A unified approach to the measurement of international accounting harmony

Many indices, including the Herfindahl H index, the C index, the / index, and variants of these, have been proposed to measure the level of harmony of accounting practices. These indices can be viewed as having different properties based on several criteria and in practice choosing an index because it has a desirable property by one criterion can require accepting an undesirable property by another criterion. This paper provides a unified treatA ment of possible indices, which includes the commonly used indices. This clarifies the relationship between the previously proposed indices by placing them in a unified framework and provides new indices that are superior to existing ones for some situations. It also allows the user to choose an index with the desired properties based on several criteria without sacrificing one desirable property in order to achieve another desirable property. It also shows how the generalisations of the I index for more than two countries are flawed and suggests an alternative index from within this unified framework. The main criteria used to arrive at a particular index within this unified framework are (1) the weighting given to companies/countries, (2) international focus (within country, between country, or overall), (3) the treatment of multiple accounting policies, and (4) the treatment of non-disclosure. Specifying the desired properties under these criteria provides more flexibility by allowing an index to be tailored to a particular problem and more clearly articulates the consequences of using a particular index. These consequences are discussed with the assistance of an example for the accounting policy choice for goodwill.