University of Greenwich CIA Research Essay: Lobbying in IFRS

This assignment provides a critical review of lobbying within the context of International Financial Reporting Standards (IFRS). It begins with an introduction to the International Accounting Standards Board (IASB) and its role in setting high-quality IFRS standards, highlighting the potential influence of political pressures and self-interested considerations on the standard-setting process. The essay then delves into the standard-setting process of the IASB, outlining its six stages and the involvement of various stakeholders. A detailed analysis of the motivations behind lobbying in the accounting standard-setting process is provided, including the rational-choice model and the influence of preparers and political actors. The assignment also explores the impact of lobbying on the due process of standard setting and the challenges it poses to the legitimacy of IFRS. The essay draws on the provided research article and at least nine additional academic journal articles to support its arguments and provide a comprehensive overview of the topic, concluding with a discussion of the implications of lobbying for the integrity and transparency of financial reporting.

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Name of the Student
Name of the University
Author Note

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Table of Contents
Introduction................................................................................................................................2
Analysis......................................................................................................................................3
Standard Setting Process of IASB for IFRS..........................................................................3
Motivations for Lobbying in the Accounting Standard Setting Process................................4
Conclusion & Recommendations...............................................................................................9
Reference..................................................................................................................................11

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Introduction
The International Accounting Standards Board has been emerged from the board of
committee’s restructuring of the International Accounting Standard for seeking to establish
the high quality of the IFRS as well as for engineering the convergence at the level with that
of the eight other major standard setters around the world with the legitimate process of
collaborations. In the path of IASB, there is one obstacle of “political pressure”. Here,
political is referred as pledging by the preparers an or the self-interested considerations,
which may be detrimental to investor’s interests and to the other users. The well-resourced
standard setters, educational institutions, organizations of international accounting as well as
major international companies are able to provide IASB with the direct opportunities of
lobbying. The IFRS legitimacy is questionable in case if the due process of the standard
setting is perceived as invalid (Ifrs.org. 2019). The financial crisis of the world has exposed
the weaknesses in the due process of the IFRS when the standard was amended by the IASB
without following the processes. There are two dimensions of the accounting standards
processes. The first dimension is consist of the technical aspect and the second aspect is
consists of the political aspects (Wingard, Bosman and Amisi 2019). Whether the national or
the international bodies formulate the accounting standard, they have to take approval from
the respective government that includes the political process complexity. The standard of
accounting that is favorable enough to the respective government, then they are usually
accepted and those accounting standard that are unfavorable to government are unapproved
and being asked for the changes alleging different loopholes (Young 2014). Therefore, this
assignment has the purpose for assessing the influence on due processes of the setting of
standard with the financial reporting legitimacy that is IFRS. Moreover, this assignment will
include the discussion on the process of standard setting of the IASB for the IFRS. Lastly,

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discussion will also be done on the critical review of lobbying in the accounting standard
setting process.
Analysis
Standard Setting Process of IASB for IFRS
The development of the IFRS is done by the process of international consultation that
is the due process that involves the organizations as well as interested individuals from all
around the world. This due process includes six stages with Trustees of IFRS Foundations
that have the opportunity for ensuring the compliance at the different point throughout. The
processes includes setting of the process, planning of the project, developing as well as
publishing of the discussing paper and developing as well as publishing of the exposure draft.
It also includes developing as well as publishing of accounting standard and lastly after the
standard has been issued, the unanticipated issues are being resolved by holding the regular
meetings with the interested parties (Álvarez, Calvo and Mora 2014).
IASB aims for developing the financial reporting standards of high quality that
addresses the demand for the better quality of the information, which is having value to the
users of the financial reports. While deciding if the agenda that is proposed is addressing the
needs of the users, IASB considers quality, relevance to users, increasing convergence,
resource constraints and existing available guidance. IASB discusses as well as raises the
items of potential agenda in respect of the comments from the other interested parties, other
standard setters, IFRS Advisory Council, IFRS Interpretations committee as well as other
recommendations (Allen, Ramanna and Roychowdhury 2018). The next step of standard
setter is planning the project that includes assessing the issue, which is against the criteria
such as clarifying, correcting, completion on the timely basis and considerations of the
proposed changes. The next step includes publishing of the discussion paper that consist of

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the comprehensive overview of the issues, approaches for addressing the issues, preliminary
views of authors and invitation for comment (Reuter and Messner 2015). Further, exposure
draft is being developed after considering the issues based on the recommendations and
comments. The last two steps includes resolving the issues and developing the issues and
holding regularly meetings with the interested parties for helping to understand the issues that
are unexpected relates to practical implementation as well as practical impacts of the
provisions (Jorissen et al. 2014).
Motivations for Lobbying in the Standard Setting Process of Accounting
The political influence over the standard setting is the intervention that is purposeful
in the process of the standard setting by economic entity, having the objective of affecting the
outcomes of the processes to increase the entity’s economic value or to achieve the other self-
interested purposes that is inconsistent with the FASB mission. This description suggests that
the political lobbying is embeded in the self-interest as well as it is in some way detrimental
to standards quality. The user’s interests of the financial statements are important to the
accounting standard-setters. Although, there is various challenges and criticisms relating to
procedural legitimacy of the IASB. It is one of the vital issues, which are in context of the
processes of the accounting setting. Lobbying has become essential part of the standard-
setting process of the IASB. In consistent with the rational-choice model. The analysis of the
lobbying activity implies that the preparers constitute the most active groups particularly
when the project is started by IASB (Giner and Arce 2012).The emergence of the political
pressures is in various degrees and strength. Its impact is even greater in the greater in the
settings where there is the existence of the strong enforcement mechanism.
There has been the effect of rebalancing of power, which is in support of the political
interest that incurs between the standards settings of international accounting as well as the
stakeholders. In addition, increase in the political actors influence has led to encounter the

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power as well as the efforts to cope up with the ongoing changes in environment of the
institutions. There has been the revision of EU on IASB fir limiting the assets types, which
are the subject of fair value accounting that lead to some of the amendments in the accounting
standards of fair value (Andrew, Cooper and Gendron 2019).
The political intervention has the influence over the setting of the standards. It is the
invention, which is generally more purposeful in the processes of the setting of standards by
economic entity having the objective for affecting the outcomes of the due process. It
increases the entity’s economic value, which is consistent with the FASB’s mission. The
government agency SEC, most often faces politics pressures for taking the positions, which is
inconsistent with FASB. One of the instance of this is decisions in late 1970s for overriding
SFAS-19, when the rules was passed to allow the oil and gas company for using either
accounting methods for the exploration and developments costs or the full cost, when full
cost accounting was outlawed by the rule of FASB (Gipper, Lombardi and Skinner 2013).
It has been found that there is political effect on accounting standards setting
processes of the leasing standards. The new accounting standards has been developed by the
standard setter, which will be helpful for increasing transparency and comparability among
all the organizations by recognizing assets as well as liabilities lease in the balance sheet in
order to disclose the essential information. Although, these changes that is proposed has
become controversial due to more emphasis on the increased cost of compliance and
complexities that was involved in the standards. It becomes the main reason for the
dissatisfaction (Jamburia and Lankeviciute 2015).
The pressure of the political bodies is the main obstacles, which exists in the way of
the IASB. It can be prompted by the initiatives of board by prescribing specific accounting
treatment, eliminative alternative treatment of accounting, imposing additional disclosures

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requirements and then tightening the interpretations allowed. The industry as well as the other
parties affected in US as well as from the other countries has made several attempts in order
to move aggressively for preventing the accounting standard setter for imposing those
requirements that are objectionable. The lengths has been exemplified with the help of which
the powerful critics of the standards proposed will be able for taking the initiative for
defending their self-interest. The example of this is Novartis, a major Swiss company has
written to the chairman of IASB that they would be switching from IFRS to the US GAAP, if
IASB would not make the changes in the standard that requires goodwill amortization for
over 20 years. It is because IFRS would be used continuously by the Swiss company in their
financial statements until unless law is not passed by the government to this effect (Zeff
2002).
If there are any changes in the rules and regulations then it depends heavily upon the
standard setter’s political accountability as well as the underlying objectives, cost, benefits,
and status quo that are associated with reporting entities disclosures. The political pressure
generally slows down the setting of the standards. If in case, standard setter prefers high
levels of disclosures then there induction of regulatory cycle, which is being followed by
sudden deregulations (Bertomeu and Magee 2014).
The standard setters includes IASB, formerly US FASB and Committee of IAS were
committed towards protecting the investors interests in comparison to the corporation as well
as auditors interests. Although, the political lobbying takes place because of government or
preparers self-interest. The standard setters have the incentives, which modifies their position
and dilute the principles of standards. Moreover, at the same point of the time, the lobbying
may takes place on the behalf of the corporations. The exploration of the corporate lobbying
under IASB accounting standard shows that the size of the company is associated with
lobbying. The explanation of lobbying can be done by the number of managerial as well as

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economic theories, which further is divided into agency as well as stakeholder’s theory. As
per the view of agency theory, the lobbying in the accounting standards takes place in the
situation when there is conflict between the standard setter or the companies and the society.
Moreover, from the perspective of stakeholders’ theory, the organizations care about the most
legitimate as well as powerful stakeholders when taking the efforts of lobbying (Ahmad
2019).
IFRS is having the principle based accounting that allows the companies for utilizing
only those methods, which they wish for, and they therefore allowing the financial statements
for showing only those results that are being desired by them and it leads towards the
manipulations of the profit or revenue and hiding of the company’s financial problems
(Udofia and Ikpantan 2019).
The addition of the first project to the agenda of the International Accounting
Standard Board establishment was the project of financial instruments. The controversy of
the standards as well as their heavy nature of the Anglo-American has led to the widespread
concerns regarding the granting of the undue influence by the IASB for certain lobbying
parties in the development of these standards (Shields 2019).
The standard setting of IASB is generally characterized by the various degrees of the
constituent support as well as opposition for the proposed changes of the organization to the
standards of accounting. The lobbyists generally successful in blocking of the changes that
are being proposed by expressing in the negative manner, while there is discussion of the
proposal as opposed to disagree explicitly (Hoffmann and Zuelch 2014). In general, it is
being observed that in the development all the major constituents groups are influences but
when it comes for the requirements of the disclosures, it is the only business community that
is being influential. One of the directions for influencing IASB is by the submission of the

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comment letters that is in response to the proposals of the organizations (Mora and Molina
2014). Reviewing of the comment letters is the part of the standard setting’s formal due
process. However, despite of the number of the calls for the researches for developing the
greater understanding of these particular processes, there is various lacks of the objectives as
well as rigorous methods in the literature of lobbying to analyze the comments letters as well
as their influences on resulting standards (Bamber and McMeeking 2016). The power
dynamics remains complex within the international standard setting as it includes number of
constituents from the different institutional backgrounds, most often with the interest being
conflicting. The due process is the vital feature of processes from which legitimacy is being
derived by IASB. The due process includes different steps and the consultations with the
constituents in IFRS development (Crawford et al. 2014). In the lobbying setting, the proper
following of the due process is generally unobservable and there is an informal channel of the
influences for the external parties in early stages of the development of the standard.
Although, in case of issue of the issue of the exposure draft, there is the formal opportunity
for the external parties for commenting on proposals that are contained in the draft, which
affect potentially the decisions of the IASB for either implementing or not implementing it
(Morley 2016).
The challenge of the IFRS legitimacy emerges from the needs for the states to
surrender partially sovereignty as well as delegating the responsibilities of policy making to
the unelected board members of IASB. These challenges of legitimacy can overcome by the
actions at process as well as institutional level (Kosi and Reither 2014). There is
redistributive effects of the accounting standards as it is shapes and is shaped by the power
relations as well as is highly influenced by the dominant ideologies and ruling elites. The
powerful stakeholder’s needs may be met at the expenses of all the other users, which violate
the valid practical discourse requirements (Young 2014). The importance of the structures of

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the governance, procedures of due processes, funding in due process of IFRS standard setting
and technical expertise has been highlighted by the financial crisis. The global financial crisis
has resulted into the oversight structures as well as IASB due processes with monitoring the
board introduction, the expansion of the current structures as well as the introduction of the
additional advisory committees. The uses of the IFRS are not limited to the listed companies,
still the allocations of the governance seats of the IFRS are based on the capital markets sizes.
The large capital markets economies allows for the limited uses of the IFRS (Teixeira 2014).
Conclusion & Recommendations
Hence, it is being concluded from the analysis that the processes of accounting
standard are not as easy as it is being accessed as it goes through the processes of the
complex political intervention. This paper has highlighted that by improving the standard
setting due processes, IFRS legitimacy will be improved. It improvement and strengthening
of it can be done by ensuring that the structures are the representatives of the jurisdictions by
using IFRS and the procedures of the due process should afford the parties affected, the equal
opportunities for influencing the contents of the standards. Moreover, the impacts of
arrangements of current governance requires for accepting that the content of the IFRS will
be determined by the larger economies. These approaches violates the condition of the
practical discourses of the non-exclusion of all those who is able to contribute. It has been
found that the lobbying could relate to either company specific or the country specific.
Therefore, there should be minimization of the lobbies in the processes of the standard setting
of the accounting for enabling and maintaining the welfare on the part of respective
companies, countries as well as standard setter welfare.
The recommendations that would be given are as follows:

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 The effectiveness in the implementations of the IFRS requires extensive planning as
well as extensive public educations, resource allocation towards the training for
building capacity, the legal as well as system of regulatory support and the
institutional support with the strong system of management.
 There should be effective as well as responsive communication system in order to
inform the users for the changes in the requirements of reporting. The users of the
financial systems should be able for interpreting the financial reports and then raise
the questions about the performance of the entity. The efforts should be built for good
corporate governance as well as enhancing the transparency in corporate would be
successful if the stakeholders are having the desired knowledge of understanding the
financial reports and the reporting changes.
 There should be enough legal backing of the IFRS as the reporting standard in the
country.

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