How Do Social Planners Design Accounting Standards? Evidence from Central Banks’ Accounting Choices

The design of optimal central bank communication and accounting standards involves trading off the social costs and benefits of more precise public information. We examine whether central banks' accounting choices reflect these social costs and benefits. To measure the precision of accounting choices, we use the adoption of IFRS and other critical accounting policies. We find that central banks choose more precise accounting policies (e.g., IFRS, more detailed footnote disclosures) when they face a greater demand for more precise information. However, central banks prefer less precise accounting policies (e.g., historical cost over fair value measurement) in economies with greater (perceived) risk of the crowding-out effect, increased likelihood of coordination failures, and greater concerns over central bank financial independence. Overall, by showing how central banks adapt their accounting to their institutional and (changing) economic environment, we provide new insights into the design of accounting standards from the social planner's perspective