Cultural Factors in Accounting

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The mankind is a rather diverse phenomenon in relation to such factors as racial belonging, religious and cultural customs and traditions. In this respect, cultural differences are paramount because they, being the reflections of the racial belonging of a certain nation or ethic group, determine the ways in which this or than nation perceives the reality and relates to a certain process in it (Chan et al., 2003). As far as accounting is one of the spheres of the social interaction of human beings, cultural differences typical of various ethnic groups and nations can also be observed in it (Amat et al., 1998).

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Although scholars like Gray (1988) argues that the impact of cultural differences upon the development of the accounting practices in various regions of the world has been studied not enough, it is possible to examine the ways in which, according to Gray (1988), Hofstede (1984), etc., cultural and societal values influence the development of accounting internationally (Gray and Vint, 1995). This paper will deal with the analysis of the four societal value dimensions identified by Hofstede (1984), and their integration into Gray’s classification of accounting values.


As far as the topic of culture and cultural influence upon accounting development is concerned, it is first of all necessary to present the scholarly definition of culture. Scholars, including Amat et al. (1998), Hofstede (1980; 1984), Punnett & Withane (1990), argue that culture is group phenomenon meaning that it is the thing that differs one group of people from other groups:

Culture has been defined as ‘the collective programming of the mind which distinguishes the members of one human group from another’ (Hofstede, 1980, p. 25). The word ‘culture’ is reserved for societies as a whole, or nations, whereas ‘subculture’ is used for the ievel of an organization, profession or family. While the degree of cultural integration varies between societies, most subcultures within a society share common characteristics with other subcultures (Hofstede, 1980, p. 26) (Gray, 1988, p. 4).

Accordingly, every culture possesses its values and norms, which can be characterized as “a broad tendency to prefer certain states of affairs over others” (Gray, 1988, p. 4). This preference influences the attitudes of people representing a culture to their working environments, duties and ways in which these duties should be fulfilled. In accordance with this preference, Hofstede (1984) develops his classification of the basic societal value dimensions that determine the differences between the accounting practices in various cultures:

These dimensions, with substantial support from prior work in the field, were labelled Individualism, Power Distance, Uncertainty Avoidance, and Masculinity. Such dimensions, which are examined further below, were perceived to represent elements of a common structure in cultural systems (Gray, 1988, p. 5).

The consideration of the above mentioned dimensions, and their integration into the classification by Gray (1988), is the process that will allow at least some degree of understanding how cultural differences influence the differences in the development of accounting in various countries (Gray and Vint, 1995). The following sections of this paper will discuss and critically analyze Hofstede’s and Gray’s classification.

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Hofstede’s Theory

The theory by Hofstede (1984) is based on the belief that societal values are determined by the environmental and ecological factors such as natural disasters, political and economic events in the society, social stratification, etc. As a result, every subculture of the society is affected by the societal values in a different way. The accounting subculture is affected by them in the following four aspects:

  • Individualism versus Collectivism
  • Large versus Small Power Distance
  • Strong versus Weak Uncertainty Avoidance
  • Masculinity versus Femininity

In more detail, each of the aspects is connected with some spheres of the social life on the whole, and accounting process in particular. For example, the Individualism versus Collectivism societal value can differentiate societies and ethnic cultures in accordance with the preference that is given to either individual goal accomplishment or collectivist mentality in this respect. For example, the Asian cultures are collectivist in their majority which presupposes that an excessive expression of one’s individuality is condemned by the public attitude (Chan et al., 2003). On the contrary, the Western civilization is based on the humanist ideals promoting the superiority of a personality and human needs over all other values (Amat, 1998).

Hofstede (1984) characterizes this aspect of his classification as follows: “The fundamental issue addressed by this dimension is the degree of interdependence a society maintains among individuals. It relates to people’s self-concept: ‘I’ or ‘we’.” (Hofstede, 1984, pp. 83 – 84) Accordingly, the accounting is also subject to this cultural difference as in differently oriented societies, accounting practices are based on either an individualistic or collectivist mentality.

Large versus Small Power Distance societal value is also a reflection of the social differences and variations of mentality. Hofstede (1984) argues that “Power Distance is the extent to which the memhers of a society accept that power in institutions and organisations is distributed unequally.” (Hofstede, 1984, pp. 83 – 84) The larger this distance is, the more fixed the social stratification and the distribution of power is. In such cultures, people perceive the current social and political state as a given good.

On the contrary, the small power distance cultures are characterized by the freedom-loving people who always challenge the current political and social situation to acquire new powers (Arpan and Radebaugh, 1985). In accounting, this aspect of Hofstede’s classification can be affiliated with both collectivist and individualist approaches and with the ways in which accounting process is build and developed in different cultures.

Strong versus Weak Uncertainty Avoidance is the factor that determines the extent to which rules, laws, and regulations dominate the society or culture under consideration. Accordingly, the Strong Uncertainty Avoidance cultures are the ones where a deviation of a rule is perceived as a certain violation of the established way of living. Based on certain stereotypes opinions, German society can serve as an example of the Strong Uncertainty Avoidance one.

It is a culture where exactness and rigidity of rules and people’s actions according to them is demanded. On the other hand, Weak Uncertainty Avoidance cultures are those where practical exercise and creative approach are appreciated higher than the blind following to different rules. The examples of such cultures can be Latin American societies and such European cultures as French or Spanish one (Amat, 1998).

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Finally, the Masculinity versus Femininity concept is especially important for the modern society, although in the particular sphere of accounting its importance has not yet been studied enough o state its vital significance. Besides the usual understanding of this concept as a struggle for the societal power between the representatives of both sexes, Masculinity versus Femininity means also the reflection of different preferences of the society. As Hofstede (1984) argues,

Masculinity stands for a preference in society for achievement, heroism, assertiveness, and material success. Its opposite, Femininity, stands for a preference for relationships, modesty, caring for the weak, and the quality of life. The fundamental issue addressed by this dimension is the way in which a society allocates social (as opposed to biological) roles to the sexes (Hofstede, 1984, pp. 83 – 84).

Drawing from these four aspects of the societal values, Hofstede (1984) argues that every sphere of the human activity is affected by them, and management and accounting are not exceptions (Punnett & Withane, 1990). To develop this theory, Gray (1988) tried to understand the relation of the four aspects identified by Hofstede (1984) to the specifically accounting terms discussed in the following chapter.

Gray’s Classification

In his classification, Gray (1988) examines the theory by Hofstede (1984) and tries to adjust it to the accounting process. Taking the four societal value aspects formulated by Hofstede (1984) as the basis, Gray (1988) formulates his equivalents to them. They are:

  1. Professionalism versus Statutory Control
  2. Uniformity versus Flexibility
  3. Conservatism versus Optimism
  4. Secrecy versus Transparency

Thus, Professionalism versus Statutory Control presupposes, according to Gray (1988), the larger emphasis put on the professionalism and self-control of the accounting sphere workers instead of the improving the means of statutory control over their performance. In connection to the previously discussed views by Hofstede (1984), this aspect of Gray’s classification can be most closely related to the Individualism versus Collectivism and Strong versus Weak Uncertainty Avoidance. One of the research hypothesis by Gray (1988) puts this as follows: “The higher a country ranks in terms of individualism and the lower it ranks in terms of uncertainty avoidance and power distance then the more likely it is to rank highly in terms of professionalism.” (Gray, 1988, p. 9 – 10)

Taking into consideration the second point made by Gray (1988), i. e. Uniformity versus Flexibility concept, it is important to note that it examines the role of regulations and laws in the social development on the whole, and in the international development of accounting in particular. The more freedom and flexibility is provided for the workers of the accounting area, the more efficient and creative their work is in terms of its productivity and costs.

Relating this point to the theory by Hofstede (1984), Gray (1988) argues that Individualism versus Collectivism and Strong versus Weak Uncertainty Avoidance are again the concepts with which Uniformity versus Flexibility is closely related: “The higher a country ranks in terms of uncertainty avoidance and power distance and the lower it ranks in terms of individualism then the more likely it is to rank highly in terms of uniformity.” (Gray, 1988, p. 9 – 10)

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Moreover, the concept of Conservatism versus Optimism is also associated with the one of Strong versus Weak Uncertainty Avoidance by Gray (1988). The reasons to this are numerous, but the consistency of conservatism with strong uncertainty avoidance cultures and the need to shape the respective efficient regulations to handle potential uncertainty are the basic ones.

The idea of Masculinity versus Femininity is also related to this concept as masculinity is associated by Gray (1988) with the higher degree of conservatism and focus on the goal achievement, while femininity presupposes considerable rates of flexibility and rule violation, which is rather undesirable, especially in accounting. As a result, Gray (1988) formulates his third research hypothesis: “The higher a country ranks in terms of uncertainty avoidance and the lower it ranks in terms of individualism and masculinity then the more likely it is to rank highly in terms of conservatism.” (Gray, 1988, p. 10)

Finally, the competing element of Gray’s classification of the cultural factors influencing the development of accounting internationally is the idea of Secrecy versus Transparency. Strong uncertainty avoidance cultures are the examples of this point by Gray (1988) as far as strict regulation presupposes control over information directions and over the number of people involved in a certain task.

Secrecy, according to Gray (1988), is also related to the idea of collectivism as the one demanding the involvement of a certain number of people or groups of people in problem solving. Individualist approach contradicts secrecy as it advocates the free flow of information to any person necessary for the successful problem solving. Large power distance is also an example of secrecy manifestation as it presupposes the concentration of information at the disposal of a limited number of people entitled with power. Accordingly, accounting in Asian countries might be based more on secrecy than Western accounting traditions that promote transparency as their basic values (Arpan and Radebaugh, 1985).


To conclude, the theories created by Hofstede (1984) and Gray (1988) prove that cultural factors play an important role in the development of accounting internationally. Individualism, Power Distance, Uncertainty Avoidance, and Masculinity are the four factors that are viewed as the basic ones in the cultural differences by Hofstede (1984), while Gray (1988) modified these factors to fit them into the accounting framework. His concepts of Professionalism versus Statutory Control, Uniformity versus Flexibility, Conservatism versus Optimism, and Secrecy versus Transparency tend to explain how accounting practices might differ in various cultures.


Amat, O., Blake, J., Wraith, P. & Olivers, E. 1998, “Dimensions of National Culture and the Accounting Environment – The Spanish Case,” Working Paper, pp. 1 – 23.

Arpan, J. S., and L. H. Radebaugh. 1985, International Accounting and Multinational Enterprises, Wiley.

Chan, K. Hung ; Lin, Kenny Z. ; Mo, Phyllis Lai Lan. 2003, “An empirical study on the impact of culture on audit-detected accounting errors”, Auditing: A Journal of Practice & Theory, pp. 1 – 3.

Gray S.J. 1988, “Towards a theory of cultural influence on the development of accounting systems internationally”, Abacus, Vol 24, No 2, pp. 1-15.

Gray S.J. & Vint H.M. 1995, “The impact of culture on accounting disclosures. Some international evidence “Asia Pacific Journal of Accounting, December, pp. 33-44.

Hofstede, G. 1984, ‘Cultural Dimensions in Management and Planning’, Asia Pacific Journal of Management.

Punnett B J & Withane S. 1990, “Hofstede’s value survey module: to embrace or abandon?” Advances in International Comparative Management, Vol 5, pp. 69 – 89.

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