Accountants without Standards?: Compulsion or Evolution in Company Accounting

The stimulus for accounting regulation has often been so-called 'scandals'. Yet there is little evidence, in the United Kingdom or the USA, to show that poor or misleading disclosure has caused losses to investors.The quality of United Kingdom accounting would almost certainly have improved even in the absence of accounting standards. There have indeed been some advances since 1970, but there have been disasters too: in inflation accounting, in deferred tax, in accounting for goodwill. The 1948 Companies Act contained 26 pages dealing with accounts and audit; the 1985 Act (as amended) has 187 pages. In addition, United Kingdom accounting standards in issue currently total more than 600 pages; and they seem to be getting longer. There is an extensive American literature on the regulation of accounting, but its outcome is remarkably inconclusive. Measuring either costs or benefits seems to be extremely difficult. Preventing company directors to some extent from using their own judgement may indeed reduce 'pressure' on them; but that is not to say it will result in accounts of higher quality. One can sensibly compare the financial statements of different companies only to a limited extent. Accounting standards may lead the public to expect too much in this regard. There is a danger that accountants will abdicate initiative and wait for standard-setters to lay down rules. Regulations may also cause users to accounts to be irresponsible. Some people assume that regulators really do know best, and want their views imposed on everyone. But there is no agreement on what is 'best', and even if there were it might not last long. Permitting some choice may turn out to be a better way to improve accounting than trying to suppress dissent. In the long run monopoly provision of compulsory accounting standards may be less effective than allowing competition in ideas. The direct costs of producting accounting standards are not huge. The costs of observing them are probably much higher. And their longer-term indirect disadvantages may be still more serious. Statements of standard accounting practice (SSAPs) should be limited to disclosure requirements for listed companies and should not attempt to prescribe rules on measurement. There is little evidence that the growth of standards has produced any measurable benefits to the public.


Buy from Barnes & Noble     Compare Prices