Implications of Accounting Research for the SEC's Consideration of International Accounting Standards for U.S. Securities Offerings

Abstract

This paper discusses certain implications of capital-markets-based academic accounting research for the assessment of International Accounting Standards (IAS) by the U.S. Securities Exchange Commission (SEC). The SEC's assessment criteria are comprehensiveness, high quality (comparability, transparency and full disclosure) and rigorous interpretation and application. Existing academic research has few implications for comprehensiveness, transparency and full disclosure, in part because no agreed-upon metrics for measuring these constructs have been developed. Indirect implications for interpretation and application might be drawn from cross-jurisdictional comparisons of income and cash flow volatility and value relevance, provided certain strong assumptions are met. Using Form 20-F reconciliation data, research has documented extensive evidence of noncomparabilities between U.S. GAAP financial statements and statements prepared for the same firms under both various non-U.S. GAAPs and IAS, and some evidence that the differences are value-relevant.

Examining dual accounting systems in Europe

“…The evidence provided by Christensen et al (2008) is consistent with prior research showing that accounting standards are not the only factor affecting the quality of accounting systems (Pownall & Schipper, 1999). Under a given set of standards, financial reporting quality is sensitive to the incentives of preparers, which depend on the interplay between market and political forces, such as the demand for high-quality financial reporting, the involvement of governments in the standard-setting process and the enforcement of standards, and taxes or political incentives to reduce the volatility of reported earnings (Ball et al, 2003).…”

“…Besides the increase in accounting quality, endorsement of IFRS in Europe is expected to reduce differences between countries, thereby allowing an increase in comparability of accounting information (Pownall & Schipper, 1999). The level of reduction in differences, however, is difficult to forecast.…”

Risk Management Committee and Financial Instrument Disclosure

“…This definition is consistent with lang et al (2003) and Ball et al (2002). however, following Pownall and schipper (1999), the current study defines financial information as 'high-quality' when it possesses the attributes of transparency, full disclosure and comparability. Therefore, we believe firms that comply with the mAsB 24 requirement can be regarded as providing high-quality disclosure information.…”

Comparability of Company Accounts Using IFRS and US GAAP: Empirical Evidence of European and US Financial Statements

“…From the '90s until the adoption of IFRS in 2005, comparative studies have focused on two different issues: 1) the study of the relationship between differences in accounting practices and share-price returns in international capital markets (Meek, 1991;Amir, Harris, & Venuti, 1993;Pope & Rees, 1992;Bandyopadhyay, Hanna, & Richardson, 1994;Harris, Lang, & Moller, 1994;Barth & Clinch 1996;Rees & Elgers, 1997;Harris & Mueller, 1999;Adam, Weetman, & Gray 1993;Alford, Jones, Leftwich, & Zmijewski, 1993;Hellman, 1993;Rahman, Perera, & Tower, 1994;Saudagaran & Meek 1997;Weetman, Jones, Adams, & Gray, 1998, Aboody Barth, & Kasnik, 1999Pownall & Schipper, 1999;Guenther & Young, 2000;Hung, 2000;Schipper, 2000;Asbaugh & Pincus, 2001;Asbaugh & Olsson, 2002;Dumontier & Raffournier, 2002;Bhattacharya, Daouk, & Welker, 2003, Leuz, 2003Bradshaw, Bushee, & Miller, 2004) and 2) IFRS/US GAAP comparison (Bhoocha & Stansell, 1990;Meek & Saudagaran, 1990;Nobes, 1990;Biddle & Saudgaran, 1991;Choi & Levich, 1991;Cooke, 1993;Grove & Bazley, 1993;Frost & Pownell, 1994;Yang & Lee, 1994;Boross, Clarkson, Fraser, &Weetman, 1995;Roberts, Salter, & Kantor, 1995;Schweikart, Gray, & Salter, 1996;…”