CHAPTER TWO
LITERATURE REVIEW
Introduction
This study is aimed at describing the impact of cultural factors on the implementation of global accounting standard, IFRS in Nigeria. In order to accomplish this, the study will explain the theoretical framework and conceptual framework within which to address these concerns. The review begins with a background to International Financial Reporting Standard, it then touches on carve-outs on IFRS by most countries, followed by a discussion of the findings of current international research on the impact of culture on aspects of global accounting.
Theoretical Framework
The eect of culture on international accounting standards cannot be examined without some sort of framework in which accounting and social values can be connected. The formation of this framework begins with the cross-cultural study of Geert Hofstede (1980; 1983). Hofstede’s study attempted to identify important aspects of culture that had an eect on people’s behavior in a professional capacity. This was done through a survey of people’s values across 50 different countries and three regions. Values were analyzed on the collective level, and therefore, were thought to be the best representation of a country’s culture. From this survey Hofstede was able to draw out four dimensions of culture, which included: power distance, uncertainty avoidance, individualism, and masculinity. Power distance was thought to capture the extent to which there was equality in power between members in society. For example, in a society where there is great power distance, many individuals accept the authority and have no say in decisions that are made. Power distances attempts to most closely address, “how a society handles equalities among people when they occur” (Hofstede 1984). Uncertainty avoidance involves the aversion one feels towards the unknown and what actions are taken as a result of that aversion. Those with strong uncertainty avoidance look to plan every detail without any room for flexibility or innovation. If a person has weak uncertainty avoidance then they will be content with letting things happen as they may. Uncertainty avoidance looks at whether a society, “tries to control the future or let it happen” (Hofstede 1984). Individualism is a measure of whether someone feels as though they must fend for themselves or that they are a piece of a greater whole that will take care of them. Simply put, this, “relates to people’s self-concept: ‘I’ or ‘we’” (Hofstede 1984). Finally, masculinity refers to a society’s partiality towards, “achievement, heroism, assertiveness, and material success” (Hofstede 1984). On the opposite end of this spectrum is a society with goals rooted in relationships and quality of life, which Hofstede refers to as feminine. These four values were later validated through a comparison with the Rokeach Value Survey (RVS). The RVS was first used in the United States to measure the importance of a set of 36 values. These values were then divided into two categories, with one labeled “terminal” and the other defined as “instrumental”. In this model, terminal values refer to the desired outcome, whereas instrumental values capture the means to the outcome. While originally designed for use in the United States, the RVS was adopted for use in several Asian Pacific regions, including: Australia; Bangladesh; Hong Kong; India; Malaysia; New Zealand; Papua New Guinea; Japan; and Taiwan. Of the regions where the RVS had been performed, Hofstede had comparable data for all but Malaysia, Bangladesh, and Papua New Guinea.Hofstede and Bond (1984) were able to examine the six areas were the RVS and the cross-cultural study overlapped. They indicated that in these areas there were significant correlations between the RVS variables and Hofstede’s four dimensions. For example, the RVS values of obedient, polite, ambitious, and national security all showed a significant and high positive correlation with power distance. Through this process Hofstede and Bond were able to validate for the four culture dimensions with another measure of values. Hofstede’s crosscultural study provides evidence for the idea that cultural values dier on a measureable level across nations. This allows for a discussion of how individual societies’ values vary and the consequences that holds for implementing rules on an internationally level, such as IFRS. In addition, the establishment of the four cultural dimensions laid the groundwork for incorporating culture into an analysis of the development of international accounting standards. Only a few years later, Sidney Gray (1988) was able to use the four dimensions to create a framework that could be used to analyze the eect of culture on accounting systems. Gray recognized that the four dimensions of culture must somehow be related to the values in the subculture of accounting systems. He, therefore, proposed a link between the two by outlining the important values of accounting subculture while showing each one’s connection to societal values. Gray proposed four main accounting values: professionalism versus statutory control; uniformity versus flexibility; conservatism versus optimism; and secrecy versus transparency