Increases in Accounting Regulation: Is ‘More’ Actually ‘Less’?

Accounting

Speaker:Annelies Renders, University of Masstricht
Website: http://www.maastrichtuniversity.nl/web/Faculties/SBE/Theme/Departments/AccountingAndInformationManagement/Faculty/AnneliesRenders.htm
Date: Wednesday 11 June 2014
Time: 14:00
Location: Streatham Court 0.28

Further details

Abstract

Regulators, standard setters and practitioners have expressed concerns that disclosure requirements have become too much and too complex and that this has resulted in negative consequences for both companies and financial statement users. However, little empirical research has examined these concerns. We provide evidence on whether the introduction of more and more complex accounting standards is associated with larger costs for preparers of financial statements and more effort to acquire and process this information for financial statement users. We find that companies that use more (complex) accounting standards have longer 10-Ks, tend to publish their 10-Ks later and pay a higher audit fee. The results also show that analysts’ forecasts are issued later and with less precision and that the dispersion between analysts is larger for firms with more (complex) accounting standards. Finally, we find that more (complex) accounting standards result in more useful information, but only for companies with more sophisticated financial statement users. In addition, adopting more complex accounting standards leads to higher bid-ask spreads, especially for companies with few sophisticated financial statement users. Taken together, our findings suggest that more (complex) accounting regulation indeed has negative consequences, especially for unsophisticated financial statement users.