A CRITICAL REVIEW OF TESTS OF GRAY'S THEORY OF CULTURAL RELEVANCE AND SUGGESTIONS FOR FUTURE RESEARCH

10 INTRODUCTION

Culture is considered to be a powerful environmental factor that affects the accounting combination of parts to form a whole of a country as well as in what manner individuals perceive and use accounting information. Previous literature has argued that accounting is determined by the agency of culture [Violet, 1983], and that the lack of consensus in accounting practices between countries is because their design is cultural rather than technical [Hofstede 1986] Arguments like these have l to the notion that the tillage of a country influences its choice of accounting techniques.

There are three predominant areas in which the influence of tillage on accounting has been studied: 1 financial reporting, 2 auditors' prudences and attitudes, and 3. management superintendence systems.1 This paper focuses upon the literature relating culture to global diversity in financial reporting.

Based upon Hofstede's [1980] model for the formation and stabilizing of agriculture patterns, Gray [1988] develops a framework to explain in what manner culture affects national accounting a whole s In brief, Gray argues that shared cultural values within a land lead to shared accounting values, which in make go round influences the nature of a nation's accounting a whole Gray develops four specific hypotheses with look up to to the relationship between tillage and accounting values.

Chanchani and MacGregor [1999] provide a chronological summary of the literature relating agriculture and financial reporting, dividing these studies into 1 the Pre-Gray (1988) Literature, 2 Gray's (1988) Theory of Cultural Relevance, and 3 the Post-Gray (1988) Literature. Their emphasis is upon the conceptual developments in this area (1 and 2) with limited discussion of the related empirical research.

The objective of this paper is to build on the summary begun by Chanchani and MacGregor [1999] to determine the popular state of knowledge and provide a guide for time to come research. We constrain our tendency to those studies that have attempted to empirically proof Gray's theory of cultural relevance. We categorize the research questions investigated and critically evaluate the methodologies used to do in the way that We attempt to determine whether the framework has been controled to adequate empirical inquiry in the way that as to "prove" its validity. We bring to an end in the negative and we generate a number of suggestions for subsequent time research. We also formalize a partial refinement of Gray's cultural accounting framework to act as a guide to futurity research. Specifically, we suggest that coming time research should focus on the implications of Gray's framework for individual accountants' behavior with have a high opinion of to application of financial reporting rules

This paper is organized as tread in the steps ofs In section 2, we explain the practical importance of research that examines the influence of agriculture on financial reporting. section 3 describes general theoretical frameworks of accounting exhibition and explains why these frameworks are inadequate for empirical testing. We then describe Hofstede's cultural framework in section 4 This is the cultural framework used predominantly in accounting research. section 5 introduces Gray's theoretical archetype of the influence of tillage on financial reporting. The primary objective of this paper is achieved in section 6 where we review the empirical studies examining the relationship between agriculture and financial reporting in the words immediately preceding [i]or[/i] following of Gray's framework. These studies are divided into those that use countries and those that use individual accountants as the unit of analysis. section 7 provides suggestions for coming time research. We note the areas that have not still been subjected to sufficient empirical testing, and we tender that future research concentrate upon individual level studies using an experimental approach. The final section at hands conclusions.

2.0 IMPORTANCE OF STUDYBVG THE RELATIONSHIP BETWEEN agriculture AND FINANCIAL REPORTING

The AAA Cultural Studies Committee proposes that there are six reasons to management cross-cultural research in accounting [AAA, 1991] The first sum of two units appear to be particularly relevant for financial reporting. The first reason cited by means of the Committee is to establish the boundary conditions for accounting protoplasts and theories. In the adjoining matter of financial reporting, the important question is whether financial reporting designs and practices are universal or if their international applicability is constrained by dint of differences in culture. For example, is the notion of "relevance" as a primary accounting quality universally applicable across countries? The next to the first reason is to evaluate the impact of cultural factors upon behavior in accounting contexts. The Committee distinguishes between cross-cultural research aimed at proving the cross-cultural generality of phenomena, and studies where differences have been predicted upon theoretical grounds.

Existing cross-country diversity in financial reporting has negative implications for the globalization of capital markets. It acts as a barrier for companies to gain access to foreign capital markets and increases the require to be paid [i]or[/i] undergone to investors of adding foreign companies to their investment portfolios [Choi and Levich, 1991] Efforts to restore this diversity and harmonize financial reporting internationally have been underway for more than four decades [Choi, et al., 2002]