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ABSTRACT
This paper reflects on relations between geopolitics and international accounting standard setting in the context of a commonly noted ‘return of geopolitics’. By discussing how selected episodes of the international political setting have impinged on the work of the IASC and the IASB, I attempt to demonstrate that geopolitics is a relevant angle on international accounting standard setting even though many aspects of IFRS can be adequately understood without references to geopolitics. I propose a simple framework to distinguish between symbolical and substantial relations between geopolitics and international accounting standard setting, as well as technical aspects where such a relation is absent. I call for further development of the conceptual toolbox required to analyze the relationship between international accounting standard setting and geopolitics, as well as for more empirical work on the historical and current configurations of this relationship.
Disclosure Statement
No potential conflict of interest was reported by the author(s).
Notes
1 As reported in ‘Chairman of the trustees believes IASB needs to be prepared for sustainability’, news item dated 1 October 2019, www.iasplus.com.
2 Hans Hoogervorst, ‘2020 – Opportunities and challenges’, speech, World Standard Setters Conference, 30 September 2019. Available at www.ifrs.org.
3 In this paper, I use lower-case ‘international accounting standard setting’ as a generic expression to capture the activities of both the International Accounting Standards Committee (IASC) and the IASB, and as a reminder that the current arrangements centered on the IASB are not necessarily permanent.
4 This category includes one-off interventions by governments in accounting practices of individual companies in order to avoid default events of economically significant entities (as in Zeff & Johansson, Citation1984), or, conversely, to increase recognized losses in order to increase the likelihood of attracting international financial support (as in Giner & Mora, Citation2019). Apart from the fact that these are cases of opportunistic earnings management rather than of standard setting, I would argue that their political dimension is that of ‘regular’ politics rather than geopolitics because the opportunism implies at best a weak link with a more general international political agenda.
5 The only one of the founder member countries that was normally classified as a third-world country was Mexico.
6 Minutes of IASC meeting of 14–15 January 1974, item 10.
7 ‘Basic Accounting Standards – An urgent international need’, 4 December 1972, copy in IASC archive.
8 The IASC Foundation was renamed as IFRS Foundation in 2010. In this paper, IFRS Foundation is used throughout.
9 See, for instance, the geographical comment letter analysis in Jorissen et al. (Citation2013). See Gäumann and Dobler (Citation2019) for similar but more detailed information on western versus eastern European countries in terms of participation by European national standard setters in the work of EFRAG.
10 The literature on recent Russian foreign policy is extensive and, as may be expected, by no means unanimous in its interpretations.
11 E. Kenneth Wright, cited in ‘Accounting “Still a Powerful British Sphere of Interest”, The Accountant, 169 no. 5163 (29 November 1973), p. 729.
12 Interview with a former president of an IASC founder member body, 2003, transcript in author’s collection.
13 International Standards of Accounting and Reporting for Transnational Corporations: Report of the Group of Experts on International Accounting and Reporting (E/C 10/33) (New York: United Nations Publications, 1978).
14 ‘Transnational accounting’ (editorial), Financial Times, 7 April 1978. p. 22
15 For a summary of a wide range of reactions to the 1978 report of the Group of Experts, see World Accounting Report, April 1978, pp. 2–6.
16 https://isar.unctad.org/. For an overview of 25 years of ISAR, see UNCTAD (Citation2009).
17 Restructuring financial markets: The major policy issues, A report from the chairman of the subcommittee on telecommunications, consumer protection and finance of the committee on energy and commerce, U.S. House of Representatives. Washington: U.S. Government Printing Office, July 1986, p. 344
18 Sustaining New York’s and the US’ Global Financial Services Leadership, The City of New York Office of the Mayor/United States Senate, 2007; Commission on the Regulation of U.S. Capital Markets in the 21st Century, Report and Recommendations: an independent, bipartisan commission established by the U.S. Chamber of Commerce. U.S. Chamber of Commerce, 2007.
19 2004 Report to Congress of the U.S.-China Economic and Security Review Commission. Washington, U.S. Government Printing Office, 2004, p. 6.
20 See the June 2019 bipartisan bill for an “Ensuring Quality Information and Transparency for Abroad-Based Listings on our Exchanges’’ or ‘‘EQUITABLE” Act, requiring Chinese entities listed in the US to comply with US standards for audit oversight.
21 Letter by Zachary P. Wamp to Christopher Cox, dated 22 October 2008, available at www.sec.gov.
22 Planning for the Future: Strategic Plan U.S. Securities and Exchange Commission, Fiscal years 2010–2015. Washington: SEC, p.23.
23 U.S. Securities and Exchange Commission: Strategic Plan Fiscal Years 2018–2022. Washington: SEC. The plan does not mention international accounting standards. See p. 6 for one of the limited reference to the global context: ‘Global risks are U.S. risks, and wrongdoing that affects the U.S. markets increasingly occurs outside our country.’
24 IFRS Foundation Annual Reports, 2007–2018. Excludes contributions from Hong Kong and Taiwan. Japanese contribution includes funds earmarked for IASB’s regional office in Tokyo.
25 ‘Kuaiji gaige yu fazhan “shisanwu” guihuagangyao’ [Accounting reform and development, 13th five-year plan planning outline], Ministry of Finance, 8 October 2016, http://www.gov.cn/xinwen/2016-10/19/content_5121419.htm.
26 See, for instance, Huang and Ma (Citation2001), chapters 8–10 for the relation between general economic reform policies and policies on accounting regulation in the 1980s and 1990s.
27 See Alvaro (Citation2013) for a discussion of the role of expressions such as xiaokang in political discourse in China.
28 E.g. ‘Zhongguo cong daguo chengwei qiangguo de shijian luoji’ [The practical logic of China’s development from a large country to a strong country], a comment piece on the news site of the Chinese Communist Party, http://cpc.people.com.cn/n1/2017/1225/c223633-29727266.html, 25 December 2017.
29 ‘Lizu guoqing jiefang sixiang kaituo chuangxin jinyibu wanshan youxiao zhixing qiye kuaijizhunzi tixi – “kuaiji gaige yu fazhan “”shisanwu”” guihua gangyao” jieduzhiwu’ [Emancipate the mind based on national circumstances, pioneer and innovate to further improve an effective system of accounting standards for business enterprises – fifth set of explanations of “Accounting reform and development, 13th five-year plan planning outline”], Ministry of Finance, undated document [2016], https://www.casc.org.cn/2016/1227/148805.shtml.
30 This objective was first expressed, following the financial crisis, in the communiqué issued after the November 2008 G20 summit. It was reiterated in statements following successive summits up to 2013. By then it was clear that the IASB and FASB had not succeeded in converging their standards on financial instruments accounting. While a call for further convergence by the G20 was assumed to remain in effect, the notion of such a call has gradually disappeared from progress reports by the Financial Stability Board to the G20.
31 Kuaiji gaige yu fazhan “shisanwu” guihuagangyao’ [Accounting reform and development, 13th five-year plan planning outline], Ministry of Finance, 8 October 2016, http://www.gov.cn/xinwen/2016-10/19/content_5121419.htm.
32 In 2015, following a call by IFRS Foundation Trustees Chairman Michel Prada for China to take the step to ‘full convergence’, a statement was issued ‘reaffirming’ China’s objective of full convergence. See Michel Prada, ‘Opening remarks’, IFRS Foundation stakeholder event, Beijing, China, 14 October 2015, https://cdn.ifrs.org/-/media/feature/news/speeches/2015/michel-prada-beijing-oct-2015.pdf and ‘Ministry of Finance and IFRS Foundation, Joint Statement, 18 November, 2015, Beijing’, https://cdn.ifrs.org/-/media/feature/around-the-world/mous/2015-beijing-joint-statement.pdf?la=en. However, The jurisdictional profile for China on the IFRS Foundation website, consulted in June 2020, states that ‘China has committed to adopt IFRS Standards for reporting by at least some domestic companies although there is no timetable for completion of the process’.
33 Many websites offer information on BRI, but their status is not always clear. For a website in the gov.cn domain, see https://eng.yidaiyilu.gov.cn. Despite the original focus on Africa and Eurasia, Belt and Road agreements have also been signed with countries in Latin America.
34 See, for instance, Huang (Citation2016), Callahan (Citation2016), and Rolland (Citation2017). See also ‘Return to Centre: China’s Belt and Road’, Special Report, The Economist, 8–14 February 2020.
35 ‘Initiative on Promoting Accounting Standards Cooperation among Participating Countries of the Belt and Road Initiative’, 25 April 2019, http://www.mof.gov.cn/zhengwuxinxi/caizhengxinwen/201904/P020190425517896288004.pdf.
36 ‘Guanyu shenhua “yidaiyilu” guojia kuaijizhunzi hezuo tanlun jizhi jianshe de anpai’ [Arrangements for establishing the mechanism of the forum for deepening the accounting standards cooperation of belt and road countries’], 8 November 2019, http://kjs.mof.gov.cn/guojidongtai/201912/t20191231_3453092.htm
37 See, for instance, the report on the November 2019 meeting in the Newsletter of the Institute of Chartered Accountants of Pakistan, https://www.icap.org.pk/files/per/publications/newsletter/2019/dec/newsletter-december-2019.pdf.
38 I accept the insights from a long line of critical accounting research that accounting, and by implication accounting standards, are not neutral with respect to social and therefore political conflict. However, it does not follow that it is not meaningful to think of accounting as a technical activity. The construction of a fence can be considered as a technical problem even if it is acknowledged that the fence will have the effect of reinforcing my property rights.
39 See, for instance, comments by IFRS Foundation Trustee Teresa Ko at the inaugural meeting of the Green and Sustainable Finance Cross-Agency Steering Group on 5 May 2020, indicating the trustees’ exploration of a role for the Foundation in non-financial reporting. ‘Sustainability reporting and its relevance to the IFRS Foundation’, news item dated 13 May 2020, www.ifrs.org. See also the discussion paper Interconnected standard setting for corporate reporting (Accountancy Europe, Citation2019).
40 Such an expectation would also be difficult to reconcile with the requirement in the IFRS Foundation Constitution that Board members should be independent and act in the public interest.
41 I note that the existence of JMIS may well reflect a mixture of domestic politics and an element of international signaling of Japan’s sovereign rights over IFRS adoption.
42 Debates about creating a ‘level playing field’ in accounting standards are perhaps the clearest instances of active interventions in standard setting motivated by national interest, even though the language of the level playing field belongs to discourse of globalization rather than geopolitics. However, as suggested by Camfferman and Zeff (Citation2015, p. 425) when discussing revisions to loan loss accounting under US GAAP and IFRS during the financial crisis, political actors (in this case in the EU and the US) may be inclined to overdo the leveling when the state of the playing field is difficult to ascertain because of the complexity of the topic and there is a suspicion that the other side is trying to gain an unfair advantage.
43 This is by itself not a new point. In different ways, Véron (Citation2007) and Leblond (Citation2011), for instance, have analyzed the emergence of IFRS as a global set of standards in the context of dominant US influence. However, their analysis essentially presupposes a globalized world of countries that have all adopted a variety of open, market-based capitalism, and in which the main question is where, in the absence of a world government, control over an international standard setter should be located.