What is Puzzling with this Picture? The Determinants of Earnings Opacity Internationally

Abstract

This paper is an investigation of the relationship between earnings opacity in 34 countries and elements of social, economic and accounting order. What the picture shows is a clear manifestation of earnings opacity internationally. What is puzzling with the picture is the findings that earnings opacity internationally is negatively related to the levels of economic freedom and quality of life, and positively related to rule of law, economic growth and level of corruption. What is more puzzling with this picture is the findings that the level of disclosure, the number of auditors per 100,000 inhabitants and the adoption of International Accounting Standards (as elements of the accounting order) are not significantly related to earnings opacity internationally. It is the social and economic climate rather than the technical accounting climate that is at the core of the lack of accounting quality in general and earnings opacity in particular.