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Influence of Culture on Accounting Procedures

Influence of Culture on Accounting Procedures

Write a 12- to 20-page paper that addresses relevant theories and empirical research, leading to a
significant research topic, problem, and research question . Approach your topic by providing an
academic argument that would support a deeper understanding of the relationship between transaction
cost and principal-agent theory and optimal managerial accounting systems design in a multinational
enterprise setting. You do not have to actually design a study to the point of specifying research
measures of effective multinational managerial accounting practices or specify samples, but try to evolve
your thinking to the point of framing a relevant research topic, problem, and question on which your
proposed research would be focused.�

This question should be complete enough to suggest the development of an important theory, address a
gap in a current model, or demonstrate an immediate application for solving common organizational
problems. Rather than attempting to include as many references as possible, try to emphasize the logical
coherence of your evidence of conceptual foundations. Build an academic argument for why your
research problem and question are important. An obvious extension of your paper would be to use it as a


springboard for a doctoral proposal. Your paper could also be useful for potential use in the development
of Chapter 2 of your Proposal and Doctoral Study Completion.�

Your Final Paper should adhere to APA format (6th edition), which requires a title page, a reference list,
and appropriate sections and their headings; and include the following elements:�
�A thorough review of the literature (minimum of 20 resources) that shows evidence of a potential
research opportunity/gap that has not been discussed in the academic literature.�
�A draft problem statement


Culture can be defined in relation to accounting procedures as the communal encoding of
mind which differentiates a group of people from another. Culture puts into consideration factors
such as the groups beliefs, morals, their background knowledge, the groups laws and customs,
and any other abilities and habits that individuals from that particular society posses. Some of
these cultural elements have been known to have a great influence on the labor circumstances of
many organizations and business institutions. Accounting procedures are structured set of
handbook and programmed accounting techniques, systems and control methods that are
introduced to collect, record, analyze, and present financial information to guide in decision


making processes. Several theories have been used to illustrate the relationship and
interconnections between cultural values and accounting procedures. The theories can be
categorized into two large groups which are economical and sociological approaches.
Economical theories includes; principle agent theory, transaction cost theory and managerial
accounting system design approach. Accounting systems may include; internal and external tax
accounting and expense accounting procedures. Cultural behaviors have influenced the
operations of businesses globally.

Problem Statement

Cultural values have not been completely embraced by many organizations in their financial
and accounting systems. Business organizations need to incorporate important cultural values
that will influence accounting procedures positively. Professionalism of individuals needs to be
given priority when it comes to making decisions. Organizations have to create room for
independent expert judgments by individuals with enough knowledge on the subject matter.
Their decision must be respected as long as they adhere to the set legislations that govern
accounting procedures and at the same time the judgments they make should promote fairness to
all workers ( Gregg, 2005). Cultural knowledge need to be used more in businesses since it
provides valuable cultural information that can influence the making and implementation of
more informed decisions.
Businesses will need to employ accounting secrecy and transparency to limit the disclosure
of valuable financial information to competitors. Professional individuals must therefore create
assurance for the security of any important financial information that may be used by
competitors to their advantage. At the same time, transparency and accountability need to be
practiced in the accounting and financing systems to avoid cases of a business losing money for


individual gains. Certain cultural beliefs and some set code of ethics promote transparency since
they prohibit individuals from certain societal backgrounds from activities that may discredit
them in providing financial results that lack accountability (Rand, 2006). Therefore,
organizations need to employ workers with cultural values that promote accountability and
transparency in the financial systems. There is need for all businesses to ensure transparency and
accountability in all its departments which can be achieved more efficiently by embracing set
societal beliefs and morals. Both the managers and stakeholder should be in the forefront to in
making sure that transparency and accountability is observed among all workers. They should be
the role models to all other employees.
Organizations also need to employ conservatism which is one of the most ancient ways of
valuing accounting procedures. The concept can be associated with uncertainty- avoidance
aspect which tries to avoid the uncertain outcomes in the future. Conservative measures need to
be taken that will help in the adapting of careful measures that will deal with uncertain results
happening in the future. A company that values its cultural conservatism highly is in most cases
able to predict future outcomes thus avoiding occurrence of uncertain events in the future. An
organization may opt for a lesser conservative theory to achieve consistency with short- term
goals since the expected results are attained within their estimated time. Furthermore, this
approach is more optimistic when adopted where the organization is trying to conserve its
resources and investing these resources to achieve their long- term goals (Newing, 1995). This is
clearly shown when determining the total value of the business. In addition, the approach has
tried to outline how various cultural values such as good behavior and customs can be used
within an organization to facilitate good accounting and financial systems.
Effect of cultural values and societal rule on accounting procedures


Written laws which can include societal rules need to be incorporated in the structural working
of organizations to achieve uniformity in accounting and financial systems. Individualism is an
aspect where culture has influenced both accounting and financial systems greatly, since it
motivates individual performance towards realization of goals of an organization. Further, this
aspect has increased individual contribution towards the teams that runs various departments
(Khan, 2002). Furthermore, an organization that chooses a more uniform financial and
accounting theory, it is associated greatly with avoiding incidences of uncertainty. This has
resulted to a lot of concern in matters pertaining laws and regulations which have forced these
bodies to come up with strict code of ethics that monitors accounting and financial systems in
any business organization. These codes of ethics should go hand in hand with cultural morals
that must be adhered to by all individuals. The organization also has role of ensuring that all set
regulations of the firm must be followed to the letter without favors. For any business to be
successful in the future consideration of individualism must be given more weight and priority
since personnel’s with high cultural values will be more committed towards working with the
sets regulations (Becker, 1991).
Economic theories of organizations control, makes the assumption that the firm is a lawful
body that is composed of the manufacturing procedures whose information is accessible by other
organizations. Executives are responsible for choosing a certain manufacturing process and
provide a suitable environment for maximization of the present and the future revenues. In
addition, it is also the responsibility of the managers and stakeholders to offer all required
material and financial resources and also equip employees with required skills by offering
training courses (Anthony, 2001). Economic theories that have been discussed to help managers
in business operations include; the principle agent theory, the transaction cost theory and the


management accounting system design. The three theories all focuses on profit maximization
where executives, workers, stakeholders and accounting controllers works together to achieve
the organizations common goal of increasing the firms total output. Economic theories should
always try to adapt to mechanisms that describes the organization. On the other hand, non-
economic approaches need to work towards filling the existing gap and expound on the firms’
knowledge behavior (Mullins, 2002).
There has been concern on whether principal agent theory helps in understanding the concept
of profit maximization by the management. The approach refers to a point where the owners of
the business are interested in capitalizing on profit or are concerned in functions that add value to
their enterprise. The theory is also referred to as principle agent problem, since senior staffs may
exploit subordinate staffs by for instance, installing financial programs that these junior staffs do
not have skills to operate. On the other hand, managers, concentrates on exploiting the available
resources that include their salary and money to maximize on profit which is the main functions
of their business (Warren, 2005). As managers tries to maximize on profits, it results to an
argument of concern on how managers should be controlled in the way they should run their
commerce and at the same time do their best to capitalize on the state of ownership. For
example, managers must consult investors on a certain decision before implementing so as to get
the approval of the stakeholders. This facilitates effective decision making and implementation,
since there thorough research on matters of concern and enough consultation is conducted before
making a conclusive and final decision ( Harrison, 2004).
Despite managerial power system in relation to organizational activities not encouraging
executives to express their open behavior, stakeholder do not have much information on
managers day to day activities and the available information on profits. Ownership can therefore


not force the management to work towards achieving the companies’ objectives by just
highlighting the objective purpose. The solution to this is to design an efficient scheme that
aligns the objectives of the stakeholder and those of the management (Whiting, 1986). The
scheme will tend to carry more weight on the objectives of the managers in comparison to those
of the stakeholders. On the contrary, despite the approach trying to close on the gap within
organizations, it faces a problem in that executive tend to utilize their power to enforce rules that
may oppress the subordinates. For instance, the manager may authorize the purchase of an
expensive machine for production to favor the seller while on the other hand; the manager is
oppressing the subordinates who do not understand how to operate the machines. It can be seen
that the theory helps managers to maximize on profits as the management is given freedom to
exploit resources at their disposal without stakeholders’ interruption. Further, the manager is
given the mandate to set the rules and goals of an organization in order to maximize on profits
(Bryan, 1999).

Effect of social cultural factors on profit maximization

Social cultural factors also influence the extent to which are managers able to maximize on
profits from signing the right contracts which are cheaper compared to their market price.
According to the transaction cost theory, a firms’ existence is validated by the ability of the
entrepreneur to agree on contracts at lower price than the market price which can be negotiated.
The number of contracts that can be negotiated within the firm is always less than the number
outside. The contract should only state the power limits of the entrepreneurs and the details of
the contract should only be defined after the two parties have agreed on all matters. Due to this,


there is a possibility of the firm emerging in cases where short term agreements are not
satisfactory. Further, the approach would be seen as the expense incurred while trying to cater
for goods by purchasing from the market instead of the organization providing from within. In
addition, many organization tend to provide for their needs from within which allows the
organization to save more on production cost, thus maximizing on the total income generated
(Laffont, 2002).
According to this theory, the control of an organization is related to the control that the firm
has over the marketing expenses. In addition, the theory claims that issues relating to
organizations details play a vital role in defining the firms’ nature which is determined by the
optimal production of available workers which is most likely promoted by the already existing
inputs within the firm (Gebert, 2014). In fact, resources with lesser value are priced at a lower
cost since they can only generate products with lesser value, whereas, resources of high value are
priced at a higher cost due to the high profit incomes that they generate. The approach faces a
problem where, before managers undertake any transaction in the market, they have to know
who are the willing seller/ buyer in order to initiate a bargain to get into contract and to conduct
an inspection required to ascertain the validity o the contract. The long processes involved in
acquiring of industrial goods and services delays production by an organization since a lot of
time is consumed/ lost between the time of identifying the needed resource and the time of
acquiring the good. In addition, time may be also lost as the managers tries to fulfill legal
procedures that are required for acquisition and installation of equipment (Flamholtz, 1996).
According to the theory, it can be seen that market prices determines the interactions between
organizations. Furthermore, managers are responsible for making and implementing business set
rules. For example, when a manager wants to purchase a machine that will be used in production


department, he first of all consults an expert, then finds a willing seller, bargains, signs contract
and finally makes the purchase (Chandler, 1992). The approach involves three types of costs
which are, “search and information cost “,”bargain and decision costs” and “policing and
enforcement cost”. Without taking into consideration the transaction cost, managers will not
understand well how the economic system work therefore making it hard to implement economic
policies. The theory proves that managers are able to strike the right deals when they agree
contracts before going to the market to strike at a market price.
Effect of team work and organization culture on profit maximization
In the current business world, most organizations are using accounting and financial data in
making critical decisions which in most cases is provided by management agents and controllers.
The only question in this is whether the agents and the controllers have different perceptions
with the managers on variable designs and the output quality (Chenhall, 2003). Therefore, there
is a need for the integration of the accounting controllers and the management involved in the
decision making which would result in a consistent accounting language which benefits both the
manager and the controllers.
The controllers do not seem to understand how vital their work relies on business success
since they provide intangible and harmonizing information to the management. Therefore there
exists a gap between the accounting controllers and the executives concerning on how to put into
use the financial information. By providing information that promotes the growth of the
organization, they improve their position as business consultants thus gaining highly influential
positions within the enterprise. On the other hand, managers must be transparent on the type of
details they require and use while the controllers should not see themselves as specialists but
instead be just like any other employee with the aim of realizing the organizations set targets


(Sautet, 2000). Further, when both mangers and controllers agree to examine the policy that runs
the business together, they tend to understand the matters concerning the social- economic
factors m, thus leading to faster goal achievement of the organization within a short time. In
addition, managerial designs have assisted managers in maximizing on profits as decisions made
by the two parties, when they work as a team, are implemented as agreed. When both the
managers and the accounting controllers work together, it can be seen from the approach that
there is quick goal achievement and higher profit maximization.
The above three discussed approaches do interrelate as all are aimed at realizing the long
term profit maximization of the firm. First, Principal Agent theory illustrate on a scheme that is
aimed at having the management and the stakeholders aligning their objectives so as make and
implement efficient decisions that will enhance overall productivity. Though the senior staffs
have a higher hand of determining the best course since they understand better the business
environment, they still need to consult the investors. The transaction cost theory explains on how
managers need to give priority to contracts that can be implemented at lower costs than the
market price. The management there focuses on resources that can be acquired at a cheaper cost
but at the end yield more products which can generate more incomes. Lastly, the managerial
accounting system design like the other two approaches focuses on making decisions that are
aimed at maximizing the firms’ profits (Radebaugh, 2005). The theory tries to integrate the
company’s management with the accounting controllers so as to enhance the making of more
informed decisions that would increase the firms’ total revenue. The three theories therefore
summarize the role of different firm organs and departments in the realization of the goals of an
organization which are to increase the total income revenue.


Sociological theories of organizational control are approaches that try to describe managerial
behavior by stressing on main affinity of teams. Sociologists do not concentrate more on
understanding individuals’ psychology and how they interact with others but emphasize more on
group interactions. According to the theory, managerial control is executed by set laws, policies
and the chain of command (Klewes, 2008). Further, the sociological approach has been described
using several other theories that include; functionalism, general system theory approach,
contingency theory and theory of bureaucracy.
The theory of functionalism is based on the hypothesis that the social world has a strong,
genuine continuation, and an orderly trait oriented to come up with a structured and maintained
state affairs. The theory has been applied in social sciences and how they relate to the business
world. According to the approach, the organization can be approached in two dimensions; from
an internal view and an external perspective. The internal view distinguishes the managerial, the
technical and the institutional level. The managerial section takes part in the administration
section of the organization (Chenhall, 1990). The technical level focuses on the activities
involving practical work. The institutional part has to make sure that the objectives of the
company are at par with the social goals.
The second approach is the General system theory approach studies an organization as a
program of parts interconnected to each other but each specialized to perform a specific task
towards achieving the goals of the organization. Further, the theory explains the common
principles and regulations that an organization operates under. The principles must be in
agreement with the cultural norms of the involved communal groups. In addition to this,
environmental laws must also be adhered to regardless of the firms’ laws and regulations. The


cultural values of the society will therefore play a bigger role on the organization during its
making of financial and accounting decisions (Bryan, 1999).
Another approach that is used by sociologists is the contingency theory which argues that,
individuals cannot be expected to just follow set gestures unless they can respond to own worth
and interest. The theory therefore recognizes enabling factors that facilitates capacity building
within the firm. Capacity building in an organization can be limited by business environmental
factors which always need to be addressed so as to enhance business productivity. Organizations
variables have to match with environmental traits so as to ensure an excellent working condition
(Klewes, 2008). In addition, the approach also shows that the most successful firms are
connected with administrative practices which best matches environmental circumstances with
the techniques used for production.
The last approach is the theory of bureaucracy which is based on the official area of
jurisdiction, the hierarchy of command, written agreement, training of the office management,
the capacity of the employees and lastly the general rules by the management. In addition, the
theory emphasizes on the rule of law which focuses on all formal structures of the firm. All
employees have equal rights as does the consumers. All customers have to be provided with
equal services regardless of their cultural beliefs, morals and the principles that monitor and
maintain their behaviors (Radebaugh, 2005).
In conclusion, the impact of cultural values on accounting procedures can be seen clearly in
the context. Various theories that include; principle agent theory, transaction cost theory and
managerial accounting system design approach have all tried to explain the success of
organizations based on how managers makes and implements decisions. Further, sociological
theories, such as, functionalism, general system theory approach, contingency theory and theory


of bureaucracy have also been used by scholars to explain how cultural values influences
financial systems in a business. Cultural values that influences these accounting procedures
includes; cultural beliefs, morals, individual habits and the customs of the groups. The above
approaches have successfully been able to solve the gap that exists in many business
organizations. Further, the study explains more on cultural behaviors which includes;
professionalism, secrecy and transparency, conservatism and individualism. These concepts
illustrates how cultural values affects the accounting systems and designs


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