Enforcing Financial Reporting Standards: The Case of White ...

also think critically about uniform accounting standards and to assess the consequences of
converging financial reporting rules.
Solutions:
(1) Students will most likely not come up with a lengthy set of advantages and disadvantages
as set out in Table 2. However, we believe that it is helpful for students to critically reflect on
what they have learned during the semester. Thus, we suggest discussing Ball (2006)’s
reasoning in detail with the students.
For the solutions, we refer to Ball (2006) who presents pros and cons of IFRS to
investors. In addition, Hail, Leuz and Wysocki (2010) review conceptual underpinnings and
conduct an economic analysis of the potential adoption of IFRS in the U.S.
Advantages Disadvantages
(1) IFRS as “high quality“ standards (1) Fair value accounting (if volatility in
earnings is due to “model noise” or
manipulation)
(2) More accurate valuation in equity
markets
(2) Implementation issues (applying
standards correctly vs. incentives to
manipulate)
(3) Reduced costs of being informed (3) “Global Brand Name” (quality
differences between countries)
(4) Reduced costs of processing financial
information
(5) Increased comparability and reduced
information costs and information risks
(6) More efficient contracting in debt
markets
(7) Better corporate governance (due to
greater transparency)
(4) “Free Rider” problem (no costs for lowquality
countries to use global “brand”
IFRS)
(5) Competition among accounting systems
is healthy (e.g. for innovation)
(6) Risks for IASB to become a politicized
and bureaucratic body
Table 2: Ball (2006)’s advantages and disadvantages of IFRS to investors. He refers to advantages (2) through
(5) as direct benefits, while (6) and (7) are indirect ones. Concerning disadvantages, he names (1) and
(2) as immediately relevant, whereas (3) through (6) are longer term concerns.
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