Financial Crisis and Accounting Reform : A Cultural Perspective

This paper proposes a framework for studying the process of accounting changes based on a cultural perspective. An accounting change triggered by an intrusion of external events is influenced by the continuous interactions among the institutional consequences and societal as well as accounting values. The process of an accounting change can be decomposed into the phase of system change (form) and the phase of subsequent practice change (substance). The system changes are direct and immediate products of institutional consequences as long as the regulatory authority ackowledges the legitimacy of the change. Practice changes are products not only of system change (regulation) but of cultural changes which is constrained by pervasive accounting convention (general acceptance). The discrepancy between the underlying paradigms of the regulation and the existing convention functions as a mediating variable. The influences of an intrusive event on the societal as well as accounting values is not as obvious as those on accounting systems because it tends to take longer time for the values to fully accommodate changes. Changes in accounting system may induce accounting values to change. Provided that the goal of the system change is consistent with existing value systems, the change in accounting convention can be prompt. When the accounting culture does not coincide with the goal of the system change, conflicts may occur and hinder the coordination between the system and practices. A failure in justifying the system change on the part of the regulatory authority may arouse resistance from constituencies, resulting in the ultimate failure of the system. If the authority is successful in gaining general acceptance, the accounting cultures will assimilate in the long run. This framework is illustrated through the example of Korean accounting reforms after the 1997 financial crisis.