Evidence-based policy making: what are the challenges and opportunities?

As noted at the EFRAG symposium at the European Accounting Association conference – held in Valencia this year – there is now ‘increasing attention to the wider impacts…of regulation such as accounting standards.’ Using EFRAG’s impact analysis of IFRS 16 as a basis for discussion, the panel on the symposium discussed the role of impact analysis in the early stages of the standard-setting process and the possible contribution that the academic community could bring to this process. What emerged from this very interesting discussion is that there is no quick and easy answer; for every practical suggestion on how accounting research can support the standard setting process is a set of practical obstacles to overcome.

Timing issues appeared to be a major obstacle that was recognised by the academics on the panel. Firstly, empirical studies are usually performed once the accounting standard has come into effect which is clearly not conducive with conducting early impact analysis. Compounding this problem is a second timing issue connected to the length of time required to carry out academic research and also for the work to then be published.

Conducting more research on early adopters of the standard was offered as a potential solution to these problems –although it was acknowledged that this may not provide a representative sample. Research on Post-Implementation Reviews (PIRs) was also considered, while noting that any findings would relate to short-term effects rather than long-term. Another option put forward by the panel was research that included analysis of comments letters to exposure drafts – recognising that these letters regularly make reference to the possible wider economic effects of introducing the standard.

As the panel drew to a close, one of the panellists reminded the academic community to be aware that the way in which users obtain information about their investments is changing and that this will also affect how research on accounting standards is conducted. The front half of the annual report, social media and other forms of corporate communication are now seen as important sources of information for investors which in turn will create difficulties for researchers trying to isolate the impact of a new accounting standard on economic behaviour.

ICAEW thought leadership work: evidence-based policy making

The themes and issues explored at this symposium are very familiar to ICAEW and reflect the current thinking of our Information for Better Markets thought leadership programme which is committed to encouraging policy makers to use accounting research and encouraging researchers to do policy-relevant work. As part of this work, ICAEW will hold its annual PD Leake lecture on Evidence-based policy making: challenges and opportunities. The lecture will be given by Professor Christian Leuz, Chicago Booth, and will specifically address how accounting and financial markets research can contribute more effectively to evidence-based policy making and the obstacles faced in doing so. The event will take place on Thursday 5 October at Chartered Accountants Hall and is free to attend. To register for the lecture, please visit our events page.