Post on 12-Mar-2023
Electronic copy available at: http://ssrn.com/abstract=1370782
Culture and accounting practices in Turkey
Saeed Askary*School of Accounting, College of Business Administration,
Abu Dhabi University, Abu Dhabi
Email: saeed.askary@adu.ac.ae
*Corresponding author
Hassan YazdifarSheffield University Management School, The University of Sheffield,
9 Mappin Street, Sheffield, S1 4DT, UK
Email: H.Yazdifar@sheffield.ac.uk
Davood AskaranyFaculty of Business and Economics, Tamaki Campus,
The University of Auckland, Auckland, New Zealand
Email: d.askarany@auckland.ac.nz
Abstract: This paper examines the effects of cultural values on accountingpractices in Turkey by applying Gray’s theory (Gray, 1988) of socio-culturalfactors on accounting values and practices. We compared the model ofaccounting with accounting-profession authority, the quality and uniformityof financial disclosures, and accounting measurements in present Turkey.This country is a unique case among developing countries because of itsspecific geopolitical and cultural features. Our results confirm Gray’s theorythat high uncertainty avoidance and low individualism are positively associatedwith high conservative accounting measurements. In addition, the studyconfirms that the highest power distance, uncertainty avoidance, and thelower individualism are positively associated with accounting uniformity.However, large power distance, high uncertainty avoidance, and collectivismsnegatively affect professionalism and financial disclosures.
Keywords: culture; financial disclosures; measurements; professionalism;Turkey; uniformity.
Reference to this paper should be made as follows: Askary, S., Yazdifar, H.and Askarany, D. (2008) ‘Culture and accounting practices in Turkey’,International Journal of Accounting, Auditing and Performance Evaluation,Vol. 5, No. 1, pp.66–88.
Biographical notes: Saeed Askary is an Assistant Professor of accountingin the College of Business Administration at the Abu Dhabi University.His recent research with Marc Olynyk has been selected among the top 10articles by the international compendium award-winning articles selected bythe PAIB Committee of IFAC as a part of IFAC annual Articles of Meritaward programme. He has published papers in Managerial Auditing Journal,Asian Review of Accounting and Australian Accounting Review.
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66 Int. J. Accounting, Auditing and Performance Evaluation, Vol. 5, No. 1, 2008
Copyright © 2008 Inderscience Enterprises Ltd.
Electronic copy available at: http://ssrn.com/abstract=1370782
Culture and accounting practices in Turkey 67
Hassan Yazdifar is a Lecturer in accounting at Sheffield UniversityManagement School. Prior to joining Sheffield in 2001, he taught at theUniversity of Manchester. He has taught accounting in wide range ofundergraduate and postgraduate courses, and has supervised a number ofdoctoral students in accounting in developing countries. His recentpublications have been published in Critical Perspectives on Accounting,Journal of Accounting, Business, & Management and International Journalof Business and Systems Research.
Davood Askarany is a Lecturer in accounting in the business school at AucklandUniversity. He teaches different sorts of accounting subjects, includingFinancial Decision Support, Performance Measurement and ManagementControl and Cost Accounting Systems. He has published research papersin Critical Perspectives on Accounting, International Journal of Businessand Systems Research, Journal of Accounting, Business & Management,and Journal of Issues in Informing Science and Information Technology.
1 Introduction
Cultural diversities are perceived to shape accounting system practices within national
borders and are more likely to prevent unified accounting practices globally (Archambault
and Archambault, 2003; Chanchani and Willett, 2004; Doupnik and Salter, 1995,
Hamid et al., 1993; Radebaugh and Gray, 2002; Salter and Niswander, 1995). The cultural
environment is a likely causal factor of different national accounting practices in
accordance with differing national cultures (e.g. Belkaoui, 1990, 1996; Doupnik and
Salter, 1995; Fechner and Kilgore, 1994; Gray, 1988; Hamid et al., 1993; Perera, 1989,
1994; Perera and Mathews, 1990; Zarzeski, 1996). The cultural environment is generally
acknowledged to be a national (or regional) system comprising language, religion, morals,
values, attitudes, law, education, politics, social organisation, technology, and material
culture. The effect of these cultural elements on accounting is therefore likely to be
exceedingly complex.
According to Perera (1989), each accounting system is a product of its specific culture
and environment. Mueller et al. (1994; p.1) have also noted, ‘Accounting is shaped by the
environment in which it operates’. In other words, different patterns of accounting are
associated with a range of cultural factors such as societal values, religion, political
systems, and historical background. Culture is a powerful influence underlying human
behaviour and social values, and its impact on accounting practices can not be
underestimated.
The main objective of this study is to test Gray’s (1988) hypotheses with respect
to cultural influences on accounting practices in Turkey. This is a developing country with
a geographical boundary that has been classified over the years as either being part
of South-Eastern Europe, South-Western Asia or the Middle East. The western portion of
Turkey, called Bosporu, is claimed to be a part of the European geopolitics. Turkey has a
total population of around 70 million, comprising a majority of Sunni Muslim, and has
a growth rate of 2% p.a. This country is a republic and its legal system is mainly drawn
from Continental Europe (The World Fact Book, 2005).
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An investigation into the effects of cultural values on accounting practices in Turkey
is complex. Turkey’s national societal values are influenced by Islamic values such as
Islamic customs, rituals, and beliefs. However, the country has adopted a largely secular
approach to governance. The language of Turkey has been recognised as a major barrier
for international investors because they may not be able to understand and interpret the
annual reports of the country’s listed companies, which are in Turkey’s native language.
Turkey has voiced its intention since 1959 to join the European Economic Community
(EEC) to gain the advantage of better economic development. However, the process is
under review by the European Economic Commission while the Turkish government
takes major steps to align the national socio-political policies with European requirements.
Turkey’s relationship with the European Union influences the form and content of the
financial information of Turkish listed companies.
It is also notable that the country has suffered a high inflation crisis for many
years, which has had significant impacts on the currency. This has resulted in a number
of problems for professional accountants in being able to measure the value of
certain assets and net profits. Accordingly, a study to investigate the effects of culture
on accounting practices in a complex economic and geopolitical environment should
assist in the development of accounting practices in Turkey.
Our study contributes to the knowledge of international financial accounting by
understanding the impact of national culture on professionalism, financial disclosures,
measurement of accounting elements, and enforcement of accounting standards. The
results of this study may be of interest to researchers in international accounting
studies area, regulators and policy makers, such as the International Federation of
Accountants (IFAC), international investors, domestic and international business
analysts, and global organisations such as the Organisation for Economic Co-operation
and Development (OECD).
The structure of the paper is organised as follows. First, the history of accounting is
reviewed followed by an understanding of accounting practices from differing cultural
perspectives. Then, the hypotheses of the study are developed followed by the analysis.
Finally, the results, conclusion, and limitations of the study are presented.
2 Accounting in Turkey
The first legal requirement influencing accounting development in Turkey was the
Commercial Law of 1850 (adopted from French Commercial Code and practice); and
‘the impact of French accounting on Turkish Accounting Practices was significant’
as a result of the adoption (Simga-Mugan, 1995, p.341). The Law that had strong
influences on the profession until 1960 was a translation of the French Commercial
Code (ibid). After the First World War and the establishment of the Turkish Republic,
accounting practices were influenced by the development of the second Commercial
Code Law 826, which was largely adopted from German Commercial law. The influence
of German accounting endured until the 1960s due to close ties between the two
governments (Cooke and Curuk, 1996). After 1960, however, the accounting system
shifted to an adoption of the US model of accounting.
In 1930, the accounting and auditing profession was recognised indirectly by the
new republican State Law No. 1580. This situation lasted until 1942 when the Expert
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68 S. Askary, H. Yazdifar and D. Askarany
Culture and accounting practices in Turkey 69
Accountant’s Association of Turkey (EAAT) was established to develop the accounting
and auditing profession. Since 1940, the MOF (Ministry of Finance) has been appointing
public accountants in order to inspect and audit the work of some of the large firms
in major cities. The profession attempted to be legally recognised as an independent
profession through the tax procedures law of 1950, but that was not successful.
Following the establishment of the MOF in 1945, the first taxation law was developed
by an expert group of local accounting firms, representing the overall accounting
profession and having the expertise to handle the accounting issues for taxation purposes
(Simga-Mugan, 1995). However, the MOF continued to control accounting and auditing
practices by the board of inspectors, account experts, and tax auditors. In 1956, the
Commercial Code of Turkey was passed. The Code assured legitimacy of transactions and
a right of recognition of the accounting profession indirectly. In summary, the accounting
profession in Turkey was under statutory controls until 1974.
One of the milestones for professional accounting development was in 1974, when two
important events occurred. First, a uniform chart of accounts was developed by the MOF
and the second event was when Turkey became a member of the International Financial
Reporting Standards (IFRS) committee. The MOF established a uniform chart of accounts
and accounting principles, to be effective from 1 January 1994 (Simga-Mugan, 1995),
for two reasons. First, a mandatory policy was to be followed by all companies and
secondly it facilitated an enforcement of a set of accounting rules (ibid., p.36).
Capital market research indicates that professional accounting associations can
positively affect the capital markets because reliable and relevant accounting information
facilitates functioning of an efficient capital market. In 1981, capital market rules,
enforced by Law Code 2499, developed the necessary rules to establish the Istanbul Stock
Exchange (ISE), which started functioning in 1986 (Simga-Mugan, 1995) The Capital
Market Board (CMB), however, was established officially in 1989 and was authorised
to be the official capital market regulatory body. It had seven board members appointed
by a council of ministers for 6 years.
The Union of Certified Public Accountants and Sworn-in Certified Public Accountants
of Turkey – acronym in Turkish, TURMOB – was formed by law 3568. This union
was to be effective for 3 years after the ISE establishment, as an official association of
the profession – with participation from the Chambers of Independent Accountants,
the Certified Public Accountants and the Sworn-in Certified Public Accountants
(Demirag, 1993). TURMOB became the sole authority to award professional licenses
for members, smiliar to the AICPA in issuing CPA certificates for its members.
The The Turkish Accounting and Auditing Standards Board (TAASB), which
issued 19 Accounting Standards published by TURMOB until January 2002, was
formed to develop a set of formal accounting and auditing standards in February 1994.
These standards were not widely used by Turkish companies. TAASB was renamed
the Turkish Accounting Standard Board (TASB) in April 2002. The new standards
are substantially similar to the IFRSs. Table 1 summarises all important historical
events affecting the accounting and auditing profession.
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3 Cultural values and accounting
Research on the relationship between accounting and culture has been widely debated
by academics and practitioners since 1980. The nature of culture has been explored in
the context of different aspects of accounting practices. Research has considered how
the influence of culture was manifested in the context of accounting. The focus later
expanded and produced plausible theories. Primarily these arose by reference to, and with
extensive drawing upon, the cultural studies that had been undertaken in the social science
disciplines and particularly by Hofstede (1980). Gray (1988), Perera (1989), Fechner
and Kilgore (1994), for example, used the results of the Hofstede cultural research into
categorising of national societal values to develop cultural/accounting theories.
Hofstede’s (1980) study has been the catalyst for much of the international accounting
research conducted since 1980. Indeed, it became the dominant paradigm. Taking on
Hofstede’s cultural dimension structure became almost obligatory for those researching
international accounting. Likewise the adoption of his culture definition . . . a collectiveprogramming process by a society, which distinguishes the belief systems of its membersfrom other societies – became the expected mantra.
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70 S. Askary, H. Yazdifar and D. Askarany
Table 1 A historical summary of the events affecting accounting practices in Turkey
Year A brief description of the event
1850 The First Commercial Code Law
1926 The Second Commercial Code Law 826
1945 The Ministry of Finance (MOF) established
1950 The MOF and the First Tax Law
1956 The new commercial code
1959 An application to be a member of EEC
1974 The development of a uniform chart of accounts
1974 Turkey became a member of IFRS Committee
1981 Capital Market Law No 2499 to establish of the Istanbul Stock Exchange (ISE)
1984 The ISE established
1986 The ISE started to operate
1989 The Law of Independent Accountancy Financial Advisorship (Law No 3568)
1989 The first set of financial accounting standards developed by capital market board
1992 Uniform chart of accounts established by the MOF
1994 The effective date of uniform chart of accounts
1994 The Turkish Accounting and Auditing Standards Board (TAASB) was formed
2002 TAASB prepared 19 Turkish Accounting Standards (TAS)
2005 New CMB accounting standards almost same as the IFRS in effect from January
Culture and accounting practices in Turkey 71
Hofstede (1980) specified four characteristics of culture: individualism, powerdistance, uncertainty avoidance, and masculinity. It is to be noted that Hofstede’s
study has enjoyed considerable attention by different disciplines. Indeed, it has been
cited in nearly 600 studies between 1981 and 1992 (Sudarwan and Fogarty, 1996).
Thus, its use in the context of accounting research is quite justified. It is understandable
therefore that accounting researchers have followed suite and sought authority for
their culture/accounting theories in Hofstede.
Individualism pertains to societies in which the ties between individuals are loose:
everyone is expected to look after himself or herself and his or her immediate family.
Collectivism as its opposite pertains to societies in which people from birth onwards
are integrated into strong, cohesive groups, which throughout people’s lifetimes continue
to protect them in exchange for unquestioning loyalty (Hofstede, 1997, p.51).
Power distance can therefore be defined as the extent to which the less powerfulmembers of institutions and organisations within a country expect and accept thatpower is distributed unequally. ‘Institutions’ are the basic elements of society like
the family, school, and the community; and ‘organisations’ are the places where people
work (Hofstede, 1997, p.28).
Uncertainty avoidance can therefore be defined as the extent to which the memberof a culture feels threatened by uncertain or unknown situations. This feeling is, among
other things, expressed through nervous stress and in a need for predictability: a need for
written and unwritten rules’ (Hofstede, 1997, p.113).
Masculinity pertains to societies in which social gender roles are clearly distinct
(i.e. men are supposed to be assertive, tough, and focused on material success whereas
women are supposed to be more modest, tender, and concerned with the quality of life):
femininity pertains to societies in which social gender roles overlap, i.e. both men
and women are supposed to be modest, tender, and concerned with the quality of life)
(Hofstede, 1997, pp.82–83).
Gray (1988) translated Hofstede’s cultural and societal values into accounting
values and posited a relation between them (Table 2). Gray’s model proposed that
all accounting policy decisions, at a national level, are made in response to cultural
values that are explicable in the terms of the Hofstede study (Salter and Niswaner, 1995).
Gray’s justification of that framework closely follows Hofstede’s explanation of
cultural dimensions. Essentially, it entailed the substitution of accounting terminology
for Hofstede’s cultural rhetoric.
Professionalism is defined as a preference by accountants for exercising individual
professional judgement in undertaking accounting tasks. (Gray, 1988). It entails the
maintenance of professional self-regulation. This stands in contrast with statutorycontrol – the imposition of force on accountants to comply with prescriptive legal
requirements with the backing of legal sanctions for non-compliance.
According to Gray (1988), high individualism and low uncertainty-avoidance and
power distance in a society mesh tightly with accounting professionalism. He explained
that ‘. . . [a] preference for independent professional judgement is consistent with a
preference for a loosely knit cultural framework where there is more emphasis on
independence, a belief in individual decisions and respect for individual endeavour.’ (p.9)
On those grounds, he reasoned that professionalism in accounting is more likely to
be accepted in a small power-distance society with a concern for the exercise of
equal rights.
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72 S. Askary, H. Yazdifar and D. Askarany
Table 2 Matrix of relationship of accounting values with societal values
Cul
tura
l soc
ieta
l val
ues
Acco
untin
g va
lues
Prof
essi
onal
ism
Stat
utor
y co
ntro
lU
nifo
rmity
Flex
ibili
tyC
onse
rvat
ism
Opt
imis
mSe
crec
yTr
ansp
aren
cy
Indiv
idual
ism
Posi
tive
Neg
ativ
eN
egat
ive
Posi
tive
Neg
ativ
eP
osi
tive
Neg
ativ
eP
osi
tive
Coll
ecti
vis
mN
egat
ive
Posi
tive
Posi
tive
Neg
ativ
eP
osi
tive
Neg
ativ
eP
osi
tive
Neg
ativ
e
Lar
ge
pow
er
Neg
ativ
eP
osi
tive
Posi
tive
Neg
ativ
eN
/AN
/AP
osi
tive
Neg
ativ
e
dis
tance
Sm
all
pow
erP
osi
tive
Neg
ativ
eN
egat
ive
Posi
tive
N/A
N/A
Neg
ativ
eP
osi
tive
dis
tance
Str
ong
Neg
ativ
eP
osi
tive
Posi
tive
Neg
ativ
eP
osi
tive
Neg
ativ
eP
osi
tive
Neg
ativ
e
unce
rtai
nty
avoid
ance
Wea
kP
osi
tive
Neg
ativ
eN
egat
ive
Posi
tive
Neg
ativ
eP
osi
tive
Neg
ativ
eP
osi
tive
unce
rtai
nty
avoid
ance
Mas
culi
nit
y
Posi
tive
N/A
N/A
N/A
Posi
tive
Neg
ativ
eN
egat
ive
Posi
tive
Fem
inin
ity
Neg
ativ
eN
/AN
/AN
/AN
egat
ive
Posi
tive
Posi
tive
Neg
ativ
e
Sour
ce:
Rad
ebau
gh a
nd G
ray (
2002),
p.4
Culture and accounting practices in Turkey 73
Secrecy is taken in the culture/accounting debate to manifest a preference for
confidentiality. Its accounting manifestation thus lies in the restriction on the disclosure
of financial information pertinent to the assessment and evaluation of the performance
and state of business affairs. This contrasts with a more transparent, open and publicly
accountable approach (Gray, 1988). Gray’s hypotheses suggest that of the four Hofstede
values, uncertainty avoidance and individualism are the most influential in relation to
the accounting values. According to this reasoning, the positive effects of uncertainty
avoidance and power distance combine to evoke secrecy. As a consequence, it is to be
expected that small power distance and weak uncertainty avoidance may evoke positive
effects on transparency.
Enforcement in respect to accounting, in the context of the cultural debate, is a
preference for either insisting on uniform accounting practices or, its opposite, flexibility
in accordance with the perceived circumstances of individual companies (Gray, 1988).
The disclosure of financial data in general purpose financial statements is a particular
setting in which uniformity, or otherwise, is an issue (Askary, 2001).
To Gray, this accounting value dimension is very substantial because other attitudes
such as consistency and comparability are incorporated as fundamental features of
accounting principles worldwide. Gray reasoned that individualism and uncertainty
avoidance are linked closely with uniformity. Gray thereby links uniformity closely to
uncertainty avoidance, because strong uncertainty avoidance is perceived by him to be
linked with rigid codes of behaviour, law, order and written rules and regulations, which
avoid mistakes and unpredictable outcomes. As a consequence, a large power distance
society is deemed to facilitate uniformity by imposing laws and codes of a uniform
character on that society. It is to be expected then, that those countries deemed to practice
large power distance would have a large catalogue of accounting standards.
Conservatism does not take on any special meaning in the context of the accounting
/culture debate. As in the conventional focus on accounting, conservatism is a preference
for a cautious approach to measurement of accounting elements such as the monetary
amounts of assets and liabilities, revenues, expenses and the calculation of profit or loss,
calculated with uncertainty of future events in mind. In contrast, optimism can be regarded
a laissez-faire, risk-taking approach in accounting measurements. This conforms to the
culture/accounting debate context (Gray, 1988).
Gray’s explanation implies that only uncertainty avoidance can be linked closely
to conservatism. High uncertainty avoidance, in regard to measurement of profit and
the worth of assets, is consistent with highly conservative accounting values expressed
for assets in the balance sheets of companies. In addition, there is a perceived link, even
if less strong, between individualism, masculinity and conservatism. Because of an
emphasis on individual achievement and performance which is likely to be conducive
to a less conservative approach to measurement, with a view to bolstering reported
performance outcomes and inducing perceptions of what Gray (consistent with Hofstede)
considers are indicative of highly attuned masculine traits.
Doupnik and Riccio (2006) investigated ‘. . . Gray’s conservatism and secrecy
hypothesis in the context of interpreting verbal probability expression used as recognition
and disclosure thresholds in IFRSs.’ (p.254) They found that ‘Gray’s theory as applied to
the interpretation of accounting standards by individual accounting is universally valid’
and ‘differences in cultural values across countries could lead to differences in recognition
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and disclosure decision based on those interpretations.’ (ibid.) In addition, Doupnik and
Richter (2004) supported the idea that Gray’s conservatism hypothesis extend to the
more developed Latin cultural area.
Perera (1989) added a further element to Gray’s (1988) theory by injecting the
notion of accounting values into the analysis of the development of accounting practices.
Perera’s accounting practice values were: the authority for accounting systems, the
capacity to enforce accounting uniformity, the foundation for the measurement basis,
and the boundaries for the parameters – transparency and secrecy – used in respect of
information disclosure. To Perera, there was a positive relationship between authorityand professionalism, uniformity and enforcement, conservatism and measurement,and transparency and disclosure. In addition, Perera and Matthews (1990) have
claimed that cultural dimensions of uncertainty avoidance and individualism exert
the strongest influence on accounting values (p.265), simply as a result of the positive
effects of individualism and negative effects of weak uncertainty avoidance on Gray’s
professionalism, flexibility, optimism and transparency.
Turkey is one of the Middle Eastern countries that was studied by Hofstede (1980).
Table 3 shows the Hofstede scale of socio-cultural values in Turkey. Turkey is classified
relatively low on individualism and masculinity, but higher on power distance and
uncertainty avoidance.
The scores for uncertainty avoidance and power distance are relatively high, consistent
with the fact that these societies have highly rule-oriented laws and controls. These
cultures are more likely to cause significant downward mobility of its citizens. By
combining the two dimensions, it creates a situation where leaders have virtually ultimate
power and authority, and the rules, laws and regulations developed by those in power,
reinforce their own leadership and control.
We compare the Hofstede scales for Turkey, Germany, and Iran. Iran is a Muslim
country and Turkey’s close neighbour and they share many common socio-cultural values.
Germany is a European country and has many historical and political relationships with
Turkey. Iran has high uncertainty avoidance and power distance which are almost similar
to Turkey. This indicates – at the time of the survey in 1972 – that Iran had a moderate
application of these two Hofstede dimensions when compared with other countries.
However, with the over-throw of the Shah in January of 1979, and the subsequent turning
toward Islamic values, the current Hofstede dimensions for Iran should be closer to
Muslim countries in terms of higher uncertainty avoidance and power distance rankings.
Iran’s highest dimension ranking was uncertainty avoidance at 59, which indicates the
society’s low level of tolerance for uncertainty, compared to Turkey’s ranking of 85.
Figure 1 compares Iran and Turkey in Hofstede’s study.
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74 S. Askary, H. Yazdifar and D. Askarany
Table 3 Hofstede’s scaling of national cultures for Turkey
Individualism Power distance Uncertainty avoidance MasculinityIndex Rank Index Rank Index Rank Index Rank
37 24 66 34–35 85 34–35 45 20–21
Low Low High High High High Low Low
Culture and accounting practices in Turkey 75
As Figure 2 shows, culture values for Germany do not illustrate similar attitudes
when compared with Turkey’s cultural values. While individualism and masculinity in
Germany are as much as double that of Turkey, the power distance and uncertainty
avoidance are similar. Germans are strongly individualistic when compared to Turkey.
From this viewpoint, accounting practices in Turkey should not be similar to those
accounting practices in Germany, if Gray’s theory holds true.
4 Hypothesis development
Askary’s thesis (2001) linked the accounting practices and cultural values of 12
developing countries including Turkey, by applying the Gray–Hofstede model. Our
study applies Askary’s model in developing the hypothesis and the variables.
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Figure 1 Hofstede’s scaling of national cultures for Turkey and Iran (see online versionfor colours)
Figure 2 Hofstede’s scaling of national cultures for Turkey and Germany (see onlineversion for colours)
According to Gray (1988), accounting practices in Turkey should have the attributes
originating from its specific cultural values. We use the Hofstede study of Turkish
cultural attributes and Gray’s hypotheses to determine how accounting practices in
Turkey are affected as a result of the Turkish cultural values. These values can be seen to
affect the accounting practices (AP) in Turkey as formulated in Table 2. The relationship
between the accounting-function and cultural values can be represented as follows:
AP = f(PD, UA, MAS, IND), where PD, UA, MAS, and IND indicate power distance,
uncertainty avoidance, masculinity, and individualism respectively. APs, as Perera (1989)
explained, are demonstrated in four different aspects: accounting authority, disclosure,
enforcement, and measurement. A brief explanation of each aspect is presented below.
4.1 Accounting authorityWhen accounting values orient towards statutory controls, then accounting practices
are governed more by legal requirements and less by the application of professional judgement.
Professionalism requires that only professional accounting bodies as a unique group, make
judgements regarding accounting practices, such as, asset and income measurements or
valuations as well as various aspects of disclosures of financial information for different users.
By referring to Haniffa and Cooke’s (2002) study, Table 4 represents the relationship
between Hofstede’s societal values and Gray’s hypotheses regarding accounting
professionalism.
Table 4 is a result of consolidation of Tables 2 and 3. It is a combination of the
Hofstede (1980) scales and Gray’s (1988) hypotheses about accounting authority in
Turkey which is expected to have more statutory controls and less professionalism.
If this initial prediction for the accounting authority holds good, then the first
hypothesis of this study is:
Hypothesis 1: in Turkey, professional bodies are under a statutory control domain
rather than professionalism.
4.2 Accounting disclosureDisclosure in the Gray model is concerned with transparency or secrecy. Transparency is
a preference to unveil comprehensive financial information about different elements of
financial statements and for a broad range of users. Secrecy represented a preference for
a cautious approach to disclosing financial information as a result of the influence of
management on both the quantity and quality of information presented to outside users.
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Table 4 Cultural values and Gray’s hypothesis of accounting professionalism in Turkey
Hofstede societal values Turkey’s values The predicted accounting value under Gray’s theory
Power distance High High statutory control
Masculinity Low
Uncertainty avoidance High
Individualism Low
Culture and accounting practices in Turkey 77
The Hofstede–Gray model of financial-information disclosures in Turkey reveals a
low level of transparency, in other words, high secrecy, as Table 5 illustrates.
If we consider Table 5 to be an initial prediction of financial disclosures in Turkey,
then the following hypothesis is plausible:
Hypothesis 2: listed companies in Turkey are secret rather than transparent in
disclosing financial information.
4.3 Accounting enforcementUniformity, as defined by Gray (1988, p.8), is a preference for applying similar
accounting practices within companies and for the consistent use of such practices
over time periods. This definition covers two dimensions. First, there is inter-temporal
consistency in accounting practices and; second, the uniformity in application of accounting
policies and procedures.
Similar to previous tables, Table 6 is derived from the Gray’s (1988) study, showing
the normative accounting enforcement in Turkey, that is, a desire for a uniform approach
in applying accounting methods because of high power distance and uncertainty avoidance
and low individualism.
If we assume Table 6 to be an initial predictor about accounting enforcement in Turkey,
then the following hypothesis should be testable:
Hypothesis 3: listed companies in Turkey are uniform rather than flexible in applying
diverse accounting methods.
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Table 6 Cultural values and Gray’s hypothesis of uniformity in Turkey
Hofstede societal values Turkey’s values The predicted accounting value under Gray’s theory
Power distance High High uniformity
Masculinity Low
Uncertainty avoidance High
Individualism Low
Source: Tables 1 and 2
Table 5 Cultural values and Gray’s hypothesis of financial disclosures in Turkey
Hofstede societal values Turkey’s values The predicted accounting value under Gray’s theory
Power distance High High secrecy
Masculinity Low
Uncertainty avoidance High
Individualism Low
Source: Tables 1 and 2
4.4 Accounting measurementConservatism is a well-known concept within the accounting discipline. It is defined as
‘a preference for a cautious approach of measurement to cope with the uncertainty
of future events as opposed to a more optimistic, laissez-faire, risk-taking approach.’
(Gray, 1988, p.8). The opposite situation to conservatism is optimism, based on Gray.
In the end, conservative accounting methods are applied to revenue and asset recognitions
so as to recognise losses sooner than gains. This is the most fundamental accounting
concept and probably the most pervasive principle in accounting valuation (Watts, 2003).
Cultural values and its effects on choosing a preference for conservatism was
a matter for the Gray (1988) study. Table 7 shows the preference of accounting
measurements. The table implies a low level of optimism, or a highly conservative
approach.
Therefore, hypothesis four is an initial deduction about accounting measurement
in Turkey:
Hypothesis 4: listed companies in Turkey apply conservative rather than optimistic
accounting measurement methods when they prepare their financial statements.
5 Methodology
To test the hypotheses and collect the relevant data, various sources were targeted by our
study. The main dataset was the annual reports of the listed companies in the ISE and
information about how the professional accounting bodies were actively involved with
accounting and auditing development in Turkey. The annual reports were sources on
how and what kinds of accounting disclosures and measurement methods were used by
the companies. The extent of applied uniformity in the form and content of the reports
was examined. The data comprised the financial reporting information contained in the
annual reports for the years ended 1996–2000, of only domestic companies.
The data were collected by sending mail to the listed companies as follows. First
a letter was initially sent to the ISE to request the annual reports of top 100 listed
companies.1 However, the rate of responses from ISE was very low. Next, additional
letters were sent directly to the companies to ask them for their annual reports. A total
of 102 letters were sent to only industrial companies and 64 annual reports received.
Of those received, 45 annual reports were used for measuring the study variables.
The total number of listed companies was 285 by year 2000.
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Table 7 Cultural values and Gray’s hypothesis of accounting measurements in Turkey
Hofstede societal values Turkey’s values The predicted accounting value under Gray’s theory
Power distance N/A High conservatism
Masculinity Low
Uncertainty avoidance High
Individualism Low
Source: Tables 1 and 2
Culture and accounting practices in Turkey 79
In addition to the contents of annual reports, the study also focused on other aspects
such as information about the accounting and auditing standards setting process, the
professional bodies, and how the members were involved in developing and implementing
the accounting and auditing regulations. Accordingly, further letters were sent to all
professional bodies asking them for any information helpful for the purposes of this study.
Finally, we used all the information available on the webpages of Turkish and non-Turkish
weblogs which was considered to be helpful for the purpose of the study. The rest of
the section is divided into four subsections, each section deals with the variables for testing
of the four hypotheses of the study.
5.1 Authority variablesTo measure accounting authority, we concentrate on this question: how professional
accounting bodies operate in Turkey? We developed seven variables by looking at
Askary’s (2001, 2006) study. Table 8 describes the variables. These variables are
dummy variables (1 if answer is yes, otherwise 0) to measure professionalism in Turkey.
That is, if we suppose all answers to these variables are yes, then we conclude that the
accounting authority is considered to have a professionalism orientation. An average of
less than one means the accounting authority is oriented somewhere between statutory
controls and professionalism.
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Table 8 The variables to scale professionalism
No. Descriptions of the variables
1 Do accounting and auditing professional bodies exist in the country?a
2 Are the bodies involved in developing national accounting and auditing standards?b
3 If not, are annual reports based on International Accounting Standards?c
4 Should the annual reports be accompanied with the auditors’ report?d
5 Are the professional accounting and auditing bodies independent of their governments?e
6 Accounting and auditing regulations are not controlled or developed predominantly by
the State.f
7 The base of financial statements preparations is not restricted to the statutory business
laws.g
Notes: aExistence of the professional bodies in a society implies demand for the professionalaccounting and auditing servicesbEvidence of self-regulation power by the professional bodiescEvidence of association with the international professional bodies such IFACdEvidence of applying professional judgements based on the professional standards suchas accounting and auditing standardseThis variable is measured as an evidence of controls exercised by the professionalbodies – professionalismfEvidences of the extent to which accounting bodies have self-regulation attributes orhigh level of professionalismgIf yes, that means professionalism is practised at a low level
Source: Askary (2001), p.107 (2006)
According to Askary (2001, 2006), the first variable measures how important for a
society is to have accounting and auditing professional bodies? The existence of the bodies
is an initial step in examining the development of professionalism of accountants
and auditors. The second variable determines the degree of the professional bodies’
involvement in developing accounting and auditing standards. If, for example, the
government totally controls the standard-setting development, then professionalism
would be at the lowest level. The third variable is about national accounting and auditing
standards. To have national accounting and auditing standards or adopting IASs consider
as 1 otherwise 0. Variable four is about how professional judgements are applied to
the financial statements by members of accounting bodies. The fifth and sixth variables
measure professional independence in term of developing the professional standards for
members. The last variable measures the extent to which financial report preparation
reflects the requirements of business law (statutory control) or reflects established
accounting standards.
5.2 Financial-disclosure variablesDisclosures of financial information by listed companies to the public, as required
by organisations such as SEC, leading the capital markets to higher efficiency, are
another accounting practice to be linked to cultural values in Gray’s (1998) model.
An accumulated body of literature on compliance with IFRSs exists; for example
see Dumontier and Raffournier (1998); Murphy (1999); Street and Bryant (2000); and
Street and Gray (2001). For the purposes of this study, a disclosure index is taken from
the study of Askary (2001) and Askary and Jackling (2005). Using a dummy variable
approach, for every item disclosed in the financial statements of listed companies the
value is one, otherwise zero. To reduce subjectivity in determining the applicable items,
first the entire annual report was read to determine its applicability. In addition, all of
the reports were initially read and coded by one person for consistency.
Table 9 shows a description of seven variables adopted from the Askary (2001)
and Askary and Jackling (2005) studies. The only difference is related to variable 2 which
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Table 9 Financial disclosure variables
No. Descriptions of the variables
1 Willingness of firms to be open (transparent) to the public
2 Disclosures of fundamental accounting assumption and general information about entitya
3 Disclosures required by IFAC for Balance sheet
4 Disclosures required by IFAC for Profit and Loss Statement
5 Disclosures required by IFAC for Cash flow statement
6 Disclosures required by IFAC for accounting policies
7 Disclosures of notes to financial statements as required by IFAC
Note: aAs these requirements are necessitated by IFRS 1, item 13, 5 items 7 and 9, andIFRS 14, item 9
Source: Askary and Jacking (2005), p.54
Culture and accounting practices in Turkey 81
is a mix of both variable 2 and 3 in the Askary (2001) and Askary and Jackling (2005)
studies. That is ‘disclosure of fundamental accounting assumption’ and ‘general
information about entity’ is mixed into single variable 2 as ‘disclosure of fundamental
accounting assumption and general information about entity’. All other assumptions
used by Askary and Askary and Jackling were valid for this study.
5.3 Uniformity variablesSimilar to the accounting measurements, uniformity is measured in accordance with
Askary’s (2001) study. The seven variables developed to measure the uniformity attribute
are based on the Gray (1988) and Perera’s (1989) studies in terms of accounting
enforcement (Table 10). The method of scaling for this variable, the same as for the other
variables, is to use dummy variable methods. In that sense, if answers are ‘yes’ to all
of the variables, then it shows a uniform approach of applying accounting methods and
policies – consistency in disclosure of accounting information in the financial reports,
otherwise zero, to imply a flexible approach.
5.4 Measurement variableHistorical cost accounting is founded on the basis of conservative accounting
measurements. Table 11 is a list of all variables used by the Askary (2001) study which
examines how accounting measurements can be ranked from conservative to an optimismalternative. Askary developed seven sub-variables for measuring conservative assets
valuations and income. The dummy variables are used by assigning one if conservative,
otherwise zero. Therefore, if all answers to the questions are ‘yes’, then the accounting
measurement is scaled to be completely in a conservatism style.
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Table 10 The variables to measure accounting uniformity
No. Descriptions of the variables
1 No accounting changes within the firms during 1996-2000a
2 Uniformity in using accounting policies across firmsb
3 Not using other statements instead of Cash Flow Statement (CFS)c
4 Uniformity in presenting Balance Sheet items
5 Uniformity in presenting Income Statement items
6 Uniformity in presenting CFS
7 Uniformity in presenting notes to the financial information
Notes: aAccounting changes result in a less uniformity and consistencybSimilar accounting policies result in more comparable financial reportscApplying either ‘Changes in Financial Position’ or ‘Fund Flow Statement’ instead ofCash Flow Statement imply diversity or flexibility
Source: Askary (2001), p.208
6 Results
Table 12 summarises all actual averages of the seven variables applied respectively to
each accounting practice as follows.
6.1 Accounting authorityThe actual average of the seven variables described in Table 12 is equal to 0.71 or 71%.
Basically, the result implies that ‘accounting authority’ is relatively strong in terms of
‘professionalism’. By reviewing the history of accounting authority in Turkey, this study
considers three periods to be very important. The first period can be termed as absolutestatutory control which started from the 1900s to early 1980s. The second period is
when a movement through professionalism was started by the government as well as the
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Table 11 The variables to measure accounting conservatism
No. Descriptions of the variables
1 Historical cost accounting used for the measurement of assetsa
2 Lower of cost or net realisable for inventoriesb
3 Measuring fixed assets or property, plant and equipment at cost less depreciation
4 Receivables, net of provision for doubtful debtsc
5 Conditional or contingent loss disclosed in Income Statementsd
6 Other reserves in addition to general and statutory reserves
7 Intangible at net of amortisation
Notes: aHistorical Cost Accounting supposes to be a criterion for conservative accountingmethodsbInventories should be measured at the lower of cost and net realisable value which is aconservative accounting practicecTrade and other receivables expected to be realised within one year of the balance sheetdate. Trade receivables may be include in their entity in current assets, provided that theamount not expected to be realised within one year is disclosedThe amount of a contingent loss should be recognised as an expense or a liability
Source: Askary (2001), p.213
Table 12 Actual measures of the accounting practices in Turkey
Accounting values 1 2 3 4 5 6 7 Average
Authority 1 1 1 1 1 0 0 0.71
Disclosure 0.6270 0.9494 0.6947 0.7205 0.5973 0.6823 0.6533 0.70
Enforcement 0.9132 0.6533 0.6841 0.6763 0.7205 0.5984 0.5512 0.69
Measurement 1.0000 0.619 0.994 0.9048 0.8095 0.8110 0.4762 0.80
Culture and accounting practices in Turkey 83
professional bodies, which occurred from 1980 to 1990. And finally the third period
started with the movement toward an enhanced improvement in accounting
professionalism from the 1990s until now. From this viewpoint then, the result of the
study for professionalism is valid due to the conformity of our variables measured with
the recent movements toward professionalism over past years.
The variables 6 and 7 with 0 scales represent a statutory-control feature of the
accounting practice in Turkey, and the variables 1–5 show entirely professionalism.
Thus, by looking at the figure, one can conclude that accounting authority in Turkey
tends toward professionalism. Therefore, Hypothesis 1 is rejected by the results and
Gray’s theory in regard to this accounting practice is not acceptable for Turkey. In order
words, large power distance and high uncertainty avoidance as well as collectivism
does not affect professionalism in Turkey. One possible reason for this is the recent
movements by the accounting profession and the government in Turkey towards the
harmonisation of accounting reporting practices with International Financial Accounting
Standards.
6.2 Financial disclosuresMost research applying Gray’s secrecy/transparency hypothesis has concentrated on the
relationship between cultural values and disclosures represented in corporate financial
reports (Baydoun and Gray, 1990; Belkaoui, 1997; Gray and Vint, 1995; Harrison and
McKinnon, 1986; Hope, 2002; Jaggi and Low, 2000; Zarzeski, 1996). Transparency is all
about quality disclosure of financial information as well as a willingness to be open to
users on a timely basis. The willingness attitude of managers of the listed companies in
Turkey depends on their attitude toward providing the public with full financial disclosure.
Variable 1 is measured by considering the fact of how the companies, have an overall
desire to be open to disclosing their financial information to the public. Due to the fact that
we did not have an answer to the question from a reliable source or a past study, we
measured the sub-variable by dividing the number of requested-letters sent to the
companies (102 letters) by the number of annual reports received from them (64 annual
reports), that is, 62.7% and an indication of a mid tendency towards transparency in
respect of being open to users.
Other variables, as shown in Table 12, are ordered from the low average to high and
depicted in Figure 3. This figure illustrates that variable 5 and 2 are two limits of financial
disclosures in terms of low and high transparency. Variables 2 and 7 have the highest
degree of transparency and variables 1, 7, 6, and 3 have an average close to the total
average of the variables for transparency – 0.70 or 70%. Thus, Hypothesis 2 is rejected by
the actual average of the study and Gray’s theory in predicting financial disclosure in
Turkey does not apply. In order words, large power distance and high uncertainty
avoidance as well as collectivism cannot affect financial disclosures in Turkey. Consistent
with variable 1, the possible reason for this is the adoption of the International Financial
Accounting Standards for Turkey’s national accounting and auditing standards.
6.3 EnforcementThe results show that accounting enforcement has a preference toward a uniform approach
in presenting financial information and consistency in applying accounting methods for
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the period 1996–2000. The results are also consistent with the background of accounting
in Turkey: the tax procedures code and the uniform chart of accounts prescribe
homogeneous accounting practices within the listed companies through prescribing a code
of accounts and a format for the presentation of financial statements. These formats are
obligatory for all companies as prescribed by government through the MOF, particularly
for tax purposes.
Figure 4 confirms that variables 7 and 1 hold the lowest and highest level uniformity.
Variable 7 – no accounting changes within the firms during 1996–2000 – has the lowest
average which may relate to high uncertainty avoidance. Variables 2–4 have close
averages and are located between the averages of variables 6 and 5. As a result, the study
– in term of accounting enforcement – confirms Hypothesis 3 and verifies that high power
distance and uncertainty avoidance and low individualism are positively associated with
accounting uniformity. Thus, Gray’s hypothesis is confirmed by the results of the study.
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Figure 3 The limit of transparency in accounting disclosures in Turkey
Figure 4 The limit of uniformity in accounting enforcement in Turkey
Culture and accounting practices in Turkey 85
6.4 Accounting measurementsTable 12 determines that the average of variables for accounting measurements applied to
the listed companies is 80% demonstrating a preference for conservative accounting
methods. However, the national economy has suffered from inflation for many years and
this issue inevitably affects the usefulness of the quality of assets and net profit
measurement for each fiscal year. However, since 2003, listed companies are required by
the CMB to adjust their balance sheet accounts to take into account the effects of inflation.
Even the government has agreed to adopt inflation accounting for tax purposes. Applying
inflation accounting results in bringing financial statement values close to current values
or, to the real value which is a departure from the historical base. While the IFRS has
issued a guideline concerned with financial reporting in hyperinflationary economies such
as Turkey’s economy, it is not clear how inflation accounting is being applied in Turkey.
Figure 5 has arranged the variables from less conservatism (optimism) to a high
level of conservatism based on the average of the variables. Variables 7 and 1 have the
lowest and highest degree of conservatism respectively. Variables 7 and 2 are relative
outliers from other variables. Variables 3–6 are either close or positively greater than
the average which indicates the high level of conservative accounting measurement.
Therefore, Hypothesis 4 is accepted by considering the actual results of our study. Our
results confirm Gray’s theory that high uncertainty avoidance and low individualism is
positively associated with high conservatism, particularly for variables 1, 3, 4, 6, and 5.
7 Conclusions
Our study provides empirical evidence of links between socio-cultural values and
professionalism, financial reporting, uniformity, and accounting measurements in Turkey.
An important contribution of this study is that we measured accounting differences in
Turkey by considering the influence of cultural values. This study used Gray’s (1988)
theory of culture and accounting to test present accounting practices in Turkey. Gray’s
theory predicts that accounting practices in Turkey should have a propensity toward
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Figure 5 The limit of optimism-conservatism accounting measurements in Turkey
statutory controls in accounting authority, secrecy in regard to disclosing financial
statements, and using uniform but conservative accounting methods in measuring
financial statement elements. Our results confirm Gray’s prediction of uniformity
in applying accounting methods and applying conservative measurements; however, the
actual results signified opposite attributes for professionalism for accounting authority and
transparency in disclosures of financial information.
Our results confirm Gray’s theory that high uncertainty avoidance and low
individualism is positively associated with high conservatism. In addition, the study – in
terms of accounting enforcement – confirms Hypothesis 3 and verifies that the highest
power distance and uncertainty avoidance and lowest individualism are positively
associated with accounting uniformity. However, large power distance and high
uncertainty avoidance as well as collectivism do not affect professionalism and financial
disclosures in Turkey. Our results on the accounting practices in Turkey are consistent
with the results from Askary (2001, 2006) and Askary and Jackling (2005).
It seems then that the influence of culture on the accounting profession in Turkey has
diminished as a result of Turkey’s drive to become part of the EU. First of all, there is a
conflict between some of the Turkish national or cultural values and European demands.
In addition, the convergence of accounting practices to the EU style minimises the effect
of national culture in Turkey which is a developing country and the only Muslim nation
in Europe which departs from the typical European culture. Thus, Turkish cultural values
should demonstrate conformity with the commissioners of the EU directives if the country
wants to become a fully-fledged accepted member of the EU.
There are some limitations of this study. Firstly, the findings should be interpreted
with some caution, particularly in terms of the generalisation of results. Secondly, the
study did not perform further statistical tests. Thirdly, the study used the Hofstede (1980)
study that has been widely used by more than 600 studies (Askary, 2001). However,
Hofstede’s theory has been criticised by Baskerville (2003).
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Note
1 By applying the statistical sampling techniques from homogenous samples, only non-financialcompanies were selected.
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88 S. Askary, H. Yazdifar and D. Askarany