Ritically discuss the influences from outside accounting which have affected the development of financial reporting in various countries.
(a) Discuss the influences exerted on accounting by political systems, legal systems, taxation and providers of finance.
(b) Critically consider the arguments for and against theories of the influence of culture on accounting.
outline of Hofstede; criticisms of Hofstede; application by Gray; discussion of more direct influences, including law, financing and tax. In addition, mention the vital point that most countries have inherited their accounting system from elsewhere through colonial influence (or sometimes invasions).
There was a tendency to conflate law, financing and tax. Strong equity markets probably cause accounting to be separated from tax. Common law systems tend to encourage strong equity markets. However, there are several Roman law countries with Class A accounting (shareholder-driven, not influenced by tax). The Netherlands (Roman law) had the worldi??s first stock exchange and (much later) an independent standard-setter. There are several common law countries (e.g. in Africa) with no stock exchanges.
In weak-equity countries, tax is often the most important use of accounting. So the law requires tax numbers to be based on accounting numbers. In such countries (and all others), the state sets a maximum depreciation amount, and companies nearly always choose the maximum. In tax-dominated countries, this amount has to be charged in financial statements, in order to make it tax deductible. In other countries (e.g. UK), accountants charge a smaller commercial/fair amount in the financial statements.