Why Competitive Standards Shyam Sunder Yale University AAA

Why Competitive Standards Shyam Sunder Yale University AAA Doctoral Consortium Lake Tahoe June 13 -17, 2007

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)

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

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

www. som. yale. edu/faculty/sunder Shyam. sunder@yale. edu