Chrystelle Richard

Fair Value Accounting and the Banking Crisis in 2008: Shooting the Messenger

The paper sets out to analyse the effects of the financial crisis on the international standard-setter in 2008 and the attempts made to shoot the messenger – to blame IAS 39 for creating the crisis for reporting unrealised losses, rather than the cause being bankers making bad investment decisions. It first provides a brief analysis of IAS 39 and fair value accounting for financial instruments. It then sets out the relationship with the Basel II banking regulatory regime. The main part of the paper is a chronological presentation of the events of 2008 as they impact upon the international standard-setting institution. In particular, we analyse the impact of the G20 requirements and the blunt intervention of the European Commission that led to amendments to IAS 39. The final part of the paper looks at the consequences as they are so far discernible and the damage done to the IASB by shooting the messenger.

Introduction: The Discreet Regulator

The global financial crisis that began in the summer of 2007, and was accelerated in September 2008 by the collapse of Lehman Brothers, has made financial actors generally – and large investment banks more specifically – the centre of attention. Some commentators condemn their ability to circulate vast amounts of capital with no geographical limits, and thus to create damaging competition (Arnoldi, 2004; Bryan and Rafferty, 2006; LiPuma and Lee, 2004, 2005; Pryke and Allen, 2000). The legitimate question of stronger regulation and supervision that would limit their freedom of action arises acutely in this context (Davis, 2009).

An international study of internal audit function quality

We investigate organisational and environmental factors that influence firms’ incentives to develop high-quality internal audit functions (IAFs) by using a unique international sample formed by matching proprietary data from a global internal auditor survey with public data obtained from Worldscope. Concerning organisational factors, we find that a positive relationship exists between IAF quality and firm complexity and confirm that complex firms have a higher demand for monitoring and advising and, therefore, a greater need for formal controls. In addition, IAF quality is positively related to board monitoring and audit committee diligence but negatively associated with CEO power, which suggests that IAF quality is influenced by other key players in corporate governance. Regarding environmental factors, we document that IAF quality is positively associated with industry competition, which implies that a firm’s incentive for a high-quality IAF is enhanced when confronted with greater environmental uncertainty. Furthermore, IAF quality has a significantly positive relationship with our self-constructed index of IAF requirements included in national corporate governance codes, which indicates that strong home-country corporate governance codes play a role in fostering IAF development.

The Audit Committee as an Interactive Process: Insights on the AC Chairperson’s Power

Abstract The audit committee (AC) chairperson is considered a key actor in the AC process, yet little is known about the role of AC chairpersons and how they exert power in a constraining institutional environment. Considering the AC as an inhabited institution – an institution actively inhabited by agentic and creative actors, this paper provides insights into the dynamics of the AC process with respect to the contribution, power and influence of the AC chairperson. The analysis draws on 53 interviews with experienced AC members, chief financial officers and auditors of 23 publicly listed companies. The results show that AC chairpersons are neither totally constrained by the institutional environment nor fully strategic actors, but carve out individual corridors of action and exert power within the AC process. In particular, our findings bring out three styles of leadership: managing ongoing trust relationships to act as marginal-secant able to play with the various local ecologies of knowledge and power, using in-depth knowledge of the institutional rules to manage them purposefully, serving as an expert in a timely and targeted manner. The analysis points to the ways AC chairpersons inhabit their role, deal with institutional scripts and give meaning to their oversight duties.

Banks as Masters of Debt, Cost Calculators and Risk-Sharing Mediators: A Discreet Regulatory Role Observed in French Public–Private Partnerships

External, top-down regulation by public authorities is increasingly being combined with endogenous bottom-up regulation by private actors to produce various forms of ‘joint’regulation (Lazega, 2003). The financial sector – banking in particular – plays a central role in this joint regulation. This chapter looks at a case in point, describing the central but discreet role of the banking sector in the construction of a new institutional system combining public procurement and private markets through the promotion of PPPs (public–private partnerships) in France.