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Incentives versus Standards: Properties of Accounting Income in Four East Asian Countries, and Implications for Acceptance of IAS

44 Pages Posted: 6 Jan 2004  

Ray Ball

University of Chicago - Booth School of Business

Ashok Robin

Rochester Institute of Technology (RIT)

Joanna Shuang Wu

University of Rochester - Simon Business School

Date Written: December 2000

Abstract

The East Asian countries of Hong Kong, Malaysia, Singapore and Thailand provide a rare opportunity to study the interaction between the accounting standards under which financial statements are prepared and the incentives of managers and auditors who prepare them. Their accounting standards are largely derived from common law sources [UK, US and International Accounting Standards (IAS)], which are widely viewed as higher quality than code law standards. However, economic and political influences on preparers' incentives predict low quality financial reporting. We show that reported earnings in these countries generally are no higher in quality than in code law countries. We define quality as timeliness in incorporating economic income (particularly economic losses).

Countries frequently are classified in terms of accounting standards, or standard-setting institutions. Examples include international accounting literature and texts; compilation of transparency indexes; advocacy of financial reporting reform; and advocacy of International Accounting Standards (IAS). Our results imply this is incomplete and misleading without adequate consideration of preparer incentives.

Keywords: Asia, Hong Kong, Malaysia, Singapore, Thailand, International Accounting Standards, information asymmetry, Financial reporting quality, transparency, timeliness, conservatism

JEL Classification: D82, F02, G15, M41, M44, O53

Suggested Citation

Ball, Ray and Robin, Ashok and Wu, Joanna Shuang, Incentives versus Standards: Properties of Accounting Income in Four East Asian Countries, and Implications for Acceptance of IAS (December 2000). Simon School of Business Working Paper No. FR 00-04; Boston JAE Conference October 2002. Available at SSRN: https://ssrn.com/abstract=216429 or http://dx.doi.org/10.2139/ssrn.216429

Ray Ball

University of Chicago - Booth School of Business ( email )

Ashok Robin

Rochester Institute of Technology (RIT) ( email )

College of Business
Rochester, NY 14623
United States
585-475 5211 (Phone)

Joanna Shuang Wu (Contact Author)

University of Rochester - Simon Business School ( email )

Carol Simon Hall 3-160D
Rochester, NY 14627
United States
585-275-5468 (Phone)
585-442-6323 (Fax)

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