Financial Reporting: Roles of Written and

Transcript:Financial Reporting: Roles of Written and:
Financial Reporting: Roles of Written and Unwritten Requirements Shyam Sunder Yale School of Management Consultative Committee of the Autorité des Normes Comptables (ANC) Paris, France, June 22, 2011 The Ultimate Man-Bites-Dog News Story L. Gordon Crovitz column on Information Age in the Wall Street Journal, June 20, 2011 http://online.wsj.com/article/SB10001424052702303635604576391802026638250.html A strange thing happened in Washington earlier this month: After spending two years studying an issue, a federal agency published a 475-page report documenting the problem only to announce that government is not the solution. Internet and Local News Reporting The FCC study, "Information Needs of Communities,” 50 percent drop in state and local news reporting and staffs; internet undermines the advertising-based business model of local newspapers, role of search engines "Just because we have identified a problem does not mean we can solve it," Steven Waldman, the lead researcher for the agency, told me last week. "We did not feel we had to show some big regulatory pot of gold at the end of the rainbow to prove this work had value." Importance of the Problem and Efficacy of Solutions Is the drop in local news reporting an important matter for a democratic society? Should we try to find a solution to the problem? What if we are unable to find a solution that has a reasonable chance of improving the state of affairs? Wait until we can find a better solution? Go ahead and do what we can even if we know it is unlikely to solve the problem? Specifics vs. Structure of Problems in Financial Reporting Most debates on accounting standards (including IFRS) are confined to merits of specific written standards In this narrow debate, we assume that a new or revised written standard will solve the problem We need to go beyond the confines of specific details of standards Roles of written and unwritten standards? Which standards are best left unwritten? What should be the structure of institutions we create to decide this Do we have institutions that do not favor writing new standards? Let us start with examination of some commonly-held beliefs in financial reporting 1. Universal Standards Universal written standards of financial reporting applied across time, economies, industries and corporate size and organizational forms best serve the constituent interests Standardization does save costs and effort, (electrical plugs, clothing, cars, street grids, commercial codes) Becomes counterproductive beyond certain limits How do we know where to stop?