Professor Sidney Grayâ??s model was developed in 1988. His theory was that countries would develop a

Professor Sidney Gray’s model was developed in 1988. His theory was that countries would develop and follow financial reporting standards based upon the accounting values that naturally evolved from cultural norms and values. According to Gray’s model, a culture with the attributes of collectivism, rather than individualism, would lead to a higher level of secrecy and conservatism in financial reporting. For instance, in a country such as Japan, where historically sources of start-up and working capital were financial institutions and keiretsu (business conglomerations with common shareholders), there was little need for disclosure of financial data to “outsiders.” This would be reflected in the financial reporting standards, such as in the “low level of information disclosure in annual reports” (Doupnik & Perera, 2015).It seems that in current times, with the expansive growth of globalization, Gray’s theory is becoming somewhat outdated. Countries such as Japan are learning that to participate in global opportunities, they must expand on their financial reporting standards, and follow more uniform standards. One trigger to this change experienced in many countries was that in 2002, the European Union set a deadline of 2005 for any company listed on a European stock exchange to begin using International Financial Reporting Standards (IFRS) (Pacter, 2013.) Since that time, many countries began utilizing IFRS or partially adopting portions into their own accounting standards. The IFRS Foundation published a chart in September 2015 that indicates 116 of 140 worldwide jurisdictions now require the use of IFRS for all or most publicly traded companies. In the Asia region, 75% of jurisdictions require the use of IFRS for public companies. While countries such as Japan may have not fully converged their accounting standards with IFRS, the progression of Japan permitting companies to voluntarily adopt IFRS seems to conflict with Gray’s 1988 model.The Financial Accounting Standards Board in the United States has been working with the International Accounting Standards Board since 2002 in an attempt to converge financial reporting standards. In the nearly 14 years that have passed, some standards are substantially converged, others are partially converged, and still others remain ongoing projects with major differences. This seems to be more a factor of different reporting goals rather than cultural dimensions alone. The FASB states on their website that the lack of full convergence may be based more on “different financial reporting objectives” and that the Board may conclude “that the best interests of its own capital markets outweigh the goal of completely converged accounting standards.”

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