Investigating the Role of International Financial Reporting Standards as a Barrier to Trade in Accounting Services

Abstract

This study examines the impact of IFRS adoption on bilateral trade of accounting services. Services are the largest portion of the United States economy, and the US regularly reports an overall trade surplus for services. Conversely, the US accounting services sector consistently reports a trade deficit. US publicly traded companies are required to follow US Generally Accepted Accounting Principles while globally, International Financial Reporting Standards (IFRS) have become the dominant global accounting standard. There has been very little analysis of the macroeconomic impact of IFRS adoption and even fewer studies examining its relationship with services trade. By applying the gravity model of trade to accounting services, I provide the first known analysis of accounting services trade, as well as the first to consider the nationally adopted accounting standard as a potential barrier to exports of accounting services. Using a sample from 2001-2018, I find that adoption of IFRS by both trading partners is not related to exports of accounting services. However, I find that IFRS adoption by the exporting country (regardless of whether the importer also has adopted IFRS) does impact trade of accounting services. Most notably, IFRS adoption by the exporting country is found to increase accounting services exports to developing countries. By not adopting IFRS, the US may be foregoing opportunities to provide services in developing countries. The results of this study can be used to inform policymakers, practitioners, and accounting educators of the role of IFRS in the trade of accounting services.