The Impact of Culture on Conservatism PARTI The framework created by Professor S

Question

The Impact of Culture on Conservatism PARTI The framework created by Professor Sidney Gray in 1988 to explain the development of a country's accounting system is presented in the chapter in Exhibit 2.8.Gray theorized that culture has an impact on a country's accounting system through its influence on accounting values. Focusing on that part of a country's 60 Chapter Two accounting system comprised of financial reporting rules and practices, the model can be visualized as follows Cultural dimensions Financial reporting rules and practices Accounting values In short, cultural values shared by members of a society influence the accounting values shared by members of the accounting subculture. The shared values of the accounting subculture in turn affect the financial reporting rules and practices found within a country With respect to the accounting value of conservatism, Gray hypothesized that the higher a country ranks on the cultural dimensions of uncertainty avoidance and long-term orientation, and the lower it ranks in terms of individualism and masculinity, then the more likely it is to rank highly in terms of conservatism. Conservatism is a preference for a cautious approach to measurement. Conservatism is manifested in a country's accounting system through a tendency to defer recognition of assets and items that increase net income and a tendency to accelerate the recognition of liabilities and items that decrease net income. One example of conservatism in practice would be a rule that requires an unrealized contingent liability to be recognized when it is probable that an outflow of future resources will arise but does not allow the recognition of an unrealized contingent asset under any circumstances Required Discuss the implications for the global convergence of financial reporting standards raised by Gray's model

Explanation / Answer

As per the Gray's model, culture has an impact on the country's accounting system through its influence on accounting values. So, if there are different cultural values which is pravelant in any society, the financial reporting rules will be different worldwide. If the cultural values do not change over time which is hard to predict, it will be a huge obstacle for the global convergence of financial reporting standards raised by Gray's model.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.