Why Do National GAAP Differ from IAS ? The Role of Culture

In this paper, we investigate the role of culture to explain differences between national GAAP and international accounting standards (IAS). National GAAP can differ from IAS in two ways: (1) divergence: both national GAAP and IAS cover a specific accounting topic but prescribe different methods; or (2) absence: national GAAP do not cover an accounting issue regulated by IAS. On the basis of Nobes' (2001) data, we construct a measure for the level of divergence of national GAAP benchmarked on IAS. We also create a measure (labeled absence) to assess the scope of national accounting rules compared to IAS. After controlling for institutional differences, we show that culture matters more to explain divergences with IAS in common law countries than in code law countries. This result is robust to alternative proxies for culture. Our sample is made up of 52 countries. These results contribute to the ongoing debate on accounting harmonization. More specifically, our findings suggest that the technical and/or political dimensions of the debate, although essential, are not the only ones involved. Opposition to IAS is not exclusively driven by contractual motives or a claimed technical superiority but also by diversity in cultural factors. Another contribution of this paper is the development of a two-dimension score to measure the differences between national GAAP and IAS.