Unit Notes

Potential Themes:
1. Organizational culture
2. Ethics
3. Religion
4. International convergence of accounting standards soon to come
5. Two models – Anglo-American and Continental European
6. Auditing
7. Conflicts of Interest

Definition of Culture: the collective programming of the mind that distinguishes the members of one group or society from those of another.”

“If accounting standards come from accounting practices and accounting practices are developed and influenced by culture through business relationships, then accounting is highly driven by the culture in which it is practiced” (11).

“Research has found that accounting errors are heavily influenced by the large versus small power distance and individualism versus collectivism” (13).

Large Power Distant Society – “companies tend to be centralized as the greatest amount of authority resides with a small few in power. Centralized management tends to use accounting to display a positive image and may override basic accounting rules to do so, leading to a greater risk for material misstatement…[and] subordinates tend to be less educated, which could lead to a greater number of GAAP, classification and professional judgment errors” (13-14).

VERSUS

Small Power Distant Society – “decentralized so power and knowledge is more evenly distributed…more checks and balances…better training…lesser chance of material misstatement” (14).

Individualistic Society – “people act in their own interests and seek to ‘climb the corporate ladder.’ Therefore, more turnovers occur, which increases the chance of accounting errors and amplifies the desire to manipulate numbers to display a positive public image. Cutoff and classification errors also increase in an individualistic culture as this type of accountant wants to satisfy user demands” (14).

VERSUS

Collectivist Society – “stress in-group goals and desire to achieve those goals before their own. Therefore, because greater trust is built within this organization, accountants are less likely to distort the numbers” (14).