Differences between Domestic Accounting Standards and IAS: Measurement, Determinants and Implications
University of Toronto - Rotman School of Management
China Europe International Business School (CEIBS)
ESSEC Business School - Department of Accounting and Management Control
HEC Paris - Accounting and Management Control Department
Journal of Accounting and Public Policy, Forthcoming
Rotman School of Management Working Paper No. 07-01
This study analyzes determinants and effects of differences between Domestic Accounting Standards (DAS) and International Accounting Standards (IAS). We use an extensive list of differences between DAS and IAS to create two indices, absence and divergence. Absence measures the extent to which the rules regarding certain accounting issues are missing in DAS but are covered in IAS. Divergence applies in circumstances where the rules regarding the same accounting issue differ in DAS and IAS. It measures the extent of differences between DAS-based rules and IAS-based rules.
Using a sample of 30 countries for 2001, we show that absence is (mainly) determined by the importance of the equity market and ownership concentration, while divergence is positively associated with the level of economic development and the importance of the accounting profession, but is constrained by the importance of equity markets. Our analysis suggests that a higher level of absence implies more opportunities for earnings management and for decreases in firm-specific information to investors. A larger divergence from IAS is associated with richer firm-specific information in capital markets.
Keywords: International accounting differences, institutional factors, earnings management, synchronicity
JEL Classification: G10, M41, M43, M44, M47, G32
Date posted: March 26, 2006