The Effects of National Culture on Financial Statement Comparability: A Survey of Research Findings

• Author: Gregory L. Prescott,Carol E. Vann
• Published date: 01 September 2015
• DOI: http://doi.org/10.1002/jcaf.22078
• Date: 01 September 2015

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© 2015 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI 10.1002/jcaf.22078

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The Effects of National Culture on

Financial Statement Comparability:

ASurvey of Research Findings

Gregory L. Prescott and Carol E. Vann

INTRODUCTION

One of the stated

benefits of imple-

menting a single set

of high‐quality global

financial account-

ing standards is that

the comparability

of financial state-

ments of companies

operating in different

countries would be

enhanced. The Inter-

national Accounting

Standards Board’s

(IASB, 2010) Concep-

tual Framework for

Financial Reporting

2010 indicates that

information about

a reporting entity is

more useful if it can

be compared with

information about

other entities and

with similar informa-

tion about the same

entity for another period or

on another date. The IASB

believes comparability enables

financial statement users to

identify and understand simi-

larities and differences between

two sets of economic

phenomena. Yet in

recent years a con-

siderable body of

academic research

has developed that

suggests cultural

differences among

accountants in differ-

ent countries may

cause them to inter-

pret and apply

accounting standards

differently—thereby

impeding or prevent-

ing the perceived

benefits associated

with global financial

accounting stan-

dards. “Research

aimed at evaluat-

ing the impact of

national culture on

the application of

a common set of

financial reporting

standards helps assess

the relationship

between national culture and the

comparability of financial state-

ments” (Tsakumis, 2007, p. 28).

Many of those who advocate the adoption of a set

of high‐quality global financial accounting stan-

dards (International Financial Reporting Standards,

or IFRSs) do so on the basis of enhanced cross‐

border financial statement comparability. Indeed,

the notion that financial statements would be

prepared on a single set of accounting standards

regardless of the country of domicile of the under-

lying businesses certainly has its merits. However,

there is a growing body of academic research pro-

viding evidence that simply adopting IFRSs, by itself,

is not sufficient to result in an enduring improve-

ment in financial reporting quality within IFRS‐

adopting countries. National culture, for instance,

has the potential to affect accountants’ judgments

in applying financial accounting standards—

regardless of those standards’ origin—and to

impact national institutions that further influence

national accounting. Here, we highlight the find-

ings of some of the relevant research on national

culture published in accounting journals in recent

years and discuss some potential implications of

those findings. © 2015 Wiley Periodicals, Inc.