The Effect of Accounting Education and National Culture on Accounting Judgments: A Comparative Study of Anglo-Celtic and Chinese Culture

Abstract

Countries adopting International Financial Reporting Standards (IFRS) need to educate and train their professional accountants so that they are able to interpret and apply IFRS in a consistent manner. This study examines the effect of national culture and education on the judgments of Australian (Anglo-Celtic) and Chinese final year undergraduate accounting students in Australia. It seeks to understand whether culture influences student interpretation and application of uncertainty expressions, which are used as recognition and disclosure thresholds in IFRS. Results obtained on the cultural dimensions of Uncertainty Avoidance, Individualism, Power Distance, Masculinity and Long-Term Orientation provide evidence that Chinese students exhibit greater conservatism and secrecy compared to Australian students. The results of the study indicate that national culture has a significant effect on the judgments of accounting students when interpreting and applying selected IFRS containing uncertainty expressions. The results also imply that educational similarity does not moderate the effect of culture in influencing the judgments of accounting students. An important implication of the study is that regulators and standard-setters involved in the international convergence of accounting standards need to pay greater attention to cultural factors that may result in a difference in the interpretation and application of IFRS.

Acknowledgements

The authors acknowledge the useful comments of Professor Graeme Harrison and Professor Hector Perera (Macquarie University) and Professor Michael White (University of the South Pacific) on the earlier drafts of this paper. The paper has also benefited from its presentation at the 2009 American Accounting Association (AAA) Annual Meeting and 2009 Accounting and Finance Association of Australia and New Zealand (AFAANZ) Conference. The authors would also like to thank the two anonymous reviewers and the editors for their helpful comments.

Notes

The results of the Chinese Culture Connection (1987) provide evidence that Uncertainty Avoidance is not a meaningful cultural dimension for East–West comparisons because the study fails to find a cultural dimension related to Uncertainty Avoidance (Hofstede and Bond, 1988). Uncertainty avoidance is associated with the ‘search for Truth’, and ‘the Chinese do not believe this to be an essential issue’ (Hofstede and Bond, 1988, p. 16). In the East (represented by Confucianism, Buddhism and Hinduism), the focus is not on the search for, or attainment of a ‘single and absolute truth’; rather, the assumption that a person can ‘possess an objective truth is absent’ (Hofstede, 1994a, p. 8). In contrast, an essential element of Western thinking (represented by the Judeo-Christian tradition) is the search for an objective truth (Hofstede, 1994a, p. 8).

Although Confucius (551 bc–449 bc) was the founder and most prominent member of the Confucianism School, his ideas are sometimes different from those of other philosophers such as Mencius and Xun Zi and those from later schools of Confucianism. These different ideas must be included as part of Confucianism, however, because in its broad sense, Confucianism encompasses the ideas and doctrines of all Confucianists in the history of Chinese philosophy (Lu, 1983).

The current concept of a Chinese family (chia or chia-ting; a concept also used in imperial times) refers to a ‘unit consisting of members related to each other by blood, marriage, or adoption and having a common budget and common property’ (Lang, 1968, p. 13). A joint Chinese family may consist of parents, their unmarried children, their married sons and sons' wives and children; and sometimes a fourth or fifth generation (Lang, 1968).

Previous studies such as those of Doupnik and Richter (2003) provide evidence that language and culture can affect the judgments of professional accountants when interpreting and applying IFRS, particularly those of professional accountants from non-English-speaking backgrounds.

The categorisation of students based on the number of years they have been living in the new country is consistent with the approach adopted by earlier studies, including that of Salter and Schulz (2005). Consistent with Salter and Schulz (2005), Chinese students who have spent less than five years in Australia are grouped separately (denoted as Chinese students) from those who have spent more than five years in Australia and have completed both their secondary and tertiary education in Australia (denoted as Chinese Australian).

The scores derived from the VSM are somewhat different from those obtained by Hofstede (1980) and Hofstede and Hofstede (2005) (see Table 2), but with the exception of Uncertainty Avoidance, the direction of differences on our VSM scores between Australian and Chinese students is consistent with the direction of differences in Hofstede's indices for these two countries. The Long-Term Orientation index is almost similar for the sample of Australian and Chinese students. Divergence in the scores derived from the VSM and those obtained by Hofstede has also been reported in other jurisdictions. For example, Doupnik and Riccio (2006, p. 250) reported different scores for Brazil and the USA than those obtained by Hofstede (1980), though the direction of differences in the VSM scores between Brazilian and US accountants was generally consistent with the direction of differences in Hofstede's indices for these two countries.

It should be noted that this study uses the individual responses for the set of questions relating to each cultural dimension to test for statistical significance of differences between Australian and Chinese accounting students. However, Hofstede's cultural dimension scores are weighted at the group level (i.e. an established formula is used to calculate the scores for each country), precluding any test for statistical significance.

The results obtained on the other three cultural dimensions of Power Distance, Masculinity and Long-Term Orientation do not provide any conclusive evidence that one group is more conservative or secretive than the other. Although Chinese Australian accounting students rank higher than Chinese accounting students on Long-Term Orientation that suggests greater conservatism, for example, they also rank higher than Chinese accounting students on Masculinity, which suggests optimism.

The judgments of Chinese and Chinese Australian accounting students are compared for sensitivity analysis. As the cultural values of Chinese and Chinese Australian accounting students are similar, no significant difference is expected to exist between the judgments of Chinese and Chinese Australian accounting students when interpreting uncertainty expressions used in IFRS.

A number of studies, including Davidson (1991) and Simon (2002), have identified a list of uncertainty expressions contained in the accounting standards and the expected range of their probabilities.

Future studies may consider undertaking a more direct test of the impact of education on the interpretation of uncertainty expressions by comparing the judgments of Chinese students who have spent time in the Anglo-Celtic educational system with Chinese students who have not.

The complete version of the research instrument can be requested from the corresponding author.

Additional information

Notes on contributors

Parmod Chand

Editor's note: This paper was accepted for the Special Section on Accounting in Emerging and Transitional Economies Paper accepted by Salvador Carmona.

Lorne Cummings

Editor's note: This paper was accepted for the Special Section on Accounting in Emerging and Transitional Economies Paper accepted by Salvador Carmona.

Chris Patel

Editor's note: This paper was accepted for the Special Section on Accounting in Emerging and Transitional Economies Paper accepted by Salvador Carmona.