A study of the choice of inventory accounting methods in Saudi Arabia.

摘要

Much of the literature on accounting choices, in general, and inventory choices, in particular, has focused on the US and other Western countries. Little research has been conducted to understand the determinants of accounting choice in general and inventory choice in particular in developing nations. Developing countries, like Saudi Arabia, have different economic, social, and cultural characteristics from developed nations. Therefore, the specific purpose of this study was to extend the research on the determinants of inventory accounting choices to firms in Saudi Arabia where Zakat (taxes) are not a distinguishing choice factor.;Based on a review of the literature, hypotheses were developed to test whether managers' selection of inventory accounting policy in Saudi Arabia can be partially explained by size, capital intensity, leverage, industry membership or some operating characteristics. Due to the low political costs associated with Saudi firms, a positive (not negative) association was predicted between the choice of income-increasing inventory accounting methods and political costs proxies (size and capital intensity). A positive association was predicted between the choice of income-increasing inventory accounting methods and agency proxy (Debt/ Equity Ratio) and proxies for efficiency of inventory management (inventory materiality/turnover ratios). On the other hand, a negative association was predicted between the choice of income-increasing inventory accounting methods and working capital ratios. No association was predicted between industry classification and the choice of inventory accounting methods. A sample of Saudi firms in four sectors--agriculture, cement, manufacturing, and service--was used to test the above hypothesized associations. Univariate Mann-Whitney U test and t-test and a multivariate (logit & OLS) models were used for the statistical analysis.;The overall statistical results of the sample did not support the size hypothesis, the capital intensity hypothesis, the leverage, the working capital hypothesis, or the efficiency in inventory management (materiality and turnover ratios) hypothesis. However, the results provided support for an association between the cement and the agriculture industry variables and the choice of inventory method. In addition, the results show that companies in certain industrial sectors tend to choose the same inventory method. Saudi institutional factors, which include economic and sociocultural settings could explain the non-supportive results. More insights about Saudi managers' reporting practices were gained from follow-up interviews with number of Saudi CPAs, loan officers, and CFOs.