Accounting Standard Setting: A Complex Political Process - ACCT 20074

This report critically evaluates the relationship between corporate failures and the evolution of accounting regulations and standards. It explores how significant corporate crises have prompted changes in financial reporting practices, examining the complex political processes involved in setting accounting standards. The report delves into the technical and political dimensions of standard setting, highlighting how government influence and various lobbies impact the approval and implementation of accounting rules. It provides examples from the US, Australia, and global contexts, illustrating how political pressures, industry interests, and regulatory bodies shape the development and application of accounting standards, emphasizing the need to minimize these lobbies for the welfare of standard setters and companies. The analysis incorporates references to academic journal articles and the APA referencing guide.

Running Head: CONTEMPORARY ACCOUNTING THEORY
CONTEMPORARY ACCOUNTING THEORY
Name of the Student
Name of the University
Author Note

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Table of Contents
Introduction................................................................................................................................2
Corporate Failure leads to Improved Accounting Regulations..................................................2
Accounting Standard Setting a Complex Political Process........................................................3
Conclusion..................................................................................................................................5
Reference....................................................................................................................................6

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Introduction
The contemporaries is making sense of the doubtful and suspicious practices by the
construction of narratives that is possibly framing it as corporate scandals which has lead for
attempting the regulatory change. The problem of corporate scandal is growing day-by-day
which has forced for changing the practices of accounting by adopting different standards and
regulations by the regulatory. Therefore, the aim of this paper is to do the analysis on how the
corporate failures/crisis in the every era leads to the improved accounting
regulations/standards for financial reporting in the subsequent time period. In addition,
discussion will be done on the argument that accounting standard has always been a complex
political process in the context of global (Flower, 2015).
Corporate Failure leads to Improved Accounting Regulations
The rapid changes in the business environment and financial crisis has led to increase
the corporate failure globally. Corporate failures is considered as discontinuance of the
operations of the corporate that leads to the inability for reaping to the sufficient revenue or
profit for paying the expenses of the business. Generally, it happens due to the poor
management, incompetency as well as not adhering to the available standards or regulation
(Hamilton, S., & Micklethwait, A. (2016). The corporate also fails due to failing for adapting
the changes in the environment that includes complacency, making of risk averse decisions,
economies of administration and production as well as limited opportunities for the
diversifications and innovation. Apart from that, their leniency in adopting the available
standards and regulations has also contributed to the corporate failure. Therefore, these
leniencies by the corporate have led to the requirement for adopting the improved regulations
by the regulator (Thomson, 2015).

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Accounting Standard Setting a Complex Political Process
The process of setting the accounting standards has two dimensions, the first
dimension includes the technical aspect and the second dimensions include political aspect.
Therefore under this report, discussion will be done on political aspect. Whenever, the
accounting standard is formulated by the national or the international bodies, it seeks to get
approval of from the government, which consists of complexity of the political process
(Palea, 2015). The accounting rule that is favorable to the government are accepted and
approved by the government, whereas the accounting rule that is unfavorable to the
government are not approved or they ask for changes alleging several loopholes. These
activities by the government are termed as interventions (Crawford et al., 2014).
Accounting to Sveriges Riksbank, there is re-balancing effect of the power that is in
the favor of the political interests, which has incurred between stakeholders of the
international accounting standards setting. Moreover, they have suspected that the increase in
the influence of the political actors will lead to the further struggles of power as well as
efforts for coping up with the changes that is on-going in the environment of institutions. In
the past months, EU has revised the policy of disengagement toward the setting of accounting
standards. The principal of the controversy was the concept of the fair value of financial
instruments. The EU has put the pressure on the IASB for limiting the types of the assets that
are subject of the fair value accounting, which have led to some amendments in the standards
of far value accounting (Critical Perspectives on Accounting, 2019).
According to Stephen A. Zeff, the obstacles that exists in the path of IASB is the
pressure of political bodies that can be triggered by the initiative of board for prescribing the
specific treatment of accounting, eliminating the alternative accounting treatments, imposing
the requirement of additional disclosures and, or tightening of the allowed interpretations.
There has been several attempts by the industry as well as the other affected parties, that are

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in the US and from other countries for moving aggressively for preventing the setter of
accounting standard from imposing the requirement that is objectionable. They have
exemplified the lengths by which the critics who were powerful of the proposed standards
will take initiative for defending their self interests. For example, the major Swiss company
Novartis has written to the chairman of IASB that they will switch to US GAAP from IFRS if
the standard which requires amortization of goodwill over 20 year is not change by IASB. It
is because the Swiss company will not continue to use IFRS in their financial statements
unless and until the government does not pass the law to this effect (“Political” Lobbying on
Proposed Standards: A Challenge to the IASB, 2019).
According to Miranda Jamburia, there has been political effect on the process of
accounting standard setting for the ongoing process of the leasing standards. The standard
setter has developed the new standards that will help in increasing the comparability and
transparency among the companies by the recognition of the lease of assets and liabilities in
the balance sheet for disclosing the essential information. However, the changes that was
proposed was became controversial because there was emphasis of increased compliance cost
and complexities involved in the standards of the opponents of new standard, was the main
reason of the dissatisfaction ("Political pressures and the evolution of disclosure regulation",
2019).
According to Jeremy Bertomeu, the change in regulations depends upon the political
accountability of standard setters as well as the underlying objectives, status quo and benefits
and costs associated with the disclosures to the reporting entities. The excessive
accountability of the politics need not to be implemented the regulations that are preferred by
the investors that are diversified. As per him, the political pressures slows down the standard
setting and in case if the high levels of the disclosure is proffered by the standard setter then

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the regulatory cycle is induced that are characterized by the long phase of increase in the
requirement of disclosure that is followed by the sudden deregulations (springer.com., 2019).
According to Brandon Gipper, the influence of the political intervention over the
standard setting is defined as the intervention that is more purposeful in the process of
standard setting by the economic entity with the objective of affecting the outcome of the
process that increases the economic value of entity that is inconsistent with the mission of
FASB. SEC, that is government regulatory agency, most often faces the political pressures
which forces for taking the positions that is inconsistent with the FASB. The example of this
is their decision for overriding SFAS-19 in late 1970s when the rule has been passed for
allowing the companies of oil and gas for using either the full cost or the successful efforts of
the methods of accounting for the cost of exploration and developments when the rule of
FASB has outlawed the full cost accounting (business.unsw.edu.au., 2019).
Conclusion
Hence, it can be concluded from the analysis that, in the dynamic business internal
and external environment, the corporate are faced with several challenges, which lead to
failure or financial crisis of some organization. This has led to adopting of increasing number
of regulations and standards of accounting by the standard setter, in order to cope with the
crisis by the organizations. However, these accounting standard processes are not easy as
accessed because it goes through the complex process of political intervention. Hence, these
lobbies have to be minimized at far as possible for the welfare of the standard setter and the
companies.

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Reference
“Political” Lobbying on Proposed Standards: A Challenge to the IASB. (2019). [Ebook].
business.unsw.edu.au. (2019). Retrieved from https://www.business.unsw.edu.au/research-
site/publications-site/australianjournalofmanagement-site/2013-australian-journal-of-
management-symposium-site/Documents/Skinner-ajms-20130612.pdf
Crawford, L., Ferguson, J., Helliar, C. V., & Power, D. M. (2014). Control over accounting
standards within the European Union: The political controversy surrounding the
adoption of IFRS 8. Critical Perspectives on Accounting, 25(4-5), 304-318.
Critical Perspectives on Accounting. (2019). [Ebook].
Flower, J. (2015). The international integrated reporting council: a story of failure. Critical
Perspectives on Accounting, 27, 1-17.
Hamilton, S., & Micklethwait, A. (2016). Greed and corporate failure: The lessons from
recent disasters. Springer.
Palea, V. (2015). The political economy of fair value reporting and the governance of the
standards-setting process: Critical issues and pitfalls from a continental European
Union perspective. Critical Perspectives on Accounting, 29, 1-15.
Political Influences on the IASB Accounting Standard-Setting: The Case of the Leases
Standard. (2019). [Ebook].
springer.com (2019) Political pressures and the evolution of disclosure regulation. Retrieved
from https://link.springer.com/article/Political pressures and the evolution of
disclosure regulation

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Thomson, I. (2015). ‘But does sustainability need capitalism or an integrated report’a
commentary on ‘The International Integrated Reporting Council: A story of failure’by
Flower, J. Critical Perspectives on Accounting, 27, 18-22.