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...financial accounting measures used different countries become more similar over time? The authors make a convincing argument that anecdotal evidence would lead us to expect such a convergence in accounting measures; and although their research design does not allow them to make a causal link between their empirical evidence and accounting changes across countries, they do a thorough job of attempting to control for alternate explanations. After reading the paper the reader is left with two strong impressions. First, average earnings/price (E/P) ratios across the countries analyzed in this paper (Australia, Canada, France, Germany, Japan, the U.K., and the U.S.) have moved closer together from the 1987-1992 time period to the 1994-1999 time period. Second, this convergence of E/P ratios seems to be related to accounting accruals.
Whether E/P ratios have converged over time is an empirical question, as the authors point out, and it seems appropriate that the question be studied by examining the data as the authors have done. The authors use different types of tests to try to role out alternate explanations for the convergence of E/P ratios, and the results of these tests seem consistent with expectations given the anecdotal evidence cited by the authors (i.e., the results are not surprising).
As noted by some of the Conference participants, the apparent convergence of financial reporting across countries is evidence only of the convergence of accounting measurement since it is based on reported net income. Convergence of accounting measurement would suggest that net income is being computed using similar accounting methods across countries. An example of convergence in measurement is the use of the comprehensive (rather than the partial) method...
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