Grays framework is an extension of Hofstedes societal values Essay

Culture is said to be an identifying grade of any group of individuals. The impact of this placing grade is felt in everything that is done in that environment such that it is reflected in their day-to-day and operational activities. In explicating the impact of civilization on activities, Hofstede ( 1980: 26 ) defined civilization as the ‘collective scheduling of head that distinguishes the members of one group from another ‘ . This separating factor belies features that are distinguishable to that peculiar group and can be found in all facets of life. One facet that is non left out is the field of accounting, the impact of civilization is felt such it is reflected in the accounting patterns of peculiar environments and it defines the systems that guide the patterns done in that environment.

This consequences in immense differences in international accounting patterns even though the definition of accounting has one aim- to supply determination utile information to users and to give grounds of stewardship.Outside the civilization factor, other grounds have been put Forth to explicate the differences in accounting systems where they include legal, revenue enhancement, funding system ( Nobes, 2006 ) , political political orientation ( Ezzamel et al, 2007 ) . However, Gray argues that cultural values can break explicate the differences in accounting system and he bases his statement on Hofstede ‘s theory. Traveling by his statement, if cultural values as posited by Hofstede are reflected in social activities, so there should be an bing relationship such that a close form that between these social values and the accounting systems practiced in those environments can be identified.

He puts frontward four important accounting concepts/values ( professionalism, uniformity, conservativism and secretiveness ) that he links with Hofstede ‘s social value concepts ( individuality, power distance, uncertainness turning away and masculinity/femininity ) . In other words, the accounting values as given by Gray can be seen as a connective point between Hofstede ‘s social values and accounting patterns. In explicating these links, he put frontward four hypotheses.

This paper seeks to measure the cogency of the accounting constructs as put frontward by Gray, seeking to set up their relationships with Hofstede ‘s social concepts.

Gray ‘s Theoretical Reasoning.

It is a good known fact that the strength of a edifice lies in its foundation, where the foundation is faulty, so the edifice itself can non be said to be strong.

Using this fact to Gray ‘s hypotheses means that the strength of his hypotheses lays on its footing which is the Hofstedian social value concepts. Though Hofstede collected his informations over the period of 1967 to 1973, giving him adequate clip to integrate alterations in what he footings social values, it has undergone unfavorable judgments in research documents. These unfavorable judgments weaken in bend weaken Gray ‘s accounting values. Some of these unfavorable judgments include the fact that the Hofstedian value model is outdated and a weak footing on which to establish the accounting values framework ( Jones, 2007 ) . In add-on to this, there is the issue of quantifiability of the social value concepts, the equation of national provinces with civilizations, position of the perceiver, cultural homogeneousness and political influences ( Baskervillle, 2003 ; Jones, 2007 )Based on the fact that Gray ‘s model is an extension of Hofstede ‘s social values, it can be said that the above unfavorable judgments apply to his accounting value theory as good, weakening the cogency of his theory. Patterned after Hofstede ‘s two dimensional social value concepts, Gray put frontward two dimensional accounting constructs as both terminals of a continuum. He argues that a nexus exists between these constructs and each of Hofstede ‘s social values, where Hofstede ‘s values are -Individualism vs Collectivism, Large power distance vs Small power distance, Strong vs Weak uncertainness turning away and Masculinity vs muliebrity. The cardinal issues as respects these concepts are the grade of mutuality maintained in a society, human inequalities and relationships with authorization, reaction to uncertainnesss and function distinction of gender severally.

As an extension of these values, Gray puts frontward these accounting values-Professionalism vs statutory control, Uniformity vs Flexibility, Conservatism vs Optimism and Secrecy V Transparency where the cardinal issues in these constructs are single opinions as opposed to statutory opinions, consistence in describing criterions as opposed to optioned criterions, cautious measurings as opposed to optimistic measurings and a cautious attack to disclosure severally.

Critique of Gray ‘s Hypothesiss

All of Gray ‘s hypotheses imply that accounting values have a stationary nature as is besides implied by Hofstede ‘s social values and merely as Hofstede used states to compare civilization, Gray used states as a footing for comparing, thereby generalising as state based on accounting values that can be capable to alter. Baskerville ( 2003 ) notes that the usage of state provinces as units for comparing is incorrect, saying that this has been the instance in international accounting research. A farther analysis of Gray ‘s hypotheses is given below to measure its cogency.Hypothesis OneGray hypothesized that the higher a state ranked in footings of individuality and the lower it ranked in footings of uncertainness turning away and power distance so the more likely it is to rank extremely in footings of professionalism. Though empirical surveies carried out on this hypothesis have found support for it ( Salter and Niswander, 1995 and Sudarwan and Fogarty, 1996 ) , it can be argued that this hypothesis does non keep to the full, particularly when awareness is given to the changeless alterations that occur even in these environments with distinguishable cultural values. In add-on to this, empirical surveies focused on the relationship that exist between the value concept picked out by Gray, but sing that the values given by Hofstede are two dimensional, it is besides possible that the relationship posited by Gray to be between professionalism and weak uncertainness turning away can besides be between professionalism and strong uncertainness turning away. This statement is based on the fact that the cardinal construct of uncertainness turning away as given by Hofstede to be reaction to uncertainnesss and ambiguities.

Strong uncertainness turning away society ‘s trade with uncertainnesss through the established and stiff regulations and it can be argued that high degrees of professionalism can be found in such societies. An illustration is Indonesia. Though the state is among the group classed as leftist, strong uncertainness avoidant and big power distanced, Askary ( 2006 ) finds that Indonesia tops the list for professionalism in his survey of developing states. In the instance of Germany, Heidhues and Patel ( 2011 ) finds that the Gray ‘s proposed relationship between low uncertainness turning away and high professionalism does non keep.

This is because Germany is seen a average uncertainness avoidant state but it scores high on professionalism. This means that Gray ‘s accounting values and Hofstede ‘s social values can keep on some states but non in some and this limits the generalizability of hypothesis one. In add-on, traveling by the definition of professionalism which means independent opinion, the findings of Braun and Rodriguez ( 2008 ) does non back up this hypothesis.

Net incomes direction which requires independent opinion is meant to be related to professionalism but in their survey, it is related to statutory control.Hypothesis TwoThe higher a state ranks in footings of uncertainness turning away and power distance and the lower it ranks in footings of individuality so the more likely it is to rank extremely in footings of uniformity. Empirical surveies on Gray ‘s statement for this hypothesis are mixed in that non all the purported values given by Gray can be linked to uniformity.

The issue of pertinence bounds this hypothesis. Gray defined uniformity as a penchant for unvarying accounting patterns and states in the western universe are said to hold a penchant for flexible criterions harmonizing to their perceived demands. However, the strength of this hypothesis is invalidated when the accounting criterions used in the developed states are considered. Though they are classed as states that prefer flexible criterions, the states tend to utilize unvarying criterions in the name of heightening their comparison. In add-on to this, there is the issue of planetary coverage criterions, which the UK and the US are establishing members. The desire by both states for a unvarying accounting criterions via planetary coverage criterions reflects the failing of the Hofstede-Gray model. In line with this statement, Roberts and Salter ( 1999 ) test the relationships on the large 6 at that clip and happen that uncertainness turning away ( reaction to ambiguities ) is non positively related to uniformity.

The strength of any given hypothesis is in the positive relationships of all variables used in organizing the hypothesis. Given that one of the relationships for this hypothesis does non keep, it can be argued that there are other values which result in uniformity of accounting patterns. This means that non all of the relationships as hypothesized by Gray clasp.Grey provinces that both hypotheses are most relevant to the authorization and enforcement, nevertheless, the definition of the footings limits the extent of relevancy that can be established. Gray defines the accounting values as a penchant and non an exact activity carried out by comptrollers ( Baydoun and Willett, 1995 ; Heidhues and Patel, 2011 ) .

For illustration, professionalism is defined as a penchant for single professional opinion and how this penchant relates to the exercising of authorization is non clear. Who exercises the authorization? How many important beginnings are at that place? Give the fact that professionalism belies opinionated opinion, this could mention to a figure of persons.Hypothesis ThreeThe higher a state ranks in footings of uncertainness turning away and the lower it ranks in footings of individuality and maleness so the more likely it is to rank extremely in footings of conservativism. Empirical surveies support Gray ‘s concluding on this hypothesis ( Salter and Niswander, 1995 ; Sudarwan and Fogarty, 1996, Doupnik and Ritcher, 2004 ) particularly for the strong nexus but I would reason that the fact that a state dislikes equivocal state of affairss does non intend that it would be extremely conservative, this is based on the fact that state of affairss change and altering state of affairss bring about a alteration in accounting methods used. This is a fact that the Gray ‘s model does non take into consideration. In line with this statement, Arnold et Al ( 2001 ) finds that an addition in uncertainness turning away leads to an addition in materiality estimations.

This supports the fact that alterations in state of affairss are incorporated into accounting activities and that a state that is extremely conservative today would non needfully be conservative the following twenty-four hours. Sing the relationship between conservativism and individuality, maleness and uncertainness turning away, it can be argued that these relationships are besides capable to alter. Traveling by the definition of maleness, a high desire for quality of life can besides take to flexibleness in accounting criterion. Along this line of idea, Sudarwan and Fogarty ( 1996 ) found no relationship between maleness and conservativism.

This means that the accounting value of conservativism as defined by Gray limits the extent of connexion that can be made between the relationships. For illustration, the word cautious attack can be seen to be a small muddy. Is it possible for the degree of caution taken by comptrollers to be placed on a continuum such that the varying degrees can be used to seek for a fiting relationship between the variables?Hypothesis FourThe higher a state ranks in footings of uncertainness turning away and power distance and the lower it ranks in footings of individuality and maleness so the more likely it is to rank in footings of secretiveness. Empirical support for this hypothesis is inconclusive ; Sudarwan and Fogarty ( 1996 ) find that the relationship between uncertainness turning away and secretiveness is negative and a non important relationship between power distance and secretiveness ( Salter and Niwander, 1995 ) . This can be viewed as rendering the practicableness of Gray ‘s statement as quite unfit and hence invalidates the hypothesis. The relationships as argued by Gray is obscure and can be argued to hold a different significance.Grey provinces that hypotheses three and four relate to measuring and revelation. As noted in the first two hypotheses, the relationship between the conservativism and measuring or secretiveness and revelation remains ill-defined.

Baydoun and Willett ( 1995 ) argue that the reading of this relationship is well-founded owing to the fact that secretiveness can be seen as a societal feature and that its importance in finding accounting values is non apparent. Other jobs with Gray ‘s theory include mensurating the footings used in the hypotheses, the fact that it applicable in some states and non in others every bit good as the implied presence of other values in finding accounting patterns ( Baydoun and Willett, 1995 ; Doupnik and Tsakumis, 2004 ; Heidhues and Patel, 2011 ) .

Applicability of Gray ‘s Theory in the Use of IFRS

Gray ‘s theory can be seen as a part to the literature on the harmonisation of accounting and the kernel of most literature in that line of research purpose to assist the easy acceptance and increasing usage of the international fiscal coverage criterions. Furthermore, a batch of states are following the international fiscal coverage criterions ( herein after referred to as IFRS ) despite the differences in civilization. The successful acceptance and execution of the IFRS in states means that Gray ‘s theory of cultural influences is outdated in that civilization is no longer deemed to be a barrier to international accounting systems.

However, to measure the utility of Gray ‘s theory in helping with the increasing usage of IFRS, Spain will be used to look into the pertinence of Gray ‘s theory. Spain is a state whose accounting system is defined as that of a Continental European criterion, this is as a consequence of the fact that its legal system is Roman jurisprudence and that its accounting Torahs are embedded in its statute law. Traveling by Hofstede ‘s categorization, Spain has a medium individualist civilization, medium power distance, low maleness and high uncertainness turning away. Using Gray ‘s model to sort their accounting systems places them as a state with more accent on uniformity, more accent on conservativism, less accent on professionalism and less accent on secretiveness. Traveling by Gray ‘s model, one major job with Spain ‘s accounting systems is the penchant for conservative measurings and describing every bit opposed to the true and just value methods of the IFRS. Furthermore, the acceptance of IFRS is meant to better the quality of fiscal information, enhance comparison, and beef up the integrating and fight of capital markets ( Zeghal and Mhedhbi, 2006 ) . Though the state has adopted IFRS, it has come across a few jobs.

Callao et Al ( 2007 ) notes that the acceptance of IFRS in Spain has non improved comparison of histories, it has worsened it. They besides find out relevancy of fiscal information has non improved. This invalidates Gray ‘s theory in that the cultural differences in accounting systems as identified by his model, though logical, it seems to hold been ignored by the International Accounting Standards Board. An application of Gray ‘s hypotheses is tabulated for Spain to look into its overall cogency and practicableness.Societal/ Accounting ValuessMedium IndividualityMedium Power DistanceLow MasculinityHigh Uncertainty AvoidanceStrength of the HypothesissProfessionalismNN




PoloniumPoloniumSemi- strongSecrecyNNPoloniumPoloniumSemi-strongWhere N: no relationship and Po. : positive relationshipFrom this tabular array, the practicableness of Gray ‘s theory is non strong. Hofstede ‘s values make room for chairing along the continuum as can be seen from Spain been a medium individualist civilization. Gray did do proviso for states like Spain who fall in the center of the continuum.

Dividing Gray ‘s hypotheses into spots shows the failings of his model and implies an impracticableness of the model. This besides implies that Gray ‘s theory is state specific and as noted by Heidhues and Patel ( 2011 ) , the values were constructed utilizing the US and the UK as a base.


The practicableness of Gray ‘s hypotheses has been argued above ; the jobs have been highlighted alongside the impact of the model for the pertinence of IFRS. As celebrated above, there is room for betterment if the theory is to be valid. In add-on to this, Heidhues and Patel ( 2011 ) note that Gray ‘s model was accepted in the academic universe without unfavorable judgment and they point to the fact that this might be as a consequence of his being seen as one of the taking international accounting research workers.

The impact of alterations was non incorporated into the model and this is really of import sing that social dynamism is changeless. This alone reduces the reasonability behind Gray ‘s model.