A Theoretical Framework for the Unintended Effects of Accounting Standards Reforms

Abstract

Accounting standards reforms not only have intended effects on financial reports and capital market, but also exert significant unintended effects on firm’s contracts, business operations, investment, economy and society as a whole. The history of accounting standards, economic consequences and externality theory all raise a requirement to distinguish between intended and unintended effects of accounting standards reforms. We generate a theoretical framework for the unintended effects of accounting standards reforms based on the objectives of accounting standards and related empirical evidence. The framework includes the unrealized intended effects, the subsequent-indirect effects, the beyond-objective effects and the prior effects. Our study pays particular attention to China because its economic system provides a special example to explore some different effects of accounting standards reforms. We also provide specific avenues for future research in this field on both micro-level and macro-level. Our framework has implications for defining the essence and scope of accounting, expanding the field of accounting research, and also for accounting standards improvement.