Economics, Culture, and Accounting Standards: A Case Study of Greece and Canada

Abstract

Abstract Environmental factors cause differences in accounting standards between countries. We advance six hypotheses about cultural and economic effects that provide predictions of the accounting systems that should prevail in different environments. We illuminate these hypotheses empirically with a case study of Greece and Canada at the time of the implementation of the Fourth Directive of the EC in Greece. Greek accounting standards changed greatly from 1986 to 1988, while Canadian standards remained essentially the same. As expected, the differences in accounting standards are related to modes of regulation, separation of ownership and management, complexity of industrial organization, prevalent financing methods, and the cultural characteristics of power distance, uncertainty avoidance, and individualism. The international accounting community is working towards the goal of international harmonization of accounting standards, and a substantial literature on the topic has appeared in both professional and academic journals. The pace of change is slow because few countries are willing to abandon their preferred set of standards in the interests of a common set. McComb (1979) summarizes the problem: In so far as certain technical standards could be agreed upon internationally, there is no doubt this would make the restatement process easier. However, the case for the harmonization process goes more deeply than that and ultimately involves unified accounting objectives. It is only if accounting models based upon such objectives are compatible with one another that there is any real prospect of arriving at meaningful common standards. If any two national accounting models are irreconcilable, then either one or both must be fundamentally changed if common standards are assumed to be a primary goal (p. 2). We look more deeply into this question, and advance three economic hypotheses and three cultural hypotheses relating accounting systems to national environments. We investigate the hypotheses with a case study of the accounting standards, practice, and regulation of Greece and Canada. The case study method is more appropriate for a topic like this with its complex mixture of qualitative factors (see Yin, 1994, for a discussion of issues related to case study methodology). We look at accounting principles in Canada and Greece prior to and after the adoption of the Fourth Directive in 1987. We choose this particular time period because the Fourth Directive is a milestone in the European Community's development of a common basis for accounting. Greek accounting principles changed significantly, while Canadian standards did not. We illustrate the differences between the two countries and the two periods with specific examples. The next three sections develop the hypotheses relating accounting systems to economic and cultural factors. Then we compare the economic and culture environment of Canada and Greece. The accounting systems both before and after the Fourth Directive are compared, and finally we test our hypotheses using the information in the previous sections. Why Are Accounting Standards Different? The accounting literature recognizes that differences between accounting standards of different countries are due to environmental factors. Mueller (1968), the pioneer in this literature, identifies environmental circumstances affecting the national determination of accounting standards: currency stability, legislation and shades of political persuasion, separation of ownership and control, management sophistication, size and complexity of firms, speed of innovation, economic development, and education. Nobes (1984) develops a complex scheme that characterizes accounting principles like a biological classification. For example, measurement class can be either microbased or macrobased. There are two families in the microbased class: business economics/theory and business practice-pragmatic, British origin. …