Discussion of the Effects of Accounting Diversity: Evidence from the European Union

Abstract

This paper evaluates the effects of accounting diversity on financial ratios and the stock market valuation of accounting data reported by companies in France, Germany, and the United Kingdom and investigates the effectiveness of European Union (EU) efforts to reduce accounting diversity. The study contributes to research on the effects of measurement differences by using a capital markets approach and by introducing several capital-markets-based measures of diversity in accounting measurement practice. The original focus of this paper was accounting harmonization. The term is used loosely in the accounting literature and most commonly refers to narrowing the choice among alternative measurement methods. A second use of concerns the amount and detail of information disclosed in the financial report (van der Tas [1992]). Finally, may mean comparability and transparency of information, consistent with the EU accounting directives' emphasis on the and fair concept (Walton [1993]). Harmonization operates at different levels: concepts, principles, regulations, and practice (Tay and Parker [1990]). Harmonization achieved at one level (such as regulations) does not necessarily imply harmonization at a different level (such as accounting practice). The EU accounting directives narrow the choice of accounting measurement principles, require a specified set of annual report disclosures, and emphasize the true and fair view (TFV), which appears to aim for comparability and transparency. Thus, testing for the effects of