The IASB Standard-Setting Process - Literature review Example

1. Introduction The article “The IASB standard-setting process: Participation and perceptions of financial ment users” has been ed by George Georgiou and published in the British Accounting Review (Page 103-118) in Feb 2010. The objective of the article is to present the findings of a survey that captures the perceptions and participation of financial statement users in the IASB’s accounting standard setting process. A survey questionnaire forms the key concept of this study and was responded to by a group of UK based investment firms who represent the financial statement user community. The author presents his report by analysing the survey results. 2. Summary The author begins by giving an introduction to the IASB’s creation and its role in the accounting standards world. The research objective is to report results of a questionnaire survey that evaluates the participation and perceptions of a sample of UK investment management firms in the IASB standard setting process over the period 2001 to June 2006 (inclusive). The author proceeds to draw out the hypotheses on which this study would be argued. There are 5 main hypotheses – timing of lobbying, lobbying methods, decision to participate and perception of the influences of interest groups in the IASB process outcome. The author then presents the research model by explaining the objectives of the questionnaire and the scoring pattern used. The author then analyses the survey results. Key findings indicate that lobbying by financial statement users is more than that indicated by the number of comment letters. The author presents evidence to suggest that cost of lobbying is one of the top reasons for lack of participation in the IASB process. Also presented is the evidence-backed perception that European and US based standard setters are more influential than the other interest groups in the standard setting process. The author concludes by collating his findings and presenting the overall stand with respect to the role of report users in the standard setting process. 3. Critique In terms of introduction and objective, the author has presented a clear and crisp introduction that well explains the central theme of the study. However, the reason why it is important to evaluate the participation and perceptions of the report users in the IASB process could have been dealt into further. There are a couple of brief references to the importance of report users such as the one given below although articulating in greater depth would have helped drive the message better (The British Accounting Review 42 (2010), p.104). This involvement, however, is critical as accounting standard setters often justify the adoption of their standards by appealing to financial statement users’ interests. In terms of the style and flow of the document, the author has done an excellent job of the overall structuring of the document and the manner in which the concepts lead from one to another. However, the representation of data in the article could have been further enhanced if it were shown in a pictorial manner such as a tabular form or a graph. In terms of the actual research content, there leaves no doubt in the readers mind that the author is competent in the field of accounting standards. The author has relied upon popular and well-established frameworks/models for his research– such as the Downs theory of economic democracy. The hypotheses have been put forth in a structured and logical manner and are backed by empirical evidence of previous studies and research papers. For instance, the Hypotheses 2 and 3 have been built on a specific report from Georgiou’s article in 2004 as given below (The British Accounting Review 42 (2010), p.106). In the context of the ASB process, Georgiou (2004) reported that preparers used a variety of lobbying methods and that their use was significantly associated with the use of comment letters; moreover these methods were not perceived as equally effective. Hence the following two hypotheses in their null form: H2: The use of comment letters is not related to the use of other lobbying methods. H3: Investment firms perceive the various lobbying methods as equally effective. The questionnaire, which is the fundamental tool of the research method, has been built using inputs from reliable sources as quoted below (The British Accounting Review 42 (2010), p.107). In the development of the questionnaire, standard questionnaire procedures were followed which included interviews with a senior member of staff of the IMA and a Director of the London Investment Banking Association There is direct relationship between the hypotheses and the questionnaire which makes the research design easily comprehendible for the reader. The following is an example of how the author brings out the mapping between hypotheses and the questionnaire (The British Accounting Review 42 (2010), p.107). Questions 1 and 2 of the questionnaire relate to the first three hypotheses (H1, H2 and H3), which are concerned with the extent and nature of report user lobbying and the perceived effectiveness of this lobbying. The questionnaire is precise, easy to read and would require minimal time in giving responses, which is a good way to ensure that the target subjects respond. However, the questions could possibly have been modelled in a better manner. The questions (specifically question 1 and 2) are designed to capture 2 inputs – a set of yes/no responses regarding participation in IASB process and a rating scale of 1-5 regarding effectiveness of the stages. These questions seem to be close-ended to the extent where a respondent may have been involved in a manner which requires subjective explanation or was partially involved in the participation process but is not given an opportunity to provide his/her response. Also, in question 2 which deals with participation methods, the question again is close ended by providing only those methods (9 participation methods have been provided) that the author has provided. There could potentially be participation methods outside this list but the respondent is not given an opportunity to list them. Question 5 is too open ended with the following statement (The British Accounting Review 42 (2010), p.117). If you have any additional comments to make please use the space provided below. It would typically leave a respondent wondering what would go in as response to the above question. While the author has mentioned a couple of instances where users have given comments on this question, it still does leave it too open ended for a focussed outcome. Regards to the research data, the reader tends to feel that analysis could have been better with the inclusion of a wider range of report user respondent types, including non-UK based investment firms. The author does explicitly state that US respondents were not used in the study but leaves the reader wondering if including US and other nations could have possibly helped in establishing a more convincing set of research conclusions. Another concern is the fact that the response group is relatively small (author states that 69 report users have responded to the questionnaire) and makes the reader wonder if the perceptions of this group is representative enough in the larger context. The author himself suggests at one place how there could be a bias in the research findings as shown below (The British Accounting Review 42 (2010), p.110). Clearly, the firms which responded to this survey are more likely to have been participants in the IASB process, and thus the study’s findings may exaggerate the extent of lobbying by financial statement users. The author goes on to perform analysis on the empirical evidence in an analytical manner. There are clear explanations and tabular notations of how the calculations and results have been obtained. The author has used popular statistical tests such as Friedman Test and ANOVA test to analyse the data which again assures the reader of the research authenticity. The author analyses the data using a consistent line of reasoning and bases his arguments information drawn from earlier research findings that are reliable. Although the result data in itself, as mentioned earlier, seems limited to draw definitive conclusions, the author has done a good job in terms of logically reasoning out the data. The manner in which the data is analysed to draw conclusions is well reasoned and analytical. However some areas where the data is being discussed are too verbose and lengthy such as the following (The British Accounting Review 42 (2010), p.110). However, it was not found to be significantly more effective than comment letters (t=_1.691, p=0.102 and Z=_1.595, p= 0.111) and some other direct methods such as pre-arranged private meetings with IASB members (t=_1.192, p=0.244 and Z=_1.154, p=0.248) and pre-arranged meetings with IASB staff (t=_0.724, p=0.476 and Z=_0.635, p=0.526) However, overall, the reader is left feeling that a well-studied research article has been delivered by a competent author. In the conclusion section, the author clearly delivers the solution to the problem statement which is the lack of literature availability in the perceptions and participations of financial statement users. The author summarizes his findings briskly and himself puts forth the disclaimer about his research not necessarily being definitive (The British Accounting Review 42 (2010), p.110). It should be emphasised that perceptions do not always coincide with reality, and further research is needed to determine whether these perceptions are in fact correct This reaffirms the reader’s belief that research work needs to continue in this area for more conclusive results. 4. Conclusion In conclusion, the author has presented a well-structured article that effectively puts forth arguments in his research topic. The research is based on well-known and reliable sources and has been explained in a scientific manner. The structure and flow of the article is commendable and allows for easy comprehension. The importance of report users in the standard setting process could have been explained further. The questionnaire could have been modelled in a more effective manner. The research data could have been more extensive in order to make the research more conclusive and the depiction of the data could have been enhanced by including pictorial representations of them. Overall, I recommend this article as a great fundamental study to understand the perception and participation of financial report users in the IASB’s standard setting process. 5. References Downs, A. (1957). An economic theory of democracy. Oireachtas Library & Research Service. Accounting Standards. Sutton, T. G. (1984). Lobbying of accounting standard-setting bodies in the U.K. and the U.S.A.: A Downsian analysis, (Abstract) Durocher, S, Fortin, A, & Cote, L. (2007). Users’ participation in the accounting standard-setting process: a theory-building study. Accounting, Organizations and Society, 32(1–2), 29–59. Endorsement of IFRS 8 operating segments analysis of potential impacts (API) Lobbying behaviour and the development of international accounting standards - The case of the IASCs joint venture project, (Abstract) Wilson Cameron, Kamran Ahmed. An analysis of Corporate Lobbying Behaviour: A case for accounting for Purchased Goodwill in Australia, (113-118). About the IFRS Foundation and the IASB. IFRS Foundation. Web. , 15-Dec-2010. Due Process Handbook. The International Accounting Standards Board. 2008. Ball R. (2006). International Financial Reporting Standards (IFRS): pros and cons for investors IFRS Foundation. International Accounting Standards Board (IASB) Who we are and what we do Deloitte Touche Tohmatsu. "The Framework for the Preparation and Presentation of Financial Statements" IASB: "IASB Work Plan". Web. Read More