what is important to both management and employees. The overall culture of an organization can greatly impact the quality of accounting information systems. The factors that are important within an accounting system should be considered in the development and in the implementation of the system. This will help in maintaining consistency, comparability, and avoid uncertainty. In general, the more conservative a cultural environment is, the more conservative the accounting choices that are made.

References

Fen, L & Kang, T & Ng, J & Tay, J (2004). The impact of culture on accounting choices: Can Cultural conservatism explain accounting conservatism? Asia Pacific Interdisciplinary Research in Accounting Conference. Retrieved from: http://ink.library.smu.edu.sg/soa_research/275/

Hoxha, E & Tartaraj, A (2014). Culture, an importance factor in determining the accounting system. Interdisciplinary Journal of Research and Development. 1(1). pp. 31-36

Kolesnik, K (2013). The Role of Culture in accounting in the light of Hofstede’s, Gray’s and Schwartz’s cultural dimensions’ theories- A Literature

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