44 Pages Posted: 6 Jan 2004
Date Written: December 2000
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: 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
By Ray Ball