1 Custom Fit or Off-the-Shelf Standards: Dilemma of Financial Reporting in Interactive World Economy

Approach to accounting, and the world in which it operates has changed over half-a-millennium since Luca Pacioli. The past century has seen a great expansion of investment and trade across national boundaries. If financial reporting were standardized in all or most national jurisdictions, certain economies in training of accountants and analysts, preparation and audit of financial reports, writing of rules of financial reporting, and perhaps their enforcement world-wide could be achieved. This argument led to the creation of International Accounting Standards Committee and its successor International Accounting Standards Board which has produced a body of International Financial Reporting Standards (IFRS). There are also substantial counter-arguments pointing to important diseconomies of standardization. If even individual countries have difficulty defending their single set of domestic standards against the criticism (that they do not fit companies from various industries and sizes), it seems even less plausible that a single set of world-wide standards can offer an efficient solution. A single set of standards do not leave any room to learn from trial-and-error experimentation and cross-border comparisons, and risk freezing us into an inefficient system o