Role of Lobbying Groups in Shaping Accounting Standards
Question:
What Is the Different Accounting Standards in Context of Draft?
Research on lobbying standards was conducted since year 1980. One of thing in this regard that is of high interest is finding linkage between the several lobby groups and decision makers. Some of the articles presented and listed in Australian dean council list have been done by introducing a detailed content analysis for identifying the possible connection between lobby groups and decision makers. Accounting is likely to change in future and is constantly changing. Change in accounting standards and the reason is attributable to and has been modelled as lobbying. Standards proposals receives publicly comment by the lobby groups (Al-Htaybat and von Alberti-Alhtaybat 2013).
An important basis for the managerial performance and measurement of firms are the accounting standards. The examination of the way incentives of auditors influence the lobbying across every financial reporting standard. Various articles span the different accounting issues and it seeks to compare lobbying over long time series. The lobbying of auditors over the reliability of proposed accounting standards have been focused. One of the fundamental quality characteristics is reliability as identified by Financial accounting standard board. Auditors are capable of influencing financial reporting standards at their very genesis by participating in standard setting process through a comment letter lobbying (Baxter 2014). However, the empirical evidence of auditors are limited. Article focuses about group of auditors who are most likely to consistently lobby across standards.
Lobbying is regarded as the vital part of international standard accounting board. The influence of lobbying by auditors incentives have aroused from three basic factors. This involves catering to preference to clients for flexibility in General Accepted Accounting Principle and this will be mainly aligned with FASB and that is related to using of fair value in accounting and managing regulatory costs and expected litigation. It has been ascertained by several evidence there are several factors involved in auditor lobbying. Regulatory scrutiny and supporting the fair value of accounting and prevailing standards of litigation are responsible for auditor lobbying (Biondi and Zambon 2013). However, no evidence was found regarding the driving of auditors lobbying relating to preferences of client for flexibility in GAAP.
Three broad non mutually exclusive economic factors have been identified that will shape the lobbying incentive of auditors on reliability over time. In the first part, lobbying of auditors in response to regulatory exposure and changing litigation has been investigated. The proposed accounting standards have been focused with auditors lobbying over its reliability. It has been found that the nature of auditors lobbying has been associate with auditing issues and lawsuits against auditors. In Europe and USA, the setting of completely standard accounting relates to political process. Some of the research relates to research on accounting standard lobbying, it detects the connection between lobby groups, and decision makers by analyzing the statement that are publicly available (Bonin 2013). This also takes place in event of low transparency in setting process of standards. For instance, German commercial code is taken that provides some insights and specific of German lobbying has been taken into consideration. People who plan an important role in landscape of German lobbying are the lobby groups who are mostly audit and industry associations. For the modernization of modern GAAP in year 2008, a foist ministry draft law was published by German Ministry of Justice. Draft comprised of some suggestion relating to German Commercial code that would have enormous impact on structural foundation of German accounting (Dyckman and Zeff 2015). Enormous impact was mainly on principles of proper bookkeeping. A government draft law was proposed for the modernization of German GAAP. Some of different accounting standards that have been discussed are as follows:
Auditors’ Influence on Accounting Standards
- Fair value of accounting for financial instrument held for trading- As per the law proposed in draft, financial instruments that is held for trading should be valued at fair value. Companies that have obligation of keeping the records would have be mandatory as per this regulation.
- Relation to German commercial code to International Financial reporting standard- According to capital market oriented groups in Germany, most of companies are not obliged, as there already exist obligation to report.
- Capitalization of internally generated tangible assets- Some of the internally generated capital assets needs to be capitalized as per envisions of further change. Concerning this, there was no substantial deviation between government draft law and suggestion of ministry (Englund and Gerdin 014).
- Reserved authoritativeness principle- Financial reporting law and taxation law are thought to be strongly interwoven. Taxation law can be applied in financial reporting and the basis for taxation purpose is build according to financial reporting law. One final reporting package is calculated that serve as basis for dividend payment, taxation and general purpose of financial reporting. Such correlation was partly relinquished with the modernization.
- Tax effects of modernization- Modernization of German GAAP comes with explicit aim that results in same tax revenue. This indicates that companies are not required to pay more or less taxes (Li 2014).
In Germany, Transparency relating to political lobbying is very low. Some the studies conducted on lobbying on accounting standards categorize the comments of lobbyist in three classes.
In this part of report, the changing trend is use to explain the extent to which auditor lobbying can be explained. Since 1990s, the proposition of accounting standards using methodologies fair value has increased. A shift toward fair value accounting at the Financial accounting standard board has increased by representation with the agenda (Jaggi 2015). Auditors can report the agenda and this is indicated by the extent to which fair value agenda does not detract from the incentives of auditors (Mohammadi 2015). Such task has enabled them in extracting rent from other FASB issues. With the proposed use of methodologies of fair value in accounting, the auditors lobbying over decreased reliability has been examined.
Some of other research accounted for motivation for fierce lobbying against the standards and how the price of stock o some firms were affected by that. Related to the adoption of standard, there was negative abnormal return key events (Quinn 2014). This particular evidence was interpreted as the managers lobbied against the standards for maximizing the personal wealth and value of shareholders.
Few authors in the process of setting of accounting standard provided an example of research. UK standard setting processing was examined and hidden influences was raised by few notion and this played a significant role in standard process of setting. It was stressed that the investigation are not restricted to activity of lobbying and statements of public submission. The literature of accounting setting was not sufficiently acknowledged by the influences that are not visible publicly. There was considerable discussion between interested parties and regulators throughput the setting process of accounting standard. Most the part was not included in public domain. This evidence is an example of informal lobbying (Penman 2013). Some unseen influences that occurred within the process of regulation are not supported by such lobbying incidence that included research of standard setting of accounting.
In event of when there is no apparent connection between standard setting process and output and some space is provided in other unseen process that is considered to having influence on process. the literature of accounting standard is one of the type of lobbying activities. The outcome of accounting standard setting process was examined by inferring the existence of unseen influences. Exposure drafts represented the visible input into the standard setting process. In the event of outcome being contrary to the expectations, it can be inferred that the unseen influences will be occurring within the settings of standard. Converting the influence will result in eventual IFRS. One of the most intense politicized argument relating accounting was the continuation of lobbying against the standards. International Accounting standards committee addressed this issue at the international level and this event was marked as addressing of the historical controversy (Gaffikin and Aitken 2014).
Conclusion:
The existence flexible and existence accounting standards was not allowed to continue when IFRS 6 was raised by IASB in year 2008. Such standard were codified into international accounting standard. Some of the influences such as draft and comment paper and those effects are visible in the outcome. Unseen or hidden influences concerning the above discussion needs to be recognized and sometimes the footprints left on them outcome are identified. Some of the major players in setting of accounting standards have invisible influence and this depicts the explanation for inaction of the IASB. There is a need to assess the standard setting process. Some of unproblematic access are offered by publicly available information and some of the thing in area of substantial accounting flexibility concerns accounting for restoration and removal expense. The above discussion widely discuss and acknowledged politicization of accosting standard setting. In the light of adoption of International financial reporting standards and worldwide promotions, the revelation concerning economically dominant groups would be able to wield such power.
Reference:
Al-Htaybat, K. and von Alberti-Alhtaybat, L., 2013. Management Accounting Theory Revisited: Seeking to Increase Research Relevance. International Journal of Business and Management, 8(18), p.12.
Baxter, W.T., 2014. Accounting theory. Routledge.
Biondi, Y. and Zambon, S. eds., 2013. Accounting and business economics: Insights from national traditions. Routledge.
Bonin, H., 2013. Generational accounting: theory and application. Springer Science & Business Media.
Dyckman, T.R. and Zeff, S.A., 2015. Accounting Research: Past, Present, and Future. Abacus, 51(4), pp.511-524.
Englund, H. and Gerdin, J., 2014. Structuration theory in accounting research: Applications and applicability. Critical Perspectives on Accounting, 25(2), pp.162-180.
Fleming, D., 2016. ACCTG 660 Seminar in Accounting Theory.
Gaffikin, M. and Aitken, M., 2014. The Development of Accounting Theory (RLE Accounting): Significant Contributors to Accounting Thought in the 20th Century. Routledge.
Jaggi, B., 2015. RESEARCH IN FINANCIAL ACCOUNTING ACCOUNTING THEORY II (26: 010: 652) Fall 2015.
Li, W., 2014. Problems of Fair Value Accounting Theory in Practice. Journal of Hubei Water Resources Technical College, 1, p.010.
Mohammadi, S., 2015. Full development of the theory of accounting and auditing. International Journal of Accounting and Economics Studies, 3(1), pp.7-9.
Penman, S., 2013. Accounting standard setting: Thoughts on developing a conceptual framework. China Journal of Accounting Studies, 1(3-4), pp.157-167.
Quinn Jr, E., 2014. The Evolution of Accounting Theory in Response to Market Changes. International Journal of Academic Research in Business and Social Sciences, 4(10), p.509.
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