Topic 1 Flashcards
(17 cards)
What is the most convincing explanation for international accounting differences?
Financing systems are the primary driver: UK/US have strong equity markets leading to investor-focused reporting, while Continental Europe relies on bank/family financing resulting in a creditor/tax focus. Evidence includes UK market cap/GDP (1.74) vs Germany (0.34). Key proof: Netherlands has Roman law but Anglo accounting due to strong capital markets.
How do legal systems influence accounting development?
Common law (UK/US) is principles-based with professional standards emphasizing a ‘true and fair view’. Code law (Continental) features detailed rules in legislation with a compliance focus. However, this cannot explain the Netherlands case, indicating it is a secondary factor rather than a primary cause.
How does tax influence accounting internationally?
In Anglo systems, tax is separate from financial reporting. In Continental systems, there is tax-accounting conformity (Maßgeblichkeitsprinzip). This leads to effects such as accelerated depreciation, LIFO, completed contract method, and extensive provisions, which are secondary effects following from financing system differences.
What are Hofstede’s five cultural dimensions?
- Power Distance: Acceptance of hierarchy.
- Individualism vs. Collectivism: Individual vs. group focus.
- Masculinity vs. Femininity: Competition vs. cooperation.
- Uncertainty Avoidance: Comfort with ambiguity (key for accounting).
- Long-term vs. Short-term Orientation: Future vs. present focus.
What are Gray’s four accounting values?
- Professionalism vs. Statutory Control: Professional judgment vs. legal rules.
- Uniformity vs. Flexibility: Consistent practices vs. adaptation.
- Conservatism vs. Optimism: Cautious measurement vs. risk-taking.
- Secrecy vs. Transparency: Limited disclosure vs. openness.
What are the limitations of cultural explanations for accounting differences?
Cultural explanations have limited empirical support with weak correlations in research, methodological problems (e.g., IBM employees not representative), and cannot explain the Netherlands case.
They also fail to account for rapid accounting changes when economic needs shift, making them less convincing than institutional factors.
What are the key characteristics of Class A (Anglo-American) accounting systems?
Class A systems focus on investor-oriented reporting for prediction, have strong equity markets with dispersed ownership, keep tax separate from accounting, feature a strong profession with standard-setting influence, emphasize fair presentation and substance over form, and focus on consolidated reporting.
Examples include UK, US, Netherlands, and Australia.
What are the key characteristics of Class B (Continental European) accounting systems?
Class B systems prioritize creditor protection and tax calculation, are dominated by bank/family/state financing, have a strong tax-accounting connection, show later profession development with less influence, emphasize legal compliance over substance, and focus on individual company statements.
Examples include Traditional Germany, France, and Italy.
What are the accounting differences in revenue recognition?
Percentage-of-completion (A) vs. Completed contract (B).
What are the accounting differences in asset measurement?
More fair value options (A) vs. Historical cost dominance (B).
What are the accounting differences in provisions?
Stricter criteria (A) vs. More extensive provisions (B).
How do balance sheet formats differ in accounting?
Balance sheet focus on net assets (A) vs. total assets (B).
How are expenses categorized differently in accounting?
By function (A) vs. by nature (B).
How does Nobes’ (1998) model explain accounting differences?
Countries with similar cultures can have different accounting due to financing.
Strong equity-outsider financing creates Class A accounting. Weak equity-outsider creates Class B accounting.
Explains accounting changes when financing changes. Most comprehensive explanatory model.
What evidence shows financing system differences between countries?
UK market capitalization/GDP ratio (1.74) vs. Germany (0.34). Listed companies per million population: UK (42.4) vs. Germany (8.6).
Netherlands shows strong capital markets (1.33) explaining its Anglo-Saxon accounting despite Roman law.
When German companies sought international capital, they voluntarily adopted IFRS despite their tradition.
How did accounting profession development differ internationally?
UK bodies formed early (ICAEW 1870, ICAS 1854) with standard-setting powers.
Continental bodies developed later (Germany IDW 1932, France OEC 1942) with less influence.
What is the relationship between Hofstede’s dimensions and Gray’s accounting values?
High uncertainty avoidance + low individualism → conservatism, uniformity, statutory control, secrecy (Germany, France).
Low uncertainty avoidance + high individualism → optimism, flexibility, professionalism, transparency (UK, US).
This theoretical link has limited but existing empirical support.
