Study finds it is "unrealistic to expect financial reporting around the world to be completely comparable"
Jul 08, 2016
On July 8, 2016, the Financial Reporting Faculty of the Institute of Chartered Accountants in England and Wales (ICAEW) published a paper on "Incentives and institutions in accounting: thinking beyond standards" that looks into the principal factors that affect financial reporting outcomes and the degree to which these are the product of the surrounding institutions and on the incentives that affect individual firms and their managers.
The study finds that as the incentives and institutions that influence accounting outcomes vary among firms and among jurisdictions the goal of international financial reporting should be increased comparability rather than complete comparability. Improving the quality of financial reporting would therefore not only require thinking about the technical requirements that govern it, but also the incentives of those who prepare accounts and the surrounding institutions – auditing, corporate governance, enforcement, the legal system, the educational system, and so on.
The issues discussed in the report imply that public policy debates should focus on the incentives and institutions that support financial reporting quality as well as on accounting standards. They also imply that countries considering adopting IFRS need to look at other institutions as well if they are to obtain the full benefits of adoption.
Review the full study on the ICAEW's website.