An Analysis of the Obstacles of Culture, Government, and Lack of Support for International Financial Accounting Standards

By Kushniroff, Melinda C. | Academy of Accounting and Financial Studies Journal, November 2012 | Go to article overview
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An Analysis of the Obstacles of Culture, Government, and Lack of Support for International Financial Accounting Standards


Kushniroff, Melinda C., Academy of Accounting and Financial Studies Journal


OBSTACLES FOR IFRS

International markets are becoming more and more common in today's society; people are investing in stocks in foreign countries and doing business overseas with regularity. The world is quickly becoming more interconnected and more involved as technology develops. Cell phones, the internet, and quicker transportation make business opportunities endless. With a quickly changing world, new needs arise that were previously unnecessary or irrelevant. When these needs arise, new standards or laws may be proposed to keep markets running smoothly. In the area of accounting, with international markets comes the need for harmonization of international accounting standards: "Harmonization is the process of bringing international accounting standards into some sort of agreement so that the financial statements from different countries are prepared according to a common set of principles of measurement and disclosure" (Osborne, 2001). If harmonization were to occur, companies would no longer have to deal with the hassle of reformatting their financial statements from one country to the next. It would eventually be more cost efficient and certainly time efficient. This would not only aid the specific business, but would also be beneficial to investors, especially in understanding the financial position of a business for stock purposes.

With a huge revolutionary idea there are costs that must be accounted for as well. Although it is not argued that international accounting standards have many benefits to offer companies, there are some negative aspects or obstacles that must be thoroughly examined in order to make accounting harmonization possible. Two of the major problems specific to the differences among countries are cultural diversity and governmental differences (Osborne, 2001). A third major challenge for each nation that has or is thinking of changing to international standards is the lack of support among some or many of the nation's people.

In order to do a thorough analysis of these obstacles, this paper will specifically focus on three countries: China, India, and Australia. This paper will provide information on cultural values in a general sense through the eyes of a few researchers; it will then apply how these cultural values affect the mindset of a particular country and how this mindset may cause differences to occur on financial statements. The next section of the paper will present a brief history of the government of each country, an explanation of the government's control, an account for the government's support of international standards, and finally a report of how international standards can work or are working for each country. Last, there will be a focus on the positives and negatives related to the change of accounting standards for the business owners and accountants in the three countries. There will also be an explanation about how to overcome the lack of support for the change in standards in these nations.

THE OBSTACLE OF CULTURE

Those opposed to universal accounting standards have argued that differing cultures would make it impossible to have international accounting standards. According to Timothy S. Doupnik (2004), a professor at the University of South Carolina, "Culture is considered to be a powerful environmental factor that affects the accounting system of a country, as well as how individuals perceive and use accounting information."

Culture can have a huge influence in the way that accounting standards are formed and the way that financial statements are prepared. There are specifically three areas in which people have found that culture affects accounting standards. This involves the reporting of financial information, the auditor's perspective and "attitude," and the system for management control (Doupnik & Tsakumis, 2004). Each of these areas changes from country to country because people are affected by the roles that their nations uphold.

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