How can we measure the costs and benefits of changes in financial reporting standards?

Abstract

This paper first describes the components of a conventional cost‐benefit analysis, a decision tool that is widely used to evaluate large public‐sector projects such as dams. It then compares a conventional cost‐benefit analysis to the approaches used by financial reporting standard‐setters and others to evaluate the costs and benefits of changes in authoritative accounting guidance. The last portion of the paper describes how accounting research provides analyses of effects of changes in accounting standards and describes how these effects‐analyses differ from, and are similar to, a conventional cost‐benefit analysis.

Keywords::

• cost‐benefit analysis
• financial reporting standards
• capital market effects of changes in accounting standards

Notes

The author is Thomas F. Keller Professor of Accounting at the Fuqua School of Business at Duke University, Durham, North Carolina, USA.

This paper was prepared for presentation at the Information for Better Markets Conference, 14–15 December 2009, sponsored by the ICAEW, London. The author appreciates comments from Martin Walker, Joseph Weber and James Leisenring, and from participants at the 2010 University of Technology Sydney Summer Accounting Symposium, participants at the 2010 Journal of Contemporary Accounting and Economics conference and the professional staff of the ICAEW.

Correspondence should be addressed to: Katherine Schipper, Duke University: The Fuqua School of Business, 1 Towerview Drive, Durham, NC 7708, USA. Tel: [phone]. E‐mail: [email protected].