Belkaoui (1985) presented the most important determinants of national differences in international accounting and by presenting an international accounting contingency framework to explain these differences. He considered that the determinants and main elements of the framework include “Cultural relativism, linguistic relativism, political and civil relativism, economic and demographic relativism, and legal and tax relativism”.
Cultural Relativism “refers to the need to judge any behavior in terms of its own cultural contract, and not from another cultural context. Applied to accounting, cultural relativism rests on the fundamental assumption that accounting concepts in any given country are as unique as any other cultural traits. Thus the study of cultural issues, cross-cultural research, and their impact on accounting research is fundamental to an understanding of the determinants of national differences in international accounting” (Belkaoui, 1985:29).
Linguistic-relativism refers to language as a mediator and shaper of the environment. Applied to accounting, this would imply that “accounting language may predispose ’user’ to a given method of perception and behavior. Furthermore, the affiliation of users with different professional organizations or communities with their distinct interaction networks may create different accounting language repertories” (Belkaoui, 1985:41).
Being called the language of business, accounting has (1) ‘meaningful’ units of words, such as numerals and words, and debits and credits, as the only symbols respectively accepted and unique to the accounting discipline; (2) the grammatical rules, for example, the general set of procedures used for the creation of all financial data for the business. Belkaoui argued, “accounting is language and, according to the Sapir-Whorf hypothesis, its lexical characteristics and grammatical rules will affect the linguistic and non-linguistic behavior of users” (Belkaoui, 1978:41). He introduced four propositions derived from the linguistic-relativism paradigm to conceptually integrate research findings on the impact of accounting information on the user’s behavior. The propositions include:
1. The user that makes certain lexical distinctions in accounting are enabled to talk and/or solve problems that cannot be solved by users that do not；
2. The user that makes certain lexical distinctions in accounting are enabled to perform (non-linguistic) tasks more rapidly or more completely than those users that do not；
3. The user that possesses the accounting (grammatical) rules are predisposed to different managerial styles or emphasis than those that do not；
4. The accounting techniques may tend to facilitate or tender more difficult various (non-linguistic) managerial behaviors on the part of users.
Using a “socio-linguistic thesis”, Belkaoui (1980) empirically showed that various affiliations in accounting created different linguistic repertories or codes for intra/inter-group communications:
“Political and Civil Relativism refers to the need to judge any behavior in terms of its own political and civil context and not from any other context. Applied to accounting, political and civil relativism rests on the foundational assumption that accounting concepts in any given country rest on the political and civil context of that country” (Belkaoui, 1985:42).
The political freedom of a country is conceived to be important to the development of accounting in general and reporting and disclosure in particular, as when people cannot choose the members of a government or influence government policies, they are less likely to be able to create an accounting profession based on the principle of full and fair disclosure. The relationship between accounting freedom to report or to disclose and political freedom is negative.
“Economic and Demographic Relativism refers to the need to judge any behavior in terms of its own economic and demographic context. Applied to accounting, economic and demographic relativism rests on the fundamental assumption that accounting concepts in any given country rest on the economic and demographic context of that country” (Belkaoui, 1985:44). Belkaoui made several deductions that “the economic environment is important to the development of accounting in general and reporting and disclosure in particular.” “The higher the level and growth of income, the higher the political and economic freedom and the better the adequacy of reporting and disclosure.” ”The higher the level of government expenditures, the higher the level of disclosure.” “The higher the level of exports and imports, the higher the need for better reporting and disclosure.” “The larger the population, the higher the number of people to be interested in the accounting profession, and the greater the need for a well-developed accounting profession and the need for full and fair disclosure” (Belkaoui, 1985:46,47).
“Legal and Tax Relativism refers to the need to judge any behavior in terms of its own legal and tax context. Applied to accounting, legal and tax relativism rests on the fundamental assumption that accounting concepts in any given country rest on the legal and tax context of that country” (Belkaoui, 1985:48). Different countries have different legal systems, such as civil law and the common law, and this may determine whether or not there will be different accounting systems. As a matter of fact, some countries rely completely on the legalistic approach, thus accounting has effectively become a process of compliance with the laws of the country. Also, different countries have different national tax systems, which define most directly and most frequently the conduct of business and hence the practice of accounting.
Belkaoui’s classification later was argued for the relevance of the linguistic with accounting by Nobes.
Except for the deductive method mentioned above, some researchers also used the inductive approach to classify international accounting. For example, Da Costa, Bougeois and Lawson’s (1978) empirical classification by using Price Waterhouse Survey data; Frank’s (1979) analysis, and Nair and Frank’s (1980) grouping. For the latter it seems a little irrelevant with the author’s aim, so it will not be discussed further.
The literature review shows that the international accounting classification is still in its early stage, even studies look at systematic differences, there is still an issue in terms of the influence of individual thinkers on accounting in particular jurisdictions, and there are also different points of view for the influential factors’ effect on accounting development. In addition, as environment is always on a state of flux, a dominant factor at one time may change into a weak one to a country’s accounting development with the change of the country’s circumstance. Therefore the classification of international accounting may also be in a state of flux. For example, the adopting the IAS of EU listing company by 2005, may result in some changes of national accounting regulation within EU members, and may also cause some changes on international accounting classification.
In fact, with social and economic development, the environmental influential factors, which may play the leading role on accounting at one time, may also change with the evolution of the society. Besides, there is still a need to consider all the environmental factors when analyzing a country’s accounting.
In this thesis the author means not to make more comments on the classifications of international accounting, but to find the dominant influential factors on national accounting development. By far factors recognized as the important environmental factors by the researchers can be summarized as following, shown in table 2-1.
It is generally accepted in international accounting research that accounting objectives, standards, policies, and techniques reflect the particular environment of the standards-setting body. The section below will examine how some of the environmental characteristics of a country affect the way of a country’s accounting development and its practice.