Asian Review of Accounting - Volume 15 Issue 1 (2007) - Special Issue: Chinese accounting

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ISSN 1321-7348
Volume 15Number 1 2007
Asian Review
of Accounting
Chinese accounting
Editor: Jeffrey Faux
www.emeraldinsight.com
Asian Review of ISSN 1321-7348
Volume 15
Accounting
Number 1
2007
Chinese accounting
Editor
Dr Jeffrey Faux
Access this journal online ______________________________ 3
CONTENTS
Editorial advisory board ________________________________ 4
Editorial __________________________________________________ 5
The importance in accounting of ambiguity tolerance
at the national level: evidence from Australia and
China
NoelHarding andMingchuan Ren ________________________________ 6
An analysis of current trends in accounting
professional development in People’s Republic of
China
P.W. SenarathYapa andZhenPingHao___________________________ 25
How do the Chinese management accountants cope
with changes from a planned economy to a market
economy?
Xu-dong Ji,W. Luand M.Aiken__________________________________ 45
Accounting education in modern China: an analysis
of conditions and observations
GordonFrancis Woodbine_______________________________________ 62
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CONTENTS
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continued Jinghui LiuandIan AlexanderEddie ______________________________ 72
Note from the publisher_________________________________ 93
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ARA EDITORIAL ADVISORY BOARD
15,1
TheoChristopher ChongMan Lau
Edith Cowan University, Australia University ofWestern Australia, Australia
Barry Cooper PhilomenaLeung
Deakin University, Australia Deakin University, Australia
Russell Craig WoodyLiao
4 Australian National University, Australia University ofCalifornia Riverside, USA
Craig Deegan Mandy LiMan-Lai
RMIT University, Australia OpenUniversity of HongKong, HongKong
SAR
AlanDunk
University ofWestern Sydney, Australia Ken Moores
BondUniversity, Australia
Jim Fisher
Wilfrid Laurier University, Canada MortNelson
Wilfrid Laurier University, Canada
Sidney J.Gray
University ofNewSouth Wales, Australia Les Nethercott
Monash University, Australia
Dhia AlHashim
California State University, Northridge,USA Normah Haji Omar
Universiti Teknologi Mara, Malaysia
VinceHooper
University ofNewSouth Wales, Australia MaliahSulaiman
International Islamic University, Malaysia
AtiqueIslam
Edith Cowan University, Australia Mohammad Tahir
GriffithUniversity, Australia
DominickS.Iwisi
Technikon SA, SouthAfrica Benjamin Tai
California State University Fresno, USA
PemLal Joshi
University ofBahrain, Bahrain GregTower
Curtin University of Technology, Australia
JeongBon Kim
TheHong KongPolytechnic University, Peter Wolnizer
Hong Kong University ofSydney, Australia
Louise Kloot
Swinburne University ofTechnology,
Australia
AsianReviewofAccounting
Vol.15No.1,2007
p.4
#EmeraldGroupPublishingLimited
1321-7348
Editorial Editorial
Chinese accounting standards and practices are continuing to adapt to international
market forces as the Chinese economy opens further to foreign investment. Chinese 5
corporations areplaying anevermore significant role in theglobal economy and the
needtounderstandandinterpretfinancialinformationproducedbythesecorporations
presents a continuing challenge to international fund managers and investors. Many
Chinese corporations are now listed on international stock exchanges and have
financial reporting obligations governed by non-Chinese regulatory authorities. The
Chinese economy is continuing to transform as the state-owned enterprise sector is
restructured, and public corporations play a growing role in the Chinese economy.
Given the above developments, it is timely to examine the latest research relating to
Chineseaccounting and financial reporting issues.
A special thanks to Professor Ian A. Eddie for reviewing papers for the Special
Edition. Professor Eddie is the Head, School of Business and Government at the
University of Canberra
Jeffrey Faux
AsianReviewofAccounting
Vol.15No.1,2007
p.5
qEmeraldGroupPublishingLimited
1321-7348
Thecurrentissueandfulltextarchiveofthisjournalisavailableat
www.emeraldinsight.com/1321-7348.htm
ARA The importance in accounting of
15,1
ambiguity tolerance at the
national level
6
Evidence from Australia and China
Noel Harding
The University of New South Wales, Sydney, Australia, and
Mingchuan Ren
Fudan University, Shanghai, China
Abstract
Purpose–The aim of the research is to examine potential differences in the levels of ambiguity
tolerancebetweenAustralianandChineseaccountantsatthenational,ratherthanindividual,level.
Design/methodology/approach–Ambiguity tolerance levels of final year accounting students
(proxyingforentrylevelaccountants)andfirstyearaccountingstudentsfromAustraliaandChina
were measured using the MacDonald AT-20 Ambiguity Tolerance Index. Comparisons were made
acrossthefoursubjectpoolswithaviewtoidentifyingnationalleveldifferencessuggestedbythe
cultural,sociological,historical,andcontemporaryissuesimpactingontheaccountingprofessionin
thetwocountries.
Findings–Entry level accountants in China are less tolerant of ambiguity than their Australian
counterparts. There are, however, no statistically significant differences in the levels of ambiguity
tolerancebetweenfirstyearaccountingstudentsinChinaandAustralia.
Research limitations/implications–The research employed final year accounting students as
surrogates for entry level accountants. Future research could usefully extend this research to
practicingaccountantsatdifferentranks.
Practicalimplications–Giventhecentralroleofambiguityincontemporaryaccountingpractice,
thepotentialimplicationsarebroad.Thisisparticularlythecasewithregardtotheharmonizationof
accountingpracticesinthataccountantswithdifferenttolerancesforambiguitymightmakedifferent
decisionsinthefaceofsimilaraccountingstandardsandcircumstances.Interestingly,theresultsfrom
theresearchsuggestthatdifferencesinambiguitytoleranceareattributabletoeventsoccurringwhile
studentsarestudying.
Originality/value–Thisresearchexaminesambiguitytoleranceatthenationallevel(ratherthan
theindividuallevel),therebyallowingpracticalimplicationstobeprescribed.
KeywordsAustralia,China,Culture,Accountingstandards
PapertypeResearchpaper
Introduction
In this study, we examine the importance of ambiguity tolerance in accounting
judgment and decision making. We, however, address this issue from a viewpoint
AsianReviewofAccounting differenttothattakeninpreviousresearch.Whilepreviousstudiesinaccountinghave
Vol.15No.1,2007 examinedthischaracteristicatanindividuallevel,weexamineambiguitytoleranceat
pp.6-24
qEmeraldGroupPublishingLimited a national level. We propose that a combination of factors specific to the accounting
1321-7348
profession,togetherwithbroadculturalconsiderations,willresultinaccountantsfrom
DOI10.1108/13217340710763726
differentnationsexhibitingdifferentdegreesofambiguitytolerance,andsupportour Ambiguity
arguments in this regard by reporting on datacollected from Australia and China. tolerance
Ambiguity tolerance is a concept particularly relevant in accounting
environments due to its association with judgment, a core characteristic of
accounting activity. In fact, judgment could be considered to be decision making in
the face of ambiguity.
Scho¨n (1983, p. 17) states that professionals must be aware of the “uncertainty, 7
complexity,instability,uniqueness,andvalueconflict”associatedwiththeworkthey
perform.AccordingtoScho¨n,professionalsmustdevelopskillsin,amongotherthings,
professional judgment. Gibbins andMason (1988, p. 1)observed that “the exercise of
professional judgment by those preparing and auditing financial accounting
information is at the core of financial reporting”[1] The Accounting Education
ChangeCommission(AECC)in1990listedintellectualskillsasoneofthecomponents
onwhichlife-longlearningforaccountantsisbuilt.Intellectualskillsincluded“...the
ability to identify and solve unstructured problems in unfamiliar settings and to
exercisejudgmentbasedoncomprehensionofanunfocussedsetoffacts”(AECC,1990,
p. 307). Also, the presence of judgment has long been argued to be a distinguishing
feature that, in part, characterizes accounting as a profession (e.g. Eaton, 1955;
Trueblood, 1960; Becker, 1982) and helps define the accounting profession’s
relationship withsociety(e.g. Willmott,1986; Abbott, 1988;Allen, 1991).
The relationship between judgment and ambiguity can be seen in the various
definitions of ambiguity (in)tolerance. Budner (1962, p. 29) defined ambiguity
intoleranceas“thetendencytoperceive(i.e.interpret)ambiguoussituationsassources
of threat”. Norton (1975, p. 608) defined it as “a tendency to perceive or interpret
information marked by vague, incomplete, fragmented, multiple, probable,
unstructured, uncertain, inconsistent, contrary, contradictory, or unclear meanings
as actual or potential sources of psychological discomfort or threat”. According to
Zebda (1991, p. 118), the definitions of ambiguity, while differing slightly between
disciplines,“...allemphasizethebasicideaofimprecisionandinexactness”.Itisthe
imprecision and inexactness that creates the need for judgment in accounting
environments[2].
Early research suggested that ambiguity tolerance had no effect on accounting
judgment(McGheeetal.,1978;FairclothandRicchiute,1981),orreportedcontradictory
results (Dermer, 1973; Oliver and Flamholtz, 1978). Later work, however, highlighted
that it can impact on decision confidence (Hall et al., 1982; Gul, 1984, 1986), audit
evaluation of misstated account balances (Pincus, 1990), and performance/staff
evaluation assessments (Lowe andReckers, 1997; Johnson etal.,1998).
While studies highlighting the relationship between ambiguity tolerance and
accounting judgment and decision making are of interest, beyond the psychological
testingoftheindividualsmakingthejudgments,itisdifficulttoprescribeanypractical
recommendationsfromthesefindings.Individualswillvaryintheirlevelofambiguity
tolerance, and in the absence of a convenient means of identifying those individuals
whoaretolerantorintolerantofambiguity,thereislittlethatcanbedonetominimize
the undesirable consequences andleverage off the desirable consequences.
One way in which this research can contribute to improvements in accounting
judgment and decision making is to identify consistencies within, and differences
between, identifiable groups within society. This is particularly relevant where there
ARA are differences between nations, as interventions such as new regulations and/or
15,1 revised accounting standards are mosteasily implemented at the national level.
Certain factors and circumstances prevailing in a particular nation may condition
accountants in that nation to be, on average, more or less tolerant of ambiguity than
accountantsinothernations.Toillustrate,onenationmightexhibitaharshlegaland
regulatoryenvironmentthatseverelypunishesincorrectapplicationofanambiguous
8 accounting principle. While we would still expect individual variation in the level of
ambiguitytolerance,asasocietalgroup,accountantsofthatnationmightexhibitlower
levelsofambiguitytolerancethanaccountantsofothernationswithalessharshlegal
and regulatory environment. Where systematic differences in ambiguity tolerance
exist between nations, we would also expect systematic effects on accounting
judgment.Forexample,wemightexpectthataccountantsfromnationsexhibitinglow
levelsofambiguitytolerance,ascomparedtoaccountantsfromnationsexhibitinghigh
levelsofambiguitytolerance,tobemorelikelytoconcludethatamisstatedaccountis
notfairlystated(butpossiblyalsosearchforexcessiveamountsofevidenceleadingto
an ineffective audit) (see Pincus, 1990), be more prone to outcome effects when
evaluatingasubordinate’sauditperformance(seeLoweandReckers,1997),andgive
less favorable performance evaluation reviews to female subordinates (see Johnson
etal.,1998).
More generally, if, as we argue is the case, factors specific to the accounting
profession, in addition to broad cultural considerations, combine to result in
accountantsinsomenationsexhibitinglowerlevelsofambiguitytolerancethanthose
in other nations, there will be implications for the harmonization of accounting
practices and comparability of accounting information throughout the world.
Contemporary international accounting practices and standards recognize ambiguity
as an inherent characteristic of the accounting domain. Where the accountants of
particularnationsare,onaverage,moreorlesstolerantofambiguitythanaccountants
of other nations, it might be expected that, on average, the accountants of different
nations will respond differently to the same situation. Accountants from nations
exhibiting low levels of ambiguity tolerance may, for example, inadvertently or
deliberatelyfailtoidentifytheambiguityoruncertaintyinherentinthejudgmentthat
needs to be made. Accountants from nations exhibiting high levels of ambiguity
tolerancemay,forexample,inadvertentlyordeliberatelyseekambiguitythatmaynot
be present. In this environment, harmonized accounting standards may result in less
comparable, rather thanmore comparable,accounting information.
Inthispreliminarystudy,weexamineambiguitytoleranceinAustraliaandChina.
ThesetwonationswereselectedforthereasonthatAustraliarepresentsadeveloped
nation which has had considerable input into the development of contemporary
international accounting practices and China represents an increasingly important
developing nation presently in the process of harmonizing its accounting practices
with those of more developed nations. China was also selected on the basis that the
factors thought to influence the levels of ambiguity tolerance within nations can be
clearly contrastedwith more developed nations.
Wefirstconsiderthecultural,sociological,historical,andcontemporaryissuesthat
are argued to influence ambiguity tolerance at the national level and then consider
those issues in the Chinese and Australian contexts. We propose that differences
betweenChinaandAustraliaontheseissueswillconditionaccountantsinChinatobe,
onaverage,lesstolerantofambiguitythanAustralianaccountants.Ourresultsreveal Ambiguity
thataccountantsinChinaare,indeed,lesstolerantofambiguitythantheirAustralian tolerance
counterparts.Interestingly,ourresultsalsorevealthatthesedifferencesinambiguity
tolerance are attributable to events occurring while students are studying for their
undergraduate accounting degree. These findings have important implications for
accountingpractitioners,regulators,researchers,andeducatorsthroughouttheworld.
Theremainderofthispaperisorganizedasfollows.Thefollowingsectionexamines 9
thefactorsarguedtoinfluencethelevelofambiguitytoleranceatthenationalleveland
considers these factors in an Australian and Chinesecontext. This analysis suggests
thattherewillbedifferencesinthelevelofambiguitytolerancebetweenaccountantsin
ChinaandAustralia.Thisisfollowedwithadescriptionofthemethodologyandthen
theresults.Thefinalsectionconcludesthepaperbydiscussingtheimplicationsofthe
study’sfindings, limitations, and opportunities for future research.
Determinants of ambiguity tolerancein accounting domains
While ambiguity tolerance is a personality variable and, by definition, individual in
nature, we argue that certain cultural, historical, contemporary, and sociological
factors will predispose the members of particular social groups to be more or less
tolerant of ambiguity than members of other social groups. This is not to deny
ambiguity tolerance as an individual psychological variable, but rather, recognizes
that environmental factors contribute to the conditioning of members of particular
societal groups towards ahigheror lower level of ambiguity tolerance.
In this study we focus on accountants from different nations and consider below
howcultural,historical,contemporary,andsociologicalfactorsimpactontheiraverage
ambiguitytolerance.TheseissuesareaddressedastheyrelatetoaccountantsinChina
and Australia.
Cultural considerations
ReferringtoHofstede’s(1980)culturaldimensions, threedimensionsemergeasbeing
particularly relevant to the study of ambiguity tolerance, those being, uncertainty
avoidance, individualism, andpower distance.
Uncertainty avoidance is “... the extent to which the members of a culture feel
threatenedbyambiguousorunknownsituations”(HofstedeandHofstede,2005,p.167).
Those cultures exhibiting high uncertainty avoidance socialize their members not to
acceptuncertainty.Membersofsuchculturesneedfamiliarity,predictability,andclear
rules. They do not feel comfortablein unstructuredsituations.
Ambiguity and uncertainty are similar concepts. Those who wish to avoid
uncertaintyarelikelytoalsoavoidambiguity,oratleastfeelpsychologicaldiscomfort
whenfacedwithambiguity.Accountantsfromcultureswithhighlevelsofuncertainty
avoidance are likely to be less tolerant of ambiguity than accountants from cultures
with lower levels of uncertainty avoidance.
Individualism, or its opposite, collectivism, is concerned with the extent to which
individuals are integrated into strong and cohesive groups. Individualistic cultures
focusontheself(orverycloselovedones)withaconcernfortheirownneeds,interests,
and goals. Individuals believe that their views are unique and accept confrontation.
Collectivist cultures are heavily influenced by, and behave according to, the social
normsestablishedwithintheirin-groups.Preferenceisonmakingdecisionsthatarein