The Effect of Principles-Based Standards on Financial Statement Comparability: The Case of SFAS-142

Advances in Accounting, 2020

54 Pages Posted: 19 Jun 2020

See all articles by Anthony Chen

Anthony Chen

California State University, Fullerton - Mihaylo College of Business & Economics

James Jianxin Gong

California State University at Fullerton

Hung-Yuan (Richard) Lu

CSU-Fullerton

Date Written: May 20, 2020

Abstract

This study examines the effects of a prominent principles-based standard (SFAS-142, Goodwill and Other Intangible Assets) on financial statement comparability. Using non-goodwill-intensive firms as our control group, we implement a difference-in-differences research design to examine how SFAS-142 affects comparability among goodwill-intensive firms (i.e. a treatment group), and comparability between goodwill-intensive firms and non-goodwill-intensive firms (i.e. another treatment group). We find that SFAS-142 decreases comparability among goodwill-intensive firms, as well as comparability between goodwill-intensive and non-goodwill-intensive firms. We also find that these reductions in comparability are less severe when the verifiability of net assets is higher. Overall, the results suggest that principles-based standards may reduce comparability, particularly when the accounting items entail high uncertainty and verifiability is low.

Keywords: Comparability, principles-based standards, verifiability, goodwill

JEL Classification: M41

Suggested Citation

Chen, Anthony and Gong, Jianxin and Lu, Hung-Yuan (Richard), The Effect of Principles-Based Standards on Financial Statement Comparability: The Case of SFAS-142 (May 20, 2020). Advances in Accounting, 2020, Available at SSRN: https://ssrn.com/abstract=3606479

Anthony Chen

California State University, Fullerton - Mihaylo College of Business & Economics ( email )

P.O. Box 6848
Fullerton, CA CA 92834-6848
United States

Jianxin Gong (Contact Author)

California State University at Fullerton ( email )

Department of Accounting
Mihaylo College of Business and Economics
Fullerton, CA 92831
United States
(657)278-3897 (Phone)
(657)278-4518 (Fax)

Hung-Yuan (Richard) Lu

CSU-Fullerton ( email )

800 N State College St
Fullerton, CA 92831
United States
(657) 278-3465 (Phone)
(657) 278-4518 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
23
Abstract Views
109
PlumX Metrics