Accounting Horizons American Accounting Association

Vol. 27, No. 1 DOI: 10.2308/acch-50301

2013
pp. 141154

COMMENTARY

Challenges and Opportunities in

Cross-Country Accounting Research
Elizabeth A. Gordon, Adam Greiner, Mark J. Kohlbeck, Steven Lin,
and Hollis Skaife

SYNOPSIS: A concurrent session at the 2011 American Accounting Association Annual

Meeting featured the panel discussion Results, Challenges, and Opportunities in Cross-
Country Accounting Research. The panelists summarized major contributions from
prior research in international settings, factors a researcher should consider when
motivating and designing cross-country studies, and topical areas that could potentially
contribute to future international accounting research. This paper summarizes the
panelists prepared remarks, develops a framework for designing cross-country research
projects, and provides illustrations of the framework.
Keywords: nancial accounting research; cross-country; international.

INTRODUCTION

T
he 2011 American Accounting Association Annual Meeting featured a number of research
panel discussions as part of the concurrent sessions. One session focused on the Results,
Challenges, and Opportunities in Cross-Country Accounting Research. Drs. Elizabeth A.
Gordon, Steven Lin, and Hollis Skaife comprised the panel and provided prepared remarks
followed by questions and comments from the audience.
The panelists summarized major contributions from prior research in international settings,
factors a researcher should consider when motivating and designing cross-country studies, and
topical areas that could potentially contribute to future international accounting research. We
synthesize and expand upon the remarks from the panel discussion in this commentary in order to
provide a framework that can be followed when conducting cross-country accounting research. The
framework highlights the challenges of cross-country accounting research, and the importance of
research design choices in providing evidence from which to draw conclusions. The commentary

Elizabeth A. Gordon is an Associate Professor at Temple University, Adam Greiner is an Instructor, and Mark
J. Kohlbeck is an Associate Professor, both at Florida Atlantic University, Steven Lin is a Professor at Florida
International University, and Hollis Skaife is an Associate Professor at the University of WisconsinMadison.

Submitted: May 2012

Accepted: May 2012
Published Online: March 2013
Corresponding author: Mark J. Kohlbeck
Email: mkohlbec@fau.edu
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142 Gordon, Greiner, Kohlbeck, Lin, and Skaife

concludes by identifying potential research opportunities that could contribute to our understanding
of the evolution and value of accounting in the global economy.

INTERNATIONAL ACCOUNTING LITERATURE TO DATE

The starting point for developing a framework for cross-country accounting research is
articulating an overarching view and identifying general themes of cross-country research, also
referred to as international accounting research, published over the last 30 years. In simple terms,
applicable research for our framework is more than the financial accounting domain. One can look
to prior cross-country research for insights into (1) firms use of accounting in making operating
decisions, allocating resources, and preparing external financial reports and disclosures, i.e., the
preparers perspective; (2) auditors role in external financial reporting; (3) regulatory oversight
over financial reports and disclosures; and (4) users perspectives of the information content or
usefulness of financial measures and disclosures. Our review of the literature that addresses these
elements of accounting is not at all comprehensive, but rather illustrative of the nature of research
performed to date.1

Preparers Perspective
Prior research concerning the preparers perspective has, for the most part, focused on firms
external financial reporting with the majority of studies categorized as addressing one of the
following questions.
1. What determines the variation in external financial reporting across countries?
2. What factors affect a firms adoption of a set of accounting standards different from its
domestic (or national) standards?
The first question was originally addressed using case studies and/or questionnaires (see e.g.,
Meek and Saudagaran [1990] for a review of early work). Since the development of machine-
readable databases this line of research has grown substantially.2 A seminal paper written by Alford
et al. (1993) described, at a very high level, the variation in financial and tax reporting across
countries to provide insights on international differences in publicly traded firms information
environment. They then compared the relation between stock return metrics and accounting
earnings of non-U.S. firms to that of U.S. firms on a country-by-country basis in order to draw
inferences on differences in the timeliness and information content of earnings across countries.
Studies examining other attributes of accounting measures followed, including conservatism (see
e.g., Pope and Walker 1999), smoothing (see e.g., Leuz et al. 2003) and, more recently,
comparability (see e.g., Barth et al. 2011; Liao et al. 2012) across countries. The variation in
accounting attributes of firms cross-listed on U.S. stock markets has also enhanced our
understanding of the preparers perspective internationally (see e.g., Lang et al. 2006).
Early research examining firms accounting standard choices include Ashbaugh (2001), and
Cuijpers and Buijink (2005), who investigate firms voluntary use of accounting standards that
differ from their domestic standards. Since the European Union (EU) began requiring consolidated
financial reports of publicly traded firms to be prepared in accordance with EU-endorsed
International Financial Reporting Standards (IFRS), the literature addressing the voluntary and
mandatory use of IFRS has grown substantially (see Soderstrom and Sun [2007] for an early review
of this research). Moreover, as more countries adopt IFRS as a whole or endorse subsets of IFRS,

1
See Gernon and Wallace (1995) for a review of early international accounting research. Barth (2008) provides a
review of more recent international financial reporting research.
2
See Waymire (2011) for an excellent commentary on how databases have influenced the accounting literature.

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Challenges and Opportunities in Cross-Country Accounting Research 143

the focus of much of the contemporaneous cross-country literature is on IFRS adoption and
consequences (Covrig et al. 2007; Daske et al. 2008).

Auditors Role
It is well documented that U.S. audit objectives enhance the quality of financial reporting in the
U.S. capital market (see e.g., Francis et al. 1999) and that auditor reports are informative to U.S.
capital market participants including equity investors (see e.g., Datar et al. 1991) and debt providers
(see e.g., Bamber and Stratton 1997). However, non-U.S. audit markets can differ from the U.S.
audit market in that the objective of the audit function varies (see e.g., IAASB 2006)3 and audit
objectives and reporting requirements change over time (see e.g., DeFond et al. 2000). It is
important that cross-country accounting research appropriately characterizes the nature of national
audit objectives and country-specific auditor expertise when investigating usefulness of audit
reports for resource allocation decisions or assessing audit quality by examining attributes of
domestic firms financial reporting. Moreover, the researcher needs to consider the intricate audit
firm partnership agreements internationally as audit firms use Big N names without being subject
to the same oversight as, for example, U.S. firms who are subject to monitoring by the Public
Company Accounting Oversight Board. Without adequate characterization of the local audit
market, documented significant relations between, say, audit quality and financial reporting
attributes, could be due to spurious correlation.

Regulatory Oversight
The types and structures of regulation vary across countries in many areas that are related to
accounting and reporting such as:
 oversight of the auditing profession and certification of accounting professionals;
 promulgation of accounting standards and auditing standards;
 reporting and disclosure requirements for publicly traded and private companies;
 structure and oversight of financial markets; and
 government determined or self-regulated.
The variation in regulation across countries is, in part, due to differing motivations. Regulation
follows two distinct models: public interest theory and special interest theory (Mulherim 2007).
Regulation may be in response to a market failure under public interest theory, where the regulation
is implemented to improve public good. Political pressure motivates regulation under special
interest theory. As a result, there is significant regulatory variation within and across countries,
which needs to be considered in cross-country research because the variation in regulatory oversight
worldwide impacts the quality of financial reporting and disclosures (see e.g., Hope 2003; Brown
and Tarca 2007; Frost et al. 2006).
Related but distinct from the regulation itself, is a countrys regulatory oversight and
enforcement. For example, the bonding hypothesis literature suggests that U.S. regulatory oversight
is valuable because it adds to credible financial reporting and market transparency (Biddle and
Saudagaran 1991; La Porta et al. 1997). Considering whether and how differences in regulation and

3
The International Auditing and Assurance Standards Board (IAASB) is an independent standard-setting body
whose mission is serving the public interest by setting high-quality international standards for auditing, quality
control, review, other assurance, and related services, and by facilitating the convergence of international and
national standards. In doing so, the IAASB enhances the quality and uniformity of practice throughout the world
and strengthens public confidence in the global auditing and assurance profession (IAASB 2012, 1).

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144 Gordon, Greiner, Kohlbeck, Lin, and Skaife

enforcement are relevant, and then addressing the differences is a distinct aspect of cross-country
accounting research.
Further, identifying and understanding differences in specific regulations and market structures
can influence research expectations and design choices. For example, shares in the U.K. are
denominated in pence versus dollars in the U.S. All else equal, a U.K. firms trading volume might
be greater than a U.S. firms trading volume because the U.K. firm has more shares outstanding at a
lower price per share. Another example is differences in the filing requirements for mandatory
regulatory filings. Examining market reactions to earnings three months after fiscal year-end is
perhaps limited when companies are not required to file annual financial statements before 180 days
after fiscal year-end in some countries. Building this type of institutional knowledge is, again, a
distinct aspect of cross-country research.

Users Perspective
Most of the research to date comparing the consequences of accounting standards across
countries examines equity investors perceptions of the information content or valuation usefulness
of accounting measures or disclosures. These studies can be, in general terms, grouped into
country-by-country equity market studies (Ali and Lee-Seok 2000) or cross-listing studies (Amir et
al. 1993). Prior international accounting research also examines analysts use of accounting
information (see e.g., Ashbaugh and Pincus 2001; Bae et al. 2008). Meek and Thomas (2004) and
Barth (2008) provide excellent reviews of prior literature examining capital market participants
perspectives on the value of accounting information across countries.

CHALLENGES
Researchers face unique challenges in designing and completing cross-country accounting
studies relative to single-country studies because of variations in culture (Gray 1988), religion
(Guiso et al. 2003), political institutions (La Porta et al. 1997), and legal environment (Salter and
Doupnik 1992), all of which influence the application of accounting standards (see e.g., Doupnik
and Salter [1995] for an early discussion). Therefore, while researchers ought to be creative in
asking interesting research questions, they must also make research design choices that lead to
unambiguous predictions. By doing so, their studies can provide evidence from which to draw valid
conclusions. The next subsections highlight these points.

Research Question
Asking an interesting cross-country accounting research question should be easy as there are
endless differences in financial and tax reporting requirements, audit requirements, and regulatory
filings in the global economy. However, developing and articulating an interesting and researchable
research question can be quite challenging. Academic researchers commonly describe differences in
accounting policies and choices, or the potential effects of changes in accounting standards. But
more importantly, rigorous academic research allows insights into why there are different
implementations of accounting methods and choices of disclosure practices across countries, as
well as the economic implications of the differences.
Consider the obvious accounting research question: What are the financial reporting
consequences associated with a change in an IFRS? The follow-up question would be: When
should the consequences of a change in an IFRS be investigated in a cross-country setting, a single-
country setting, or both? A meaningful cross-country research question exists when the change in
an accounting standard, in expectation, will have differential effects on the preparers of financial
statements, auditors providing attestation services, regulators, and financial statement users

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conditional on nationality, cross-listings, or other firm-specific and country-specific institutional

characteristics.
One of the underlying assumptions of most cross-country accounting research is that the equity
and/or debt markets of the countries chosen to be studied are equally efficient. However, extant
research suggests otherwise (see e.g., Richardson et al. [2010] for a summary of research on capital
market efficiency). This fact can either strengthen the contribution of the research question or
weaken the conclusions drawn from the research conditional on the chosen research design. In
some situations, the research question may be more appropriately addressed in a single-country
setting. A cross-country setting should not be used for the sake of replication (which by definition is
not a true replication) or without proper motivation.
The not so obvious cross-country accounting research question is to think about the impact of
the global economy on the fundamental activities of a firm. These fundamental activities include
developing strategies and goals, raising capital, investing, and conducting operations. Cross-
country accounting research can provide an understanding of each of these activities in the global
economy. Changes in any of these activities can affect the demand for accounting information, and
firms meet the demand by changing or implementing new accounting policies. As a result,
researchers need to think critically about potential cross-country research questions and to make the
best feasible research design choices given the research question. The next subsection elaborates on
this important point.

Research Design
The validity and strength of conclusions drawn in any research study are a function of the
research design choices made by the researchers, and we stress that researchers should not
underestimate the importance of making good research design choices. Key issues specific to cross-
country research include identifying an appropriate population to study, sample selection criteria,
and methodology.

Country Selection: Population

It is well noted in prior literature that a countrys accounting standards and practices are the result
of a complex interaction of cultural, historical, economic, and institutional factors (see e.g.,
Saudagaran and Meek [1997] for an early discussion and Geiger and van der Laan Smith [2010] for
recent research). Researchers, therefore, need to clearly articulate reasons for choosing the population
of countries to study and adequately motivate the sample selection criteria (see e.g., Goncharov and
Hodgson 2011). Using all firms domiciled in any country may not be representative of a cross-country
application or alternatively any country that has data on a database may not be representative of the
actual countries. As a result, the empirical tests can be biased thereby weakening the conclusions
drawn from the analysis. Institutional details and a complete literature review support both the
research question and the identification of the most appropriate population to study.
A good cross-country accounting research study identifies and presents institutional details to
describe to the reader the importance of the setting, clarifies unique attributes of the population, and
properly characterizes the constructs used in the empirical tests. In some instances, focusing on a
particular set of countries (see e.g., Joos and Lang 1994; Ball et al. 2003) or on one equity market (see
e.g., Ashbaugh and Olsson 2002; Bradshaw et al. 2004) inherently controls for other factors known to
affect the accounting setting, thereby allowing stronger inferences to be drawn from the results.
Related to this point, researchers need to exercise care in assuming that the features that were
descriptive and relevant in prior literature hold contemporaneously. Changes in firms capital
structures, financial reporting standards, audit reporting requirements, regulatory filings, etc. can be
used to increase the rigor of the analysis and as a result the contributions of the cross-country study.

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Similarly, the research design should not assume that the features in one country hold in other
countries (e.g., principal-agent theory is not relevant if the manager owns the firm). For example,
Christensen et al. (2012) identify increases in regulatory reform and enforcement occurring
concurrently with the mandatory adoption of IFRS in a set of EU countries and investigate the
effects of the increased regulation and enforcement incremental to IFRS adoption. Understanding
the institutional characteristics is difficult but critical to conducting meaningful cross-country
research, and can assist the researcher in developing a research design that generates evidence that
contributes to our understanding of the value of accounting worldwide.

Methodology
Another research design choice made by the researcher is whether the level of analysis for a
cross-country study is at the firm level or the country level. Firm-level data provide a micro-level
analysis, thus, allowing for examination of firm incentives. Larger sample sizes are also typically
available in firm-level analysis, resulting in higher explanatory power. However, there could be
questions on the generalizability of the results to a country as a whole. This is because many control
variables are still country-level (e.g., legal system, legal enforcement, and gross national product).
This concern is partially mitigated as observations from multiple countries are being selected for the
sample being studied.
Country-level data provide a macro-level analysis and offer insights into the aggregate country-
level characteristics such as the consequences of adoption of international accounting standards.
Many of the variables commonly used in international research are country-level such as accounting
standards, legal system, culture, and gross domestic product. Organizations such as the International
Monetary Fund and the Organization for Economic Co-Operation and Development aggregate and
accumulate country-level data. These type of data usually are not available at a disaggregated level
and often extend beyond available firm data to encompass other segments in an economy that could
provide valuable insights. A caveat in using aggregated data from firm-specific data is that they can
result in different and potentially incorrect inferences (Freedman et al. 1998). Moreover, country-
level analysis typically results in smaller sample sizes that can reduce the power of the empirical
tests (Young and Guenther 2003; Frost et al. 2006; Shima and Gordon 2011). The important point
is that cross-country accounting research can build on both the within-country and cross-country
variation in firm and market-wide characteristics.

Data Collection and Sample Construction

Much of the empirical archival research on accounting issues in the U.S. utilizes machine-
readable databases. Cross-country research is no different. Database coverage is important to
consider when drawing a sample that is representative of the countries being studied and
appropriate for the research question, to ensure generalizability of the results.
Other data issues that the researcher needs to consider are sample size and differences in the
number of available observations per country. Some countries and markets are quite large, like the
United Kingdom, where financial statement data, for both public and private companies, and market
data are readily available on databases. Other countries and markets are smaller, such as Austria or
Portugal, and have limited data available. For example, in a capital markets-based study that uses
price or returns data, the researcher might include only countries with over 100 firm observations to
ensure active and liquid markets. Thus, in assessing future accounting performance, the concern
about capital market data availability would not be a constraint.
The researcher must also address concerns about differences in firm size and industry
composition across countries. One solution is to use all available observations included in the
database. Again, care must be taken to understand the data coverage. Researchers need to consider

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whether it is representative of the intended population to reduce selection bias. For example, does
the sample reflect only some, or all, public companies in the selected countries that you wish to
study? The generalizability of any results is inherently affected by sample selection.
A second option is to use a matched sample. While this approach is used in many studies
examining U.S. firms, it is more problematic to perform across countries with a smaller population
of firms. Additionally, there are differences across countries such as size, industry composition,
year-ends, and profitability, which make matching more imperfect (Pownall 1993). For example, in
some countries, like Australia or Canada, the extractive industries group is large. In other countries,
there are few companies in this industry; obtaining a match may not be possible. Even if a match on
some companies is possible, the resulting sample may not be representative of the companies in the
countries because of the limits to the matching.
Consequently, a preferred option would be to select a random sample of firms. However, the
ability to select a random sample that is appropriate is based, in part, on whether all observations
from the underlying population can be selected. When the number of observations from one country
dominates a sample, a random selection of a subsample from the country can also be used as a
sensitivity check. Researchers must discuss and justify the sample selection choice.
Because publicly available databases contain data more easily extracted and analyzed, it is
more challenging to conduct unique research projects. Interesting data, such as footnote disclosures
(see e.g., Davis-Friday et al. 2004) or detailed cash flow items (see e.g., Orpurt and Zang 2009), are
often included in annual report disclosures and/or specialty reports. Unfortunately, the interesting
data are harder to obtain, often requiring hand-collection. One option to confront the sometimes-
daunting task of hand-collecting data is to use a matched sample design, keeping in mind the
potential limitations as discussed above.
Other challenges of cross-country data collection involve the variation in financial statement
languages and formatting of data in the original documents as well as in publicly available
databases. The ability to code data from financial statements in different languages represents a
potential limitation for researchers conducting cross-country research. For example, if a sample is
limited to companies that report in English, there could be a bias towards larger, more globally
oriented companies that have incentives to prepare English language financial statements. Thus, any
findings of the study would be less generalizable to firms that do not have these same incentives to
prepare English language reports.

Other Factors and Econometric Concerns

One advantage of a cross-country study is the ability to exploit international variation in
preparers choice of accounting methods and disclosures, auditors role in financial reporting,
regulatory oversight over the accounting profession, and public dissemination of financial reports.
However, there are many different sources of variation across countries and these should be
considered in the research design. Compared to single-country settings, markets across countries
will likely differ based on factors such as economic development, growth, and investment
opportunities, among others (Frost et al. 2006). Likewise, prior research has shown that there are
pricing, return, and expectation differences that must be controlled for in a cross-country setting. At
least one approach is to include country and industry effects in price and returns models (Barth et al.
2011). Another approach would be to use country-specific market-adjusted returns to help correct
for these macroeconomic factors.
Country-level institutional variation also introduces econometric issues that the researcher
must address. Between-country variation is many times the focus of cross-country research. But,
there are also concerns about within-country variation that differs by country, requiring the use
of fixed effects or adjustments for cluster effects. For example, in their study of the effects of

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TABLE 1
Framework for Designing Cross-Country Research Projects
Framework Element Major Discussion Points
Research questions  Does the research take the perspective of the preparer, auditor, regulator, or
user of financial statements?
 Focus on why differences in accounting methods and choices exist across
countries.
 Consider differences in firms fundamental activities.
 Equity and debt markets are not equally efficient.
Research design
Population selection  Clearly articulate why a country or set of countries is being investigated.
 Features of interest change over time and may not hold across all countries.
 Understand the institutional characteristics.
Methodology  Firm-level or country-level analysis.
 Controls for institutional characteristics.
Data collection  Limited data availability in small countries.
 Differences in size and industry composition across countries.
 Use of random samples to improve generalizability.
 Differences in formats and languages.
Other/econometric  Need to control for country and industry effects.
 Within-country versus between-country variation.

mandatory IFRS adoption and changes in enforcement on liquidity, Christensen et al. (2012)
explain that their empirical analysis consists of a fixed-effects structure. In their main
specification, they include country, industry, and separate quarter-year fixed effects for three
groups of countries in which they are interested: EU countries, non-EU but IFRS adoption
countries, and benchmark countries.
Christensen et al. (2012) further explain that their three-fixed effects specification eliminates
shocks to liquidity common to all countries within each of the three separate groups they examine in
a given quarter. Thus, they are able to focus on the within-group variation of the first mandatory
IFRS reports and the enforcement review process for these reports. The important point is that the
researcher wants to exploit the between-country-level variation without wiping it out.
In conclusion, valid inferences are drawn when the research design choices link to the research
question and the conclusions are supported by valid evidence. Researchers face a number of
challenges in cross-country research as discussed above; the challenges can be overcome. A
promising approach to this line of research identifies the challenges and addresses and considers
them in the research design. Finally, these challenges open a range of opportunities to provide
unique and relevant contributions to standard-setters, researchers, and capital markets participants.
The identified, albeit incomplete, challenges related to international accounting research
discussed above are summarized in Table 1.

ILLUSTRATIONS OF DESIGNING CROSS-COUNTRY RESEARCH PROJECTS

To illustrate the framework, we use the setting of lease accounting to outline two common
types of cross-country research: a large cross-country study and a study that exploits differences in
two countries.

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Large Cross-Country Study

Prior research explores lease accounting within specific countries where the elements of
financial reporting and perspective of stakeholders are more homogeneous. A large cross-country
study on lease accounting would be appropriate when the researcher aims to address questions
about the variation in lease standard implementation across countries, and whether the variation in
lease accounting results in meaningful differences in firms information sets. International standard-
setters have expressed interest in understanding the consequences of, and variation in, lease
accounting for financial statement stakeholders generating motivation for a study that focuses on
lease accounting using a large sample of countries.
As suggested above, the variation in firm-specific characteristics and country-level institutional
features warrants additional research design issues for the researcher to assess in a large cross-
country study of lease accounting. Below we pose a series of questions a researcher should consider
when designing a cross-country study of lease accounting along with suggested approaches to
answering the questions.
 What is the variation in leasing practices across countries? A starting point in addressing a
research question about lease accounting, potentially, is to obtain some expertise in lease
accounting by reviewing literature on the lease industry within countries as well as
international industry guidelines.
 What countries comprise the studys population? Identifying the countries to be included in
the study is conditional on identifying countries that have significant leasing activity and
variation in key components of lease accounting. Country selection is discussed in more
detail below.
 Is the variation in leasing practices associated with the reported lease types/classifications? If
leasing practices vary by industry, an industry control should be included. Alternatively, an
industry with greater use of leases could be explored in depth.
 Is the variation in reported lease types/classifications and related amounts associated with
institutional features such as a countrys legal system, its property ownership laws, tax laws,
and sources of financing? This question could be addressed contemporaneously as well as
over time. With an over-time analysis, changes in these institutional features provide
stronger evidence of the factors that impact firms lease contracts.
 Would capitalizing off-balance sheet leases significantly change commonly reported
financial statement profitability or leverage measures across countries? Would capitalizing
off-balance sheet leases impact contracting, cost of capital, or acquisitions? Investigating
each of these settings provides unique insights into the usefulness of lease accounting
measures and disclosures. Prior studies on these settings, as well as theoretical arguments,
are used to structure testable hypotheses related to the consequences of lease accounting.
We provide further comment on two specific elements of the research design choices below:
country selection and firm selection.

Country Selection
When selecting countries to include in the sample, one option is to select all countries in which
lease contracting is legally allowed and there is some minimal amount of data available. However, it
is important to note that this approach can introduce internal validity concerns. For example, when
both developed and emerging market countries are included in the population of countries to study,
it might not be appropriate to assume that the leasing industry is equally mature in both types of
countries. If choosing this approach, additional sensitivity tests might be necessary to minimize the
concern that specific countries are representative and could bias the results. A more rigorous option

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is to select countries based on the variation in leasing practices or some other institutional features,
e.g., government subsidies for lease contracts. With this option, the research can focus on the set of
countries that provides the most powerful setting to make a meaningful contribution.
With substantial differences in lease accounting between IFRS and U.S. Generally Accepted
Accounting Principles (GAAP), or other domestic GAAPs, a researcher interested in institutional
differences could choose to select a sample of IFRS-only reporting countries. By holding the
accounting standards constant, the researcher could examine the effects of variation in institutional
differences such as property ownership laws. The researcher could also use the similar information
reported to make adjustments to recognized and off-balance sheet leases consistently.
Another research design choice is whether the analysis for a cross-country study is undertaken
at the firm level or the country level. As discussed above, there are trade-offs in this research design
choice. Ultimately, the decision can only be made after identifying the differences in lease
accounting across countries.

Firm Selection
Once the countries to analyze are determined, additional analysis can help guide the choice of
firms to include in the sample.
 What are the data constraints? For example, requiring analyst following will limit sample
firms, potentially differentially, as there could be less analyst coverage in countries with less
developed equity markets.
 Do sample firms use the same accounting standards? If not, one should not include
accounting ratios or measurements as control variables because measurement differences due
to accounting standards could be correlated with the dependent variable.
 Are there different industry representations across countries? Industry composition across
countries may vary significantly. When it does, the need to control for these differences is
necessary to avoid confounded results.
 Do fiscal year-ends vary across countries? Some countries, e.g., Japan, have fixed fiscal year-
ends that could potentially impact the analysis if the study includes or examines market
conditions.
Although databases generally have extensive financial data, many do not contain detailed data
on leases.4 For instance, the amount of capitalized leases and lease financing may be available but
the off-balance sheet leases might not. As a result, hand-collecting some lease data is likely
necessary to document firms lease contracting internationally. Such hand-collected data could
include the total amount of operating leases, the payment schedule for operating and capital leases,
the present value of capital leases, and the interest rates on capital leases.

Specific Country Comparisons

An alternative approach to study lease accounting internationally is to focus on two or three
countries that have distinct social economic differences to exploit. For example, the U.S. and U.K.
share many institutional features such as having well developed capital markets, reliance on
external financing, similar legal traditions, and similar auditing traditions, but use different
accounting standards. A cross-county comparison of lease accounting in the U.S. and U.K. could
exploit the differences in accounting standards or systems of taxation between the two countries.

4
See, e.g., Garcia et al. (2006) for illustrations on how database choices affect a studys empirical results.

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For example, a cross-country comparison of the U.S. and U.K. could address questions related to
lease accounting such as:
 Do differences in accounting standards at the national level provide evidence on off-balance
sheet liabilities associated with lease contracts?
 Do differences in accounting standards at the national level combined with differences in tax
laws provide evidence on off-balance sheet liabilities associated with lease contracts?
 Do differences in accounting standards at the national level provide evidence on the volume
and type of lease contracts?
 Does the propensity for off-balance sheet leases differ across the U.S. and U.K. retail
industry and what effect does this have for M&A transactions?
The country selection, firm selection, and other control factors, as well as econometric concerns
of large sample studies discussed earlier also apply to between-country studies.

FUTURE OPPORTUNITIES
Opportunities in international accounting research are plentiful. The ongoing globalization of
accounting standards and increasing multi-national corporations and capital markets reinforce the
continued interest in this area. There will always be an interest in documenting the differences in
accounting processes and reports across countries and understanding the consequences of such.
The framework outlined and illustrated above implies that meaningful international accounting
research stems from examining accounting issues across multiple countries or across two countries.
However, there are settings where focusing on a single country to better understand the preparers,
auditors, or markets value of accounting is warranted. For example, prior single-country research
can have implications for understanding preparers perspectives (Lin and Walker 2000; Hellman
2011), auditors role (Gassen and Skaife 2009), and the usefulness of accounting information
(Bradshaw et al. 2004) in the global economy.
As stated in the Editorial Policy of the Journal of International Accounting Research study of
interesting institutional and cultural factors that shape practices in a single country but have
international implications can make a significant contribution to the cross-country accounting
literature. The critical point being that the evidence presented in a single-country study is important
to understanding elements of the accounting profession in other countries that have similarly
developed capital markets, legal environments, reporting requirements, etc. Unless the researcher
identifies the importance of single-country findings to other significant settings, the reader is left
wondering about the global implications of the study.
Turning to specific international research opportunities, there has recently been much interest
in the convergence of accounting standards worldwide due in part to the 2006 Memorandum of
Understanding (MoU) between the Financial Accounting Standards Board (FASB) and the
International Accounting Standards Board (IASB). The MoU committed the two standard setting
bodies to work together towards developing one set of financial reporting standards. For example,
the work of Henry et al. (2009) uses the reconciliation disclosures of 75 EU cross-listed firms to
assess the whether the FASB-IASB convergence project affects firms financial results measured
under U.S. GAAP and IFRS. While there have been significant reductions in the differences in
financial reporting standards over the last decade, FASB and IASB standards are not identical and
the devil is in the details.5 It is therefore critical that a researcher investigating accounting
standard convergence take the time to understand a standard or set of standards, describe significant

5
See, for example, the summary of the 12 March 2012 joint meeting between the IASB and FASB that discusses the
two boards deliberations on the definitions of the portfolio of insurance contracts (IASB 2012).

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152 Gordon, Greiner, Kohlbeck, Lin, and Skaife

differences, and make research design choices that attempt to control for firm-specific and
country-level factors that influence the implementation of converged financial reporting standards.
Other opportunities for future cross-country research relate to investigating the determinants of
the supply of and demand for accounting in settings that exploit the variation across preparers,
auditors, regulators, and users of financial information. Given the increase in information about the
world economy via the Internet, financial press, and prior research, there is a greater need to move
from broad measures of institutional characteristics to more specific representations of the social
economic setting.
Potential research questions that exploit both firm-specific and country-level differences
include the following:
 How does privatization affect preparers accounting standard choices and users perspectives
of usefulness of financial reports?
 How do differences in the importance of related parties affect firms operating risk and,
consequently, accounting-based performance metrics across countries?
 Are there markets other than the U.S. that support firms too big to fail and how does this
affect firms cost of capital?
 How do differences in audit market structures across the world affect relevance and
reliability of the financial information?
 Does the quality of financial reporting standards, and changes in such, have an effect on
countries economic development?
 Are country-specific business practices, laws, or regulations related to properties of
accounting information?

CONCLUDING REMARKS
The panel provided a lively discussion of the results of prior cross-country research, the
challenges that the panelist have encountered in the past, and a discussion of how to overcome the
challenges and opportunities that exist in this domain. We hope researchers consider the framework
developed in this commentary as they embark on investigating the role of accounting in the global
economy.

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