In recent years major efforts have been made to standardize accounting practices in different countries; this is called harmonization. In an article in Accounting and Business Research, Emmanuel N. Emenyonu and Sidney J. Gray studied the extent to which accounting practices in France, Germany, and the UK are harmonized.
a. Depreciation method is one of the accounting practices studied by Emenyonu and Gray. Three methods were considered— the straight- line method (S), the declining balance method (D), and a combination of D & S (sometimes European firms start with the declining balance method and then switch over to the straight- line method when the figure derived from straight line exceeds that from declining balance). The data in Table 12.4 summarize the depreciation methods used by a sample of 78 French, German, and U. K. firms. Use these data and the results of the chi- square analysis in Table 12.4 to test the hypothesis that depreciation method is independent of a firm’s location (country) at the .05 level of significance.
b. Perform a graphical analysis to study the relationship between depreciation method and country. What conclusions can be made about the nature of the relationship?