Custom Fit or Off-the-Shelf Standards: Dilemma of Financial Reporting in Interactive World Economy

16 Pages Posted: 16 Jul 2013

See all articles by Shyam Sunder

Shyam Sunder

Yale University - School of Management; Yale University - Cowles Foundation

Date Written: May 31, 2013


Approach to accounting, and the world in which it operates has changed over half-a-millennium since Luca Pacioli. The past century has seen a great expansion of investment and trade across national boundaries. If financial reporting were standardized in all or most national jurisdictions, certain economies in training of accountants and analysts, preparation and audit of financial reports, writing of rules of financial reporting, and perhaps their enforcement world-wide could be achieved. This argument led to the creation of International Accounting Standards Committee and its successor International Accounting Standards Board which has produced a body of International Financial Reporting Standards (IFRS).

There are also substantial counter-arguments pointing to important dis-economies of standardization. If even individual countries have difficulty defending their single set of domestic standards against the criticism (that they do not fit companies from various industries and sizes), it seems even less plausible that a single set of world-wide standards can offer an efficient solution. A single set of standards do not leave any room to learn from trial-and-error experimentation and cross-border comparisons, and risk freezing us into an inefficient system of reporting. Further, rule-making bureaucracies have limitations of their own, and without competition, could easily sink into authoritative irrationality.

The arguments for as well as against standardization are qualitative, and it has been difficult so far to compare them to decide what is better. After the initial burst of enthusiasm in the European Union for this effort, the poor performance of IFRS during the global financial crisis has cooled the enthusiasm. Some even claim that this misguided effort towards standardization was one of causes of the crisis. As doubts are voiced in the U.S., China, Japan, India, and even U.K., France and Germany about the wisdom of giving a standards monopoly to a single private sector body, it is also time for the emerging economies to rethink the balance between for international and local standards and between written rules and social norms of various societies.

Keywords: financial reporting, international standards, local standards, experimentation, emerging economies

JEL Classification: M41, M44

Suggested Citation

Sunder, Shyam, Custom Fit or Off-the-Shelf Standards: Dilemma of Financial Reporting in Interactive World Economy (May 31, 2013). Available at SSRN: or

Shyam Sunder (Contact Author)

Yale University - School of Management ( email )

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-6160 (Phone)


Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

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