Economic impact and statistical significance: interpreting accounting research in the context of evidence-based policy-making
This new academic study, funded by ICAEW’s charitable trusts, examines research into the economic impact of accounting. It will be of interest to anyone involved in standard setting and policy-based research, as well as finance directors, audit partners and financial analysts who are concerned about the effects of financial disclosures.
How was the research done?
The team investigated 40 published research studies and found that economic impact is widely discussed in relation to regulatory change. However, researchers tend to look at impact as it relates to the average firm, not the economy as a whole. Despite not being able to assess the wider picture, the team was able to identify some useful examples of best practice in reporting economic impact, and to come up with tentative extrapolations for the corporate sector.
Two different views
Two leading authorities take views that point in different directions. Ray Ball suggests that research techniques can conceal some enormous economic magnitudes that are implied by accounting research. Jerry Zimmerman contends that many estimates of the economic impact of external financial reporting are too large to be plausible. The current state of research is puzzling – is the economic impact of accounting large or small?
The report recommends that academic researchers pay more attention to the issue of economic impact on the corporate sector as a whole. Regulators and standard setters require such information on the effects of standards, but it cannot be calculated easily from the evidence. The report provides some useful suggestions where greater clarity could aid interpretation by policy makers.