One Size Fits All? Costs and Benefits of Uniform Accounting Standards

47 Pages Posted: 17 Oct 2011

Date Written: September 11, 2011

Abstract

I build a model of neoclassical production to examine the capital market and welfare effects of a uniform accounting standard (like IFRS). Firms vary in their cost of compliance to the standard, and investors vary in their cost of learning diverse standards for capital allocation. A uniform accounting standard increases the quantity of capital in the economy and lowers the cost of capital. However, uniform standards force diverse firms onto the same standard, which reduces welfare. A regulator selects the optimal number and type of standard to balance these competing effects. Uniform accounting standards are better than diverse accounting standards when firm productivity and variation between investors is large, but worse when the cost of investment and variation between firms is large. I draw implications for IFRS/GAAP convergence, and the incentives versus standards debate.

Keywords: International accounting, GAAP, IFRS, FASB, IASB

Suggested Citation

Ray, Korok, One Size Fits All? Costs and Benefits of Uniform Accounting Standards (September 11, 2011). Available at SSRN: https://ssrn.com/abstract=1940696 or http://dx.doi.org/10.2139/ssrn.1940696

Korok Ray (Contact Author)

Texas A&M University ( email )

4113 TAMU College State
TX 77843-4113
United States

HOME PAGE: http://mays.tamu.edu/directory/korok/

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