Alain Burlaud

International Accounting Standardisation: Is Politics Back?

In the absence of political legitimacy, international accounting standardisation is founded on procedural and substantial legitimacies, which have been challenged by the current financial crisis. This paper represents a critique of this built up legitimacy. It demonstrates in particular that whilst due process is admittedly a transparent procedure, it is one in which only those players with major financial and intellectual resources can participate. It also highlights the weakness of the theoretical foundation, in particular agency theory and the theory of efficient markets, on which the conceptual framework of the IASB rests. This critical study of the foundations of the legitimacy of the IASC/IASB enables us to understand the extent of recent political intervention in a field that had previously been abandoned. Whilst international accounting standards did not trigger the crisis, some observers have said that they accelerated and even amplified it, mainly as a result of their pro-cyclical nature. This explains why, in October 2008, the international standard-setter was suddenly called to order by the European Union who requested it to urgently amend its Standards IAS 39 ‘Financial Instruments’ and IFRS 7 ‘Financial Instruments: Disclosures’. This intervention by a political organisation is all the more remarkable since international accounting standardisation seemed to have been definitively handed over to specialists from the IASC/IASB, a body which had declared itself to be the international standardiser. The crisis therefore strongly undermined the legitimacy of the international standardiser. This raises the question of whether we are about to witness the return of politics in a field, which is, in reality, highly political. This possible return is indicated not only by the pressures successfully exerted on the international standardisation body by the EU and the G8 but also the recommendations made to the IASC/IASB by the new G20 and the publication in France of reports of a political, highly critical nature, devoted to the recent evolution of accounting standardisation. In this paper, using a reflexive, critical approach, we question the legitimacy of the IASC/IASB with the aim of evaluating the extent of the political recommendations made to it. It is clear that the legitimacy of an accounting standardisation body is fundamental since it conditions the legitimacy of the standards it issues, accounting practice itself and in the end, the confidence of users in the financial statements of companies. But this legitimacy is not innate. It is not natural or pre-existing. As we shall see, it is constructed and managed. In the first section, we will examine, and try to specify, the foundations of the IASB. In the second section, we will demonstrate the fragility of these foundations, a fragility that existed before the crisis but which the latter exposed more clearly. Lastly, in the third section, we will attempt to see if recent interventions of political organisations in the international accounting standardisation process have challenged the international standardiser and if they herald the return of politics.

Depreciation: concepts and practices in France and the UK

This article is a comparative review of current depreciation practices in France and the United Kingdom. It starts with a consideration of the evolution of depreciation from the nineteenth century, when it was generally regarded as an optional item, often associated with profit-smoothing, through to the present day when the principle of its systematic application is never questioned. The article reviews the different regulatory frameworks controlling depreciation in France and the UK and notes the importance in France of the link with allowable expenses for tax purposes. From this analysis is drawn a series of recognition and measurement differences where the approach to depreciation is different between the two countries. Major differences are the use of residual values in the UK and their absence in France, the use of different asset categories, and different definitions for some assets. The paper then provides the results of empirical work where samples of accounts drawn from specific industry sectors are examined for evidence of actual practice. The paper concludes in observing that the research demonstrates many of the classical problems of cross-border analysis in that even a topic thought of as routine, such as depreciation, shows national differences of approach both as to asset categorization, and measurement of depreciation, so that direct comparisons are not entirely justified.