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SYNOPSIS: This paper discusses certain implications of capital-markets-based academic accounting research for the assessment of International Accounting Standards (IAS) by the U.S. Securities Exchange Commission (SEC). The SEC's assessment criteria are comprehensiveness, high quality (comparability, transparency and full disclosure) and rigorous interpretation and application. Existing academic research has few implications for comprehensiveness, transparency and full disclosure, in part because no agreed-upon metrics for measuring these constructs have been developed. Indirect implications for interpretation and application might be drawn from cross-jurisdictional comparisons of income and cash flow volatility and value relevance, provided certain strong assumptions are met. Using Form 20-F reconciliation data, research has documented extensive evidence of noncomparabilities between U.S. GAAP financial statements and statements prepared for the same firms under both various non-U.S. GAAPs and IAS, and some evidence that the differences are value-relevant.
INTRODUCTION
The purpose of this paper is to discuss certain implications of capital-markets-based academic accounting research for the assessment of international accounting standards.1 The impetus for this discussion and the framework we adopt are taken from the U.S. Securities Exchange Commission's (SEC) decision to consider International Accounting Standards (IAS) as promulgated by the International Accounting Standards Committee (IASC) for listing and capital raising in the U.S. Specifically, the SEC announced in April 1996 that it would apply three criteria in its consideration of IAS for possible use by non-U.S. registrants for listing and capital raising in the U.S. Our intent is to explain where we believe academic accounting research can (and cannot) assist the SEC in this project.
Summaries of the SEC's criteria to be used in assessing the acceptability of IAS appear in various places.2 Briefly, the three criteria are: (1) comprehensiveness; (2) high quality, operationalized in terms of comparability, transparency and full disclosure; (3) rigorous interpretation and application (or at least the standards must be capable of rigorous interpretation and application). Our discussion is intended to explain which of these criteria can be illuminated by either the existing research results or possible future research that uses the methods and approaches of existing research, and to present our sense of the insights obtained.
Because academic researchers have not keyed their work to the SEC's three criteria, and because of methodological difficulties and data limitations facing academic researchers, there...