Part I,II,& III please
Case 21 The Impact of Culture on Conservatism PART I The framework created by Professor Sidney Gray in 1988 to explain the development of a country's accounting system is presented in the chapter in Exhibit 2.6. Gray theorized that cul- ture has an impact on a country's accounting system through its influence on accounting values. Focusing on that part of a country's accounting system comprised of financial reporting rules and practices, the model can be visualized as follows: In short, cultural values shared by members of a society influence the accounting values shared by members of the accounting subculture. The shared values of the accounting subculture in turn affect the financial reporting rules and practices found within a country. With respect to the accounting value of conservatism, Gray hypothesized that the higher a country ranks on the cultural dimensions of uncertainty avoidance and long-term orientation, and the lower it ranks in terms of individualism and masculinity, then the more likely it is to rank highly in terms of conservatism. Conservatism is a preference for a cautious approach to measurement. Conservatism is manifested in a country's accounting system through a tendency to defer recognition of assets and items that increase net income and a tendency to accelerate the recognition of liabilities and items that decrease net income. One example of conservatism in practice would be a rule that requires an unrealized contingent liability to be recognized when it is probable that an outflow of future resources will arise but that does not allow the recognition of an unrealized contingent asset under any circumstances. Required: Discuss the implications for the global convergence of financial reporting standards raised by Gray's model. PART II Although Gray's model relates cultural values to the accounting value of conservatism as it is embodied in a country's financial reporting rules, it can be argued that the model is equally applicable to the manner in which a country's accountants apply those rules: Required: Discuss the implications this argument has for the comparability of financial statements across countries, even in an environment of substantial international accounting convergence. Identify areas in which differences in cultural dimensions across countries could lead to differences in the application of financial reporting rules. PART III Cancan Enterprises Inc. is a Canadian-based company with subsidiaries located in Brazil, Korea, and Sweden. (Hofstede's cultural dimension index scores for these countries are presented in Exercise 4.) Cancan Enterprises must apply IFRS worldwide in preparing consolidated financial statements. Cancan has developed a corporate accounting manual that prescribes the accounting policies based on IFRS that are to be applied by all the company's operations. Each year Cancan's internal auditors have the responsibility of ensuring that the company's accounting policies have been applied consistently companywide. Required: Discuss the implications that the model presented in Part II of this case has for the internal auditors of Cancan Enterprises in carrying out their responsibilities
