The effect of principles-based standards on financial statement comparability: The case of SFAS-142 |
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| Institution: | 1. University of Houston, Clear Lake, United States;2. University of New Mexico, United States;1. University of Wisconsin-Milwaukee, United States;2. Louisiana State University, United States;3. University of North Dakota, United States;1. Goddard School of Business and Economics, Weber State University, Ogden, UT, United States of America;2. W. P. Carey School of Business, Arizona State University, Tempe, AZ, United States of America;3. Mike Ilitch School of Business, Wayne State University, Detroit, MI, United States of America;1. Department of Accounting, College of Business Administration, University of Texas at San Antonio, San Antonio, TX 78249, United States;2. Gerald W. Schlief School of Accountancy, Stephen F. Austin State University, Nacogdoches, TX 75962, United States;1. Collins College of Business, University of Tulsa, United States of America;2. Crummer Graduate School of Business, Rollins College, United States of America;3. Saunders College of Business, Rochester Institute of Technology, United States of America |
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| Abstract: | This study examines the effects of a prominent principles-based standard (SFAS-142, Goodwill and Other Intangible Assets) on financial statement comparability. Using non-goodwill-intensive firms as our control group, we implement a difference-in-differences research design to examine how SFAS-142 affects comparability among goodwill-intensive firms (i.e. a treatment group), and comparability between goodwill-intensive firms and non-goodwill-intensive firms (i.e. another treatment group). We find that SFAS-142 decreases comparability among goodwill-intensive firms, as well as comparability between goodwill-intensive and non-goodwill-intensive firms. We also find that these reductions in comparability are less severe when the verifiability of net assets is higher. Overall, the results suggest that principles-based standards may reduce comparability, particularly when the accounting items entail high uncertainty and verifiability is low. |
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