Robert K. Larson

Constituent Participation and the IASB's International Financial Reporting Interpretations Committee

Abstract While international convergence of accounting standards is becoming more of a reality, the International Accounting Standards Board (IASB) continues to seek greater acceptance and legitimacy as an institution. Constituent participation is one key component for an organization to obtain legitimacy and success. This study investigates constituent participation of one significant part of the IASB, the International Financial Reporting Interpretations Committee (IFRIC). IASB/IFRIC constituents are classified in two ways: (1) geographically (by country and region); and (2) stakeholder interest group (the accounting profession, regulators, preparers and users). Respondents writing comment letters in regards to IFRICs first 18 Draft Interpretations are examined. A total of 272 respondents from 40 countries generated 714 comment letters. The European Union provided a majority of writers and letters, with the UK being the largest contributor. The USA, Canada and developing countries generated few letters. Constituent participation significantly increased over IFRICs predecessor committee, but responses remain concentrated with 35 respondents, mostly professional accountancy bodies and accounting standard-setters, generating 58% of the comment letters. Users accounted for only 5% of letters. While improved constituent participation may support the notion of increased legitimacy, limited participation by some IFRIC constituents suggests that the IASB should further promote constituent participation to achieve greater legitimacy.

Corporate Lobbying of the International Accounting Standards Committee

The paper investigates corporate lobbyists of the International Accounting Standards Committee (IASC). This exploratory study was done in order to better understand the characteristics of corporations that lobby the IASC and to empirically test the applicability of U.S.-based lobbying theories in this international context. Corporations that submitted comment letters about 17 Exposure Drafts and three Draft Statements of Position from 1989 to 1994 were analyzed. Overall, the 100 lobbying corporations were quite large. In the U.S. and in 10 of the 12 other countries examined, lobbying corporations were larger than nonlobbying firms in terms of revenue, income, and assets. Eighty-four percent of all lobbying corporations were listed on at least one foreign stock exchange, and 78% of non-U.S. lobbying corporations had equity securities traded in the U.S. Finally, in 10 of the 12 non-U.S. countries, a higher percentage of lobbying firms than nonlobbying firms had their stock traded in the U.S. Overall, corporations lobbying the IASC tend to be very large both globally and in terms of their country of domicile, listed on at least one foreign exchange, and traded in the U.S. Support is found in this international context for ideas originating in the U.S.-based lobbying literature.

LARGE ACCOUNTING FIRMS’ SURVEY REVEALS EMERGENCE OF “TWO STANDARD” SYSTEM IN THE EUROPEAN UNION

Abstract Convergence with International Financial Reporting Standards (IFRS) as promulgated by the International Accounting Standards Board (IASB) is receiving great attention. In 2005, all listed companies domiciled in the European Union (EU) will be required to prepare consolidated accounts based on IFRS. Individual EU member states are, however, permitted to decide whether IFRS will be required or allowed for non-listed companies or for listed companies’ individual accounts. Based primarily on data collected by the six largest international accounting firms during their most recent convergence survey, this paper examines each of the 15 EU member states’ convergence plans and their perceived barriers to convergence. The findings indicate that most EU members do not plan to converge national GAAP with IFRS, thereby highlighting the great significance of the large firms’ concerns regarding emergence of a “two-standard” system in the EU. The survey indicates the majority of EU countries will continue to require or allow national GAAP for individual accounts. While Belgium is considering requiring IFRS for all consolidated accounts, other EU countries have decided to allow or are considering allowing non-listed companies to prepare IFRS consolidated accounts. In most EU countries, the link between financial accounting and tax accounting represents a major barrier to convergence. Other frequently cited barriers include disagreement with certain IFRS and the complicated nature of certain IFRS. International requirements for financial instruments are viewed as particularly problematic.

Lobbying of the International Accounting Standards Committee: The Case of Construction Contracts

ABSTRACT Many cultural, political, economic and other environmental factors have been suggested as impediments to the efforts of the International Accounting Standards Committee (IASC) to harmonize international accounting standards. We investigate the relationship between lobbyists’ position, and: (1) their home countries’ financial accounting standards; and (2) their home countries’ tax rules. The factors are tested both separately and jointly to increase our understanding of lobbying and obstacles to harmonization. Long-term construction contracts are used as our case study. Construction contracts were traditionally accounted for by either the completed contract method (CCM) or the percentage of completion method (PCM). Originally, the IASC’s Standards (IASs) allowed both CCM and PCM. Thus, most countries’ accounting standards complied with IASs. However, the IASC’s Comparability Project, beginning with Exposure Draft (ED) 32, proposed to eliminate CCM. Thirty-nine comment letters submitted on ED 32 contained specific references to long-term construction contracts. Although almost 60% opposed the complete elimination of CCM, the IASC eliminated it. However, in many ways, the IASC co-opted lobbyists by allowing the Zero Profit Method, which may effectively result in the same timing of profit recognition as CCM. Support is found for a strong link between respondents’ lobbying position and both their home country’s accounting standards and tax laws. Each factor may hinder the harmonization process. A high positive correlation also exists between the accounting standards and tax laws of lobbyists’ countries. Beyond the possible importance of the tax and financial reporting linkage affecting harmonization, the issue of multicollinearity should signal caution when interpreting the results of lobbying studies that simultaneously include highly correlated variables in the same model.

The IASC's search for legitimacy: An analysis of the IASC's standing interpretations committee

Abstract The International Accounting Standards Committee (IASC), and its successor, the International Accounting Standards Board (IASB), greatly desires acceptance and legitimacy as an institution. Organizational legitimacy is the acceptance of an organization by its environment and it is often viewed as vital for an organizations survival and success. In complex structures, an institutions legitimacy should be judged by examining both the organization as a whole and its subunits. Since the U.S. Securities and Exchange Commission (SEC) has stated that acceptance of IASC standards (IASs) depends, in part, on whether the IASB develops a method for speedy, official interpretations of IASs, this study investigates the Standing Interpretations Committee (SIC) responsible for interpretation of IASs and also suggests a framework for evaluating whether the SIC has achieved effectiveness and legitimacy. The paper focuses on the SICs due process, structure, and membership, and on constituent participation in the SICs first 23 Draft Interpretations. Large public accounting firms and professional accountancy bodies are actively involved with the SIC. However, the minimal participation by corporations and other stakeholders raises concerns that the SIC has not effectively reached its potential broader constituencies. This raises questions whether the SIC has fully achieved its goals.

An Examination of Comment Letters to the IASC: Special Purpose Entities

While major strides toward the convergence of accounting standards have occurred, concern exists that self-interested political pressures, if effective, may create international accounting standards that are not always in the best interest of investors and others. This case study examines comment letters generated by an important accounting topic, Special Purpose Entities (SPEs), in order to gain further insight into whether concerns of political pressure in the development of international accounting standards have merit. Famous since Enron, SPEs are used in off-balance sheet financing vehicles that now involve trillions of dollars annually. During the period when the International Accounting Standards Committee (IASC) was trying to earn the support of the International Organization of Securities Commissions (IOSCO), the IASCs Standing Interpretations Committee (SIC) issued Draft Interpretation 12 (DI-12), Consolidation of Special Purpose Entities. DI-12 required SPEs to be consolidated more frequently than under US GAAP. Although most respondents, including IOSCO, supported DI-12, about 25 percent adamantly opposed it. Opposition came from those in countries with more flexible rules on the consolidation of SPEs, including the staff of the Financial Accounting Standards Board and all other US letter writers. It is also possible that political considerations may have influenced some as Arthur Andersen and all banking interests opposed to DI-12 were heavily involved with SPEs. However, with the support of IOSCO and many others, the SICs final SPE standard was even stricter than originally proposed.

A Multi-Issue/Multi-Period Analysis of the Geographic Diversity of IASB Comment Letter Participation

The International Accounting Standards Board (IASB) establishes accounting standards now used in some form in over 100 countries. Diverse geographical participation in International Financial Reporting Standards (IFRS) standard-setting is seen as desirable as it may improve the consistency of IFRS applications, reduce criticism of regional over-influence, and promote the legitimacy of the IASB. This study investigates country participation and the regional and institutional factors that influence the geographic diversity of comment letters (CLs) in the IASBs standard-setting process. Using CLs regarding 57 IASB issues from 2001 through 2008, we find that countries with EU membership, G4+1 membership, donations to the IASB, and larger equity market development are associated with larger numbers of CLs and CL writers. Analysis of a subsample of more developed countries finds some evidence that countries with more historic divergence in accounting standards from IFRS also have more CL writers. In most countries, one of several major stakeholder interest groups, such as professional accountancy bodies, accounting standard-setters, and public accounting firms, send at least half of the CLs. While response levels for most countries vary greatly depending upon the nature or topic of an IASB issue, overall response levels remain low at just over 100 responses per issue and did not increase over time. While geographic diversity and response rates are greater than its predecessor the International Accounting Standards Committee, they are lower than those of many national standard-setters, possibly raising due process and legitimacy issues for the IASB.

IFRS Teaching Resources: Available and Rapidly Growing

With the rapid adoption of International Financial Reporting Standards (IFRS) around the world, accounting practitioners, educators, and students are in great need of IFRS instructional materials. This article provides a compilation and review of IFRS teaching resources based primarily on presentations made at a series of IFRS Teaching Workshops sponsored by the IFRS Foundation Teaching Initiative and the International Association for Accounting Education and Research (IAAER). With the purpose of helping those teaching IFRS, especially those with limited prior IFRS teaching experience, we provide detailed information so educators can easily access and use these resources. Several different IFRS teaching strategies and examples are provided to help educators consider how to use the suggested IFRS resources. In addition, while focusing on English language IFRS teaching materials, we provide some suggestions for useful materials available in other languages. While teaching, learning, and using IFRS takes effort, a large body of IFRS resources, including many available at no or minimal cost, is now available to facilitate the process.