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The impact of culture on interpreting International Financial Reporting

Standards in Poland. A comparative analysis with Germany and Great Britain
Article in Zeszyty Teoretyczne Rachunkowości · September 2014

DOI: 10.5604/16414381.1122866
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The impact of culture on interpreting International
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Financial Reporting Standards in Poland.
A comparative analysis with Germany and Great Britain
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Jerzy Gierusz , Katarzyna Koleśnik , Sylwia Silska-Gembka 
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Introduction
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The problem of the impact of culture on the interpretation of financial reporting stand-
ards has taken on special significance in the currently ongoing process of accounting
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harmonization, aimed at the creation of a uniform system of solutions on a worldwide
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scale. The establishment of supranational organizations and enterprises has compli-

cated international economic relations and revealed the need to standardize account-
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ing regulations, both within individual countries and supranational communities. Hav-
ing realized the impact of cultural differences on economic life, it is easier to under-
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stand what a complex task the process of harmonizing is and how difficult, if not
impossible „implanting to a given country of new accounting solutions different in
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their essence and origin from the previous ones” (Kabalski, 2009, p. 18) may prove to
be. Currently we can observe such phenomena in connection with the adoption of the
International Financial Reporting Standards (IFRS) to the regulations of continental
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Europe, including Poland1.

It should be stressed that the harmonization did not choose the way of compromise
but constitutes an attempt to impose one viewpoint – an Anglo-American one – on the
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entire world. This means discarding the legacy of other countries, such as Germany or
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France. In the modern world, as Gierusz says (2001, p. 142) „what is English or
American has a global dimension, and what comes from other countries has a local
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dimension”.
Therefore it is important to find an answer to the question whether the accounting
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regulations based on the Anglo-American tradition would in fact be fully applicable

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
Prof. Jerzy Gierusz, University of Gdańsk, Faculty of Management, Department of Accounting,
e-mail: rachunkowość@wzr.pl

Katarzyna Koleśnik, assistant and PhD candidate, University of Gdańsk, Faculty of Management,
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Department of Accounting, e-mail: katarzynakolesnik@wp.pl


Sylwia Silska-Gembka, Ph.D., assistant professor, University of Gdańsk, Faculty of Management,
Department of Accounting, e-mail: sylwiasilska@wp.pl
1
Since 2005 all publicly listed companies have been required by law to prepare their consolidated fi-
-
nancial statements in accordance with the IFRS.

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88 Jerzy Gierusz, Katarzyna Koleśnik, Sylwia Silska-Gembka
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in various cultural circles, especially that, as previous research shows (Hauriasi, Davey,
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2009), social and cultural values shared by some societies are in contradiction with
what the IFRS bring.
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Cultural differences may cause accountants from various countries to make differ-
ent use of the same accounting standards, which may result in an adverse impact on the
intercultural comparability of financial statements; especially as the idea of harmoni-
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zation – assuming that everyone understands everything in the same way – ignores
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this crucial problem. Therefore, an optimistic approach according to which a compa-
ny „converting into the IFRS, assumes the international language of financial report-
ing, which will make it understandable in the global market” (Fijałkowska, Jaruga-
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-Baranowska, 2007, p. 98) may not be completely substantiated.
Schultz and Lopez (2001, p. 273) points out that use of uniform accounting stand-
ards is not enough to guarantee the standardization of solutions established in various
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countries, „especially in a situation when they leave freedom of action to accountants”.
According to Doupnik et al. (2004), the flexibility of interpreting the IFRS allows for
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the disclosure of differing results between countries, since accounting standards cre-
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ate possibilities of choice for individuals, requiring them to apply an approach which
would be suitable for the arisen circumstances – this is done on the basis of one’s own
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judgment. Making estimations is also required, which means subjectivism in interpre-
tation of the facts in many areas. Therefore, preparation of a financial statement on
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the basis of the IFRS often resembles „painting a hundred pictures with the same
topic” (Kabalski, 2009, p. 19).
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In this context, the problem of interpreting identical accounting standards by ac-

countants from various countries becomes crucial.
The primary objective of this article is to present the research project that is cur-
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rently being carried out by the Department of Accounting at the University of Gdańsk:
The Impact of Culture on Interpreting International Financial Reporting Standards in
Poland – A Comparative Analysis with Germany and Great Britain2. We present adopt-
for
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ed goals, hypotheses, research methods and the significance of the project. We also
discuss the basic theoretical framework of the influence of culture on accounting and
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provide a brief review of the international literature of empirical assessment of the

theories of Hofstede and Gray.
The theories of Hofstede’s cultural value dimensions and Gray’s accounting sub-
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culture, as well as the empirical research aimed at verifying them, should be per-
ceived as an element of actions aimed at identifying a broadly defined environment in
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which national accounting standards function.

The research covered by the presented project will be the first attempt at an empir-
ical verification of both the hypothesis on the interpretation of the IFRS in Poland and
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the broadly defined cultural conditioning in the field of accountancy.

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The project is not yet complete hence results are not yet available.
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The impact of culture on interpreting International Financial Reporting Standards in Poland... 89
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1. Cultural and accounting dimensions in Hofstede’s
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and Gray’s models

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The research into the causes of differences between the accounting systems of indi-
vidual countries used to ignore the cultural aspects (Sajay, Manassian, 2011, p. 618).
It was only since the 1980s, and particularly in the two last decades, that culture, as an
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accounting-shaping factor, has found itself in the spotlight of international research.
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Two main trends are distinguished: the first of them is based on the anthropological
approach to culture, and the second one emphasizes the definition of culture assumed
by Hofstede (2007, p. 17), according to which it is a „collective mind programming
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which distinguishes members of one group or category of people from another”.
Hofstede was the first to classify national cultures into several dimensions he adopt-
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ed. These dimensions, determining cultural features, are measurable and allow a cul-
ture’s position in relation to other ones to be determined (Hofstede, 2007, p. 36). Ac-
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cording to Hofstede, there are six basic dimensions of national cultural values:
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1) large vs. small power distance – this factor covers the emotional distance between
subordinates and superiors. Whereas in countries with a large power distance sub-
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ordinates rely heavily on their superiors, regarded as favourable by the former,
a characteristic of societies with small power distance is the strong need for mutu-
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al consultation;
2) collectivism vs. individualism – these concepts are located on opposite poles, since
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individualism, unlike collectivism, applies to societies with loose bonds between

people, among which „everybody looks after themselves and their closest family”
(Hofstede, 2007, p. 111);
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3) masculinity vs. femininity – these are elements indicating different mind program-
ming of societies with regard to emotions; in masculine societies, men are expected
to be assertive, tough and oriented towards material success, while women should
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be, above all, modest and caring. On the other hand, a mutual overlap of social
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roles of both genders is a characteristic of „feminine” societies. Therefore, in pre-

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dominantly masculine societies, such as the US or Germany, achievement of pure-

ly financial results is much more significant than in countries such as Sweden or
the Netherlands with their „feminine” shape (Hofstede, 2007, p. 269);
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4) weak vs. strong uncertainty avoidance – these factors determine features identified
with the degree of threat perceived due to new or unknown situations, which is
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connected with a need of predictability which can be satisfied by all sorts of laws
and customs;
5) long-term vs. short-term orientation –societies with a long-term orientation are char-
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acterized by their opposition to thrift and frugality, while a consumption approach

is characteristic of those with a short-term orientation, such as Great Britain;
-
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6) indulgence vs. restraint3 – according to Hofsede et al. (2011, pp. 246–288) indul-
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gence stands for a society that allows relatively free gratification of basic and natu-
ral human urges related to enjoying life and having fun. On the other hand, re-
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straint stands for a society that suppresses the gratification of needs and regulates
it by means of strict social norms.
Whereas Hofstede’s study was an important impulse for scholarly research of the
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relations between culture and accounting, the author to pick up this challenge was
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Gray. In 1988, he defined a set of four cultural features connected with accounting,
which are closely related to the dimensions described by Hofstede. They are (Gray,
1988):
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1) professionalism vs. statutory control – in the first case, professional evaluation and
maintenance of professional self-regulation are emphasized in contrast to compli-
ance with strictly defined regulations and statutory control;
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2) uniformity vs. flexibility – indicating the preference of unified solutions assumed
in accounting versus the alternative of flexibility of use thereof depending on
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changing conditions;
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3) conservatism vs. optimism – representing a careful approach to the value meas-

urement in the face of uncertainty – as opposed to more aggressive methods of
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valuation;
4) secrecy vs. transparency – discretion and restrictions of information disclosure are
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an alternative for transparency and the wide extent of disclosures.

Gray conducted a study on the impact of cultural and social values on the devel-
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opment of the accounting systems in selected countries. In these analyses he proposed

testing all attributes of accounting (professionalism or legal regulations, stability or
flexibility of the rules), taking into consideration the cultural values defined by Hof-
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stede, i.e. the distance to power, individualism and collectivism, masculinity and fem-
ininity, and uncertainty avoidance4. He formulated four hypothesis (Gray, 1988, p. 9–
for
11):
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H1: Professionalism vs. statutory control

„The higher a country ranks in terms of individualism and the lower it ranks in terms
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of uncertainty avoidance and power distance then the more likely it is to rank highly
in terms of professionalism”.
H2: Uniformity vs. flexibility
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„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
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terms of uniformity”.
3
This new dimension was defined by Hofstede in 2011.
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4
The research conducted by Gray does not take into account the fifth and sixth dimensions of the cul-
tural values, i.e. the long- and short-term orientation and consent-restrictiveness, because at the time they
were not defined by Hofstede. The fifth dimension – long-term orientation – was incorporated into these
hypotheses by Radebaugh and Gray in 2002. According to the authors, a higher national rank of long-
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term orientation will probably determine a higher national rank of conservatism and secrecy.
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H3: Conservatism vs. Optimism
„The higher a country ranks in terms of uncertainty avoidance and the lower it ranks
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in terms of individualism and masculinity then the more likely it is to rank highly in
terms of conservatism”.
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H4: Secrecy vs. transparency
„The higher a country ranks in terms of uncertainty avoidance and power distance and
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the lower it ranks in terms of individualism and masculinity then the more likely it is
to rank highly in terms of secrecy”.
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The relationships between these values are shown in Table 1.
Whereas the first two pairs of features determine the shape of specific institutions
and norms of the accounting system, conservatism and secrecy refer to the value
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measurement of assets, liabilities and the financial result, as well as to information
disclosures in a financial statement.
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Table 1. Relationships between Gray’s accounting values and Hofstede’s cultural
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dimensions
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Hofstede’s cultural dimensions

Gray’s accounting
Uncertainty
values Power Distance
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Individualism Masculinity
Avoidance
Professionalism Negative Positive No relationship Negative
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hypothesized
Uniformity Positive Negative No relationship Positive
hypothesized
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Conservatism No relationship Negative Negative Positive

hypothesized
Secrecy Positive Negative Negative Positive
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Source: adapted from Gray (1988, pp. 9–11).
According to Gray (1988) and Radebaugh and Gray (2002), uncertainty avoidance
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and long-term orientation are those of Hofstede’s cultural dimensions which have the
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greatest impact on the tendency towards conservatism. These two dimensions in turn,
along with power distance and individualism, have the strongest influence on the
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tendency to secrecy.
Hofstede says (2007, p. 270): „if we assume that accounting systems are uncer-
tainty-reducing rituals, fulfilling a cultural need for certainty, simplicity, and truth in
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a confusing world, one can expect that the degree of uncertainty avoidance which is
typical for a country would influence the manners of accounting in this country”.
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Therefore, a wider extent of disclosures would characterize countries tending to avoid

uncertainty. Numerous studies (including Doupnik, Salter, 1995; Salter, 1995, Taylor-
Zarzeski, 1996; Akman, 2011) confirmed the existence of a connection between un-
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certainty avoidance and national accounting systems. Thus countries of the Anglo-
American culture, as Gray states, are largely inclined towards optimism and expan-
sion of reporting information, while he regards Germanic countries as ones definitely
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more inclined towards secrecy and partially also towards conservatism.

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At the same time, it should be noted that conservatism is regarded as a feature of
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the accounting subculture which significantly differs depending on the part of the
world – from the highly conservative approach typical to continental Europe, to a less
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conservative one characterizing British and US accountants (Chanchani, Willett,
2004, p. 129). It is regarded to have the greatest impact on the intercultural compara-
bility of financial statements (Doupnik and Tsakumis, 2004, p. 35). Analogous differ-
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ences between continental Europe and Great Britain are also perceived in the tenden-
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cy towards secrecy.
Gray’s analyses have opened a completely new chapter in the research into the caus-
es of differences between national accounting systems, since researchers have begun
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to realize how much the principles of valuation, the mode of establishing the regula-
tions, as well as the extent of disclosed information, are influenced by cultural factors.
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2. The studies of cultural conditioning of accounting
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in Poland in the light of international studies
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The first to speak up in the discussion of cultural conditioning of accounting, as early
as in 1968, was Bearley (1968, p. 5), arguing that „differences between accountants
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from various cultures are greater than those between a farmer and an accountant from
one cultural circle”. Moreover, this author emphasizes that scholars’ realization of the
fact that cultural values influence many aspects of accounting was fundamental for
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the studies concerning this discipline. Nevertheless, Sajay and Manassian (2011, p. 618)
have proved that until 1980, culture was not perceived as a significant element taken
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into account in the study of accounting.

A turning point in this regard were the studies of Hofstede (1980) and Gray
(1988). A natural consequence of the formulating of the theses quoted above by those
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researchers were attempts at their practical verification, implemented in various coun-

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tries, and therefore also in different cultural environments. Table 2 presents some
more recent studies of the empirical assessment of Hofstede’s and Gray’s theoretical
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framework.
In most studies of this area, cultural aspects were usually discussed in the context
of their impact on the accounting practices applied in a given country (Noravesh et al.,
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2007; Salter, Lewis, 2011; Perera et al., 2012)5, influence on the extent of information
disclosed in financial statements (Jaggi, Low, 2000; Hope, 2003; Akman, 2011)6, as
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well as the degree of diversity between national and international accounting stand-
ards (Ding, 2005). It should be noted that the vast majority of these studies were made
before the expansion of the scope of use of the IFRS.
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5
See also: Eddie (1990), Salter (1995), Amat et al. (1996), Askary (2006).
6
See also: Sudarwan, Fogarty (1996), Taylor-Zarzeski (1996), Wingate (1997), Archambault and
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Archambault (2003).
- This copy is for personal use only - distribution prohibited. - This copy is for personal use only - distribution prohibited. - This copy is for personal use only - distribution prohibited. - This copy is for personal u
Table 2. Selected international accounting studies of empirical assessment Hofstede’s, Gray’s framework
Theory applied
Field of studies Author Sample of countries Brief description of the study Conclusions
H1) G2)
Canada, UK, USA
The authors investigate the role of National cultural values do not appear
Jaggi, Low (common law countries);
X culture and legal origin in explaining to have a significant influence on finan-
(2000) France, German, Japan
disclosure levels. cial disclosures.
(code law countries)
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The author finds no links between cul-
ture and the level of financial disclo-
Culture and 39 and 42 countries The author investigates whether nation-
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sures. However he claims that „(…) it is
accounting Hope (2003) X (depending on the al culture (as measured by Hofstede) is
too early to dismiss culture as an ex-
disclosures
op particular test) correlated with firms’ disclosure levels.
planatory variable for firms’ disclosure
choices” (2003, p. 22).
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Australia, France, The authors investigate whether the Findings of the study show that the use
Akman Germany, Italy, the differences in financial disclosure due of a single set of accounting standards
X x
(2011) Netherlands and the to culture have diminished after the use does not completely eliminate the im-
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United Kingdom of IFRS. pact of culture on financial disclosure.
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Even given similar facts and rules, judg-
ments among accountants vary signifi-
The influence of culture on account-
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Schultz, Lopez cantly. Accountants from Germany and
X x France, Germany, USA ants’ interpretation and application of
(2001) France are more conservative in their
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similar financial reporting standards.
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ants from the USA.
Culture and
The results indicate significant differ-
the interpretation
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The effect of language-culture and lin- ences in interpretation across the selected
of accounting
Doupnik, guistic translation on the accountants’ countries. Some differences are attributed
standards X x Germany, USA
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Richter (2003) interpretation of verbal uncertainty ex- to a language-culture effect and others
pressions found in IFRS. to a translation effect, with the language-
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culture effect being more dominant.
The study’s results suggest that culture
Doupnik, The effect of national culture on verbal
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The impact of culture on interpreting International Financial Reporting Standards in Poland...
X x Germany, USA influences the interpretation of verbal

Richter (2004) probability expressions found in IFRS.
probability expressions used in IFRS.
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93
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Table 2. Selected international accounting studies of empirical assessment Hofstede’s, Gray’s framework (cont.) 94
Theory applied
H1) G2)
The authors find a strong relationship
between the conservatism hypothesis
The authors test two of Gray’s hypothe-
and recognition of income-increasing
ses, secrecy and conservatism, to find
items but no relationship between this
Doupnik, whether differences in culture make
x USA, Brazil hypothesis and recognition of income-
Riccio (2006) accountants in distinct countries differ-
decreasing items. However, strong rela-
Culture and the ently interpret and apply the same finan-
tionships were obtained between the
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interpretation cial reporting standardsa).
secrecy hypothesis and disclosures of
of accounting
financial information.
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standards op Fijian accountants display stronger con-
servatism when compared to the Aus-
The author examines the effects of both
tralian accountants.
Chand (2008) X Australia, Fiji cultural and non-cultural factors on
National culture has a significant effect
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professional judgments of accountants.
on the manner in accountants’ profes-
sional judgment required by IFRS.
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Culture and the The authors investigate the role of
differences be- culture as an explanatory factor under- The authors find a strong relationship
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tween national and lying differences between national and between cultural values and the diver-
Ding
international ac- X 52 countries international accounting standards. gence index but no significant relation-
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et al. (2005)
counting standards These differences are measured using ship between these values and the
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the following measures: divergence and absence index.
absenceb).
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The authors confirm eight out of thir-
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teen of Gray’s hypotheses. Contrary to
The authors examine the relationships Gray they find:
Culture and
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Noravesh et al. between cultural values defined by 1) no positive relationship between:
accounting X x Iran
(2007) Hofstede and accounting values de- a) uncertainty avoidance and secrecy,
practices
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scribed by Gray in Iran. b) uncertainty avoidance and uni-
formity,
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c) individualism and professional-
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Jerzy Gierusz, Katarzyna Koleśnik, Sylwia Silska-Gembka
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Theory applied
H1) G2)
ism,
2) a positive relationship between:
a) power distance and conservatism,
and
b) masculinity and professionalism.
The cultural variable of individualism is
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significantly and positively related to
The authors use actual reported data
differences in income measurement
(1998–2004) from SEC Form 20-F to
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Salter, Lewis practices between countries.
X x 15 countries test relationships between one of Gray’s
(2011) Country's membership in the European
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accounting values, conservatism, and
Union and corporate tax rate are related
Hofstede’s cultural dimensions.
to income measurement practice differ-
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ences.
The findings of the study suggest a high
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The authors’ use the Hofstede-Gray level of professionalism in New Zea-
Perera framework to verify the possible rela- land and a low level of professionalism
X x
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New Zealand, Samoa
et al. (2012) tionship between cultural values and in Samoa. It is concluded that culture
accounting professionalism. may be a factor that has an impact on
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na these differences.
1)
H – Hofstede
2)
G – Gray
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a)
As a basis for this research the accounting standards that require accountants to exercise their judgment have been identified (the standards relating to income-
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increasing and income-decreasing, e.g. IAS 18 – Revenues, IAS 11 – Construction Contract).
b)
According to the authors (2003), „Divergence measures the degree to which GAAP (author’s note: national accounting standards) and IAS (author’s note:
on
international accounting standards) cover a specific accounting topic but prescribe different methods. Absence measures the degree to which national GAAP
do not cover an accounting issue regulated by IAS”(p. 343).
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Source: own study.
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The impact of culture on interpreting International Financial Reporting Standards in Poland...
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95
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Few projects have attempted to answer the question whether cultural differences
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determine the fact that accountants and auditors from different countries may interpret
and apply the same accounting standards differently. They include studies by Schultz
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and Lopez (2001), Doupnik and Richter (2003, 2004), Doupnik and Tsakumis (2004),
Doupnik and Riccio (2006), and Chand (2008), whereas the impact of cultural condi-
tioning on interpretation of the IFRS was discussed only in the study by Doupnik and
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Richter (2003, 2004), in which this problem was taken up in Anglo-American and
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Germanic countries only from the perspective of one of the cultural features defined
by Gray, namely, conservatism. The paper by Doupnik and Riccio of 2006 additional-
ly includes one more feature – secrecy, limited to the USA and Brazil (as a repre-
sentative of the Latin culture), while the 2008 study by Chand employs Hofstede’s
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cultural dimension theory in relation to Fiji and Australia (as representatives of two
distinct national cultures).
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Whereas cultural conditioning of accounting constitutes the basis of numerous
surveys implemented by foreign teams, there have been no attempts in this regard in
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Poland.
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A review of Polish literature made in order to determine how much the issues con-
cerning cultural conditioning of accounting are present in the Polish literature unam-
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biguously shows that this problem is very poorly examined in Poland (Koleśnik and
Silska-Gembka, 2012). The subject matter under discussion is presented only in its
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theoretical aspect, which mainly boils down to the presentation of Hofstede’s cultural
dimensions and Gray’s model of the accounting subculture. It should be stressed that
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these issues have usually been given between just several lines and one typewritten
page at the most. What is particularly important is that no empirical research in this
area has been performed in Poland so far.
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However, the issues of cultural conditioning can be found in studies of Polish re-
searchers in the fields of other sciences, such as intercultural psychology (including
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Bilewicz, 2007; Borkowska, 2007; Sorokowski, 2010) and intercultural management

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(including Sułkowski, 2002).

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3. Research project presentation

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Taking into account the significance of research concerning cultural conditioning of

accounting and interpretation of the IFRS by accountants and auditors, as well as the
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fact they have not been initiated in Poland, the Department of Accounting at the Uni-
versity of Gdańsk has been carrying out the project The Impact of Culture on Inter-
preting International Financial Reporting Standards in Poland – A Comparative Anal-
Th
ysis with Germany and Great Britain.

Figure 1 illustrates the essence of the project.
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Figure 1. The essence of the project
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Hofstede’s Gray's features

dimensions of of the accounting
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cultural values culture
Individualism/
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collectivism
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Conservatism
Uncertainty vs.
avoidance Optimism IFRS
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INTERPRETATION
by accountants and UNIFORM
Masculinity/ auditors from USE
Poland, Germany OF THE IFRS
femininity
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and Great Britain
Secrecy
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Long-term vs.
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Transparency
orientation
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Power distance
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Source: own study.

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The research problem of the project can be reduced to the following questions:
1. What is the influence of cultural factors on interpretation of the IFRS in Poland as
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compared with Germany and Great Britain?

2. Are the regulations of the IFRS unambiguous and precise enough to be understood
identically in every country, regardless of the cultural conditioning which had
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shaped the previously used national accounting standards?

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The primary objective adopted was to survey the degree of influence of cultural
conditioning, especially conservatism and secrecy, on subjective judgments made by

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accountants and auditors in connection with the application of assorted IFRS in Po-
land, Germany and Great Britain.
Implementation of the research goal primarily requires countries constituting the
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basis of comparison for Poland to be identified. The national cultural values of these
countries have to differ significantly from each other, which would guarantee that
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more distinct results would be obtained (Tsakumis, 2007, p. 32), because the values
followed by accountants and auditors in these countries when making subjective
judgments required by some of the IFRS should be different.
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As mentioned in Chapter 2, on the basis of the identified relations, Gray has

placed different groups of countries in two coordinate systems, according to their
cultural and customary approach to the establishment of accounting standards, as well
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as the applied principles of valuation and extent of disclosed reporting information.

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From the viewpoint of optimism in value measurement and extent of disclosures of
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reporting information, two areas of national accounting systems have been distin-
guished, i.e. a discrete and conservative one (secrecy – conservatism) and an optimist
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and transparent one (optimism-transparency). The degree of diversity of the values
mentioned above with regard to Germany and Great Britain is shown in Table 3.
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Table 3. Intensity of values shaping the accounting systems in Germany and Great
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Britain
Gray’s accounting subculture values
Cultural Areas
Secrecya) Conservatismb)
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Germanic countries, including Germany 6 4
Anglo-Saxon countries, including Great Britain 1 1
a)
where: 1 – low tendency towards secrecy, 7 – high tendency towards secrecy
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b)
where: 1 – low tendency towards conservatism, 5 – high tendency towards conservatism
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Source: own study on the basis of Gray (1988, p. 13).
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According to Gray’s classification, Anglo-American countries are characterized

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by the largest degree of optimism and transparency, while a higher degree of conserv-
atism and secrecy characterizes countries originating from the continental tradition of
accounting. Great Britain was chosen as the country representing the Anglo-American
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culture, and Germany as the representative of the continental culture. Poland, before
the amendment of the Accounting Act of 2000, was listed among countries belonging
rso
to the continental model of accounting, whereas after this period, Polish balance law
was expanded by many solutions closely related to the IFRS, which indicates an in-
pe
clination towards the Anglo-American tradition.

According to Gray (1988, p. 10), conservatism is the oldest and most predominant
dimension of accounting, and, along with secrecy, is the value of the accounting sub-
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culture which has the strongest impact on the valuation and level of disclosures in
-
a financial statement. Therefore, these two features are most often employed when
conducting research regarding intercultural comparability of financial statements (e.g.

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Eddie, 1990; Salter, 1995; Schultz and Lopez, 2001; Rezazedeh, 2002; Doupnik and
Richter, 2003, 2004; Doupnik and Tsakumis, 2004; Doupnik and Riccio, 2006).
It can be assumed that accountants and auditors from countries with a high degree
op
of conservatism will be characterized by a more careful approach to interpretation of

standards requiring subjective judgments to be made. On the other hand, those from
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countries with a high degree of secrecy will be inclined to disclose a limited quantity
of information in a financial statement. The manner of interpretation will be verified
by studying how accountants and auditors approach verbal probability expressions
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included in the following IFRS:

1) IAS 11 – Construction Contracts,
2) IAS 12 – Income Taxes,
3) IAS 17 – Leases,
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4) IAS 18 – Revenue,
5) IAS 36 – Impairment of Assets,
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6) IAS 37 – Provisions, Contingent Liabilities and Contingent Assets.

In the standards mentioned above, an assumed limit of probability resulting in the
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obligation of disclosure or determining the limit of measurement is expressed with the
following expressions:
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1) „it is probable” (IAS 11, par. 23 and 36; IAS 12, par. 34; IAS 18, par. 22; IAS 36,
dis
par. 12; IAS 37, par. 14, 34),
2) „it is remote” (IAS 37, par. 28),
3) „reasonable certainty” (IAS 17, par. 27).
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Such expressions are used when determining a limit resulting in an obligation to
both recognize a given item and make appropriate disclosures in a financial statement.
For example, in IAS 37, the expression „it is probable” was used when establishing
on
a limit resulting in an obligation to create a provision, and the expression „it is remote”
– with regard to the obligation of disclosures in the additional information in the field
-
of contingent liabilities.
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These expressions will be grouped into the three following sets presented in Table 4.
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Table 4. Probability expressions in interpretation of assorted IFRS
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IAS/IFRS Paragraph Probability expressions
1. Resulting in measurement of items increasing the financial result
IAS 11 23 it is probable
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IAS 17 27 reasonable certainty
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2. Resulting in measurement of items decreasing the financial result

for
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3. Resulting in making of disclosures in the financial statement

IAS 37 28 it is remote
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Source: own study.

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These expressions are used to determine a limit for the recognition of items result-
ing in an increase in the financial result (e.g. IAS 18 prescribes that the revenue from
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sale of goods be recognized when it is probable that the economic benefits associated
with the transaction will flow to the entity) or its decrease (e.g. IAS 11 requires the
expected loss to be recognized when it is probable that total contract costs will exceed
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total contract revenue).

Therefore, the task of accountants and auditors covered by the survey will be to
determine numerically the degree of probability, using a scale of values between 0%
and 100%. Because such expressions are used for measuring various items, the level
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of conservatism of auditors and accountants from different countries should influence
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their manner of interpretation.

Moreover, probability description is used when determining a limit resulting in an
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obligation to make disclosures in a financial statement, therefore the degree of secre-
cy characterizing accountants and auditors should also influence the interpretation of
these phrases.
tr
This corresponds to the main hypothesis, which says:
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Polish auditors and accountants interpreting the IFRS prefer a more con-
servative approach when making subjective judgments, and are characterized
by a higher degree of secrecy at evaluation of disclosures, as compared with ac-
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countants and auditors from Germany and Great Britain.
It is developed into the following statements:
1) accountants and auditors from countries with a high degree of conservatism will
on
determine numerically a higher probability threshold for events resulting in recog-
nition of items increasing the financial result;
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2) accountants and auditors from countries with a high degree of conservatism will
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determine numerically a lower probability threshold for events resulting in recog-

nition of items decreasing the financial result;
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3) accountants and auditors from countries with a higher degree of secrecy will estab-
lish a higher probability threshold for events requiring a disclosure in a financial
na
statement.
The legitimacy of the assumptions results from the output of Gray’s theory of ac-
rso
counting subculture dimensions described in chapter 2, according to which (Gray,

1988; Radebaugh and Gray, 2002):
1) a higher national rank of uncertainty avoidance and long-term orientation, as well
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as a lower rank of individualism and masculinity, will probably determine a higher

national rank of conservatism (whereas uncertainty avoidance and long-term ori-
for
entation are regarded as the most significant features);

-
2) a higher national rank of uncertainty avoidance, long-term orientation and power

distance, as well as a lower rank of individualism and masculinity, will probably

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determine a higher national rank of secrecy.

In view of the fact that, compared with Germany and Great Britain, Poland is at-
tributed with a higher index of uncertainty avoidance, long-term orientation and pow-
op
er distance, as well as a lower index of individualism and masculinity (Figure 2), it

can be assumed that Polish accountants and auditors will be more conservative and
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inclined towards secrecy than German and British ones.

The research material will consist of four parts:
1) an instruction for filling in the questionnaire,
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2) a collection of fragments from assorted IFRS, containing verbal expressions of

probability determining a limit resulting in an obligation to valuate a given item
and make appropriate disclosures in a financial statement,
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3) Hofstede’s values survey module (VSM)7,
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4) demographic data of the surveyed persons (such as gender, descent, professional

experience in years, occupied position, degree of knowledge of the IFRS and their
application in the professional practice).
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Figure 2. Poland against the background of Germany and Great Britain – Hofstede’s
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cultural dimensions
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100
90
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80
70
60
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Poland
50
Germany
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40
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Great Britain
30
20
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10
0
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power individualism masculinity uncertainty long term

distance avoidance orientation
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Source: own study on the basis of Hofstede, http://geerthofstede.nl/dimension-data-matrix (access: 8 January

2014).
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Each part of the questionnaire prepared for a given research group will have an
identical layout and order.
The Polish version of the materials will be submitted to accountants from stock
for
exchange listed companies using the IFRS and to auditors actively practising their
-
profession.
The English version will be sent to accountants and auditors associated in profes-
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sional organizations, such as the Association of Chartered Certified Accountants

(ACCA), the Institute of Chartered Accountants in England and Wales (ICAEW), and
the German version to ones associated in the Accountants Group in Germany
op
(AGiG), or Auditor Oversight Commission (AOC).

It is assumed the research sample will include approximately 100 units in the case
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of accountants and 100 units in the case of auditors in each of the surveyed countries.
7
The Polish-language version of Hofstede’s values survey module (VSM) is available at
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http://www.geerthofstede.nl/vsm-08. This version will be translated into English and a subsequent com-
parison of the English-language original version by Hofstede will be made in order to ensure the quality
of translation of the non-original version. The same procedure will be conducted with regard to the Ger-
man-language version of Hofstede’s survey module (VSM). Such mode of procedure is suggested by
-
Hofstede, http://www.geerthofstede.nl/vsm-08.
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The survey will include fragments of the IFRS published by:
1) The Accountant Association in Poland – being the only official translation of the
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International Financial Reporting Standards of the International Accounting

Standards Board – for the Polish version of the questionnaire,
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2) Fidacta GmbH – the official German translation – for the German version of the
questionnaire,
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3) The IFRS Foundation – for the English version of the questionnaire.
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Although Hofstede argues that cultural values do not change over time, nobody so
far has conducted complex research which would allow this hypothesis to be verified
(Doupnik and Riccio, 2006, p. 246).
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Moreover, Hofstede conducted his survey among IBM employees, the majority of
whom were not accountants, therefore it is hard to evaluate conclusively how much
the values of individual cultural dimension indexes determined for IBM employees
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apply to the environment of accountants and auditors (Doupnik and Riccio, 2006, p.
245). Therefore, to make sure whether accountants and auditors from Poland differ
-
from accountants and auditors from Germany and Great Britain in the manner deter-
se
mined by Hofstede, it was decided that the survey questionnaire should be accompa-
nied by Hofstede’s values survey module (VSM).
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The comparative analysis of the surveyed countries will be divided into two parts
concerning:
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1) Poland and Germany,

2) Poland and Great Britain.
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Each of these parts will include a comparison of the total group of accountants and
auditors from Poland with a full group of accountants and auditors from Germany and
Great Britain (depending on the compared countries).
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4. Significance of the project

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If the research hypotheses are confirmed, this would mean that:

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1) when making decisions on the basis of information included in a financial state-

ment, one should take into account not only numerical data but also the account-
ants’ and auditors’ tendency towards secrecy and conservatism;
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2) preparing the Polish accounting act, which absorbs international regulations, and
making a comparison of achievements presented in reports of Polish enterprises
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compared with the results disclosed in statements of German and British compa-
nies, one should keep in mind the cultural context, especially various relations to
secrecy and conservatism, typical to Polish accountants and auditors. Such state-
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ments cannot be compared directly, despite being prepared on the basis of identi-
cal regulations;
3) the very idea of harmonization will be questioned. On the global scale, standardi-
zation of regulations will not be enough to achieve the final effect in the form of
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comparability of financial statements. It should inspire a search for an answer to
the question what harmonization should aim at – whether limitation of the field of
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choice, greater precision in formulating regulations, or rather regarding the IFRS

as merely a point of departure with a possibility for enterprises to use national
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standards, taking into account the cultural roots of the regulations.
If the research hypotheses are negatively verified, it may mean that:
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1) the cultural values of accounting have changed over time, therefore Hofstede’s and
Gray’s theories are not current anymore, or
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2) in modern times, cultural differences between the surveyed countries have no im-
pact on interpreting the IFRS, therefore this factor should not interfere with the
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process of accounting harmonization in Poland, Germany and Great Britain.
From a practical point of view, the obtained results may contradict the thesis that
a globally uniform balance law can be fully adopted in diverse cultural environments,
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which should translate into quality improvement and full comparability of financial
statements.
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The structure of many international standards requires estimations to be made,
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which forces subjective judgments to be made. As Gierusz indicates (2010, p. 8),

„one of the attributes of modern accounting is the departure from historic costs in
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favour of fair value, therefore there are increasingly more estimations, predictions and
prognoses in accounting”. Currently, „it is not external source documents but people’s
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own estimations which often decide on the presence of a given item in a financial
statement” (Gierusz, 2010, p. 247).
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On the one hand, such a situation requires accountants to have very high qualifica-
tions and competences, yet on the other hand, such judgments will not always have an
identical, universal dimension. In practice, this means that the principles determined
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in the IFRS will not be uniformly applied in all possible cases. With such a back-
ground, the subject matter of cultural conditioning and its impact on the manner of
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interpreting the IFRS gains special significance.

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Conclusions
According to recent research, the development of accounting is shaped by a number

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of environmental factors, among which culture is regarded as the most important one
(Noravesh et al., 2007, p. 254). According to Noravesh et al. (2007, p. 254) the study
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of cultural conditioning, indicating that accounting cannot be treated as a strictly

technical discipline, have certainly enriched this science. As Perera remarked (1989,
pp. 42–43) „although the technical aspect of accounting is less culture-dependent than
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the human aspect, because the two interact, accounting cannot be culture-free”.
On the one hand, the theories of Hofstede’s cultural value dimensions and Gray’s
accounting subculture, as well as empirical research aimed to verify them, contribute to
a better understanding of all determinants of the individualized shape of the accounting
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practice, while on the other hand they constitute an attempt to recognize challenges
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formulated towards accounting through processes of its harmonization and standardi-

zation, implemented in a diversified cultural environment. The research project pre-
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sented in this article questions the very idea of harmonization and standardization and
induces reflection on the universality of the IFRS as a system possible to be adopted
on the global scale, ensuring a high quality of financial statements.
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One of the reasons for a country to adopt IFRS is because of the requirement of
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business entities to publish clearly understandable and standardized financial state-
ments. This standardization across borders is one essential condition, however, coun-
tries that adopt IFRS need to be aware of the necessity for consistent interpretation of
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this single set of standards.
The presented project could find that a specific nationality results in differences in
probabilities assigned to probability expressions used in IFRS. This is because ac-
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countants and auditors in different countries interpret differently uncertainty expres-
sions that need personal judgments. Furthermore, this could result in accountants
-
making different decisions in applying IFRS, and in this way the comparability of
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financial statements within countries would suffer. Additionally, it would obviously

affect the usefulness of these reports.
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Any insight into the impact of culture on accounting makes important contribu-
tions to the international accounting literature. The Polish research covered by the
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presented project will be the first attempt at an empirical verification of both the hy-
pothesis on the interpretation of the IFRS in Poland and the broadly defined cultural
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conditioning in the field of accountancy. This should open a completely new area of
interdisciplinary research – the link between accounting and culture. We also hope
that it will raise the debate about the cultural relevance hypothesis in Polish account-
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ing literature to one based upon a more empirical approach.

for
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Acknowledgements
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The project has been funded by the National Science Centre, Decision no. DEC-2012/07/B/HS4/03012.
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Summary
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The problem of the impact of culture on interpreting financial reporting standards has taken on special
significance in the currently ongoing process of accounting harmonization, aimed at creating a uniform
system of solutions on a worldwide scale. Having realized the impact of cultural differences on the eco-
op
nomic life, it is easier to understand what a complex and difficult process it may be, regarding the fact
that harmonization did not choose the way of compromise but constitutes an attempt to impose one view-
point – an Anglo-American one – on the entire world. Therefore it is important to find an answer to the
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question whether the accounting regulations based on the Anglo-American tradition would in fact be
fully applicable in various cultural areas. The primary objective of this article is to illustrate the research
project that is currently being carried out by the Department of Accounting at the University of Gdańsk:
The Impact of Culture on Interpreting International Financial Reporting Standards in Poland – A Com-
Th
parative Analysis with Germany and Great Britain. We present adopted goals, hypotheses, the research
methods and the significance of the project. We also discuss the basic theoretical framework of the influ-
ence of culture on accounting and provide a brief review of the international literature of empirical as-
sessment of Hofstede’s and Gray’s theories. The research covered by the presented project will be the
-
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first attempt at an empirical verification of both the hypothesis on the interpretation of the IFRS in Poland
and the broadly defined cultural conditioning in the field of accountancy.
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Keywords: culture, accounting, IFRS.
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Streszczenie
Wpływ uwarunkowań kulturowych na interpretację Międzynarodowych Standardów Sprawoz-
tr
dawczości Finansowej. Analiza porównawcza na tle Niemiec i Wielkiej Brytanii
dis
Problem wpływu różnic kulturowych na interpretację MSSF nabrał szczególnego znaczenia w trwającym
obecnie procesie harmonizacji rachunkowości, zmierzającym do stworzenia jednolitego systemu rozwią-
zań w skali świata. Mając świadomość oddziaływania tych czynników na życie gospodarcze, łatwiej
zrozumieć, jak złożonym i trudnym jest on zadaniem, tym bardziej że harmonizacja nie poszła drogą
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kompromisu, lecz stanowi próbę narzucenia całemu światu jednego punktu widzenia – angloamerykań-
skiego. Istotne jest zatem uzyskanie odpowiedzi na pytanie, czy regulacje rachunkowości oparte na tra-
dycji angloamerykańskiej rzeczywiście będzie można w pełni zastosować w różnych kręgach kulturo-
on
wych. Głównym celem niniejszego artykułu jest prezentacja projektu badawczego realizowanego obecnie
w Katedrze Rachunkowości Uniwersytetu Gdańskiego pt. Wpływ uwarunkowań kulturowych na interpre-
-
tację Międzynarodowych Standardów Sprawozdawczości Finansowej. Analiza porównawcza na tle Nie-
se
miec oraz Wielkiej Brytanii. Omawia się przyjęte cele, hipotezy oraz metody badawcze, a także znaczenie
podjętych prac. W opracowaniu przedstawia się również syntetyczny przegląd zagranicznych badań
dotyczących empirycznej weryfikacji teorii sformułowanych przez Hofstede i Graya. Przedmiotowy
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projekt stanowi pierwszą próbę empirycznej weryfikacji nie tylko hipotez dotyczących interpretacji
MSSF w Polsce, lecz również szeroko pojętych uwarunkowań kulturowych naszej rachunkowości.
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Słowa kluczowe: kultura, rachunkowość, MSSF.

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The impact of culture on interpreting International Financial Reporting

Article in Zeszyty Teoretyczne Rachunkowości · September 2014

Katarzyna Kolesnik Sylwia Silska - Gembka

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The impact of culture on interpreting International

harmonization, aimed at the creation of a uniform system of solutions on a worldwide

scale. The establishment of supranational organizations and enterprises has compli-

Europe, including Poland1.

regulations based on the Anglo-American tradition would in fact be fully applicable

Department of Accounting, e-mail: katarzynakolesnik@wp.pl

nancial statements in accordance with the IFRS.

what the IFRS bring.

In this context, the problem of interpreting identical accounting standards by ac-

provide a brief review of the international literature of empirical assessment of the

which national accounting standards function.

the broadly defined cultural conditioning in the field of accountancy.

and Gray’s models

individualism, unlike collectivism, applies to societies with loose bonds between

roles of both genders is a characteristic of „feminine” societies. Therefore, in pre-

dominantly masculine societies, such as the US or Germany, achievement of pure-

acterized by their opposition to thrift and frugality, while a consumption approach

3) conservatism vs. optimism – representing a careful approach to the value meas-

an alternative for transparency and the wide extent of disclosures.

opment of the accounting systems in selected countries. In these analyses he proposed

H1: Professionalism vs. statutory control

Hofstede’s cultural dimensions

Conservatism No relationship Negative Negative Positive

Source: adapted from Gray (1988, pp. 9–11).

Therefore, a wider extent of disclosures would characterize countries tending to avoid

more inclined towards secrecy and partially also towards conservatism.

into account in the study of accounting.

researchers were attempts at their practical verification, implemented in various coun-

X x Germany, USA influences the interpretation of verbal

Bilewicz, 2007; Borkowska, 2007; Sorokowski, 2010) and intercultural management

(including Sułkowski, 2002).

3. Research project presentation

Taking into account the significance of research concerning cultural conditioning of

ysis with Germany and Great Britain.

Hofstede’s Gray's features

dimensions of of the accounting

Source: own study.

compared with Germany and Great Britain?

shaped the previously used national accounting standards?

conditioning, especially conservatism and secrecy, on subjective judgments made by

As mentioned in Chapter 2, on the basis of the identified relations, Gray has

as the applied principles of valuation and extent of disclosed reporting information.

Source: own study on the basis of Gray (1988, p. 13).

According to Gray’s classification, Anglo-American countries are characterized

clination towards the Anglo-American tradition.

conducting research regarding intercultural comparability of financial statements (e.g.

of conservatism will be characterized by a more careful approach to interpretation of

included in the following IFRS:

6) IAS 37 – Provisions, Contingent Liabilities and Contingent Assets.

In the standards mentioned above, an assumed limit of probability resulting in the

2. Resulting in measurement of items decreasing the financial result

3. Resulting in making of disclosures in the financial statement

Source: own study.

total contract revenue).