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Internal lobbying at the IASB
Abstract
This study adds to prior work on the production of accounting rules (Francis, 1987; Nobes, 1992; Brown and Feroz, 1992; Saemann, 1995; Pong and Whittington, 1996; Kwok and Sharp, 2005; Bhimani, 2008; Ramanna, 2008; Stenka and Taylor, 2010; Giner and Arce, 2012; Jorissen et al., 2012, 2013) by analysing the social psychology of standard setters. It complements work analysing the impact of psychological factors on standard setting (Hirschleifer
and Teoh, 2009; Allen and Ramanna, 2013), finding that group
effects (Bartel and Wiesenfeld, 2013; Haslam et al., 2006; Hogg and Abrams, 1988; Hogg et al., 1986) combined with existing project management structures at the IASB to undermine the IASB Liabilities Project. The paper uses interviews and analyses of IASB documents and board meetings to open up the black box of the standard setting organisation to reveal the existence of ‘internal lobbying’ within the standard setting organisation that rendered the project vulnerable to external lobbying activities. Such findings contribute to the existing literature on lobbying and standard setting by demonstrating the importance of understanding the connection between lobbying activities and the social processes taking place within the standard setting organisation when trying to explain regulatory outcomes. Furthermore, the study addresses the role of technical staff at the IASB in the process of standard
setting through interviews with almost all the staff who worked on the project as well as several board members.
... A major focus of studies on accounting standard setters is on these bodies' due processes and attempts to influence their decision-making. The pertinent lobbying literature is replete with examples and analyses of attempts by various interest groups to influence accounting standard setting outcomes across the globe (for example, Sutton, 1984;MacArthur, 1999;McLeay et al., 2000;Larson & Kenny, 2011;Hoffmann, & Zülch, 2014;Young, 2014;Morley, 2016;Rey et al., 2020;Tsunogaya & Hellmann, 2020;Walton, 2020). ...
... Studies of Board members have found that personal characteristics and backgrounds, such as age, length of term, prior education and work experience, impact on their voting behavior (Morley, 2016;Jiang et al., 2018). Allen and Ramanna (2013) find that Board members with backgrounds in finance are more likely to favor relevance over reliability when proposing new standards. ...
... The staff are thus in a position to provide a frame for the Board deliberations (Bourne, 2014). Morley (2016) identifies "internal lobbyists" within the IASB, a coalition of some Board and staff members, who push specific views and paradigms. She suggests that the structural, organizational and procedural setup of the IASB's due process enables in-groups within the IASB to control projects throughout their entire life, while Klein and Fülbier (2019) The subsequent section 2 reviews the literature on constituent lobbying of the IASB. ...
Paper conditionally accepted by the Journal of International Accounting, Auditing and Taxation, scheduled for publication in the June 2025 issue
... Other scholars have investigated the human processes underpinning supposedly objective standard-setting procedures by identifying the ideological commitments of standard setters to certain forms of accounting, which connects with Ramanna's study of regulatory capture. A study by Morley (2016) considers the ideological commitments of a subgroup of the members of the International Accounting Standards Board (IASB), the international standard setter, and the "internal lobbying" which arose within that organization. Morley's case study highlights how the social psychological phenomenon of 'group effects' generated friction between subgroups on the board defined according to their attitude to fair value accounting. ...
... Drawing on earlier work (Allen & Ramanna, 2013), Ramanna claims that such attitudes were the result of the board members' prior experience working in the investment banking sector and hence their familiarity with the use of current values and financial economic valuation models. While this may reflect their susceptibility to lobbying by external groups who wish to promote various interests, such as the financialisation of accounting standards, it also engages with existing scholarship which considers how prior affiliations and group effects might shape the ideological commitments of board members and staff at standard setting organizations (Baudot, 2018;Morley, 2016). Such ideological commitments may in turn shape the norms of appropriateness within which standard setters operate (Young, 1994) and hence their behaviours. ...
... First, Ramanna discusses the problems that exist for accounting standard setters in maintaining the consistency of the conceptual framework, the standards which pre-dated the conceptual framework and new projects under development (on page 14). Issues of consistency have been raised in the literature (Alexander & Morley, 2021;Morley, 2016) but future work could examine in more detail the potential for conceptual veiling by standard setters regarding the inconsistencies which persist (e.g. the different definitions of liabilities in the conceptual framework, IAS39/IFRS9 and the Liabilities Project to revise IAS 37). ...
The theoretical foundations of Karthik Ramanna’s “Unreliable Accounts” are investigated, demonstrating the pluralistic approach which underlies his critique of the accountability and governance of the FASB. In particular, I highlight Ramanna’s use of multiple units of analysis and theoretical frameworks in his arguments for the existence of conceptual veiling, but I question the extent to which extent Ramanna’s account can be viewed as a generalisable causal explanation. Finally, avenues for future research are noted.
... However, researchers have shown concern that there exists scope for standard setting to favor preparers and professional accounting firms, over users of financial statements (analysts and investors) (Botzem and Quack, 2009;Camfferman and Zeff, 2007;Wallace, 1990) and evidence exists that users of accounting information traditionally engage with standard setters to a much lesser degree than preparers of accounting information (Harding and McKinnon, 1997;Carrington, 1973;Rahman, 1991;Durocher et al. 2007). Given recent research evidencing the presence of internal lobbying within the IASB and its impact on standard setting processes (Dye and Sunder, 2001;Jorissen et al., 2013;Morley, 2016;Pelger, 2016), we seek to better understand how the IASB seeks feedback from users, and to balance this against the needs of preparers and the accounting profession. A specific challenge faces standard setting bodies. ...
... Existing research has considered the users perspective by conceptually and empirically assessing user antecedent motivations for engaging or not engaging in standard setting (Durocher, et al. 2007;Pelger and Spiel, 2017;Young 2006). Other studies have investigated their internal processes (Fogarty, 1993;Morley, 2016) surrounding the relevance of standard setting for international harmonization and their implications for users (Chua and Taylor, 2008;Zeff, 2012;Botzem and Dobusch, 2012), how users scope and concerns are simplified by standard setters in order to facilitate standard setting as an activity (Cortese et al. , 2010;Young, 2006), and finally, how the requirements of standard setters in domains outside the IASB (e.g. American FASB) affect the user focus applied by the IASB (Leung and Verriest, 2015;Franzen and Weißenberger, 2015). ...
... The representation of interests evidenced through the more varied IASB Board thus provides an alternative conceptual perspective which acts both as a counterpoint and a possible remedy to the background influence perspective proposed by Allen and Ramanna (2013). It also helps clarify rationales for the internal lobbying processes within the IASB, put forward by Morley (2016). ...
The International Accounting Standards Board (IASB) has faced calls to act in the interest of users of financial statements given the perception of the greater influence exerted by preparers and professional accounting firm stakeholders. In response, the IASB has, over more than a decade, sought to increase user centricity, adapting its people and processes to more fully engage the views of users. We report on our empirical analysis from the standard setter's perspective of user engagement which is a research objective not documented in the prior literature. Our results draw on interviews conducted with 31 IASB representatives, comprised of 26 staff and 5 Board members representing approximately 60% of IASB's non-support staff as well as publically available archival data. We deploy the Griffiths (1960) citizenship participation framework in reporting on the procedural rigor directed at user utility, to assess IASB's attempt to enhance its perceived relevance (existential enhancement) as a standard setting body. We explain how a “clash” between new user centric practices and the extant practices led to challenges for the IASB in factoring the views of, and acting in the interest of users, as demanded by regulatory authorities. We discuss some of the tensions this has made evident in IASB's objective to function as an effective standard setter. Conceptually, our paper clarifies how more embedded representation modes per Griffith (1960) elicited greater user feedback, but that tensions arose in relation to the IASB's broader objectives to more directly serve users’ interests. Functionally, we offer a more nuanced appreciation for why the IASB might not unilaterally seek to be “user-focused” in the interests of both users and other stakeholders, and in doing so, serve the longer term objectives of accounting standard setting.
... IASB is found to use legitimation strategies to defend its position as a transnational standard setter, placing strong reliance on its consultation procedures (Botzem, 2014). Such procedures respond to the concerns about the dominant role of preparers and professional accounting firms (Botzem and Quack, 2009;Camfferman and Zeff, 2007) and internal lobbying within the IASB (Erb and Pelger, 2015;Jorissen et al., 2013;Morley, 2016;Pelger, 2016). Even if users are often described as the main recipients of the general-purpose financial reports (IASB, 2018, para.1.5), ...
... Indeed, the final outcome of such a process might diverge from the consensus reached during the consultations with constituents, due to the authority of the staff to draft agenda papers and propose drafts and final standards (Pelger, 2016;Klein and F€ ulbier, 2019). Similar considerations apply to board members as well, who can contribute to making projects vulnerable to external lobbying with their "internal lobbying" (Morley, 2016). These analyses provide insights into the actions and behaviours of the Board and staff members, shedding light on the IASB as a social entity and the influence of its organisational character on the outcomes of its projects. ...
Purpose
This paper explores how the International Accounting Standards Board (IASB) has dealt with the emerging issue of accounting for cryptocurrencies by investigating its constituents' expectations and the motivations underlying its regulatory response.
Design/methodology/approach
The theoretical lens of regulatory space is used to analyse the four-year debate around cryptocurrency holdings and informs the extensive thematic analysis of public documents, meetings recordings and comment letters on the topic.
Findings
Facing national standard setters' initiatives to regulate accounting for cryptocurrency, the IASB defended its position in the regulatory space through an agenda decision based on ewct 2xisting standards, which was finalised by the International Financial Reporting Standards Interpretation Committee (IFRS IC) despite criticism from constituents and Board members.
Research limitations/implications
The paper provides insights into the IASB approach to a regulatory vacuum regarding a new class of items, which derive from a new and rapidly-evolving technology. Disruptive technology impacts the contested arena of accounting regulation, in which the constituents ask for new solutions and the IASB tries to resist such pressures, while defending its position.
Practical implications
The paper sheds light on the growing importance of agenda decisions in the IFRS environment and on the limits of the IASB long regulatory process in the circumstance of emerging accounting issues deriving from rapidly-evolving technology.
Originality/value
This investigation is timely and relevant as it considers the regulatory issues arising from disruptive technological innovations (i.e. cryptocurrency), shedding light on the limits of regulatory processes in times of technological change.
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... The division occurred between those who strongly advocated fair value accounting (who were described as 'space cadets' by those who disagreed) and those who subscribed to other approaches (referred to as 'dinosaurs' by the space cadets). (For details, see Whittington 2008 andMorley 2016.) This polarisation manifested itself in expressions of exasperation by the members of the fair value accounting group at negative responses to their proposals and the rejection of their approach. ...
... In the case of the IASB, interviews demonstrated (A) was frequently violated in two ways. First, a sub-group of the board came to dominate discussions and ultimately wielded a decisive influence on the board decisions (Morley 2016). Second, and a point relevant for the general theory of judgement aggregation, some board members also influenced the technical content on which the board ultimately voted by shaping the agenda on which the group had to form a collective attitude. ...
In a highly influential work, List and Pettit (Group Agency: The Possibility, Design, and Status of Corporate Agents, Oxford University Press, 2011) draw upon the theory of judgement aggregation to offer an argument for the existence of nonreductive group agents; they also suggest that nonreductive group agency is a widespread phenomenon. In this paper, we argue for the following two claims. First, that the axioms they consider cannot naturally be interpreted as either descriptive characterisations or normative constraints upon group judgements, in general. This makes it unclear how the List and Pettit argument is to apply to real world group behaviour. Second, by examining empirical data about how group judgements are made by a powerful international regulatory board, we show how each of the List and Pettit axioms can be violated in ways which are straightforwardly explicable at the level of the individual. This suggests that group agency may best be understood as a pluralistic phenomenon, where close inspection of the dynamics of intragroup deliberation can reveal that what prima facie appears to be a nonreductive group agent is, in fact, reducible.
... Although the effects of comment letters on regulatory outcomes cannot be directly measured and are seen by some as questionable (Lagneau-Ymonet & Quack, 2012;Erb & Pelger, 2015;Morley, 2016;Pelger, 2016), 6 we selected comment letters on the IASB regulatory provisions as our data for the following rea. Such written submissions are a key element of the IASB procedural legitimacy (Pelger & Spieß, 2017, see also, Suchman, 1995, an important component of due process in public consultation, and thus a critical vehicle of interaction and negotiation in the regulatory arena (Mouck, 2004;Richardson & Eberlein, 2011;Jorissen et al., 2012). ...
... There are no formal rules as to how or even if at all, IASB members (or members of any other accounting standard-setting body) should implement suggestions put forward in the comment letters(Pelger, 2016;Pelger & Spieß, 2017). Also, Pelger (2016) emphasized the significance of the 'hidden' phases of the regulatory deliberations and the influence of the IASB staff in interpreting comment letters and selecting evidence for discussions (see also,Morley, 2016). Finally, lobbying activities could involve other more indirect and informal forms of influence(Jorissen et al., 2012). ...
The existence of fictitious users of financial statements has been confirmed in previous research. Our study investigates how this powerful yet ‘made-up’ construct is deployed within the discourses of the main stakeholders including ‘real’ users themselves, as they shape regulatory debates in the international accounting standard-setting arena. We draw on Bourdieu’s theorization of dominant discourse as a form of implicit power, and develop it further within the phraseological theory of meaning, specifically the linguistic concept of collocation, which focuses on habitual language patterns. Using this framework, we conduct a comparative analysis of the recurrent linguistic choices around the term ‘user’ in comment letters submitted in response to selected IASB’s regulatory proposals. Our study provides empirical evidence for the existence of commonalties and subtle differences in the ways in which made-up users are discursively operationalized by four key accounting constituent groups: the accounting profession, preparers, regulators, and ‘real’ users of financial statements. At the theoretical and methodological level, we demonstrate the explanatory power of the concept of collocation and its role in the identification of implicit patterns of dominant discourse in Bourdieu’s sense. Our research also shows that the close investigation of how the dominant discourse of the made-up users works generates a series of new why questions regarding the ‘real’ users’ role in accounting standard setting.
... Another motivation is linked to the wish to avoid higher management costs. Morley (2016) approaches the lobbying processes by focusing on the IASB's internal divergences. According to the study, these differences expose weaknesses or inconsistencies in the process of changing or creating a new standard which serves as an invitation to external lobbying activities. ...
Objective: This research investigates the effects of the 2019 US lease standards for US lessee companies, comparing with the potential effects of IFRS 16 to explore the economic reasons that would have led the FASB and the IASB to diverge from their joint lease standard project. Method: We hand-collected detailed data on leases for 500 US lessees firms’ 2019 financial statements to first analyze Topic 842’s effects on financial ratios and to simulate these effects had the FASB adopted the same earnings recognition criteria in IFRS 16. Next, we investigate the value relevance of these observed and simulated effects on the stock market. Results: Topic 842 generated significant variations in companies' financial indicators, but it was not possible to identify the value relevance of these variations due to model limitations. The IFRS 16 simulation shows a significant increase in EBIT and operating cash flows, but a drop in net income, which seems to have been incorporated into stock prices. This suggests the FASB’s decision to diverge from the IASB could include the desire to avoid lower earnings and their negative impacts on the stock market. Contributions: This research adds to the literature first by focusing on the US when most of the recent studies investigated the IFRS world and, second, by exploring economic reasons rather than the hierarchy of power between the FASB and the IASB. Finally, we add a novelty derived from the detailed manual work which allowed us to estimate the effects had the US firms been under IASB’s jurisdiction.
... This emphasis on predicting future cash flows is premised on knowledge claims of financial economics(Baudot 2018, Morley 2016, Pelger 2016, Power 2010 Skaerbaek 2020) and reliance on market mechanisms of rationality and economic efficiency to interpret accounting events(Williams 1987). ...
In its recently revised conceptual framework, the IASB re-affirms decision-usefulness as the objective of financial reporting, disregarding claims about its lack of coherence. In this paper, we examine how this notion of decision-usefulness works in practice by focusing on the case of fair value measurement. In particular, we explore how decision-usefulness is perceived and experienced by financial analysts when using fair values in their work. We use the frame of ‘problematisation’, which involves challenging assumptions in existing literature, to formulate our research question and to interpret our findings. Empirical evidence, drawn from interviews with UK financial analysts and comment letters analysts wrote to the IASB, puts into question three key assumptions inherent in the revised conceptual framework. First, fair values are not considered to be unquestionably useful to decision-making; second, this usefulness is found to be contingent on the context of the decision being made; and third, the qualitative characteristics required to achieve decision-usefulness are challenged for their lack of meaning. Analysts’ testimonies also challenge taken-for-granted assumptions implicit in academic studies. Assumptions that the decision-usefulness of fair values can be established prior to practice are re-evaluated. We also reflect on the premise that the decision-usefulness of fair values can be challenged on its underlying market-based economic rationales. Overall, our findings contribute to thinking problematically about decision-usefulness which appears to be contingent rather than given by some predetermined ideals as envisaged in accounting conceptual frameworks.
... Numerous studies have sought to analyse and understand the relations between corporate reporting and institutions, ideologies, power and people (e.g. Burchell et al., 1985;Power, 1992;Robson, 1994;Young, 2003;Young, 2006;Arnold, 2012;Zhang et al., 2012;Morley, 2016;Pelger, 2016;Pelger & Speiß, 2017;Himick & Brivot, 2018;Jiang et al., 2018;La Torre et al., 2020). A common theme evident in this body of work concerns how corporate reporting standards and practices both shape and are shaped by their wider context. ...
To facilitate digital corporate reporting and enable computers to ‘read’ accounting information, standard-setters must construct a taxonomy to assign contextual ‘metadata’ that codifies disclosures arising from accounting concepts, standards and practices.
But digitalisation poses a problem for corporate reporting. Within internationally accepted accounting practice, ‘principles-based’ standards give companies significant discretion in deciding what they disclose and how they report accounts of their activity. How would the principles-based nature of corporate reporting be influenced by the construction of a taxonomy that seeks to specify all accounting disclosures?
Drawing on literature examining the constitutive potential of classification and formal representation, we use our case study of the digitalisation project undertaken by the global standard-setter, the IASB, to understand how digitalisation intervenes on standard-setting and reporting practice despite the intentions of standard-setters.
Our results detail how standard-setters sought to minimise the impact of digitalisation by modelling the taxonomy only on disclosures explicitly required by accounting standards. We reveal the circumstances that led the IASB to change its taxonomy design by seeking to capture not only what should be reported (as prescribed in extant accounting standards) but also what was being reported (as prescribed in a new classification called ‘Common Practices’). We analyse the process by which international accounting disclosure practices were judged to be ‘common’, and demonstrate how the ‘Common Practices’ classification was perceived by early users of the taxonomy. When interpreting the IASB’s Common Practices (what is) as disclosure standards (what should be), digitalisation generates a self-validating feedback loop that can generate more homogenous corporate reporting and push International Financial Reporting Standards beyond the principles-based approach they were designed to engender.
Although standard-setters became increasingly aware of the influence of the digital (machine-readable) ‘tail’ on the traditional reporting (human-readable) ‘dog’, their attempts to take tighter control of the taxonomy development process strengthened user perceptions that the taxonomy and its ‘Common Practices’ represented an authoritative view of what should be reported.
Our results reveal the process by which digital reporting both represents and intervenes in accounting, and how digitalisation impacts key accounting debates. As digitalisation attempts to provide a universal codification of reporting disclosures, it valorises comprehensive machine-friendly disclosure rules over principles, which offer standardised comparability over entity-specific communication.
Our study also offers a perspective on the relations between information representation and intervention that moves beyond a study of passive, ‘reactive’ conformance to consider how representations can intervene despite the intentions of those generating the representation. In doing so, we reveal the constitutive potential of digital representations in generating ‘non-passive’ conformance.
... Much has been written about the politics of international accounting and audit standard-setting and its proneness to regulatory capture (Botzem, 2012;Loft, Humphrey, & Turley, 2006;Morley, 2016;Tamm Hallström, 2004), the political and distributional implications of global private accounting and audit rule-making (Arnold, 2012;Büthe & Mattli, 2011;Perry & Nölke, 2006), and the capacity of international standard-setters to push through new practice concepts, sometimes against the will of their constituents (Erb & Pelger, 2015). Scholars, such as Botzem and Dobusch (2012), have examined the formation and diffusion of accounting standards as recursive cycles of input and output legitimacy, usefully articulating a process perspective on private standard-setting. ...
Accounting and auditing are often cited as key sites where business regulation has been privatized, globalized, and neoliberalized. Yet, these sites have also undergone a legitimacy crisis in recent years, marked by a shift from self-regulation to increased public oversight. This paper investigates these developments by reference to the evolution of a public/private audit oversight regime (audit of the auditors) in Russia. We show how, in the early stages of post-Soviet reforms, old state-administered forms of financial oversight were replaced with market-oriented arrangements (peer reviews) offered by newly founded private professional accountancy associations as a service to their members. Fifteen years later, the process of regulatory privatization culminated in a reinvigoration of public authority. Our longitudinal analysis highlights the pivotal role of the state in the liberalization of governance by showing how audit oversight privatization was not only enabled by, but provided also a condition for, the strengthening of government actors. We introduce the term ‘legislative layering’ to denote the mechanism that enabled public actors to redeploy themselves in the face of the rising market logic to ensure continuity in their regulatory objectives.
... ;Morley 2016aMorley , 2016bSeckler et al. 2017). For this study, interviews offer the opportunity to ask specific (structured) questions about the perceived motivation behind the use of the channel choices. ...
This cumulative doctoral thesis consists of three papers that deal with the role of one specific European accounting player in the international accounting standard-setting, namely the European Financial Reporting Advisory Group (EFRAG). The first paper examines whether and how EFRAG generally fulfills its role in articulating Europe’s interests toward the International Accounting Standards Board (IASB). The qualitative data from the conducted interviews reveal that EFRAG influences the IASB’s decision making at a very early stage, long before other constituents are officially asked to comment on the IASB’s proposals. The second paper uses quantitative data and investigates the formal participation behavior of European constituents that seek to determine EFRAG’s voice. More precisely, this paper analyzes the nature of the constituents’ participation in EFRAG’s due process in terms of representation (constituent groups and geographical distribution) and the drivers of their participation behavior. EFRAG’s official decision making process is dominated by some specific constituent groups (such as preparers and the accounting profession) and by constituents from some specific countries (e.g. those with effective enforcement regimes). The third paper investigates in a first step who of the European constituents choose which lobbying channel (participation only at IASB, only at EFRAG, or at both institutions) and unveils in a second step possible reasons for their lobbying choices. The paper comprises quantitative and qualitative data. It reveals that English skills, time issues, the size of the constituent, and the country of origin are factors that can explain why the majority participates only in the IASB’s due process.
... The interviewees in this case have already identified several characteristics that they believe are necessary for a ''successful'' chair. In addition, other disciplines may offer models that could be applied in an accounting context (see, for example, Hermann's [1980] study of how political leaders' personal characteristics can be used to explain their behavior with regard to foreign policy, or Morley's [2016] analysis of the social psychology of standard-setters at the IASB). A theory of the behavior of standard-setters may be used to explain questions such as why some NASSs politically engage with IFRS and why some do not, and why this level of engagement might change over time. ...
The Australian experience of International Financial Reporting Standards (IFRS) is used to explore the impact of IFRS adoption on the sphere of authority (SOA) of a national accounting standard-setter (NASS). Data for the study were gathered from interviews with AASB technical staff and retired IASB members. The study demonstrates how changes in the social order between the IASB and NASSs impact domestic and international standards and how power is exercised and shared in the IASB/NASSs relationship. I find that a standard-setter’s technical agenda is influenced by its strategic agenda. I show the significant influence of the standard-setting entity’s chairperson on the development and implementation of the strategic agenda. In addition, individual technical staff members help drive this agenda. Knowledge of the behavior of standard-setting organizations can be considerably deepened by studying the characteristics and motivations of the individuals within those organizations. The findings are useful to NASSs by, for example, demonstrating the importance of employing individuals with both strong technical and political skills. If NASSs wish to have influence at the global level, then they must be proactive in driving change through networks and alliances with other NASSs.
This study investigates the role of technical staff within a global standard setting organization, the International
Accounting Standards Board (IASB). Building on publicly available documents, interviews with staff and Board
members, and observations of Board meetings, staff practices of standard setting are explored in light of their
impact on the standard setter’s decision-making. It is found that the technical staff have individual approaches to
their work on standard setting projects. They find themselves constrained by, but also shaping, the organizational
structures of the IASB. In the course of their project work they become specialist experts in both the project’s
technical issues as well as procedural processes. This makes the staff powerful agents within the realm of in-
ternational accounting standard setting, because their efforts influence how the IASB moves through its work
plan. It also explains why they may be a preferred target for lobbying activities and how they contribute to the
standard setter’s public reputation. Notably, staff practices are consistent over time and across projects. In
summary, it is suggested that the IASB’s technical staff are a critical resource of international accounting
standard setting.
This study examines how accounting professionals empower themselves to become influential in the transnational governance space of accounting regulation and how their ideas can persist after they leave their powerful positions. Combining the concept of issue professionals with elements from the transnational governance literature, our multi-episode study investigates the role of six issue professionals in the decades-long reform process towards anchoring the rights approach in the international lease accounting standard (IFRS 16) and the definition of assets in the IASB's conceptual framework. We highlight how these issue professionals developed an extended commitment to the rights approach, which motivated them to advance from national to more central positions in the transnational governance space. We show how their specialised knowledge on lease accounting and asset definition allowed them to navigate positions and seize control over the treatment of both accounting issues. We further demonstrate that the interplay between socialisation and formalisation of interaction patterns fostered the incremental anchoring of the rights approach at the IASB once the issue professionals who provided the impetus for change had left their influential positions. Our study contributes to the literature on transnational governance and the political economy of accounting standard-setting by elaborating on the incremental rise to power of individuals and groups, and their influence on transnational institution-building processes.
Synopsis
The research problem
Prior empirical research on constituents’ participation in setting international accounting standards has focused on their decision whether or not to participate directly in the standard setter’s due process. However, because that focus neglects constituents’ choice between direct participation and indirect participation via an intermediary, we investigated the determinants of using an indirect method of participation as a substitute for, or in complement to, direct participation.
Institutional setting
We exploited the European institutional setting, where the European Financial Reporting Advisory Group (EFRAG) serves as an intermediary for indirect participation in the due process of the International Accounting Standards Board (IASB).
The test hypotheses
Based on rational choice theory, we hypothesized that constituents from EFRAG’s inner circle and from countries with smaller capital markets, lower English-language proficiency, and/or an accounting value profile more different from that embodied in International Financial Reporting Standards (IFRS) have a higher probability of choosing to use indirect participation.
Adopted methodology
Using a sample of 7,766 comment letters (CLs) from 2005–2017, we focused on individual constituents and traced their use of indirect participation (i.e., sending CLs to EFRAG) versus direct participation (i.e., sending CLs to the IASB). We employed logistic regression models using the methods of participation as dependent variable to test our hypotheses. Controlling for factors used in prior research on direct participation, we estimated a primary model for the full sample of constituents and a secondary model with firm-specific variables for the subsample of constituents classified as corporate preparers.
Findings and implications
We found strong evidence that the constituents’ membership in EFRAG’s inner circle is positively related, and capital market size in the constituents’ home countries is negatively related, to choosing to use indirect participation. Country-level English-language proficiency and differences in the accounting value profile in relation to IFRS also determine the choice of participation method. Our findings suggest that a preference for indirect participation relates to the barriers to using direct participation. We provide initial evidence of a neglected aspect of Sutton’ s ( 1984 ) rational choice model and implications for EFRAG’s role as an intermediary.
How to account for goodwill arising from business combinations has proven to be one the most controversial topics for the standardisation, preparation, and audit of financial reports. Given its contested nature, and recent debates about improper goodwill accounting by failing companies, standard setters are currently reconsidering existing recognition, measurement, and disclosure requirements. In this study, we explore the views of a relatively neglected group of stakeholders in the financial reporting policy-making arena – financial statement users. We draw on empirical evidence from interviews with financial analysts and from responses by analysts to IASB and EFRAG consultations. We mobilise framing theory as used in public policy studies to analyse how users make sense of goodwill accounting information as compared to standard setters. Our key finding is the plurality of colliding frames between users and standard setters that remain intractable. Our analysis reveals that users’ interest in management’s accountability on acquisitions cannot fit easily into the financial reporting frame. Not only are claims by standard setters about the value relevance of goodwill impairments found not to be experienced in practice, but also we discover that users question the benefits of standard setters working in this area, while they take recourse to ‘street numbers’ for their analysis. We interpret the intractability we discover as putting into question public policy claims that accounting policies are developed with a commitment to serve the public interest.
IFRS 9 requires the recognition of expected credit losses from the inception of a financial instrument, resulting in so-called day-one losses. The incorporation of day-one losses caused considerable controversy among the IASB members and its constituents. With a focus on the constituents’ positions and reasoning, this study portrays the discussions held in the comment letters received by the IASB during the drafting process. We find that most constituents initially rejected day-one losses as conceptually unsound and/or as inappropriately affecting investors’ and preparers’ decision-making. Despite these continuing concerns, the majority of constituents eventually accepted day-one losses as a pragmatic approximation of expected credit losses in the absence of superior alternatives. Considering the technical and political nature of standard setting, our analysis provides insights into the constituents’ assessment of departures from the Conceptual Framework and the constituents’ views on the standard setters’ responsibilities regarding financial stability after the financial crisis.
This paper studies a failed attempt to introduce new regulation in the aftermath of the financial crisis: the rule-making process of the European Union’s structural banking reform, where it was proposed to restrict the possibility to combine trading and deposit-taking activities for universal banks but where no regulation was finally adopted. Drawing on the theoretical concept of the endogenization of law, which highlights the role of the regulated in shaping the regulators’ views, we study this case of transnational non-regulation. We mobilize institutional maintenance work to identify the strategies used by the regulated and their allies to shed light on the endogenization process. We find that maintenance work in the form of demonizing the reform proposals, mythologizing the accomplishments of the universal banking model and contextualizing in the setting of other regulations prevailed. Endogenization was reflected in the successive alignment of the EU proposals to the status quo and in the policy-makers’ adoption of maintenance strategies earlier voiced by banks during the consultation process. We also show that national regulations implemented in France and Germany to influence the EU reform process – a strategy that we label “bottom-up enabling work” – provided an important reference point in the transnational discourse. Overall, our study provides insights into the interplay of maintenance work and endogenization in transnational regulatory settings.
The recent revisions of conceptual frameworks by the IASB and the FASB included changes to the status of prudence/conservatism, accompanied by a broader debate about the meaning and role of asymmetry in financial accounting theory (FinAT). This paper adopts a historical perspective to identify possible sources of the current controversies by examining how the discourse on asymmetry has developed over time. For this purpose, we trace the conceptualization of asymmetry in FinAT building from the nineteenth century until 2018, covering contributions to the US FinAT literature and the conceptual reasoning of standard setters (and their constituents) in the United States and at the international level. We identify four distinct constructs of asymmetry (ultra‐, specified, discretionary, and neutral asymmetry) developed in FinAT under the headings of “conservatism” and/or “prudence.” Our analysis reveals that the respective historical circumstances strongly influenced which notion and role of asymmetry were commonly accepted in FinAT, while the arguments underlying the debates were going in circles and were characterized by an increasing level of abstraction over time. We conclude that the controversy about asymmetry is partially due to conceptual ambiguity but also due to different assumptions about the objective of financial reporting and attributes of the preparer, which are indicative of two conflicting paradigms shaping the FinAT discourse on asymmetry. Our findings point to gaps and limitations in the deductive conceptual frameworks currently employed by the IASB and FASB. Our study highlights future research potential regarding the construction of the preparer in standard setting and analyses of the ways in which deductive conceptual frameworks (fail to) translate into consistent standards. This article is protected by copyright. All rights reserved.
Purpose
The purpose of this Editorial is to reflect on the potentials and challenges of qualitative research in financial accounting and introduce the four papers included in this Special Issue.
Design/methodology/approach
The authors draw on and discuss extant literature and the papers included in the Special Issue to develop our assessment of the current state of the field of qualitative financial accounting research and possible future paths ahead.
Findings
The authors observe that qualitative research on financial accounting is still an emerging field with substantial further research potential.
Research limitations/implications
The authors outline future potentials for qualitative accounting research.
Originality/value
This Editorial contributes to studies on the state of academic research in (financial) accounting.
The FASB (Financial Accounting Standards Board, USA), IASB (International Accounting Standards Board), GASB (Government Accounting Standards Board, USA), the International Auditing and Assurance Standards Board (IAASB), Partnership for Carbon Accounting Financials (PCAF), SASB (Sustainability Accounting Standards Board, USA), the ISDA (International Swap & Derivatives Association; http://www.isda.org/) and the ICMA (International Capital Market Association; http://www.icmagroup.org/) and FINRA (USA) are among a class of very powerful trade associations that have “Quasi-Executive Powers” (similar to powers of the executive branch of the federal governments of countries) even though they are not part of the government (but are implicitly supported and encouraged by governments). IASB/IAASB/PCAF/FASB/GASB/SASB perform important rule-making functions and affect accounting regulations, companies, Climate Policy, Sustainability efforts, ESG investing, financial institutions and government regulation around the world (many foreign countries raise capital or list their shares in the US markets, and many US companies operate in foreign countries). The FASB, GASB, SASB, IIASB, PCAF, ICMA, ISDA and IASB and their standards are unconstitutional and that can affect responses to accounting/derivatives regulations and standards and general economic activity.
In this paper, we investigate what we call “financial statement users’ institutional logic,” defined as users’ expressed fundamental views and beliefs about accounting information. We analyze users’ comment letters to standard setters in response to the proposed standards on lease accounting to identify the dimensions of the institutional logic that underlie their views on accounting information. Our qualitative analysis identified and validated ten principal dimensions, namely economics and substance, due process issues, measurement, readiness and relevance for use, conceptual foundations, clarity, presentation and disclosure, cost-benefit issues, comparability and consistency, and financial statement manipulation. Quantitative analyses revealed that four of these dimensions, i.e. due process issues, readiness and relevance for use, comparability and consistency, and cost-benefit issues, occupy a medium or large amount of space in users’ comments and are referred to in strong terms, while economics and substance and measurement, although also widely discussed, are addressed in weaker terms. Overall, our study begins to fill a gap in the literature by providing insights into users’ views on accounting information. These insights challenge the “homo economicus user” currently constructed in standard-setting debates.
The purpose of this paper is to provide an overview of lobbying research through comment letter submissions in the accounting standard-setting process. First, we review the theoretical framework that supports lobby behavior in accounting standard-setting process. Second, we examine the participation in lobby process and constituents’ incentives to participate worldwide. Third, we analyze the studies that focus on the content of comment letters to understand the position and argument of participants, and finally, we examine the effectiveness of a lobbying strategy through the relationship between the inputs (comment letters) and output (final standard). This paper identifies fundamental questions that remain unanswered and offers avenues for future research.
How is it possible that British policy makers resisted market‐based measurement for decades while financial economic concepts of decision‐making and valuation still gained widespread acceptance as a justification for accounting standard‐setting? This study introduces the concept of “technologies of financialization” to develop the theorizing of the rise of finance in the domain of accounting. Based on a genealogical history of narrative reporting in the United Kingdom, it demonstrates how references to qualitative reporting techniques helped to address recurring crises of measurement from 1969 to 1993, and ultimately contributed to the practical acceptance of market‐based measurement in the UK standard‐setting context. The data are interpreted through a cultural economy framework that directs attention to the power of referring to financial reporting as a combination of words and numbers in sustaining its theoretical redefinition “from below”—that is, by relating it to the experience of practicing accountants rather than accounting theory. As a technology of financialization, narrative reporting made financial economic ideals of market‐based measurement, decision usefulness, and future orientation appear operable in a real‐life reporting context. Whenever measurement reached its practical limits, narratives were relied on to explain the impact of price‐level changes, frame economic decisions, and relate unobservable future cash flows to present‐day strategies and resources. The insight into how narrative reporting practices have been laced into the reasoning of capital markets for over 40 years is timely because it illustrates that narratives can also play a more encompassing role and drive the turn towards wider corporate accountability on social and environmental impacts while hard measurements in this area are still being figured out.
This article is protected by copyright. All rights reserved.
Purpose
This study aims to examine the (overt) arguments and (covert) myths the Business Accounting Council (BAC) members have used to lobby over controversial accounting issues, such as the application of fair value accounting (FVA) and the adoption of International Financial Reporting Standards (IFRS) in Japan.
Design/methodology/approach
The authors used a content analysis to examine 85 statements included in multiperiod BAC meeting minutes and 68 articles prepared by International Accounting Standards Board (IASB) representatives from Japan.
Findings
The results reveal that together with the arguments, myths were created and amplified by opponents of FVA and the Financial Services Agency to hide the latter’s strong regulatory power. They created these myths, using covert stories of the importance of manufacturing activities and tax accounting (for small- and medium-sized enterprises [SMEs]), to oppose mandatory IFRS adoption in Japan and, thus, to maintain vested rights in preparing the Japanese generally accepted accounting principles and Japanese accounting standards for SMEs.
Originality/value
First, this study contributes to the lobbying literature by focusing on the coalition (network) effect of influential stakeholder groups. Second, although lobbying activities have been investigated mostly using comment letters, this study reviews multiperiod BAC meeting minutes and articles prepared by IASB representatives from Japan. Third, the study examines both overt arguments and covert myths, both of which are important in unmasking the fundamental structures of power within influential organizations, such as government agencies and standard-setters.
Purpose
The purpose of this paper is to investigate an element of the internal politics of standard setting by reference to the International Accounting Standards Board’s (IASB) movement to the International Financial Reporting Standard for Small and Medium-Sized Entities (IFRS for SMEs). The authors examine the politics of the IASB’s expertise in technocratic governance by focussing on how the IASB defined SMEs, gave the standard a title and issued a guide for micro-entities.
Design/methodology/approach
The narrative case study focusses on central “moments” in the development of IFRS for SMEs. The authors employ Laclau and Mouffe’s condensation, displacement and overdetermination to illustrate embedded politics in articulating IFRS for SMEs.
Findings
The authors extend literature on the internal politics of standard setting, such as agenda setting, by examining the condensing of disagreements between experts and political pressures and processes into central decision moments in IFRS for SMEs. The authors illustrate these moments as overdetermined, manifesting in an act of displacement through the production of a micro-entity guide. This form of politics is hidden due to the IASB’s attempt to protect their technocratic neutrality through fixing meaning.
Originality/value
The authors make three contributions: first, overdetermination through condensation and displacement illustrates the embedded nature of politics in regulatory settings, such as the IASB. Second, the authors provide a theoretical explanation of the IASB’s movement from listed entities to IFRS for SMEs, drawing on Laclau and Mouffe. Third, the authors reinforce the necessity of interrogating the internal politics of standard setting to challenge claims of technocracy.
This paper explores the logics that drive the attitudes of certified accounting practitioners for small firms (CAs) toward new accounting standards. It then unravels the heterogeneity within the accounting profession surrounding the accounting harmonization process. Through analysis of an extensive survey of 1,268 Italian CAs and of ten interviews with presidents of local professional associations regarding an ongoing accounting harmonization project (i.e., the IFRS for SMEs), we first document the coexistence of competitive logics in driving CAs’ attitudes toward the new accounting standards. Second, we demonstrate the role of social characteristics in fragmenting the community of accounting professionals, particularly in expressing heterogeneous views on the IFRS for SMEs. This paper contributes to the literature on the relation between the accounting profession and accounting harmonization by illustrating the multifaceted attitudes of CAs toward a project of accounting harmonization. The results are also informative to policy makers in understanding the adoption and implementation process of new accounting standards.
Internationally, there are strong calls for charities’ formal annual reporting to include non-financial performance information. Without the international standards common in other sectors, national accounting standard-setters often regulate charities’ reporting. Lacking evidence on approaches to encouraging/mandating charity performance reporting, and the effectiveness of these approaches, we ask: “How have different jurisdictions responded to calls for increasing performance reporting?” We conduct a benchmarking study that indicates differences in current reporting practices between Australia, New Zealand, the United Kingdom and the United States. By discussing both current regimes and proposed projects, we develop and illustrate a typology of regulatory approaches to performance reporting. These range from command and control, where standard-setters mandate specific performance reporting standards, through to market regulation, where charities and/or sector bodies acting as regulatory entrepreneurs determine what is to be reported. Between these extremes, the typology describes new governance approaches, with standard-setters partnering and collaborating with other actors. These approaches lead to different requirements with potentially significant implications for performance accountability in the respective jurisdictions. We argue that our regulatory typology contributes useful insights for the many jurisdictions grappling with how to regulate their charity sector and encourage performance reporting.
Investors and analysts are designated as the primary users of financial reports by standard setters, yet we know very little about their use of accounting information and about their relationship with standard setters. This paper explores how investors and analysts evaluate the usefulness of fair values to their work. Standard setters typically presume that investors and analysts view accounting as a practice of valuation and, therefore, favor the greater use of fair value measurement. However, using interview evidence, it is shown here that investors and analysts expect accounting to provide them with insights into the performance of a business, and are quite cautious about the limits of using fair values in financial reports. Overall, the paper contributes to a better understanding of the relationship between accounting and its users. It adds specifically to research which has analyzed the disconnect between users and standard setters in terms of standard setters ignoring user needs (Young ), and in terms of users being indifferent about, or uncritical of, outcomes of standard‐setting processes (Durocher, Fortin, and Cote ; Durocher and Gendron ). The paper suggests a re‐theorization of the disconnect between the two groups that involves thinking away from tension, or blame. Drawing on the work of David Stark ( ), the situation observed is conceptualized as one of “dissonance,” where the different ways of evaluating fair values coexist without being involved in a fierce contest. That is, even though the principles of valuation and performance differ, this difference does not lead to open disagreement and political lobbying from investors and analysts. Consequences of this dissonance to our understandings of the (absence of) worth of fair values in capital markets are discussed.
This paper critically explores knowledge/professionalization relationships in a jurisdictional context characterized by shifting standards of practice. Focusing on the growing movement toward fair value within accounting standards, we examine practitioners' reactions to the growing compulsory application of fair-value accounting standards. To make sense of these reactions, we introduce the notion of epistemic commitment, that is to say one's degree of allegiance to a given knowledge template. Utilizing 27 interviews with Canadian experienced accountants, we rely on epistemic commitment to analyze the extent of variability in practitioners' reactions to the standardization movement toward fair-value accounting. Our analysis demonstrates an important level of variability in practitioners' epistemic commitment toward fair-value accounting, highlighting a lack of cognitive unity in the field. Our findings point to other important professionalization issues: practitioners' inclinations to refer to profitability issues when reflecting on the appropriateness of standards; practitioners' conception of accounting as an objective technology; practitioners' hesitations in voicing deep-level concerns over implementation ambiguities and lack of professional cognitive authority. Overall, our study raises doubts about the professional status of accountancy.
Explores the development of regulations for “Accounting for
Research and Development” in four countries: USA, UK, Federal
Republic of Germany and Sweden. Seeks to illuminate the processes of
accounting regulation in the specific institutional contexts of each
advanced capitalist country, with reference to the particular mix of
organizing principles of dispersed competition, hierarchical control and
spontaneous solidarity.
Although I. L. Janis's concept of groupthink is influential, experimental investigations have provided only weak support for the theory. Exp 1 produced the poor decision quality associated with groupthink by manipulating group cohesion (using group labels) and threat to group members' self-esteem. Self-reports of some groupthink and defective decision-making symptoms were independently, but not interactively, affected by cohesion and threat. Exp 2 confirmed the success of the cohesion manipulation. Exp 3 replicated the poor-quality decision making observed in Exp 1 and provided support for a social identity maintenance perspective on groupthink: Groups who operated under groupthink conditions but who were given an excuse for potential poor performance produced significantly higher quality decisions than groups who worked under groupthink conditions alone. The results are used to interpret the groupthink phenomenon as a collective effort directed at warding off potentially negative views of the group. (PsycINFO Database Record (c) 2012 APA, all rights reserved)
This paper addresses the question of policy-making by such bodies as the UK Accounting Standards Committee (ASC) and suggests that an understanding of the nature of power is a necessary prerequisite to rigorous analysis of the political process. Using the example of SSAP 13, the paper investigates the applicability of political methodologies to attempt to understand and analyse ASC behaviour. The paper attempts to provide: (a) a deeper understanding of the issues which determined the outcome of the R & D standard; (b) support for the importance of the political science experience in this field; and (c) suggestions on how future research may be formulated and developed.
This paper questions the ideal of comparability, which is often mobilized by standard setters when justifying new - or 'improvement' to existing - accounting standards. The target of our analysis is constituted by the thoughts of sophisticated users of financial statements when reflecting about International Financial Reporting Standards (IFRS) implementation in Europe. Drawing on the work of Mary Douglas on purity and Michel Foucault on docility, it is argued and shown that sophisticated users tend to interpret aberrations - that is to say indications of incomparability which confront users in the flow of their professional lives - in ways that allow the ideal of comparability to be preserved. Important consequences ensuing from the docility of users in purifying aberrations are discussed.
More than half of the 163 Statements of Financial Accounting Standards issued by the Financial Accounting Standard Board (FASB) between 1973 and 2007 were passed with dissenting votes. In this study, we investigate the factors associated with FASB board members’ decision to dissent. We find that board members with preparer and academic backgrounds are more likely to dissent compared to those with a public accounting background, and the impact of board members’ professional backgrounds varies by the type of issues the accounting standards address. Our results also show that military experience and educational background are associated with the likelihood of dissent. In addition, we find that younger board members and those at the end of their term are more likely to dissent, perhaps to signal a different point of view. Finally, our analyses of board members’ written dissenting opinions show that professional backgrounds are associated with different perspectives in how board members evaluate an accounting standard.
As an expertise-based private standard-setter, the International Accounting Standards Board (IASB) needs to work continuously to maintain its position as the uncontested rule-making authority of financial reporting in the international regulatory arena. The present paper analyses how the IASB constructs legitimacy in interaction with its constituents. We focus on the specific case of the IASB’s agenda consultation in 2011/2012 as this project was explicitly introduced by the IASB to promote its legitimacy. We carry out a comprehensive study of the agenda consultation that takes into account all board meetings, comment letters and public board activities. We show that the consultation activities in this project were used by the IASB to pronounce its user (investor) orientation, which, however, might be formal rather than substantial, and to integrate a loyal circle of constituents further. It is also shown that the IASB increasingly tried to portray agenda-setting (and standard-setting) as an objective and evidence-based procedure that resonates with constituents’ demands, although it might in fact enlarge the discretionary leeway of IASB (and staff) members.
When the Financial Accounting Standards Board's (FASB) conceptual framework (CF) was initially developed, contemporaneous observers believed the CF incorporated conflicting elements and that it only slightly favored the asset-and-liability (A&L) view of accounting. Now, however, the FASB has made it clear that the CF endorses the A&L view. It is likely that a number of factors, operating together, have contributed to the movement to the A&L view. I contribute to the literature by exploring a novel explanation in path dependence. Specifically, I consider whether the completion of the primary stage of the CF in 1985 stimulated U.S. accounting standard-setting institutions along a path dependent process, driven by reinforcement around early interpretations of the framework.
I develop and test hypotheses based on this theory. I empirically demonstrate that, relative to members selected in the pre-CF period, members selected in the post-CF period take voting positions that are (i) less like their constituent sponsoring organizations and (ii) more like one another; and that these shifts are related to standards favoring the A&L view. Using an analysis of comment letters I find that, relative to a control group, FASB members selected in the post-CF period express a stronger ex ante preference for A&L standards. This pattern of evidence makes it appear "as if," in the post-CF period, the Financial Accounting Foundation systematically selects FASB members whose views are in-line with the A&L view. Finally, I demonstrate a significant reduction in voting dissent among post-CF members but an increase in members dissenting because standards do not go far enough to advance the A&L view. This suggests that the FASB has become ideologically homogeneous with respect to the A&L view of accounting. I conclude by exploring the setting and discussing some consequences of these changes for standard-setting.
The empirical results presented in this study are consistent with path dependence. However, since the data are also consistent with alternative explanations that I cannot reject, further work will be necessary to confirm whether path dependence has had a meaningful impact on U.S. standard-setting institutions in the post-CF period.
This paper is based on data collected in the late 1980s and again in the late 1990s from interviews with chairmen, chief executives and board members in 12 large UK organizations such as Hanson, Marks & Spencer, Prudential and Glynwed. Although the primary focus is on theorizing and theory over time, this also leads us to question matters of method and methodology. The first section considers some of the study design issues raised by conducting this sequel study, noting that it was not possible to 'repeat' the first study for a number of important reasons. The second section observes that while our earlier analytical metaphor of organizing as explaining endures, the nature of the explanations has changed: 'strategic focus', 'shareholder value' and 'corporate governance' are now the contemporary watchwords although were unheard of in our interviews a decade earlier. The following section develops on this, concluding that in making judgements about future shareholder value, the primary evidence is drawn from events already past and interpreted through current explanations. We conclude on the importance of time to our theorizing, where there appears to be a confluence between time and person, in part, created and in part, supported by particular (judgements of) explanations of organizing prevailing at that time.
This paper explains why the question is how, not if, today's financial statements should include estimates of the future. Including such estimates Is not new, but their use is Increasing. This increase results primarily because standard-setters believe asset and liability measures that reflect current economic conditions and up-to-date expectations of the future will result in more useful Information for making economic decisions, which is the objective of financial reporting. This Is why standard-setters seem focused on fair value accounting. How estimates of the future are incorporated In financial statements depends on the asset and liability measurement attribute, and on financial reporting definitions of assets and liabilities. The present definitions depend on identifying past transactions or events that give rise to expected inflows or outflows of economic benefits and, for Inflows, control over the expected benefits. Thus, not all expected inflows or outflows of economic benefits are recognized. Disclosures in the notes can help users understand recognized estimates and can provide information about unrecognized estimates. Including more estimates of the future in today's financial statements would result in an income measure that differs from today's Income, but such a measure arguably provides better information for making economic decisions.
This article focuses on how the changing nature of work and working today elicits prototype ambiguity in groups a shared perception among group members that the attributes, attitudes, and actions that define and describe the typical group member are unclear. We offer a functionalist account of prototype ambiguity identifying social contexts that reliably trigger ambiguity in group prototypes, group-level consequences of prototype ambiguity that motivate corrective action, and social negotiation processes by which group members adaptively resolve prototype ambiguity. We outline how group members' social negotiation efforts unfold in different but predictable ways (in response to specific triggers of prototype ambiguity) to yield emergent prototypes based on either central tendencies (as exemplified by the average group member) or ideals (as exemplified by the extraordinary group member). Concluding the article is a discussion of implications for research on social identity processes. group prototypes, and social hierarchies in organizations.
As a private organization, input legitimacy, being achieved when inputs received reflect the opinions of all stakeholders involved, is a key issue for the IASB's acceptance as global standard setter. To study this input legitimacy, this paper examines the evolution of constituent participation in international accounting standard setting in terms of geographic diversity over the period 1995-2007 and examines whether biases (due to differences in institutional regimes) or unequal access (due to differences in participation costs) are present in this process. Based on an analysis of 7442 comment letters we observe an increase in participation over time. However, we also find distortions in the geographic representation of constituents, due to differences in the institutional regimes of countries and due to differences in participation costs, proxied by the level of familiarity with the accounting values embedded in IFRS, with the system of private standard setting, and with the English language. These geographic biases in constituent participation might induce criticism in relation to the input legitimacy of the international accounting standard setting process. (c) 2013 Elsevier Inc. All rights reserved.
The process of accounting policy-making is addressed within an important and evolving body of literature. This paper adds to that literature in explaining the contemporary phase of transnational accounting policy-making through efforts by the FASB and IASB to construct a set of standards accepted for worldwide market regulation. Specifically, this paper examines the process of transnational accounting policy-making through a study of seven years of debate surrounding a particular policy decision made in selecting between two conventions for the measurement of revenue. I use archival documents in the form of narrative accounts of FASB and IASB proceedings to analyze the actors involved in this particular decision, their changing discourse, and their power dynamics throughout the history of debate. I mobilize the negotiated orders perspective and concepts from institutional theory to theorize actor resources, rationales and power dynamics in the process of constructing a policy decision. The analysis reveals how board composition and power dynamics matter in determining the content of accounting standards. In addition, the analysis reveals how power is structured by two coalitions, referred to as the “Space Cadets” and “Dinosaurs”, whose membership is not only somewhat fluid but often reflects seemingly unlikely groupings of actors. Further, this study highlights the differing rationales that these two coalitions mobilize in the process of negotiating order. The findings support the importance of micro-level processes in explaining the development of macro-level accounting policy. These factors are crucial to enhancing our broader understanding of the way in which accounting standards and rules are ultimately institutionalized.
We report that International Financial Reporting Standards (IFRS) are inconsistent with respect to the recognition and measurement of liabilities, both in the conceptual framework for financial reporting and in accounting standards themselves. We demonstrate that this arises in part because the International Accounting Standards Board (IASB) does not make a conceptual distinction between the process of measurement, which requires a currently observable measurement attribute, and the process of estimation, which is inherently subjective. The IASB employs only the logic and language of measurement, while actually requiring entities to report both measurements and estimates in financial statements. Our contribution is to identify and interpret this conceptual conflict, to demonstrate that this has particular relevance to accounting for liabilities, and to draw implications for accounting research and policy with respect to recognition, measurement and conservatism.
We investigate fair value accounting critics' assertions by restating earnings and regulatory capital to reflect banks' disclosed investment securities fair values. We find: (1) Fair value-based earnings are more volatile than historical cost earnings, but share prices do not reflect the incremental volatility. (2) Banks violate regulatory capital requirements more frequently under under fair value than historical cost accounting. Fair value-based violations help predict regulatory capital violations, but share prices do not reflect this potential increased regulatory risk. Only historical cost violations are market information events. (3) Share prices reflect interest rates changes, even though investment securities' contractual cash flows are fixed.
The U.S.-based Financial Accounting Standards Board (FASB) emphasizes that accounting standard-setting is not and should not be regarded as a “political process.” Employing the case of accounting for stock compensation, I examine a recent debate in which FASB appears to have successfully established and maintained a boundary between a technical accounting process and politics. This case is interesting because an earlier, failed effort to expense stock compensation was described as highly politicized. However, the boundary between technical and political processes was maintained in the more recent episode. I find that a focus on due process, characterizations of existing accounting requirements as anomalous and available measurement methods as reliable, and warnings about the dangers of injecting “politics” into standard-setting were important to this boundary work. I also find that the boundary work required considerable interpretive flexibility in selecting (or ignoring) the evidence to be used in justifying the standard-setting project and its conclusions. I conclude by suggesting that a different understanding of what it means to be involved in a “political process” might help all parties understand more fully what is taking place during the accounting standard-setting process. Attention could be turned to developing processes to facilitate debates over which values should guide decisions occurring throughout the standard-setting process. To this end, an enhanced standard-setting process might allow for increased participation in agenda setting, in framing and scoping standard-setting projects, and in providing opportunities for nonexperts to participate.
There has long been user dissatisfaction with firm’s disclosure of contingent legal liabilities, and the FASB, IASB, and SEC have all considered compliance issues and standard amendments on this topic in recent years. This study uses a sample of employment discrimination cases to provide evidence on the extent to which current contingent legal liability disclosures provide useful contingency evaluations. Consistent with legal concerns influencing reporting decisions, I find that current disclosure practices provide limited quantitative detail regarding the magnitude of the expected loss. However, the text of the disclosures does provide qualitative indicators of the probability of loss. I find evidence that statements about the inestimable nature of the loss and statements about the firm’s willingness to consider a settlement are related to higher probabilities of loss and higher loss amounts. I also find evidence that statements regarding an existing accrual for losses and warnings about materiality reflect a higher likelihood of a nontrivial loss. These results emphasize firms’ strong resistance to quantitative disclosures of legal contingencies but suggest that existing SFAS 5 disclosures do contain qualitative information useful for evaluating the loss contingency.
Between 1992 and 2001, representatives of the G4 national accounting standard setting bodies and the International Accounting Standards Committee (IASC) participated in a working group known as the G4+1. Immediately following the formation of the International Accounting Standards Board (IASB), the G4 announced that the working group would no longer meet. Alternatively, the G4 national standard setters would form a partnership with the IASB via liaison representatives.This paper focuses on the objectives and mission of the G4+1, the G4's relationship with the IASC, the impact of the G4 on the restructuring of the IASC to establish a quality independent global accounting standard setter, former G4 participants’ perceptions of the IASB, and the significance of the IASB's current partnership with the G4 national accounting standard setters. The paper additionally discusses recent changes to the IASC Foundation Constitution and considers now modifications to the liaison structure may impact the IASB's partnership with its G4 national standard setting partners.Portions of a monograph published by the Institute of Chartered Accountants in England and Wales entitled Inside G4+1: The Working Group's Role in the Evolution of the International Accounting Standard Setting Process provide the background for the paper.
This paper addresses the questions of why accounting theories are predominantly normative and why no single theory is generally accepted. Accounting theories are analyzed as economic goods, produced in response to the demand for theories. The nature of the demand is examined, first in an unregulated, then in a regulated economy. Government regulation creates incentives for individuals to lobby on proposed accounting procedures, and accounting theories are useful justifications in the political lobbying. Further, government intervention produces a demand for a variety of theories, because each group affected by an accounting change demands a theory that supports its position. The diversity of positions prevents general agreement on a theory of accounting, and accounting theories are normative because they are used as excuses for political action (i.e., the political process creates demand for theories that prescribe, rather than describe, the world). The implications of the authors' theory for the changes in the accounting literature as a result of major changes in the institutional environment are compared with observed phenomena.
This book reviews the theory and methodology underlying the economics-based empirical literature in accounting. An accounting theory theory is an explanation for observed accounting and auditing practices. Such an explanation is necessary for interpretation of empirical associations between variables. The book discusses the role of theory in empirical work. It then reviews accounting theories involved in empirical studies of the use of accounting in capital markets, contracting and the political process and the extent to which the theories are consistent with those studies' evidence. Empirical studies in auditing are also reviewed. The book finishes with a discussion of the role of accounting research and a summary and evaluation of the research up until the mid-1980s.
This article provides the beginning of a positive theory of accounting by exploring those factors influencing management's attitudes on accounting standards that are likely to affect a firm's cashflows and in turn are affected by accounting standards. These factors are taxes, regulation, management compensation plans, bookkeeping costs and political costs, and they are combined into a model that predicts that large firms that experience reduced earnings due to changed accounting standards favor the change. All other firms oppose the change if the additional bookkeeping costs justify the cost of lobbying. This prediction was tested using the corporate submissions to the FASB's Discussion Memorandum on General Price Level Adjustments. The empirical results are consistent with the theory.
The Financial Accounting Standards Board (FASB) uses a due process to ascertain the views of its constituents and to build consensus while setting standards based on a sound conceptual framework. This study examines the responsiveness of the FASB and its success in building consensus among corporations in the due process on Employers' Accounting for Pensions. The findings indicate that the FASB is influenced by the number of opposing comments filed by its corporate constituents. Further, there is evidence that consensus was built throughout the due process for the highly controversial standard.
This paper establishes that teamwork is afunction of how team members perceive the team and theirrole in it. Social identity theory (Hogg & Abrams,1993; Tajfel & Turner, 1986) and self-categorization theory (Turner, 1987) offer explanations forthe cognitive, evaluative, and emotional processes whichmotivate individuals to join a social group and enhancetheir ability to contribute to the maximum of their ability, which would be desirable formany team tasks. Social identity theory posits that themotivation for thinking, feeling, and thus working as acohesive unit is socially constructed. Highly productive teamwork requires that team membersrecognize the team as a unit and as an attractive workarrangement. Fundamental assumptions of contemporarymanagement, and management research, are challenged to integrate social identityfindings.
The paper examines the contribution to strategy by chairmen and non-executive directors in large UK companies. The collective label of 'part-time board member' is used to refer to individuals performing these roles. The paper asks 'how, if at all, do part-time board members influence strategy in UK plc's'?. Using data gathered from interviews with 108 company directors, the paper suggests that part-time board members do not simply ratify decisions made by all-powerful executives. A conceptual model is developed to show that part-time board members are able to influence processes of strategic choice, change and control by shaping both the ideas that form the content of company strategy and the methodologies and processes by which those ideas evolve. Their involvement in strategy is conditioned by factors such as: changing norms about corporate governance; the history and performance of the company; the process and conduct of board meetings and informal dialogue amongst company directors between board meetings.
Nonhuman primates form status hierarchies that are established and maintained through exchanges of dominance and deference actions. Do similar mechanisms operate among humans, whose primary face-to-face interaction is through polite conversation? Three experiments address this question. In the first, dyads formed of a professor and a student are asked to converse so that styles of conversation can be compared. Here a person of established high status uses more dominant conversational signs than someone of low status. In the second experiment, dyads formed of two students are asked to converse and afterward to participate in a cooperative decision-making task. The dyad partner who uses more dominant actions in the conversation is also more influential in the decision task. In the third experiment, dyads formed of a student subject and a student confederate of the experimenter are asked to converse and afterward to participate in a decision-making task. The confederate speaks dominantly to half of the subjects and deferentially to the others. Subjects paired with the deferent-speaking confederate act the high-status conversational role that is thrust at them, but they accept the confederate's influence in the decision task. Subjects paired with the dominant-speaking confederate do not accept low status, but instead compete with the confederate. These experiments show that ordinary conversation is affected by status signalling in a manner consistent with the general primate pattern.
This paper presents the early findings of a pilot study of the power and influence of part-time board members in the top 200 U.K. industrial and commercial firms by turnover and the top 50 U.K. financial institutions. The part-time board members hold multiple roles of either chairman and/or non-executive director of these organizations. The findings are presented around a tripartite model of power and influence. The results indicate that the power and influence of part-time board members is shaped by the simultaneous and interactive effects of a set of structural and contextual factors, position and skill in mobilizing a constellation of power sources, and skill and will in converting potential power into actual influence.
Recent research developments underscore the need for research on the processes that link board demography with firm performance. In this article we develop a model of board processes by integrating the literature on boards of directors with the literature on group dynamics and workgroup effectiveness. The resulting model illuminates the complexity of board dynamics and paves the way for future empirical research that expands and refines our understanding of what makes boards effective.
Lobbying is an essential part of the International Accounting Standards Board (IASB) standard-setting process. There is still much to learn, however, about key aspects of the roles played and arguments employed by various constituents when lobbying practices do occur. This paper focuses on the regulation of share-based payments. As these transactions were under-regulated before International Financial Reporting Standard (IFRS) 2, we expect that the strong debate that occurred during the 1990s resulted in conflicting opinions when this standard was under discussion. To analyse lobbying behaviour and assess its influence on the IASB's decision-making, we conducted a content analysis of 539 letters addressing the documents issued by the G4+1 and the IASB preceding IFRS 2. Consistent with the rational-choice model, our analysis of lobbying activity shows that preparers constituted the most active group, particularly when the IASB started the project, whereas participation of standard-setters increased at the end, which is more consistent with institutional theory. A common strategy was to provide arguments merely on points of disagreement. Preparers and consultants constituted the only groups using economic-consequences arguments to disagree, but later enlisted conceptual arguments as well. The IASB considered only conceptual arguments, and no interested party had a dominant influence.
This is an extract from an exploratory essay on liabilities and how to account for them written by Andrew Lennard, Director of Operations at the Accounting Standards Board in London. It deals with the objective of financial statements and users' needs in that context and then provides some overall conclusions.
Purpose
This study provides significant empirical data and analysis on the international standard‐setting process as conducted by the forerunner of the International Accounting Standards Board (IASB). It reveals the influences from four key stakeholder groups (users, preparers, accountants, and regulators) in order to ascertain why International Accounting Standards (IAS) turn out the way they do.
Design/methodology/approach
In‐depth interviews with board representatives and content analysis of documents were used to provide triangulating perspectives. The concept of power from the sociological and political science literature provides the theoretical lens. The standard setting projects on segment reporting and intangible assets were studied in detail.
Findings
The results show that the process can be best characterized as a mixed power system where no party is accorded the absolute power potential to dictate IAS. Nonetheless, while the user group is the target beneficiaries of IAS, the preparer group has significant influence, as inferred from the changes made to the IAS in line with the preparers' preferences.
Research limitations/implications
There is always the possibility of researchers missing out on “secret” exercise of power, given that the focus of this study was on “public” paths of influence. After this study, the IASB's meetings became open to public, providing new opportunities for future research.
Originality/value
This paper contributes to understanding accounting standard setting for international harmonization.
This paper explores the hypothesis that network interaction patterns affect employee perceptions through two conceptually and empirically distinguishable mechanisms: localized social influence based on network proximity and systemic power based on network centrality. The study explores the relative contributions of individual attributes, formal organizational positions, network centrality, and network proximity in explaining individual variation in perceptions of work-related conditions in an advertising firm. Results suggest that network factors shape job-related perceptions, over and above the effects of individual attributes and formal positions. Both advice network centrality and friendship network proximity evidenced significant effects, although they were stronger for centrality than for proximity.
presents a new theory of group processes and illustrates its application to the related problems of social influence and group polarization
self-categorization theory and social identity: social change, social categorization and the interpersonal-intergroup continuum / self-categorization theory: the relationship between personal and social identity / self-categorization and social influence / an explanation of group polarization / some distinctive implications and directions for research (PsycINFO Database Record (c) 2012 APA, all rights reserved)
This paper is based on data collected in the late 1980s and again in the late 1990s from interviews with chairmen, chief executives and board members in 12 large UK organizations such as Hanson, Marks & Spencer, Prudential and Glynwed. Although the primary focus is on theorizing and theory over time, this also leads us to question matters of method and methodology. The first section considers some of the study design issues raised by conducting this sequel study, noting that it was not possible to ‘repeat’ the first study for a number of important reasons. The second section observes that while our earlier analytical metaphor of organizing as explaining endures, the nature of the explanations has changed: ‘strategic focus’, ‘shareholder value’ and ‘corporate governance’ are now the contemporary watchwords although were unheard of in our interviews a decade earlier. The following section develops on this, concluding that in making judgements about future shareholder value, the primary evidence is drawn from events already past and interpreted through current explanations. We conclude on the importance of time to our theorizing, where there appears to be a confluence between time and person, in part, created and in part, supported by particular (judgements of) explanations of organizing prevailing at that time.
The purpose of the paper is to contemplate the prospect of "political," i.e., self-interested, lobbying in the context of the issues coming before the International Accounting Standards Board (IASB). As illustrations, the paper reprises a number of episodes of "political" lobbying on proposed accounting standards that have occurred at both the international and country levels (especially the US), and it raises the specter of the intense compaign already being mounted by US industry to oppose any attempt by the IASB to develop a standard on employee stock options that goes further than the disclosure requirement in the FASB's Statement No. 123.
The present study aims to contribute to an understanding of the complexity of lobbying activities within the accounting standard-setting process in the UK. The paper reports detailed content analysis of submission letters to four related exposure drafts (EDs). These preceded two accounting standards that set out the concept of control used to determine the scope of consolidation in the UK, except for reporting under international standards. Regulation on the concept of control provides rich patterns of lobbying behaviour due to its controversial nature and its significance to financial reporting. Our examination is conducted by dividing lobbyists into two categories, corporate and non-corporate, which are hypothesised (and demonstrated) to lobby differently. In order to test the significance of these differences we apply ANOVA techniques and univariate regression analysis. Corporate respondents are found to devote more attention to issues of specific applicability of the concept of control, whereas non-corporate respondents tend to devote more attention to issues of general applicability of this concept. A strong association between the issues raised by corporate respondents and their line of business is revealed. Both categories of lobbyists are found to advance conceptually-based arguments more often than economic consequences-based or combined arguments. However, when economic consequences-based arguments are used, they come exclusively from the corporate category of respondents.
This paper sets out to enquire the nature of constituents’ participation in the IASB’s due process in terms of representation (constituents’ diversity and characteristics) and drivers to participate. We choose to adopt a multi-issue/multi-period approach to investigate constituents’ formal participation. An analysis of comment letters sent directly to the IASB over the period 2002-2006, reveals that preparers sent most letters followed by the accounting profession and standard setters. With regard to timing, we find that preparers concentrate their participation efforts at a later stage in the process compared to the other constituents, who react earlier. Formal indirect participation in the IASB’s due process by submitting comments letters to EFRAG is infrequently used by European constituents. In those cases where constituents exert influence to both IASB and EFRAG, they often use exactly the same comment letter. Concentrating on the drivers to participate, the data reveal that preparers, accountants and standard setters react significantly more when proposals have a major impact on the accounting numbers of a company. Users, stock exchanges and their supervisory authorities write significantly more comment letters when disclosure issues are at stake. Finally, participating preparers in the IASB’s due process are larger and more profitable than non-participating preparers.
We consider accounting from an evolutionary perspective. Accounting encompasses the creation of transactional records, the summarization of records in t-accounts, and the preparation of audited financial statements. Accounting's history spans at least 10,000 years dating back to the first human settlements in ancient Mesopotamia. Our focus is on the study of accounting history in three ways: providing useful thoughts experiments valuable to researchers interested in the development of modern practices, the use of historical data to test formal hypotheses about the origins of accounting practices, and the development of theories and related empirical evidence that explain accounting based on evolution and ecological rationality. Within this third area, we describe the basis for hypotheses and empirical analyses concerning six issues: (1) the emergence of recordkeeping, (2) the effect of double-entry bookkeeping on the scale and scope of economic organization, (3) the spontaneous emergence of norms of practice in accounting, (4) the impact of law, regulation, and taxation on accounting, (5) the demand for broad principles in evaluating accounting method choices, and (6) the relation between economic crises and major discontinuities in accounting practice.
We offer here the psychological attraction approach to accounting and disclosure rules, regulation, and policy as a program for positive accounting research. We suggest that psychological forces have shaped and continue to shape rules and policies in two different ways. (1) Good Rules for Bad Users: rules and policies that provide information in a form that is useful for users who are subject to bias and cognitive processing constraints. (2) Bad Rules: superfluous or even pernicious rules and policies that result from psychological bias on the part of the 'designers' (managers, users, auditors, regulators, politicians, or voters). We offer some initial ideas about psychological sources of the use of historical costs, conservatism, aggregation, and a focus on downside outcomes in risk disclosures. We also suggest that psychological forces cause informal shifts in reporting and disclosure regulation and policy, which can exacerbate boom/bust patterns in financial markets.
An earlier version of this paper was titled as," Corporate Influence on FASB Decision Making." The Financial Accounting Standards Board (FASB) follows an elaborate due-process procedure when it sets accounting standards. Surprisingly, little is known regarding what role submissions before the FASB play in the FASB's decision making process. This study examines one set of FASB decisions, changes between its 1974 and 1978 Exposure Drafts on price-level accounting, and relates it to firm specific characteristics suggested by economic theory. The model suggests that a corporation's influence on the FASB is positively related to its resources, the number of diverse constituencies it represents, and its previous success at influencing regulators. Proxies for theses factors are the firm's 1974 net sales, the number of lines of business it disclosed in its 1974 10-K reports, and its 1974 tax subsidy, respectively. The resources and the number of lines of business variables are found to be significant determinants of corporate influence. The results suggest that corporations do influence FASB decision making, and that some corporations are more influential than others.
In this article, I undertake to review the major developments and turning-points in the evolution of the IASC, followed by the evolution of the IASB. At the conclusion, I suggest five challenges facing the IASB.
Manuscript Type: Empirical
Research Question/Issue: We address the call for qualitative research in order to better understand the micro‐level dynamics of board work. Our aim is to investigate the role of emotions when board members interact to perform the board's control and service tasks.
Research Findings/Results: Empirical accounts from board meetings and diary notes from a CEO show in detail how emotions work as power energizers and status energizers in boardroom dynamics. We find that short‐term as well as long‐term emotions are a source of energy that affects board work, and that they are influential in the board members' task performance.
Theoretical Implications: We provide process insights with process insights to a field dominated by studies of the structures of corporate governance. We disclose the difference between board expectations and board performance, and offer a new understanding as to how and why this difference emerges. Our results also challenge theories that propose that authenticity of emotional displays is necessary in order to achieve a positive outcome in boardroom interactions. The findings also show that confrontation of negative emotions in boardroom communication may alter the power and status relations among board members.
Practical Implications: Our study shows that the board members who influence processes in the board are those whose emotional energies are built up and transformed as power and status energizers in line with board task expectations. Being aware, and able to understand the subtle working of emotions in board processes are crucial for being an effective board member.
A cyclical pattern of standard setting has been suggested elsewhere. In this context, this paper constitutes a case study of U.K. standard setting on the subject of goodwill. It is noted that varied practice of the 1960s was followed by several stimuli for action by standard setters. Managers opposed standardization and income reductions, whereas senior policy-makers, government, press and international influences proposed it. The result is dramatic swings in the content of documents on goodwill from the Accounting Standards Committee, possibly contributing to the latter's demise.
Evidence from the archives of the U.K. Accounting Standards Committee (ASC) is used to trace the events leading to the withdrawal of the current cost accounting standard, SSAP 16, from 1980 to 1988. Three central issues are addressed. First, the ASC's role as a regulatory body is considered in the light of the failure to obtain compliance with SSAP 16 and to find an acceptable replacement. Second, the decline in support for SSAP 16 is explained in terms of changes in the economic environment. Third, the roles of different interest groups in the process are analysed.