تحلیل جغرافیایی مشارکت رسمی اجزا در روند تنظیم استاندارد حسابداری بین المللی : آیا ما زمینه ترازبندی را داریم؟

As a private organization, input legitimacy, being achieved when inputs received reflect the opinions of all stakeholders involved, is a key issue for the IASB’s acceptance as global standard setter. To study this input legitimacy, this paper examines the evolution of constituent participation in international accounting standard setting in terms of geographic diversity over the period 1995–2007 and examines whether biases (due to differences in institutional regimes) or unequal access (due to differences in participation costs) are present in this process. Based on an analysis of 7442 comment letters we observe an increase in participation over time. However, we also find distortions in the geographic representation of constituents, due to differences in the institutional regimes of countries and due to differences in participation costs, proxied by the level of familiarity with the accounting values embedded in IFRS, with the system of private standard setting, and with the English language. These geographic biases in constituent participation might induce criticism in relation to the input legitimacy of the international accounting standard setting process.

Since the decision of the International Organization of Securities Commissions (IOSCO) (2000) to accept International Financial Reporting Standards (IFRS) for cross-border listings, and since governments and regulators (European Parliament (EP), 2002 and Financial Reporting Council (FRC), 2002) started to hand over accounting standard setting authority to the International Accounting Standards Board (IASB), the IASB1 is well under way to becoming the global accounting standard setter. For the IASB, as a private organization, gaining legitimacy is a key issue for its acceptance as a global standard setter (Johnson and Solomons, 1984, Wallace, 1990 and Larson, 2007). In order to gain legitimacy, a standard setter needs sufficient authority, a substantive due process, and a procedural due process (Johnson and Solomons, 1984 and Wallace, 1990). A procedural due process relates to the fact that the standard setter must provide an adequate and impartial opportunity for interested parties to provide input to the standard setting process (Wallace, 1990). However, simply affording the opportunity to provide input is not a sufficient condition to gain legitimacy. Based on a normative model of procedural legitimacy, Richardson and Eberlein (2011) define the legitimacy of a standard setter as a three stage process by which inputs are collected from affected parties (input legitimacy), these inputs are then considered, aggregated and transformed through a formalized decision process (throughput legitimacy), and finally standards are produced (output legitimacy). The contribution of our paper is to empirically investigate the input legitimacy of the IASB in terms of geographic representation. A common view in the literature with regard to the legitimacy of a standard setter is that widespread participation of all constituents in the process of standard setting is of utmost importance (Johnson and Solomons, 1984, Dyckman, 1988, Wallace, 1990, Tandy and Wilburn, 1992, Larson, 2007 and Richardson and Eberlein, 2011). Applying this common view to the international accounting standard setter implies that widespread constituent participation in terms of geographic diversity is an important condition to become ‘the’ global standard setter. Participation in the process of standard setting is considered important because it generates information which can help the standard setter gauge the potential reaction of interest groups to its standards (Dyckman, 1988 and Tandy and Wilburn, 1992). As IFRS are applied in different institutional frameworks and national settings, the IASB needs to be aware of the economic consequences of its proposed standards in countries worldwide when developing accounting standards. Widespread constituent participation in the international accounting standard setting process, or the lack of it, has been criticized by high-level international authorities in the wake of the financial crisis of 2008 (e.g. G20, 2009 and Financial Stability Forum, 2009; High-Level Group on Financial Supervision in the EU (the De Larosière Group), 2009). In response, the IASB2 declared that it is aware of the importance of widespread constituent involvement. Calls for more research on constituent participation in the process of international accounting standard setting have also been launched by academics (Barth, 2000 and Cooper and Robson, 2006; Luthardt and Zimmerman, 2009). In response to the concerns expressed by these high-level authorities and to the academic calls for research on constituent participation, this paper sets out to explore whether biases (due to home institutional characteristics) and unequal access (due to differences in costs of lobbying) exist in the process of international accounting standard setting, even though participation is open to all parties (see Dingwerth, 2007). Biases and unequal access would threaten the input legitimacy of the standard setter. According to Scharpf (1999), input legitimacy is attained when the inputs received reflect the will of all people. Thus input legitimacy in case of the IASB implies that all stakeholders affected by IFRS financial reporting should participate in the IASB process of standard setting. Grounded in the theories of Sutton (1984) and of Watts and Zimmerman, 1978 and Watts and Zimmerman, 1986, and based on the results of the comparative empirical international accounting research, this study investigates whether differences in the institutional background of constituents, differences in participation costs resulting from national characteristics among constituents from different countries, and differences in a country’s IFRS adoption status are systematically related to differences in country participation levels in the international accounting standard setting process. Significant associations between these variables and a country’s participation level might indicate the presence of biases or unequal access, resulting in a threat to the input legitimacy of the standard setter. By choosing a multi-period/multi-issue research design to study input legitimacy, we contribute to the literature on international accounting standard setting by examining in an empirical quantitative way whether country characteristics are responsible for biases or unequal access in worldwide constituent participation in the process of international accounting standard setting. Prior participation literature, usually single-issue studies, mainly focuses on company characteristics and standard attributes as drivers to participate in the due process of international accounting standard setting. Our data collection method not only allows us to detect biases and elements of unequal access, it also allows us to compare the geographic distribution of participation in the IASB’s standard setting process with participation in the process of its predecessor, the International Accounting Standards Committee (IASC). The unit of analysis chosen to study the input legitimacy of the process in an empirical way is the formal participation of constituents in the international accounting standard setting process. Formal participation consists of writing comment letters when the standard setter solicits responses from its constituents by publishing discussion papers and exposure drafts for comments.3 This choice with respect to unit of analysis is taken for a number of reasons. First, formal participation of constituents gained in importance after reform of the standard setter in 2001, as a technical, independent expert model replaced the representative board model. Second, as information on informal participation methods is publicly unavailable, it is almost impossible in a multi-period/multi-issue study to collect data on all participation methods (formal as well as informal) used by constituents for all issues on the agenda of the standard setter for a lengthy period of time. Third, empirical evidence is available that the use of formal participation methods by constituents is linked to their use of informal participation methods (Georgiou, 2004), so that evidence obtained on formal participation can be extended to participation in general. Constituents’ formal participation in international accounting standard setting is studied over a period of 12 years (1995–2007). The year 1995 is chosen as the start of the period of analysis since, at that time; the prominent role of the IASC in international accounting standard setting became assured through decisions of IOSCO (proposal to use IFRS for listing purposes) and the European Union (EU) New Accounting Strategy. Subsequently, since 6 years elapsed between 1995 and reform of the standard setter, therefore an equal period of 6 years is chosen following reform of the standard setter. Over that time frame, we analyze 7,442 comment letters sent to the standard setter and classify each comment letter to an individual country. Comment letters from international organizations, such as international associations of preparers, global accounting firms, professional actuarial associations, IOSCO or the European Financial Reporting Advisory Group (EFRAG), are kept separately in the analyses and as a result do not influence individual country data. Over time, we witness an increase in formal participation worldwide; however, the analysis also shows a distortion in the geographic representation of constituents, due to differences in the institutional regimes of countries and due to differences in participation costs, proxied by the level of familiarity with the accounting values embedded in IFRS, with the system of private standard setting, and with the English language. These elements create biases and unequal access to the process of international accounting standard setting. Preparers originating from countries with strong ex post enforcement mechanisms for compliance with accounting standards are significantly more present in the public consultation stage of standard setting. The quality of the ex ante regulation with regard to investor protection does not significantly affect preparer participation; however, it is associated significantly with non-preparer participation in the process of international accounting standard setting. With these results, we not only highlight the impact of a country’s institutions on constituent participation, we also provide evidence that differences in preparers’ participation between countries is significantly more associated with the quality of the ex post remedies to penalize non-compliance with accounting standards than with ex ante regulation meant to induce investor protection. Next, we observe that differences in familiarity with the English language, familiarity with a system of private standard setting, and familiarity with general accounting values (transparency, optimism, and professional judgment) in which IFRS is embedded, creates unequal access to the international accounting standard setting process for both preparers and non-preparers. Familiarity with these features is positively related to the participation intensity of a country. So, differences in the level of familiarity with these elements might make access uneven for constituents from different national backgrounds. Zooming into the nature of the proposals (i.e. financial instruments related or not), we observe that the presence of these biases and unequal access is less when financial instrument issues are on the agenda of the IASB. Further, we notice that the adoption status of the IFRS (voluntary versus mandatory compliance) in a country is associated only with differences in preparers’ country participation levels if financial instrument issues are on the agenda of the international standard setter. When non-financial instrument proposals are on the agenda, the results provide evidence that a country-level decision to adopt IFRS only affects constituent participation if this adoption is made by a country already characterized by high quality governance systems. These biases and elements of unequal access to the process of international accounting standard setting revealed in this study may threaten input legitimacy. The results indicate that there is no level playing field with regard to formal participation in the due process of international accounting standard setting. Only the opinions from a limited part of the world on the proposals from the standard setter are expressed in the comment letters sent to the standard setter. If we add to the single country participation figures, the participation data of international organizations, whose opinions are often inspired by Anglo-Saxon views (e.g. international audit firms) then the Anglo-Saxon bias even increases, especially among the group of non-preparers. The strong impetus of the Anglo-Saxon accountants on the establishment of the IASC and the influence of the G4 + 1 on the reform of the standard setter in 2001 might explain that mainly constituents from countries with similar Anglo-Saxon institutions (common law inspired, high degree of investor protection, strong enforcement and increased transparency) play a major role in the public consultation phase of the IASC/IASB. This geographic bias has as a consequence that the summaries of the contents of the comment letters made by the staff members for consideration by the board members, only present a partial picture of the consequences of the IASB’s proposals around the world since only the views of a limited number of countries are represented in the comment letters. Moreover, this bias is even more present in the discussion paper stage of the due process of standard setting. Especially in this earlier stage, participation can be more effective since more options are still open in this stage of the standard setting process. As a global standard setter the IASB needs to be aware of the view of all its constituents worldwide. Therefore, it is of utmost importance that the IASB tries to mitigate some of these biases or elements of unequal access by, for instance, providing information on the mechanisms of private standard setting to constituents not familiar with private standard setting, allowing responses in different languages to discussion papers and exposure drafts, or looking for other mechanisms to receive input from constituents all around the world. As long as countries do not converge along institutional dimensions, geographic biases will persist in constituent representation and the IASB will need to collect the opinions through other mechanisms from these absent countries in order to have a global view on the economic consequences of its proposals, since institutional convergence or enforcement power is not in the purview of the IASB. This paper proceeds as follows. Section 2 describes the context of the study. Section 3 presents the literature review and hypothesis development. Section 4 discusses the research data and the research method. Section 5 presents the research results; and finally, Section 6 sets forth conclusions.

As a private organization, legitimacy is a key issue for the IASB’s acceptance as global standard setter. One element of this legitimacy is input legitimacy, which is achieved when inputs received reflect the view of all stakeholders involved (Scharpf, 1999; Richardson and Eberlein, 2011). In this respect, participation of a diversity of constituents in a process of standard setting is of critical importance. In the wake of the global financial crisis of 2008, concerns were expressed with regard to constituent representation in the process of international accounting standard setting (G20, FSF, the de Larosière Group). In response to these concerns on constituent representation expressed by high-level authorities and calls in the academic literature to investigate constituent participation (Barth, 2000; Cooper and Robson, 2006; Luthardt and Zimmerman, 2009), this paper first sets out to explore the evolution of constituent participation in the international accounting standard setting process especially in terms of geographic diversity over time. Second, this paper attempts to uncover whether biases (due to differences in institutional regimes) or unequal access (due to differences in participation costs) are present in this process. For this purpose, we collect data on constituents’ formal participation in the process of standard setting over a period of 12 years. Based on an analysis of 7442 comment letters sent to the international accounting standard setter over the period 1995–2007, we observe an increase in participation over time. Overall, the data indicate that preparers overwhelm the IASB with comment letters in direct and indirect ways. After reform of the international accounting standard setter, users have continued to lose interest. Parties that face a loss of power increase their formal participation after the reform. Parties that have lost power include accountancy organizations due to the abolition of the representative model, and national standard setters due to the hand-over of the standard setting authority for listed companies to the IASB. If we concentrate on the country of origin of the comment letters sent, we observe that constituents from more countries are involved after the reform. However, this increased worldwide participation goes together with a geographic bias in constituent representation. First, the geographic representation of constituents is distorted due to differences in the institutional regimes of countries. Preparers originating from countries with strong ex post enforcement mechanisms for compliance with accounting standards are significantly more present in formal participation. Non-preparers from countries with high-quality ex ante investor protection rules are also significantly more represented in the formal participation process. With these results, we not only provide empirical insights into the input legitimacy of the process of international accounting standard setting, we also contribute to the international comparative accounting literature by shedding additional light on which specific institutional determinants affect the attitudes and decisions of preparers most with regard to financial reporting. By focusing on the impact of cross country variations in institutional regimes, we find that enforcement matters more for preparers than does ex ante regulation to induce investor protection. Second, the results point at unequal access for constituents to the process of international accounting standard setting, in that participation costs, proxied by the level of non-familiarity with the English language, the level of non-familiarity with a system of private standard setting and the level of non-familiarity with the accounting values in which IFRS are embedded (transparency, optimism and professional judgment) are negatively associated with the participation intensity of a country. The adoption status of the IFRS (voluntary versus mandatory compliance) in a country does not influence to a large extent differences in participation intensity of countries. Preparers from countries in which IFRS has a mandatory adoption status are only more represented when a proposal related to financial instruments is on the agenda of the standard setter. If we add to the single country results, the data on participation by international organizations, we observe an even wider bias in terms of Anglo-Saxon representation, especially in terms of non-preparers’ participation. We notice that the reform process of the international accounting standard setter to alter its structure and operating mechanisms as to appeal Anglo-Saxon preferences (Bhimani, 2008 and Chua and Taylor, 2008; Botzem and Quack, 2009) resulted in a process in which constituents familiar with the Anglo-Saxon tradition participate with higher intensity. These results show that, biases and elements of unequal access exist that might threaten the input legitimacy of the international accounting standard setter since the input received does not reflect the opinion of all affected constituents worldwide. We can conclude that these biases and elements of unequal access distort the level playing field with regard to constituent participation in the due process of international accounting standard setting. The results on the institutional regime hypothesis and on the IFRS adoption status hypothesis indicate further that an IFRS country-level adoption decision does not necessarily imply that its constituents will engage in the due process of international accounting standard setting. The overall institutional framework of a country, of which accounting standards are only one element, is a more significant determinant to instigate constituents’ participation than the adoption status of IFRS in a country (mandatory versus voluntary). It further provides evidence that simply mandating IFRS worldwide without ensuring that enforcement regimes are of similar high quality, will probably not lead to global comparable information. In the participation process we definitely notice differences in behavior between constituents from high quality information regimes and lower quality information regimes. These findings have a number of implications for the legitimacy of the due process of international accounting standard setting. According to the IASCF due procedure, the IASB’s staff summarizes the contents from comment letters for the IASB’s consideration (IASCF, 2006). However, the staff and board members have to be well aware that the opinions expressed in these comment letters mainly reflect the opinions of a limited group of constituents. Comments from constituents of jurisdictions characterized by lower investor protection, by lower quality of enforcement, more code law oriented and with less transparency might be perceived as minority positions due to their lower participation rate driven by elements of bias and unequal access. For a global standard setter, it is crucial to have information from all constituents affected by its standards worldwide. The IASB may be able to mitigate some of these biases in constituent representation, for instance, by providing information on the mechanisms of private standard setting especially to non-preparers, by allowing responses in different languages to discussion papers and exposure drafts, or by looking for other mechanisms to receive input. Unless countries converge along institutional dimensions, geographic biases will remain present in constituent representation. The IASB should therefore seek compensatory mechanisms to obtain feedback on its proposals from constituents of countries with weaker governance regimes and less information transparency. Especially in the discussion paper stage when the fundamentals of new proposed standards are at stake, this additional information is important as an even more geographically biased view on the economic consequences of new proposed standards is then presented to the IASB through the comment letters. As long as these biases and elements of unequal access persist, there is a constant threat to the input legitimacy of the global standard setter. Our findings can also be used by the IASB to measure the success or lack thereof of the recently announced user outreach initiatives to stimulate user participation and the decision to publish discussion papers and exposure drafts in multiple languages. Studying the impact of these changes on the input legitimacy of the standard setter are avenues for future research.