Gray's Model: A Link between Cultural Dimensions and Financial Reporting Practices of a Country
Gray’s Model
1. Professor Sidney Gray created a model that shows a link to the cultural dimensions on a country and the financial reporting rules and practices in a particular country. In short, it states that the cultural values shared by members of a society will influence the accounting values of the accounting subculture. Then, the shared values of the accounting subculture will in turn affect the financial reporting rules and practices found within a country. Using this model, some implications arise when discussing global harmonization of financial reporting standards. By looking at Gray’s model it’s easy to see why harmonization is very difficult to achieve since different cultural dimensions will lead to different standards. Different nations have entirely separate sets of values so some countries might be offended that they have to change their standards to comply with the harmonization rules. Gray hypothesizes that the higher a country ranks on uncertainty avoidance and long-term orientation, and the lower it ranks in terms of individualism and masculinity, then the more likely it is to ranks in terms of conservatism. This brings up the point that some countries are more conservative than others due to what they use the financials for and how much transparency they deem necessary. There is also an argument based on Gray’s model that states that the cultural dimensions of a country lead to how the accountants apply the financial reporting rules. This causes difficulties in creating comparability between different country’s financial statements due to the different values. Conservatism also plays a role in the accountants’ application. There is a strong positive relation expected to exist between secrecy and conservatism. Countries that require limited disclosures in financial statements, high secrecy, are expected to more strictly adhere to the notion of conservatism in the measurement of assets and liabilities. How the accountants
1. Professor Sidney Gray created a model that shows a link to the cultural dimensions on a country and the financial reporting rules and practices in a particular country. In short, it states that the cultural values shared by members of a society will influence the accounting values of the accounting subculture. Then, the shared values of the accounting subculture will in turn affect the financial reporting rules and practices found within a country. Using this model, some implications arise when discussing global harmonization of financial reporting standards. By looking at Gray’s model it’s easy to see why harmonization is very difficult to achieve since different cultural dimensions will lead to different standards. Different nations have entirely separate sets of values so some countries might be offended that they have to change their standards to comply with the harmonization rules. Gray hypothesizes that the higher a country ranks on uncertainty avoidance and long-term orientation, and the lower it ranks in terms of individualism and masculinity, then the more likely it is to ranks in terms of conservatism. This brings up the point that some countries are more conservative than others due to what they use the financials for and how much transparency they deem necessary. There is also an argument based on Gray’s model that states that the cultural dimensions of a country lead to how the accountants apply the financial reporting rules. This causes difficulties in creating comparability between different country’s financial statements due to the different values. Conservatism also plays a role in the accountants’ application. There is a strong positive relation expected to exist between secrecy and conservatism. Countries that require limited disclosures in financial statements, high secrecy, are expected to more strictly adhere to the notion of conservatism in the measurement of assets and liabilities. How the accountants