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Abstract
This paper explores how the global standard setter and the European Union (EU) use public interest arguments; the study discusses these in relation to the perceptions of the actors included in the ‘public sphere’. The study examines texts expressing actors’ positions, revealing that the standard setter and the EU employ these arguments rhetorically to safeguard their political position. The findings show that respondents supporting the EU’s arguments are mostly continental, in line with a Europe-centric notion of ‘public’. Additionally, these arguments are often interpreted as a political tool to favour banks’ private interests rather than to safeguard a common interest in the health of the European economy. Further, the EU’s arguments show a potential threat to the IFRS’s status of globally accepted standards. The findings underscore the importance of considering the link between the global level at which standards are developed and their impact on jurisdictions.
Acknowledgements
I am grateful to Begoña Giner and Ann Jorissen (Guest Editors) and the two anonymous referees for their constructive support in developing the paper. I also sincerely thank David Alexander, Günther Gebhardt, Araceli Mora and seminar participants in the 8th EIASM Workshop on Accounting and Regulation (held in Siena, June 2019) for their insightful comments.
Disclosure Statement
No potential conflict of interest was reported by the author(s).
Notes
1 Specifically, the EU uses the term ‘public good’ as synonymous of ‘public interest’, as it often happens in practice (Bischof & Daske, Citation2016; Douglass, Citation1980; Sturm, Citation1978).
2 Namely the 2015 Mission Statement (IFRS Foundation, Citation2015), the document Working in the Public Interest:The IFRS Foundation and the IASB (Hoogervorst & Prada, Citation2015), and the presentation issued in 2017 on IFRS Standards and financial stability (IFRS Foundation, Citation2017).
3 Box’s intent is to make the concept of public interest more useful by adding components describing the context in which this concept is referred to (see Box, Citation2007).
4 Other studies recall the Cochran’s work to explain the use of code of ethics to support accounting profession’s reputation (Frémeaux et al., Citation2020) and, among others, to explain the transformation in the regulatory regime relating to the profession in Ireland (O’Regan, Citation2010).
5 The study does not consider the consensualist perspective as, in the empirical reality, it can be arduous to distinguish univocally positions based on this perspective from the normative perspective, being these two perspectives nearer than the other ones (Dellaportas & Davenport, Citation2008).
6 For instance, Directive 2006/123/EC (the ‘Services Directive’, EC, Citation2006) states that various arrangements can be used be put in place, if justified by ‘overriding reasons relating to the public interest, including a legitimate interest of third parties’ (Art. 13, para. 4). Consequently, interests to be protected are not only those held by public institutions, but also those outside the bureaucratic apparatus.
7 Minutes for 4 October (Council Note of 4 October 2001, DG C II, 12441/01, DRS 49 CODEC 967).
8 Specifically, the EU has supreme legal powers residing in the European Court of Justice, within its areas of competence, on the basis of Treaties and Directives, and the autonomous capacity for action of the European Commission as well as the European Court of Justice. The European Court of Justice has the powers not only to make member states revise their domestic legislation to come into line with its rulings, but the Treaties and Directives of the EU have a direct effect on every citizen of the EU (Curtin, Citation1989; Pillinger, Citation1992; Weiler, Citation1997).
9 For instance, while decision usefulness aims at responding to information needs related to the prediction of future cash flows to enhance price efficiency, stewardship aims at providing information needed to assess how managers have used firms’ resources (Gebhardt et al., Citation2014; O'Connell, Citation2007; Whittington, Citation2008). Accordingly, different accounting rules accomplish distinct goals serving the information needs of different subjects (Drymiotes & Hemmer, Citation2013; Gebhardt et al., Citation2014). For instance, transitory items are not useful for forecasting, whereas they provide information on management actions from a stewardship perspective (see Gebhardt et al., Citation2014, p. 110).
10 Among the exceptions, see Erb and Pelger (Citation2015).
11 As remarked, this Report does not represent the official European view. However, it represents a turning point for the European accounting regulatory context. It was developed on the EC’s advice to assess the functioning of the endorsement system and provide recommendations on its improvement, specifically aimed at examining how the European influence on IFRS could be strengthened. The recommendations provided triggered a significant reorganization of EFRAG, whose effects were intended to be decisive for strengthening the overall EU endorsement system, which instead could not be changed easily in the short term (Van Mourik & Walton, Citation2018).
12 Between August and November 2014, the EC held a public consultation to seek views on parties’ experience with Regulation 1606/2002. Part 22 of the document recalled the endorsement criteria set out by article 3(2) of the Regulation asking whether they were appropriate, namely sufficient, relevant and robust. Moreover, the document requested parties to provide suggestions to contribute to the definition of EPG and presented some suggestions, in particular: (i) not jeopardising the EU’s financial stability; (ii) not hindering economic development in the EU; (iii) not impeding the provision of long-term finance; (iv) more explicit reference to the concept of prudence; (v) consistency with other adopted IFRS; (vi) criterion concerning simplicity/proportionality; and (vii) other. Overall respondents commenting on the public consultation numbered 200; among them, 55% were companies and associations of businesses preparing or using financial statements under IFRS. The EC issued a detailed report summarising the 200 responses to the entire questionnaire. Nearly 66,67% of the individual companies were in industry (with a wide range of sectors represented) and around two thirds of the business associations were concerned with financial services.
13 In this respect, it is to note that this study makes extensive use of quoted comments from the detailed submissions to the EC public 2014 consultation on experience of IAS Regulation. The report of this process was published in 2015 and can be obtained directly through this link: https://www.ifrs.org/-/media/feature/about-us/our-history/2015-ec-ias-reg-evaluation.pdf?la=en. The individual submissions were also available on the EC website, but they have now been removed. The 162 returns made public were downloaded and are available on request.
14 Excluding accounting and auditing bodies, already included among actors operating in the accounting and auditing sector.
15 This excludes annexes and letters from the ESAs and the IFRS Foundation, already employed in the top-down analysis.
16 See also, in this respect, the EFRAG’s by-law (EFRAG, Citation2018).
17 Policy choices in the field of accounting involve public interest stakes that should be considered more thoroughly, ARC is the body that should represent the European public interest, who makes sure that the public interest is respected?, European public interest must prevail in these matters (Maystadt, Citation2013).
18 The ESAs support uniformly further European influence on the standard-setting process. Although uniformity cannot always be given for granted, it is a not surprising feature among European Agencies (Busuioc, Citation2009; Wonka & Rittberger, Citation2010). It is however interesting to note that ESMA focusses on the need of both a technical assessment of IFRS (in terms of usefulness to investors) and a political one, namely a proper assessment of the public interest (ESMA, Citation2014, p. 14), considering requirements to preserve financial stability.
19 In this perspective, Steven Maijoor - Chair of ESMA - on record commented to believe that:
‘Accounting standards do contribute to financial stability by providing clear principles on how to account for complex transactions, such as financial instruments, and by favouring transparency: transparency being key for good market functioning and good market functioning being an essential component of financial stability’ (Maijoor, Citation2011).
20 In 2015, the IFRS Foundation adapted its Mission Statement (IFRS Foundation, Citation2015). It now includes the reference to financial stability and growth, which was not included in the prior version This was a result of the criticism in the aftermath of the financial crisis with respect to the possible consequences of IFRS Standards. On the revision of the Mission Statement, see Jorissen (Citation2015).
21 Excluding ‘Prepayment Features with Negative Compensation (Amendments to IFRS 9)’.
22 The proposed amendments aimed at differentiating between the process of assessing the effects of standards/amendments as these are developed and the effect analysis report issued at the end of the standard-setting process.
23 Nevertheless, so far, the standard setter has not aligned its perspective to the instances posed by the EU concerning long-term investment and sustainability, underlining that the possible impact of accounting standards should not be overestimated because accounting is above all a tool that is used to present an economic reality as accurately as possible (Prada & Hoogervorst, Citation2018) and that the scope of sustainability reporting is different from the scope of IFRS Standards (Hoogervorst, Citation2019).
24 Respondents have been classified in different geographical clusters based on the nationality they indicate in their responses to the consultation. It is to specify that geographical area here named as ‘EU-wide’ is associated to respondents that do not restrict their geographical horizon to a single member state.
25 Collective actors supporting a EU financial stability meaning for the EPG are, indeed, the Mouvement des entreprises de France (MEDEF) – representing around 750,000 companies, mostly SMEs –, the Association Française des Entreprises Privées (AFEP) – which stands for 113 of the largest private corporations operating in France, namely over 13% of French GDP –, the Fédération bancaire française (FBF) – representing 340 banks operating in France –, and the Fédération française des sociétés d’assurances (FFSA), now Fédération Française de l’Assurance–representing more than 99% of the insurance market. In addition, the support to the financial stability came from the Association pour la participation des entreprises françaises à l'harmonisation comptable international (ACTEO) that is used to operating au sein de Business Europe in order to influence the global standard setter ‘pour influencer sur la voix européenne’ (ACTEO, Citation2020; Camfferman & Zeff, Citation2015). These actors uniformly also support the specification of the EPG criterion as ‘not hindering economic development’.
26 The UK Shareholders’ Association (UKSA) and Western Selection PLC do not deal directly with the EPG and stress, instead, technical properties of accounting standards.
27 European Central Bank and the European Securities and Markets Authority have their own objectives and a clear distinction should be made between those and the accounting standard setter’s tasks (Deutsche Bank, Citation2014).
28 The German Banking Industry Committee is an industry association of the German banking industry and its decisions are held normative for the national banking industry.
29 This would be absolutely contrary to one of the benefits of the IFRS application, which is comparability (Daimler AG, Citation2014).
30 Findings are timely to contribute to the debate taking place during the EFRAG Conference held in November 2019, ‘IFRS & Regulation: Searching for Common Ground’. In this respect, see the dedicated pages in the EFRAG website (http://www.efrag.org/Meetings/1910090723152479/IFRS--Regulation-Searching-for-Common-Ground).