Accounting Standard Setting: "processes, Problems, Politics and Professionalism"

Abstract

This paper provides an overview of the controversial topic of standard setting in the field of accounting, and is divided into six sections. Section One examines the economic (and opposing) rationales contained in public interest theory used for justifying the perceived need for regulation as a whole, as standard setting forms part of the larger regulatory framework. Therefore, looking at the question of why we might need regulation in the first place (or why we have it) is a logical starting place given the broad scope of the paper. Following Section One's analysis of the rationales for and against regulation, Section Two contains an examination of the institutional structures used in a number of countries to set accounting standards and regulations, these being namely the United States, the United Kingdom, Canada, Australia, New Zealand, the Netherlands, France and Germany. The analysis draws out the variety of different arrangements in place world-wide, which reflect the prevailing social, political and economic climates existing overtime in those countries. Section Three draws on Section Two's analysis by examining what the author believes to be the crucial factors for the successful operation of the standard setting process. The factors of public versus private sector involvement in standard setting, credibility, independence, acceptability and enforcement are examined and their perceived relevance discussed. It is submitted that it is the balance that exists between these factors and how they are "managed" within the explicitly recognised social, political and economic environment that will determine continued private sector and professional involvement in the standard setting process. Sections Four and Five investigate two possible attempts at "managing" the standard setting process. Section Four's examination of the appeal to a conceptual framework for accounting looks at why such an appeal was made, and why it has proved so difficult to fulfill - due to an apparent ignorance or neglect of the prevailing social, political and economic circumstances. Section Five then examines the "true and fair view" concept and shows the danger to the accounting profession in relying on a technical or definitional interpretation of that concept. The status of accounting standards before the courts is outlined, emphasising that the concept is a legal one and it is therefore dangerous for the accounting profession to assume "custodianship" of it. Section Six summarises the contents and conclusions of the paper, with the observation being made that the profession's traditional control over standard setting is being diminished and this trend appears likely to continue. Attempts at "managing" the standard setting process appear largely (to date at least) to have failed form the profession's point of view, and therefore a self-examination of the profession's future role in that process and their attitude towards it is recommended.