CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
As globalization increases at a blistering pace, more and more business entities continue to get involved in cross-border capital investments (Napier, 2009). A considerable cost can be applied to these types of transaction for the translation of financial statements prepared under dissimilar accounting guidelines into a comparable form. There exist a multiple number of accounting systems that create these dissimilarities, because accounting is a language of business that has been created by society to provide information as to the economic health of an entity. Similar to any other language, varying types of “accounting language” are used across different regions of the globe to convey this information. The increased frequency of the resulting costs has created a demand for an internationally comparable set of accounting standards. The creation of the International Financial Reporting Standards (IFRS) has tried to fulfill this demand. The desire to have comparable standards has thus resulted in the adoption and implementation of, as well as the convergence to IFRS (Gray, 2011). Despite the push towards convergence of these accounting standards, significant diversity still remains (IAS, 2011). The resulting discussions on how to achieve worldwide accounting convergence oftentimes only involve the differences between specific accounting standards and how to eliminate them. However, in order to know how to eliminate differences one must first fully understand why they occur. One major reason for these differences is culture. Unfortunately, the role of culture is frequently absent from this discussion, regardless of the fact that it is at the heart of many differences that exist between one accounting system and the next. However, culture can be thought of as the collective values of a society that influence its behavior. It is no secret that significant differences in these values exist internationally, and that these differences have a profound effect on all elements of society.
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