Culture Accounting Help

Think of culture as the mental ll,.1illdsetthat affects the way individuals in a society act and perceive each other’s actions .I U.S. cultural practices have significant effects on the way foreign companies conduct business in the United States. Likewise, certain forms

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of advertising, methods of acquiring business; and hierarchical organizational structures, which are common practices in the United States, would not be acceptable in some international settings. Cultural differences mandate that companies wishing to do business
in diverse cultural settings invest in training for their current employees, hire new employees with cultural expertise, or, more often, both. Ignoring cultural variables can create significant business problems. . Experts on culture have identified several significant variables that differ among international locations ..Those that have significant implications for accounting production and ,use include the following: .

• Individualism versus collectivism. The degree of interdependence that a society maintains among individuals, where high interdependence connotes collectivism. Asian countries are typically considered to score higher on collectivism than the United States. .
• Uncertainty avoidance. The extent to which members of a society feel uncomfortable or threatened by unknown or uncertain situations
• ‘ Short- versus long-term orientation. With a long-temi orientation, perseverance; thriftiness, maintaining order, and lasting relationships are highly valued. A short-term orientation focuses on the past and the present, ignores the future, and values personal
stB:bility.,

• Large versus small power distance. Large power distance cultures accept unequally distributed power within and across institutions and organizations, The idea that everyone  is created equal or should have an equal voice is more highly valued in small power distance societies.

The table below provides a rough measure of the relative differences between selected countries.We can use the above table to understand how cultural variables can affect both the  .type of accounting information that can be produced and how that information is used.

For example, compare the rankings for Asian and South American countries (Japan, South Korea, and Brazil) with European and North American countries (Germany, Great Britain, and United States).

The Asian and South American countries have generally higher rankings on long-term orientation, uncertainty avoidance, and power distance, but lower rankings on individualism.

As discussed earlier, Asian countries such as South Korea and Japan have collectivist types of industrial organizations called chaebol and keiretsu. Studies have’ shown that these collectivist types of businesses result in less emphasis being placed on the importance of control. Thus, for example, the budgeting process in collectivist countries is primarily focused on planning with very little attention on budgeting for control. The because the collectivist approach motivates ’employees to meet the budget.

Cultural differences pose significant problems regarding the design and administration of accounting systems. A budgeting system that is effective for a British subsidiary , may be inappropriate and demotivating for an Asian subsidiary. Even within countries, there are highly diverse’grou{ls interms of religion, ethnic groups, language. and income level. These differences have implications for effective business management. For example the name Coca-Cola in China was first rendered as Ke-kou-ke-la. After thousands of signs had been printed, the Coca-Cola Company discovered the phrase means “Bite the wax tadpole” or “Female horse stuffed with wax,” depending on th~ dialect! Technology and Infrastructure Training and educational differences further complicate global business through variation in the infrastructure, educational level, and ability to transfer information and knowledge between and among various geographic locations and peoples.

These differences , can create significant barriersjo successful international operations. Thus companies that create joint ventures or start wholly owned operations in sorrie foreign locations find few
employees with the education and technical training available in the U~S. workforce.More specifically, because companies in formerly planned economies used centrally determined accouatsand procedures. accounting as a profession did not exist in Eastern Europe prior to 1988.

Thus companies establishing business operations in. Eastern European locations have difficulty locating trained management accounting personnel and.  as a result, prior business records are unreliable. Prior to the early 1990s, there were no independent auditors, public accountants. or management accountants in most Eastern European countries.

Differences in internal accounting systems can” also create problems in international business dealings, particularly when one organization acquires or creates a joint-venture with another.

Accounting information is critical for understanding how a business operates, for planning and coordination, and is one of the main functions of accountants. Cultural, educational,~ language, and software differences hinder the free flow of information. Potential benefits from acquired international operations are sometimes lost because of the inability to transfer valuable information within and between international companies.Infrastructure impediments also pose problems for globalization. Poor access to communication equipment (for example, telephone s, faxes. and computers). necessary R&D facilities (for example. specialized laboratory equipment. computer-aided design or manufacturing), and fluctuating or unreliable pow er sources create significant hurdles to establishing international business in some locations.

For example. plants in many developing countries are not heated or cooled. which can create adverse operating environments for equipment that’ relies on lubricants arid coolants. Inadequate transportation systems can slow.the transfer of goods in and out of an international location.

Accountants. who estimate costs for inventory balance sheet items or cost of goods sold. need to incorporate these unexpected costs into their computations to properly compute the cost of exported products .. 12

Posted on November 23, 2015 in Global Business and Accounting

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