The
Political Nature of Accounting Standard Setting in Australia
There been conflict in
most western countries between private sector bodies and the governmental
bodies concerning the process of establishing regulatory arrangements required
for setting accounting standards (Hopwood et.al 2005). The recent changes by
the Australian Federal Government regarding the structure of setting the accounting
standards show a huge shift in power to the government from the professional
bodies.
Majority of the users of financial reports often try to influence the accounting standard with the aim of protecting their own interests. Standard setters in Australia are having diminished roles in international standard setting as the government which involves politics has taken over the setting and regulation of accounting standards as noted by Jorissen et.al (2007). This means that politics highly influences accounting regulations development.
Majority of the users of financial reports often try to influence the accounting standard with the aim of protecting their own interests. Standard setters in Australia are having diminished roles in international standard setting as the government which involves politics has taken over the setting and regulation of accounting standards as noted by Jorissen et.al (2007). This means that politics highly influences accounting regulations development.
How
politics influence the creation of accounting standards
The accountancy profession
in setting international accounting standards has been under pressure from
political parties. This has led to an increasing concern by ACCA on the
political interference in the accounting standard setting process. The
political view in setting of accounting standard argues that the best solution
varies from group to group and from person to person (Jorissen et.al 2007).
Under this view, policy decisions always bring out choices between two
conflicting interests and can be better served by use of different practices.
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This then makes the method of setting accounting standards a political activity. This can be termed to as a one dimensional view of power because it focuses on the behavior in decision making on issues which have notable conflict of interest as revealed by political participation (Hopwood et.al 2005). This activity has a high consequence which involves re-distribution of wealth and resource allocation between stakeholders of the accounting information. This can be attributed to the reasons for governments influence in the setting of accounting standards. For example, we can conclude that the government being responsible for resource allocation and wealth distribution, it has the mandate to control the setting of accounting standards as this will have a direct impact on how its GDP is calculated and how total government resources are distributed.
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This then makes the method of setting accounting standards a political activity. This can be termed to as a one dimensional view of power because it focuses on the behavior in decision making on issues which have notable conflict of interest as revealed by political participation (Hopwood et.al 2005). This activity has a high consequence which involves re-distribution of wealth and resource allocation between stakeholders of the accounting information. This can be attributed to the reasons for governments influence in the setting of accounting standards. For example, we can conclude that the government being responsible for resource allocation and wealth distribution, it has the mandate to control the setting of accounting standards as this will have a direct impact on how its GDP is calculated and how total government resources are distributed.
Politicizing creation
of accounting standards is not just inevitable but just. Institutions which are
politically reactive have the decisive right to control others to obey their
rules and this happens in a society which is highly committed to democratic
legitimization of authority (Hopwood et.al 2005). Accounting standard and
material disclosure portrays a high political process in Australia. Political
environment has highly influenced the accounting doctrine in Australia. For
example, the level of freedom of any country directly influences the extent of
disclosure of financial information. It is the responsibility of the government
of any country to adjudicate between competing economic interests in the
selection and adoption of accounting standards. Every potential accounting
standard in Australia therefore has to go through a political process (Jorissen
et.al 2007). The main reason why the Federal Government has the authority in
the determination of accounting standards is the fact that setting of
accounting standards plays an integral part in the system of economic
regulation.
Politics has highly
influenced the adoption of IFRS. In Australia, the Australian Accounting
Standards Board which is a government agency is responsible for setting
accounting standards in the country. This agency is funded and controlled by
the government to ensure that the accounting standards are reviewed
occasionally depending on the prevailing economic situation as well the
changing accounting standards in the world. The Accounting Standards Review Board (ASRB)
which was endorsed by the government in 1984 took directives from the
government and was also funded by the government. The board was also
accountable to the Attorney General’s Department of the Federal government. The
key prerequisites for a well functioning and sustainable capital market are the
predictability and reliability of the accounting standards as they enable a
country to easily recover from a financial crisis. It is therefore important
for the standards to be maintained in a transparent way and this has called for
political intervention.
Politicians have a huge
responsibility in ensuring that an effective system is set for setting
accounting standards. This is another major reason as to why setting of
accounting standards in Australia has become political (Hopwood et.al 2005). The
government has been involved in the process so as to oversee the development of
a more transparent, efficient and reliable accounting standards. The government
is also responsible for ensuring that the accounting standards are met by the
parties using them failure to which it is punishable by law. This therefore is
a clear indication of how politics of Australia influence the creation of
accounting standards (Pacter et.al 2005).
Impacts
of the set accounting standards on wide variety of interest groups
The set accounting
standards will have many impacts on variety of interest groups who are expected
to benefit from the standards. Transparent accounting is done in the interest
of many parties like stakeholders and the public at large (Pacter et.al 2005).
If politics is solely allowed to set the accounting standards then the set standards
will have negative impacts on other interest groups who rely on the accounting
standards. For example, setting of accounting standards should not be left on
the hands of politicians rather should be left on the hands of those with the
required expertise. The standard setters should therefore ensure that they have
consulted widely so as to develop appropriate standards to both the wider
environment and the business (Hopwood et.al 2005). Due to the political process
in setting accounting standards in Australia, some proposed requirements which
may be technically logical and sound might not be mandated due to some
influence from some parties and this will affect other parties who rely on the
accounting standards for business purposes like the stakeholders. This is
because the political influence has influenced disclosure and transparency in
accounting or in financial reporting (Jorissen et.al 2007).
The political influence
on accounting standards will result into differences in international
accounting and different accounting systems between countries (Pacter et.al
2005). Lack of harmonization of accounting principles and rules makes it
impossible for investors to invest in other countries. That is the unified
accounting system would facilitate the movement and flow of capital and other
resources across the boarder as well to reduce the expenses incurred in the
preparation of accounting statements. Politicizing the adoption of IFRS would
increase efficiency of the stock market as well as reduce any expense which
might be involved in the issuance of new standards (Jorissen et.al 2007).
Conclusion
Though the adoption of
IFRS in Australia may be not be beneficial in the short run due to the
political process involved, its benefits would eventually (in the long run)
overcome all the problems and difficulties that arose from its adoption. Companies,
investors and lenders would prefer to have a convergence of both domestic and
international accounting standards so as to create a quality financial
reporting framework (Hopwood et.al 2005). It is therefore important for the any
country to integrate different parties in the setting of the accounting
standards as well as the capital market so as to set accounting standard which
will be favorable to all those who will use the standards. It is advisable for
countries to adopt similar accounting systems so as to make it possible for
potential investors to invest in different countries without having to prepare
different financial accounts depending on the country of investment.
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Order Your Essay Now Assignment Help | Essay Help | Write Essay For Me
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