Prior to the rise in immigration and cross-border commerce, culture was primarily the realm of anthropology and archaeology. However, in this age of globalisation, accounting procedures are no longer bound by international borders. Because of the effect on the establishment of national accounting standards, these practices result in accounting frameworks that are restricted by societal culture. The problem of cultural influence in understanding behaviour in social systems has been known for quite a while; but, its impact on accounting as a social system is a more recent subject of research. 

Influence of Culture on Various Accounting Practices

Accounting practises such as identifying errors, compiling financial statement disclosures, and other accounting procedures may appear to be the same throughout the world since they adhere to identical standards. Accounting standards, or stated accounting rules, are established by accounting practices, which are the implicit accounting rules carried out in a certain culture. These implied rules develop differently due to the way in which business connections evolve across various cultures. Accounting is therefore heavily impacted by the culture in which it is performed if accounting standards are derived from accounting practises, which are further developed and influenced by culture through business connections.

Nationality and Accounting

When culture is stated, the first thing that springs to mind is a person's nationality. It does not encompass all cultural influences, but it has an impact on all parts of society, from business to government to day-to-day life. As a result, national culture has a considerable impact on accountants and their methods. The primary disparities between accounting systems across the world are attributable, partly due to national culture, which establishes the standards within which society operates. Culturally motivated authorities also form overarching laws. Many researchers believe that accounting procedures emerge within a country to fit the demands of the particular community.

Another aspect of this is the culture of a particular country/region also defines its financial laws which ultimately have a big impact on the accounting system/framework of the country. A case in point would be that historically the Gulf region had very few countries taxing anything other than a handful of industries in Oil and Gas or sin industries. But with oil prices fluctuating, the governments have evolved to introduce value added tax to diversify their income base. The governments knew that it would be difficult for local businesses to start keeping accurate records for taxation on day one. So there was a period where there were no penalties and the government focused on educating rather than penalizing business owners. This showed maturity and an understanding of reality as culture does not change overnight. 

Organisational Culture and Accounting

Organisational culture reflects a company's shared ideas and concepts that shape an organisation's social and psychological environment. Culture has been proven to have a notable impact on the accessibility of accounting disclosures in businesses all around the world. One cultural impact is the resistance to planned transition from old accounting processes to new accounting procedures.

Accounting processes are heavily impacted by corporate culture, which encompasses the organisation's ethics and value system. 

RSM Insights

Culture does play an important influence in setting national accounting standards. Multinational businesses and worldwide audit firms must improve their cultural awareness training. This has the potential to help global businesses and their auditors in two ways: It will make them aware of underlying assumptions held by their international staff and colleagues in their international offices, as well as assist professionals in recognising cultural accounting trends in their own country and better understanding how these values affect their own perspectives and evaluations.

Feel free to consult RSM UAE to discuss your accounting and auditing concerns. RSM is one of the world’s leading audit, tax and advisory service networks, recognized for innovative solutions across the globe. RSM professionals can help your company undertake granular analysis required for a comprehensive accounting and audit exercise.