The impact of lobbying on standard setting in accountingIntroduction Accounting is a broad discipline and as such, it is subjected to various frameworks which are in turn formulated by a number of bodies. The main aim of the regulation is to eradicate any inconsistencies that may arise in accounting. Over the years, the International Accounting Standards Board (IASB), International Financial Reporting Standards (IFRS), Financial Accounting Standards Board (FASB), Securities and Exchange Commission (SEC) and other regulatory bodies have been responsible with the generation of accounting standards amidst the efforts of lobby groups who at times have differing preferences.
This is because; the regulatory bodies provide frameworks that govern the reporting standards, the disclosure requirements of corporations and their submission of books of accounts. Due to the critical nature of the regulatory bodies scope and authority, different lobby groups find it rather important that they have an influence over the decision making process of the accounting standard setting process. As such, this paper seeks to critically evaluate the impact such lobby groups have had on the standard setting in accounting and hence evaluate the role they have played in shaping the current accounting standards (Sapru 2004). In a democratic society, lobbying is a fundamental phenomenon.
It is considered as the act of trying or attempting to influence a decision that has been passed by a particular legislation body. Lobbying can be undertaken through various strategies and can either adopt the direct or the indirect form. It is undertaken by various bodies commonly referred as pressure groups or advocacy groups. The lobby groups are responsible for performing the negotiations between the interest groups and the legislation bodies.
The accounting regulatory bodies are no exception and as such, the decision or guidelines they pass are subject to criticism from lobby groups (Taylor1996). Accounting bodies over the years have come up to set guidelines. Their outmost objective is to protect the interest of stakeholders who deal with the accounting reports. They hence oversee corporate disclosure requirements, regulate securities trading and also ensure inconsistencies in the discipline are minimized. Recent developments have seen lobby groups be inculcated into various decision making frameworks. This is because, the lobby groups also have the interest of the general public and as such they possess both information and expertise that would greatly enhance the final decision availed.
The relationship between the account setting frameworks and the lobbyist is thus viewed as circular. This is largely pegged on the fact that, the lobbyist can join the framework or criticize it. The motive of the lobbyist is hence largely attached to the outcome. The greatest challenge that accounting bodies face attributed to the lobby groups is the likelihood of diluting regulatory principles as a result of immense pressure(Cousins & Sikka 1993). Financial Accounting Standards Board was set up in 1973.
Its main objective at the time was to establish and improve accounting and reporting standards. However, over the years it has been evident that lobby groups have been trying to influence their decisions. Considering that Financial Accounting Standards Board is a non-governmental and a nonprofit making organization, the government had been the main lobby group. The decisions that are attained by Financial Accounting Standards Board have in the past depicted lobbyist activities. In some instances, the impact has been so great to an extent of queries arising on the independence of such bodies.
The Financial Accounting Standards Board decisions are not free from external influence. However, the proponents like Epstein, Nach& Bragg (2009) opines that Financial Accounting Standards Board has in over 15 years been setting accounting standards not favoring any particular party in society. It is also notable that Wyatt admits that the guidelines formulated by Financial Accounting Standards Board contain lobbyist activities. In various instances, Financial Accounting Standards Board has formulated regulations that are in line with the propositions of lobby groups.
Taking the 1993 incident for example, Financial Accounting Standards Board intended to regulate the stock options reporting in the books of accounts by classifying them as expenses. This was received harshly by the Congress which inturn threatened to withdraw the powers of Financial Accounting Standards Board to set accounting standards. According to a former chief accountant in Securities and Exchange Commission, Financial Accounting Standards Board had no option but to fold and retain their earlier regulation as it was (Epstein, Nach& Bragg 2009).