Why Competitive Standards

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Why Competitive Standards

• Shyam Sunder
• Yale University
• AAA Doctoral Consortium
• Lake Tahoe
• June 13-17, 2007

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Standards Competition

• Let the authorities in each jurisdiction choose
  two or more SETS of standards that companies are
  allowed to use in preparing their reports.
  Reporting companies pay a royalty to standard
  setting organization they choose, and these
  royalties are the sole source of revenue of the
  standard setting organizations (i.e., no SOX fees
  for FASB)

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Fifteen Reasons for Competitive Standards

• Problem too complicated for a Cartesian solution
  criterion for choosing standards unclear
• GAAP started as common law, bottom up evolution
  of practice, not GIAS
• Experimentation with alternatives will allow
  research data, comparison, discovery of better
  methods and learning
• Competition places bounds on complexity
• Introducing economic tension to help standard
  setter decisions
• Language works through variation of meaning
  (Esperanto failed)
• Examples bond rating, auditing standards,
  university accreditation, appliances, state
  charter of corporations, stock exchanges, US and
  PA Deptts of Agriculture with no evidence of
  race-to-the-bottom

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Fifteen Reasons for Competitive Standards

• One size does not fit all in a country or the
  world clientele
• Relief from undue pressure from interest groups
  on standard setters
• Choice of standards set as an additional
  information signal
• Protection from special interest capture of
  regulatory body
• Uniform standards insufficient for uniform
  reports without uniform economies
• Competition blocks endless progression towards
  detail in a fractal world (infinite detail)
• Judgment as essence of a profession
• Cancerous impact of standards on accounting
  education and quality of people

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www.som.yale.edu/faculty/sunder

• Shyam.sunder_at_yale.edu