Understanding complexities in international accounting standard setting: agenda entry and the case of IFRS for SMEs

Earlier accounting works have shown that an understanding of agenda entry is critical to better understanding the accounting standards setting process. Consider Walker and Robinson (1993; 1994) and Ryan (1998); and more generally agenda entrance as theorized in Kingdon (2011). In 2003, the IASB placed on its agenda a project to promulgate a standard for small and medium-sized entities (SMEs). This provides our focus. It seemed to be a departure from the IASB’s constitutional focus on capital market participants. Kingdon’s three-streams model of agenda entry helps to identify some of the complexities related to politics and decision making messiness that resulted in a standard setting project for simplified IFRS, misleadingly titled IFRS for SMEs. Complexities relate to the broader international regulatory context, including the boundaries of the IASB’s standard-setting jurisdiction, the role of board members in changing those boundaries, and such sensitivities over the language that the IASB could not agree on a suitably descriptive title. The paper shows similarities with earlier agenda entrance studies by Walker and Robinson (1994) and Ryan (1998). By drawing on interviewees’ recollections and other material it especially reinforces the part played by the nuanced complexities that influence what emerges as an international accounting standard.

Rhetoric in international standard setting process: constructing accounting reality

The paper seeks to explore in depth the ways in which rhetorical strategies are employed in the international accounting standard setting process. The study proposes that rather than simply detailing new accounting requirements, the texts and drafts of accounting standards are artefacts, i.e. deliberately and carefully crafted products, that construct, persuade and encourage certain beliefs and behaviours. The persuasive and constructive strategies are also employed by the constituents submitting comment letters on the regulatory proposals. Consequently, the international accounting standard setting process is an ‘interactive process of meaning making’ (Fairclough, 1989). The study regards accounting as a social construct based on intersubjectivity (Searle, 1995; Davidson, 1990, 1994) and posits language as a constitutive factor in the process (Saussure, 1916; Peirce, 1931-58). This approach to the use of language and the role of rhetoric as a persuasive tool to convince others to our perception of ‘accounting reality’ is supported by the sociological work of Bourdieu (1990, 1991). Bourdieu has drawn our attention to how language becomes used, controlled, reformed and reconstituted by the social agents for the purposes of establishing their dominance. In our study we explore in particular the joint IASB and FASB proposals and subsequent regulations on the scope of consolidation and relevant disclosures that address issues of off-balance sheet financing, a subject that is very timely and of great topical importance. The analysis has revealed sophisticated rhetorical devices used by both the Boards and by the lobbyists. These reflect Aristotelian ethos, pathos and logos. The research demonstrates that those using accounting standards as well as those reading comment letters on the proposals for new standards should be aware of the normative nature of these documents and the subjectivity inherent in the nature of the text.

Setting UK standards on the concept of control: an analysis of lobbying behaviour

The present study aims to contribute to an understanding of the complexity of lobbying activities within the accounting standard-setting process in the UK. The paper reports detailed content analysis of submission letters to four related exposure drafts. These preceded two accounting standards that set out the concept of control used to determine the scope of consolidation in the UK, except for reporting under international standards. Regulation on the concept of control provides rich patterns of lobbying behaviour due to its controversial nature and its significance to financial reporting. Our examination is conducted by dividing lobbyists into two categories, corporate and non-corporate, which are hypothesised (and demonstrated) to lobby differently. In order to test the significance of these differences we apply ANOVA techniques and univariate regression analysis. Corporate respondents are found to devote more attention to issues of specific applicability of the concept of control, whereas non-corporate respondents tend to devote more attention to issues of general applicability of this concept. A strong association between the issues raised by corporate respondents and their line of business is revealed. Both categories of lobbyists are found to advance conceptually-based arguments more often than economic consequences-based or combined arguments. However, when economic consequences-based arguments are used, they come exclusively from the corporate category of respondents.

Multinational subsidiary sales and performance in South East Asia

We extend the theory of the multinational enterprise (MNE) by exploring the concept of subsidiary-specific advantages (SSAs) as a driver for subsidiary performance. We investigate the relationship of host country-specific advantages (host CSAs) in the form of market attractiveness, SSAs and subsidiary sales as they affect subsidiary performance. From an original primary dataset of 101 British multinational (MNE) subsidiaries in six South East Asian countries, our analysis reveals three significant findings. First, host market attractiveness has a statistically positive impact on the performance of subsidiaries. Second, the three traditional SSAs of general management, marketing capabilities and invested capital enhance subsidiary performance. Third, we examine geographic direction and types of customers for subsidiary sales by following international accounting standards. We find that these subsidiaries generate on average 95 percent of total sales from the Asia Pacific region and 91 percent of total sales from external customers. Our findings have important research and managerial implications.

State capitalism and social responsibility in China's banking industry

China’s financial system has experienced a series of major reforms in recent years. Efforts have been made towards introducing the shareholding system in state-owned commercial banks, restructuring of securities firms, re-organising equity of joint venture insurance companies, further improving the corporate governance structure, managing financial risks and ultimately establishing a system to protect investors (Xinhua, 2010). Financial product innovation, with the further opening up of financial markets and the development of the insurance and bond market, has increased liquidity as well as reduced financial risks. The U.S. subprime crisis indicated the benefit of financial innovations for the economy, but without proper control, they may lead to unexpected consequences. Kirkpatrick (2009) argues that failures and weaknesses in corporate governance arrangements and insufficient accounting standards and regulatory requirements attributed to the financial crisis. Similar to the financial crises of the last decade, the global financial crisis which sparked in 2008, surfaced a variety of significant corporate governance failures: the dysfunction of market mechanisms, the lack of transparency and accountability, misaligned compensation arrangements and the late response of government, all which encouraged management short-termism, poor risk management, as well as some fraudulent schemes. The unique characteristics of the Chinese banking system are an interesting point for studying post-crisis corporate governance reform. Considering that China modelled its governance system on the Anglo-American system, this paper examines the impact of the financial crisis on corporate governance reform in developed economies, and particularly, China’s reform of its financial sector. The paper further analyses the Chinese government’s role in bank supervision and risk management. In this regard, the paper contributes to the corporate governance literature within the Chinese context by providing insights into the contributing factors to the corporate governance failure that led to the global financial crisis. It also provides policy recommendations for China’s policy makers to seriously consider. The results suggest a need for the re-examination of corporate governance adequacy and the institutionalisation of business ethics. The paper’s next section provides a review of China’s financial system with reference to the financial crisis, followed by a critical evaluation of a capitalistic system and a review of Anglo-American and Continental European models. It then analyses the need for a new corporate governance model in China by considering the bank failures in developed economies and the potential risks and inefficiencies in a current State controlled system. The paper closes by reflecting the need for Chinese policy makers to continually develop, adapt and rewrite corporate governance practices capable of meeting the new challenge, and to pay attention to business ethics, an issue which goes beyond regulation.

IFRS for SMEs: the IASB’S due process

This study explores the role of the International Accounting Standards Board’s (IASB) due process in developing its International Financial Reporting Standards for Small and Medium-sized Entities (IFRS or SMEs)standard. There were tensions between the IASB’s desire to minimise divergence from full IFRS and preserve recognition and measurement principles, and the primary reasons for undertaking the project – to meet the needs of users of financial statements of SMEs and to reduce the financial reporting burden on SMEs. Examination of events during the development of the project reveals much that was not apparent from material in the public domain. Most significantly, the IASB recognised that the final title of the standard, IFRS for SMEs, does not necessarily describe the scope of the standard. This paper also shows that the due process followed in the case of the IFRS for SMEs project barely reflected the ‘will of people’ but was more inclined towards acting as a communicative function for the IASB without any commitment to change its stance on the SME standard.

For the public without the public

How is the notion of public interest operationalised in the regulatory practices of the International Public Sector Accounting Standards Board (IPSASB)? A fundamental objective in setting international accounting standards for both the private and public sector is to serve the ‘public interest’. Who or what constitutes ‘public interest’ however remains a highly complex and controversial issue. Private sector financial reporting research posits that users (of financial information) are used as a proxy for the ‘public’ and users are further refined to current and potential investors - a small proportion of the public. The debates surrounding public interest are even more contentious in public sector financial reporting which deals with ‘public’ (tax payers’) money. In our study we use Bourdieu’s notion of semi-homogenous fields to show how autonomous and heteronomous pressures from the epistemic community of the accounting profession and political/government interests compete for the right to define the public interest and determine how (by what accounting solutions) this interest is best served. This is a theoretical study grounded in the analysis of empirical data from interviews with the board members of the IPSASB. The main contribution of the paper is to further our understanding of the perceptions of the main decision makers from the ‘inner regulatory circle’ with regards to the problematic construct of public interest. The main findings suggest a paternal and un-reflexive attitude of the board members leading to the conclusion that the public have no real voice in these matters.

Geochemical changes recorded in Lynch's Crater, Northeastern Australia, over the past 50 ka

There are many geochemical reconstructions of environmental change in the mid and high latitudes but relatively few in the tropical latitudes, despite their considerable potential for reconstructing environmental processes that cannot be identified using more traditional proxies. Here we present one reconstruction of environmental change for the tropics. This reconstruction covers the past 50 ka using a suite of geochemical data from the high-resolution sequence of Lynch's Crater in northeast Queensland, Australia, a region highly sensitive to El Niño-Southern Oscillation (ENSO) activity. The 23 major oxides and trace elements measured could be summarised by extracting three axes using principal components analysis (accounting for 72% of the variability). The data indicate that the greatest variability in the geochemical data accounted for erosional activity within the catchment that was associated with past changes in the frequency of ENSO activity (though this was less sensitive during wetter periods, probably as a result of buffering by high vegetation cover). The remaining variability was largely explained by elements that form complexes with organic compounds (e.g., humic acids) and those that are important nutrients for specific vegetation types (and therefore a measure of vegetation distribution). For more detailed reconstructions, further work is required to disentangle the complex controls of elements within sedimentary sequences.

International financial reporting standards (IFRS) as a change agent in Ukraine

This paper aims to examine the perception of key actors regarding the costs and benefits that result from adopting International Financial Reporting Standards (IFRS) in Ukraine. Authors showed that IFRS implementation impacts on internal reporting quality, the relationship with customers, creditors and shareholders, the access to international markets and external financing. They also indicated that financial managers have serious concerns about implementation costs related to the introduction of IFRS. These costs relate to training, instruction on IFRS adoption and translation of current IFRS, changes in software systems, double purpose accounting and deadlines for IFRS adoption and consulting services.