Regulatory, Cultural and Ethical Dimensions to the Introduction of International Accounting Standards - Essay Example

?Running head: Regulatory, Cultural and Ethical Dimensions to the Introduction of International Accounting Standards Regulatory, Cultural and EthicalDimensions to the Introduction of International Accounting Standards Insert Name Insert Grade Course Insert Tutor’s Name 9 March 2012 Regulatory, Cultural, and Ethical Dimensions to the Introduction of International Accounting Standards Introduction Accounting practices have from time to time been compiled by the desire and directive from corporate influences to harmonize rules and regulations of financial reporting to international standards. Publicly listed companies all over the world have the obligation of complying with International Accounting Standards in the interest of the public and more so, success of corporations as global entities. The move has removed discrepancies that existed between accounting regulations and directives on application and compliance with international accounting standards. However, corporations and business entities at large comply with International Accounting Standards directive and regulation as a basic legislation that not only streamlines financial reporting, but also as a specific entity’s need for auditing. Compliance with International Accounting Standards extends beyond the financial aspects of company’s regulatory dimension in reporting, and encompasses both cultural and ethical dimensions of the accounting profession. Regulatory Dimensions Companies are often placed under regulations with respect to international accounting standards to enable the accounting professionals to provide an honest and accurate financial image to company’s stakeholders. Through compliance with international accounting standards regulations, companies are bound to benefit from their investors’ confidence with regards to truthful and accurate reporting of the financial situation and performance of the company. More so, compliance to such standards would render financial information more understandable, reliable, comparable, and relevant among the users of financial information in assessing confidence in company management and making economic decisions. Regulatory dimensions of international accounting standards are subject to a two tier endorsement mechanism standards a technical and regulatory level. The regulatory level endorsement mechanism is based on proposals of local accounting commissions that decide on the levels and whether the International Accounting Standards are to be adopted. Local regulatory bodies aim to ensure that full accountability and transparency is achieved in financial reporting through both local regulations and compliance to International Accounting Standards. Countries and regions such as the European Union have enforced compliance regulations among its publicly listed companies to apply International Accounting Standards in preparation of their financial statements. This is in a bid to improve transparency and foster efficiency in corporate functions in the interest of the public and more particularly, investors (Palea, 2006, p.7). On the other hand, technical level endorsement mechanism uses Accounting Technical Committees and advisory bodies made up of accounting professionals and experts from both public and private sectors. These professional accountants committees and advisory bodies seek to provide expertise and support that is needed to assess International Accounting Standards and to advise companies on whether or not it is suitable for them to adopt the standards according to local and country preferences and interests. However, there exist Generally Accepted Accounting Principles that encompass a wide spectrum of local and geographically dispersed accounting interests and preferences all over the world. The GAAP is a common set of accounting standards, principles and procedures that are globally applicable by companies in compiling their financial statements. More so, GAAP include a combination of commonly accepted practices and local board authoritative policies and standards of reporting and recording accounting information. The Generally Accepted Accounting Principles are imposed on corporations so as to enable investors have consistency in their use of financial statements to analyze companies and make investment decisions. The principles cover aspects such as measurement of outstanding shares, revenue recognition, and item classification in the balance sheet. However, distortion of accounting figures remains rampant among unscrupulous accounting professionals irrespective of GAAP compliance (Bragg, 2002, p.32). Cultural Dimensions Cultural dimension to the introduction of international accounting standards encompasses a broad variety of multi faceted aspects have with respect to human histories. Cultural differences among individuals and accounting entities holds the key to the underlying differences in accounting practices all over the world, as it generally sets apart people’s held beliefs and standards within a particular group of people and geographical area. Cultural dimensions aspects refer to collective programming of individuals’ minds, which distinguish individuals of a group from other groups of people. The dimensions include individuals’ power distance, avoidance of uncertainty, and femininity verses masculinity. Individualism refers to the extent with which persons allude to their personal freedom as opposed to collectivism, where there is widespread responsibility to what is generally acceptable. Power distance on the other hand refers to level of acceptance among participants to the hierarchy standards (Amat, Wraith, and Oliveras, 2012, p.4). Culture may also be referred as the mental creation and accumulation of individual’s identical spiritual wealth over a long period. Spiritual wealth and mental creations in this case includes aspects such as social habits, languages, moral standards, value concepts, and general way of thinking in a particular group of people. More over, culture may also be referred to as learned mental creations that usually stem from the social environment in which an individual is brought up. International Accounting Standards therefore seek to harmonize cultural influences on accounting practices to meet international needs and not only to a specific group of people with similar mental creations. Mental creations are one of the basic accounting fundamentals that are used to provide financial information to stakeholders and shareholders in a manner that can be easily understood. However, significant variations of mental creations of stakeholders and shareholders from different cultures may fail financial information that is not standardized to take care of international needs and differences. Financial information provided using accounting fundamentals of a particular culture would surely not cater for other cultures with mental creations different from them. Global businesses now face new challenges with accounting practices that do not meet international standards with respects to accounting practices that are different from one country to another. Accounting practices confined to a particular country, region or groups of people are products of existing and past cultural dimensions. This renders the accounting system of each country different and unique from those of other countries. This calls for harmonization of differential and unique aspects of such accounting practices if the information is to be used globally. Cultural dimensions across countries and sovereign states generally present a huge challenge to international accounting standards, particularly in a situation where financial reporting is for a transnational company and is listed in stock exchange. Treatment of accounting issues in a world of conflicting cultures may necessitate that particular companies and national supervisory bodies solve the cultural conflict of interest with regards to international users of financial information (Papaioannou, Gatzonas, 1997, p.37). Although there are a number of factors that influence accounting practices and system as a whole in a particular country or region, cultural aspects remain the dominant environmental influences in standards. Other influences include taxation systems, legal systems, colonialism, education, language, and politics among other factors. Like any other societal institution, accounting practices are subject to influences from the external environment with regards to the existing institutional structure and cultural values. External environmental influences are said to intrude the existing systems and initiate change. There exists a variety of dimensions concerning how cultural factors influence accounting practices through the universal structure of psychological human motivation and differential views and preferences in the accounting domain. Attitudes, opinions, and beliefs of practicing and participating accounting professionals are the driving and motivational forces towards a particular way of judging and interpreting financial reporting. These forces reveal a broad variety of individual perspectives to motivational values in accounting in a more representative and comprehensive point of view framework. It is evident that there is a close relationship between accounting professional’s judgments and interpretation of financial reporting practices and their individual motivational values, more so the cultural diversities (Papaioannou, Gatzonas, 1997). Through motivational values in the accounting profession, an in-depth understanding of the complexity and richness of cultural dimensions to the introduction of the International Accounting Standards and its influence has been achieved. Motivational values are applied as a construct on an individual’s level, with respect to the cultural influence on interpretations, judgments, and decisions making in accounting. Cultural variations among groups and geographically dispersed individuals are evident with the existence of accounting practice and interests variations according to cultural diversity. Accounting knowledge on motivational values concerning their effects on decision-making, judgments, and interpretation has made huge contributions to the global drive for harmonization and convergence accounting practices as well as professional development and education. Through the introduction of international accounting standards, accounting organizations all over the world have been able to apply accounting practices that transcend cultural diversity and meet global needs, irrespective of cultural differences. Research has it that despite local country regulatory body proposals, a good percentage of countries and corporations have adhered to International Accounting Standards. Through widespread compliance, it is evident that accounting standards are achieving global convergence irrespective of cultural dimensions that present interest and need variation. More to local accounting boards control and local interests’ considerations to compliance, International Accounting Standards’ structure enables organizations to retain their local specific organization codes. More so, corporation accounting professionals in cultures with high levels of uncertainty avoidance and individualism have the chance to fully retain their own codes and standards (Papaioannou, Gatzonas, 1997). Ethics Ethical dimensions in international accounting standards entails adherence of sound ethics among the accounting fraternity, where innate senses of practices that are right prevail over consequential fears. Corporations all over the world have emerged as the dominant institutions of societal governance over and above governments in both power and size. Human and societal interests and welfare in general have continually become dependent on corporate company situations with respect to corporate social responsibility. Ethical concerns have therefore emerged as the determining factors of human and societal interests and welfare in general particularly in financial reporting. The accounting professionals in corporations should seek to uphold ethical aspects in their financial reporting practices. More so, ethical practices among practicing accounting professionals should emerge as an intellectual virtue in international accounting for the success of the organizations and society in which they exist (Budd, 2011, p.210). Ethical dimensions of accounting practices emphasize on accounting professionals not to act on individual basis, but in consideration of the society. Moreover, International Accounting Standards incline the practice of accounting among professionals and experts towards social orientation. However, some countries’ accounting practices such as those of the western region are considered to overlook societal interests and welfare through capitalist preferences over the society and labor. Corporation in particular regions such as the western seem to promote wealth concentration to capitals owners rather than labor and the society. Ethical dimensions to the introduction of international accounting focus more on the society at large, rather just accounting as a financial reporting profession. International Accounting Standards seek to negate the ethical shortcomings of local accounting practices developed, based on cultural and religious beliefs against the interest of the society. Different social and political orientations in different cultures have had a great impact on accounting practices that fail to address generally acceptable codes of conduct. However, particular cultures such as Islam have developed accounting systems that are more inclined to societal interests and seek to benefit humankind in general, thanks to Islamic values. Ethical dimensions seek to clearly guide and streamline the practice of recording transactions and general financial reporting in the interest of humanity. Islamic accounting practices enable accurate reporting and income determination to promote corporate efficiency and success alongside social concerns. Ethical dimensions in Islamic financial reporting are highly esteemed, particularly after the formation of Accounting and Auditing Organization for Islamic Financial Institutions. Ethical considerations have been the key reasons to the success of corporations based on Islamic accounting practices. Islamic finance industry in regards to ethical considerations gave Islamic accounting huge strides to success in corporate governance and investor confidence. Accounting ethical dimension has placed its development and compliance roots to accounting educational systems. Although International Accounting Standards Board relies on voluntary compliance, it goes a long way in promoting acceptable ethical conduct among professions. More over, corporate compliance serves as early template to help them prepare for future global advances. All in all, accounting professional institutions have the mandate to teach and instill professional values and ethics in line with International Accounting Standards, as this will go a long way in ensuring multinational corporations’ success is not compromised by professional conduct. Teaching and more so, instilling professional values, attitudes, and ethics among accounting students is a specific requirement by international education standards. The corporate world and more so, world societies stand to benefits from widespread ethical considerations in accounting (World Bank, 2004, p.7). International Accounting Standards set a convergent accounting ethics code that is to be complied with across all world cultures. Convergent and universal codes of ethics simplifies disputes and conflict of interest between corporations in diverse cultures and societies, and helps accounting professionals to comply with varying legal guidelines all over the world. International accounting standards place considerations on legal and professional authorities all over the world. Conclusion Corporate compliance with international accounting standards extends beyond the public interests and interests of shareholders among other stakeholders and encompasses corporate interest. Corporations not only stand to gain investor confidence from compliance with international accounting standards with respect to truthful, accurate, and reliable financial information, but also the success of corporate performance and profitability in general. More so, corporations are able to transcend local interests and conflict of interest to embrace global regulatory, cultural, and ethical dimensions of their financial considerations. Recommendations Corporations and accounting regulatory bodies should focus on streamlining their accounting practices to meet the needs of the users of financial information. Considering the fact that users of financial information may be from diverse cultural background, it is important that financial information is inclusive of all cultural differences and needs. International accounting standards is an ideal practice in this case that is universal and can be comfortably used by all stakeholders irrespective of their cultural diversity. Multinational corporations have a mandate to comply with international accounting standards since their operations are not limited to particular regions, cultures and countries. However, local organizations may also comply with international accounting standards with regards to cultural diversity in a particular country and local regulatory body requirements. Recommendations to compliance of international accounting standards basically alludes to fact that local regulatory bodies, cultural diversity and company’s extent of operations dictates state of compliance. In case of multinational corporations, compliance is more or less a necessity to the company while cultural diversity precludes the need for consideration of all users of financial information. On the other hand, local regulatory bodies dictate whether companies should comply with international standards with regards to protection of investors and the society at large in which the organizations operate. 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