|LEGO at a glance||3 pages||1 page||2 pages|
|Corporate governance||9 pages||5 pages||1 page||3 pages|
|F/S||66 pages||18 pages||42 pages||6 pages|
|Total||66 pages||12 pages||24 pages||43 pages||11 pages|
Management performance is largely evaluated and rewarded based on the performance displayed on the annual reports of the firm. Managers are awarded increased remuneration and tenure based on perceived success or failure of the firm they are managing.
Since managers operate ‘in an environment in which their remuneration and wealth is linked to the financial performance of the companies that employ them, managements have economic incentives to disclose messages that convey good performance more clearly than those conveying bad performance’ (Rutherford, 2003, p.189). Such opportunistic behavior is termed as impression management.
In Accounting, the concept of impression management in corporate reporting is used to explain discretionary narrative disclosures. Management is assumed to strategically ‘select… the information [in corporate narrative documents] to display and present… that information in a manner that is intended to distort readers’ perceptions of corporate achievements’ (Godfrey et al., 2003, p.96).
Management is accountable to shareholders and stakeholders, for their decisions and actions. Corporate reports, particularly the annual report, serve as an accountability mechanism which addresses the concerns of external parties (Stanton and Stanton, 2002).
Incorporate reporting; management engages in impression management to counteract undesirable consequences in anticipation of an evaluation of its actions and decisions by shareholders.
If narrative in the corporate documents are regarded as an indicator of the decision behavior of management and thus reflecting managerial performance (Prakash and Rappaport, 1977, p.35), then managers may be prompted to engage in impression management to counteract undesirable consequences of information releases in the form of unfavorable analyst reports and credit ratings, adverse share price movements and loss of stakeholder support (Merkl-Davies et al., 2011).
There are no two countries with an identical accounting system. Accounting is a product of its external environment. This means that forces peculiar to its national environment shape it. (Radebaugh and Gray 1997).
In international accounting, there has been a considerable amount of effort by researchers to analyze and categorize the external influences on a company’s financial reporting. An extensive list of possible causes can be found in the writings of previous researchers, including Muller (1967), American Accounting Association (1977), Nobes (1981), Gray (1988), Radebaugh and Gray (1993), Lawrence (1996), and Walton (1998).
The following external Factors influence accounting systems:
Over the years, two types of legal systems have been developed namely;
It originated from the Roman Empire, and it is based on obliged and written law. It is based on codes, for example, France. The government is responsible for the accounting regulation in code law countries, and that leads to condensed financial reporting to a minimum defined by the detailed set of legal rules (Alexander et al. 2009).
It originated from England, and it is found in many other countries influenced by England e.g. USA. Courts interpret them as the case arises resulting in case law and precedents. Qualified organizations of the private sector are responsible for accounting regulation in common law countries, and the accounting rules are not part of the law (Smith 2006).
When companies require capital to finance expansion, they use different sources of Finance in different countries. The two most commonly used methods are;
In countries like France, Germany and Italy significant amounts of the corporate finances are provided by banks rather than equity. This is also referred to as debt financing. Finance is secured on the assets of the company.
The financial statements have a creditor orientation; they focus on creditor protection through careful and conservative accounting measurements.
The information presented by the annual accounts must be valuable to form an opinion of whether a company is a solvent and liquid.
In countries, like the USA and UK, the companies finance their expansion or investment needs from shareholders. In these countries, there is more pressure to use accounting reports to present the company in a favorable light to attract investors.
Their financial statements will have an investor or shareholder orientation. The financial statements must present information that will enable a shareholder to make the best investment choice.
Depending on the dependency or interdependency of tax and accounting.
Taxation and accounting are dependent
This is common in code law countries. The published financial statements are used for taxation. The fiscal authorities use the information given in the financial statements to find out the taxable income in countries like Sweden and Germany. In several states, tax regulations set the maximum depreciation rates to be applied for particular assets.
This is common in common law countries, e.g. USA and UK. The published financial statements are used as performance indicators instead of taxation purposes.
The impact of the political and economic system on accounting and reporting systems is often mentioned in the literature under the term of colonial inheritance (Nobes, 1998, 170).
Through history, it is evident that invading countries imposed their political, as well as
their accounting system on the countries they colonized.
It is also a fact that many countries, upon gaining independence, have continued to use the same accounting system even though it no longer suits their current needs and economic situation, e.g. Commonwealth nations’ accounting systems are under the significant influence of British accounting system.
Culture is a powerful influence underlying social values and human behavior, and therefore its impact on accounting practices cannot be overemphasized.
Hofstede defined culture as (2007) “the collective programming of the mind which distinguishes the members of one human group from another” (p. 17). In a major survey of employee attitudes in the worldwide subsidiaries of IBM Corporation, he identified four contrasting sets of cultural dimensions that can be used to describe general similarities and differences in cultures around the world.
The significance of Hofstede’s dimensions is the national culture’s influences on the nature of accounting practices.
It is argued that in countries with high uncertainty avoidance, efforts are made to minimize uncertainty. In accounting, rules and regulations tend to be rather detailed and rigid. Individualism affects accounting in terms of disclosure practices and income measurement rules.
GRAY’S CULTURAL DIMENSIONS
Gray (1988) used Hofstede’s cultural dimensions to define four accounting values as follows;
In identifying the dimensions that characterize accounting systems, Gray distinguishes between
Gray further classes cultural areas according to his four accounting values.
Gray characterizes the Anglo cultural area by a relatively low rank on conservatism and secrecy (or high on optimism and flexibility).
The countries of the less developed Latin cultural area (e.g., Colombia, Mexico) tend to rank relatively high in conservatism and secrecy.
Schwartz’s Cultural Dimensions
Schwartz (1994) tried a different analysis; he organized values based on two basic dimensions:
The collectivism/Individualism dimension has been popularly used as the explanatory variable in subsequent research on culture.
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