International Accounting Standard Setting and Geopolitics

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.

Keywords:

• accounting standards
• IASB
• IFRS
• politics
• international relations

1. Introduction

The ‘return of geopolitics’ has attracted attention in recent years in news media and academic publications on international affairs (e.g. Bergesen & Suter, 2018; Mead, 2014). It is a common observation that we are going through a period of important changes in international relations and the international political landscape, even though the interpretation and evaluation of these changes will remain a matter of debate as events unfold. Generally speaking, the phrase ‘return of geopolitics’ is used to describe a movement away from an organized global order based on multilateral cooperation, international institutions and economic liberalization, to the assertion of national interests and adversarial competition among nations. More specifically, a situation of unquestioned economic, military and technological dominance of the United States which characterized the 1990s and the early 2000s is changing towards a situation of competition among a number of greater and lesser powers, with China emerging as the key challenger.

It is a natural question to ask what this means for the effort to develop and maintain a single set of international financial reporting standards, as currently undertaken by the International Accounting Standards Board (IASB). Indeed, the chairman of the IFRS Foundation, Erkki Liikanen, noted in a September 2019 speech that ‘geopolitical tensions’ are part of an increasingly uncertain environment in which the IASB has to operate.¹ Yet the answer to this question is not straightforward. This is due not only to the inherent difficulty of agreeing on an interpretation of today’s geopolitical constellation, let alone on predictions of future developments. It is also due to a double quality in the work of the IASB. On the one hand, the IASB presents itself, not without justification, as a technical, expertise-based, politically neutral organization, and its accounting standards as a universal language that can be applied around the world without regard to national borders. On the other hand, it is also widely accepted that there is a political dimension to the setting of international accounting standards even though, as is normal for any political topic, there is a diversity of views on where accounting ceases to be a technical activity and where, and in what sense, it begins to be political.

The more one emphasizes the apolitical nature of the IASB, the more one will be inclined to think that the future of International Financial Reporting Standards (IFRS) will not be strongly affected by geopolitical developments. As IASB Chairman Hans Hoogervorst put it, also in September 2019 and in apparent contrast with Liikanen’s observation cited above: ‘Against the backdrop of increased geopolitical friction, where the recent G7 meeting couldn’t even agree on a common statement, our standard-setting community provides an excellent example of what can be achieved when people from all parts of the world work together towards a common goal.’²

In this paper, I take the position that there is indeed a strong apolitical element in the way IFRS is developed and used in practice, but that it is nonetheless meaningful to consider how, one might say at the edges, geopolitics has interacted with the setting of international accounting standards, and how it may do so in the future. To my knowledge, this aspect of international accounting standard setting has not received much attention in the academic literature. The objective of this paper, therefore, which has the character of an essay rather than a presentation of definitive research findings, is to invite further consideration of this perspective on international accounting standard setting.³

The paper essentially follows an inductive approach. In Section 2, I discuss the meaning I attach to ‘geopolitics’, and how this relates to the existing literature on the ‘politics’ of accounting standard setting. In Sections 3 through 6 I consider how four key geopolitical developments or phases of the last fifty years interacted with international accounting standard setting: the cold war and its aftermath, the emergence of the third world as a geopolitical category, the ‘pax Americana’ following the collapse of the Soviet Union, and the rise of China. There is no assumption that these four headings sum up the entire history of geopolitics over the last half-century. A limitation to four is suggested by the length of this paper, and these four have been chosen, first, because I assume that most people will accept that these are among the more important developments and, second, because each can be related to international accounting standard setting in a meaningful way. In Section 7, I propose a very simple framework in order to sort the variety of historical observations in the preceding sections into a few general categories. I conclude with the limitations of this paper and a call for further work in Section 8.

2. ‘Geopolitics’, ‘Politics’ and International Accounting Standards

While the term ‘geopolitics’ is widely used, it lacks a generally accepted definition (e.g. Dodds, 2007; Tuathail, 1998). The name points to the relationship between political power and geography. This brings in the notion of territorial states and their relationships. In its most narrow sense, therefore, geopolitics is about control of territory or geographical resources, ultimately relying on military power. In a broader sense, geopolitics can be conceived as the politics of forcefully asserting a state’s, or group of states’, national interests over against the interests of other states, possibly to the extent of gaining control or dominance over other states, and relying both on the threat of military power and active exercise of other forms of power, such as economic power. Reading von Clausewitz’ famous dictum backwards, one could perhaps say that geopolitics is the kind of politics of which war is the pursuit by other means. In this sense, one has to assume that geopolitics is a permanent feature of world history, so that it never truly went away in order now to return. What one can argue, though, is that geopolitics in this sense is the opposite of globalization, understood in terms of increasing irrelevance of national borders for flows of economic resources and a generally cooperative approach to manage international relations through shared institutions. One can then conceive history in terms of a geopolitics/globalization cycle (Bergesen & Suter, 2018) in which the emphasis in international relations shifts back and forth between these poles. When we consider the relationship between international accounting standard setting and geopolitics, we can conceive the latter as a shifting geopolitical situation rather than as a factor which is, or is not, present.

Conceiving geopolitics as outlined above makes it possible to draw a distinction, albeit not a very strict one, with the literature on the politics of accounting standard setting. It is a common observation in the accounting literature that accounting standard setting is political, for several reasons including both distributive effects of accounting (e.g. Botzem, 2012, p. 8) and financial reporting’s legitimizing of existing power distributions (e.g. Richardson, 1987). By and large, though, the theorizing and analysis of the politics of accounting and accounting standard setting has taken place at the level of competing interests within states, possibly including the state versus private-sector actors. This has given rise to a rich literature on such phenomena as political lobbying on accounting standards by affected industries, or the involvement of national politicians in national standard setting. While political, the politics involved are not geopolitics.

With the advent of international accounting standards, the political dimension of financial reporting and accounting standard setting also moved to an international level, giving rise to a literature on, for instance, the relationship between the IASB and European political institutions. However, despite the international level, these politics are again not necessarily geopolitics. At least up to a point, they can be interpreted as an extension of national-level attempts by private interest groups to mobilize politicians or to utilize political processes in order to obtain outcomes in line with their interests. If, as in a famous incident in 2003, a French president publicly expresses a critical view of the IASB’s standards (as discussed in Alexander, 2006; Walton, 2004), this is perhaps better viewed as French private interests successfully mobilizing French political power rather than the French state intervening in accounting standard setting in order to assert its interests against those of other states.⁴

Having thus scoped out a very large proportion of politics from my paper, one might wonder what is left to say. Nonetheless, in the remainder of the paper, I will attempt to make the point that the geopolitical angle can usefully be added to the range of perspectives from which international accounting standard setting is to be considered.

3. The Soviet Union and Russia: Cold War and After

The IASC was created in 1973, in the middle of the cold war. In retrospect, it takes a certain mental effort to remember or to envisage how self-evidently it was accepted at that time that ‘international’ could exclude a considerable proportion of the globe. A commonly made distinction at the time, and a reminder of the importance of language in creating ‘geopolitical representations’ (Agnew, 1998), was among a first, second and third world. The first world was made up by the developed countries of the ‘West’; the second of the socialist countries: the Soviet Union, China and their allies or satellites; and the third world consisting of developing countries not clearly aligned with either of the other two worlds. By the 1970s, the Sino-Soviet split had occurred and the cold war was mainly understood in terms of the Soviet Union versus the West. Nonetheless, the entire second world was an area that might just as well not have existed in terms of its significance for the early IASC initiative. China will be considered separately below (Section 6), and the third world was certainly seen from the IASC as potentially relevant (Section 4), but at the start the IASC was very much a first-world organization.⁵

I am not aware that, as long as the Soviet Union existed, there was any significant attempt on the part of the IASC to seek to interest any of the countries in the Eastern bloc in its standard setting. Strictly speaking, the IASC’s members were not states but national accountancy bodies. Until 1982, these were divided among bodies with a seat on the committee and so-called associate members. The ‘board member countries’ were divided among the founding members with a permanent seat and rotating members added in 1977. After 1982, the associate member category disappeared as all members of the International Federation of Accountants (IFAC) where henceforth also considered as members of the IASC. None of the associate member bodies, nor any of the initial IFAC member bodies, came from the Soviet bloc. The only Eastern European bodies to be admitted, prior to 1989, were from Yugoslavia, a socialist country but outside the Soviet Union’s sphere of influence.

In terms of its membership, it is easy to see that the pre-1989 IASC distinctly mirrored the geopolitical East–West distinction, but it may be asked to what extent this was a result of conscious policy decisions. The Soviet Union and its associated countries did present themselves as an alternative system to the market-based economies of the Western World, and it was assumed that this required a distinct alternative approach to accounting as well (e.g. Mills & Brown, 1969). The Soviet approach to accounting influenced not only countries under Soviet control, i.e. the Warsaw pact group, but also some other countries with which the Soviet Union maintained close relations, such as Vietnam which was also completely outside the IASC’s purview until well after 1990 (Sarikas et al., 2009). Although the Soviet Union increasingly did participate in international organizations from the 1960s onwards, it displayed no apparent interest in joining the IASC or participating in its work. From the point of view of the IASC, the exclusion of the Soviet bloc was an extension of a similar pattern in the international organization of the accountancy profession. The frame of reference for inviting accountancy bodies to join as founder or associate members of the IASC was the group of bodies entitled to attend the International Congresses of Accountants, none of which were from the Soviet bloc.⁶

There is no indication that the creation of the IASC was seen in terms cold war geopolitics by any government, yet there was awareness among the participants that the effort to set international accounting standards was tied to the Western market-based economies. The 1972 invitation by the English Institute to the prospective founding members of the IASC mentioned that ‘The further development of international trade and the multi-national company is dependent upon an orderly international capital and securities market with common standards. Generally-accepted international standards for company accounts is one of the key requirements.’⁷ As Véron observed: ‘[The IASC] very much followed the pattern of other international initiatives that were shaped by the US interest in fostering an open environment based on the rule of law throughout the non-Communist world. However, public authorities were not instrumental in the IASC’s creation and affirmed their interest only at a later stage.’ (Véron, 2013, p. 99).

The end of the cold war did remove a significant geopolitical barrier, and opened the way for more involvement of the countries from the former Soviet bloc in international accounting standard setting. This did happen: most Soviet successor states and former Warsaw pact countries in Eastern Europe have adopted IFRS to a certain degree. In the case of the countries joining the European Union, this was part of an overall package of adopting the EU’s acquis communautaire (Albu et al., 2017). However, as a generalization it may be said that the involvement of these countries in international accounting standard setting is passive. In terms of indicators such as membership of the IASB Board and associated groups and committees, in terms of comment letters and in terms of contribution to IFRS Foundation funding,⁸ these countries tend to be underrepresented. This is not black-and-white, and must be seen in perspective. Many of these countries are small or face resource constraints, and their lack of active participation may simply mirror that of other smaller countries. There are also exceptions: Bulgaria and Kazakhstan, for instance, have made small but stable contributions to the IASB budget over the years.⁹ Russia, however, appears to play a far more modest role in the IASB than might be expected given its economic and political significance. It was relatively late in signing up to IFRS (Camfferman & Zeff, 2015, pp. 503–505). It has not been represented in the IASB Board, the IFRS foundation trustees or the Monitoring Board. It is certainly not completely absent from the IASB’s activities, but compared to other economies of a comparable or smaller size, such as South Korea, Canada, or Australia, its participation is much more muted.

Viewed from a distance, Russia’s mixture of engagement with and aloofness towards the IASB and IFRS bears some resemblance to its general stance in international affairs over the last two decades, and which is a central element of the narrative of a return of geopolitics.¹⁰ However, I am not aware of any clear articulation of a relationship between Russian policies on international accounting standards and more general international policies. As it is, I can only speculate that there is a certain parallelism between the two. Both appear to be a complex mixture of pre-Soviet, Soviet and post-Soviet elements. It is possible that low-level participation in IFRS is at least in part a lingering imprint of isolation during the Soviet period. However, just as in the development of Russia’s international position and policies since 1990, one can see a continuation of deep-rooted pre-Soviet historical trends such as tension between westernizing and conciliatory versus assertive and isolationist tendencies (e.g. Tsygankov, 2012a, 2012b), one can find examples of Russian skepticism towards IFRS drawing on pre-Soviet Russian accounting thought (e.g. Sokolov, 2016). Unpacking this complex mixture is far beyond the scope of this paper, but it appears a reasonable hypothesis that policies on international accounting standards have at least been colored by the more general context of international politics.

4. The ‘Third World’

As indicated above, a major geopolitical feature of the world of the early IASC was the recent or ongoing decolonization of numerous countries, many of which, together with most of Latin America, came to be known collectively as the ‘third world’. How to deal with the aspiration of these countries, or at least some people in some of these countries, to be involved in international accounting standard setting, became an important issue for the IASC. At a superficial level, one still finds on the part of some of the people involved in setting up the IASC an occasional use of language or imagery of the age of imperialism. In 1973, a president of the Institute of Chartered Accountants in England and Wales remarked that accounting was ‘still a powerful British sphere of influence’.¹¹ Sir Henry Benson, the IASC’s first chairman, took a map with him when traveling around the world to promote the IASC, on which countries with members or associate members were shown in red. There can be little doubt that in the mind of Benson and other Britons of his age the resulting map recalled the traditional colour-coding of the British Empire on world maps. More fundamentally, one sometimes finds traces of a condescending or downright racist attitude towards former European dependencies and colonies. At the 1967 International Congress of Accountants, an International Working Party (IWP) was set up to study the possible creation of a permanent international organization of accountancy bodies. As it turned out, the IWP was a step towards the creation of both the IASC and the International Federation of Accountants (IFAC; Camfferman & Zeff, 2007, pp. 37–38). A former president of an IASC founder member body, involved in the creation of the IWP, recalled it as a delaying tactic. He summarized the tenor of the discussion among the accountancy bodies from the ‘leading’ countries that provided the initial IWP membership by noting that there was recognition of the pressure to set up some kind of international organization, but ‘we mustn’t be too quick, otherwise we will get all these [derogatory adjective] countries for which it would be a sport to claim that “we are members of the World Federation.”’¹² This view, although not necessarily the language, could be heard from other persons of the same generation involved in international standard setting. It captures an important aspect of the subsequent relations between the IASC and countries from the developing world: a recognition that the founder members could not continue to claim the exclusive right to set international accounting standards, coupled with a suspicion that claims from other countries to participate were sometimes driven more by considerations of prestige rather than a clearly defined idea of the nature of the contribution these countries wished to make to the IASC’s technical work.

However, there was an issue on which countries from the developing world could build a case for a specific interest in accounting standards. This was the matter of disclosure by multinational corporations, a sensitive topic combining questions of national sovereignty with concrete economic interests. From the early 1970s onwards, the United Nations (UN) took an interest in this issue with a succession of committees and working groups to develop recommendations or guidelines for reporting by transnational corporations (Camfferman & Zeff, 2007, pp. 187–195). For the IASC, the possibility that the UN might set up an international standard setter for financial reporting was perhaps more a turf battle than a matter of geopolitics. However, the question was cast by some in geopolitical terms. A 1978 Financial Times editorial commented on a major report by the UN ‘Group of Experts on International Accounting and Reporting’, which recommended that standards be developed for a wide range of financial and non-financial information.¹³ The newspaper noted as a matter of concern the political nature of the UN, including ‘not only capitalist, but Communist members. There is a real danger that, in such a forum, rules would be drawn up to the special disadvantage of capitalist multinational corporations and then gradually enforced by member Governments.’¹⁴ This echoed comments earlier that year by Henry Benson, who warned against the danger of the presence of ‘far-Left Communist republics’ in the UN, so that states with no commitment to transparency ‘will support proposals for increased corporate disclosure in order to use them as a political weapon, either against mixed economies in general or to obtain particular advantages’ (Benson, 1978).

This was a rather extreme point of view,¹⁵ and perhaps more an example of using geopolitical arguments as a weapon to support the interests of multinational corporations. Nonetheless, the debate over multinational enterprises, taken to the governmental level in the United Nations, was clearly an outgrowth of the increased self-awareness and recognition of the ‘third world’ countries as a geopolitical factor. It was the most clear-cut case where the early IASC had to devise a course of action in response to a wider geopolitical situation.

The IASC’s response was twofold. First, to assert its superior technical competence to gain acceptance for the view that it could be entrusted with the task of setting international accounting standards, and, second, to create limited opportunities for accountancy bodies from a wider range of countries, including developing countries, to participate in its work. Initially, as indicated above, voting membership of the IASC was limited to the founding members. Aware that this created some resentment in other countries, the IASC introduced a limited number of rotating seats in 1977, and tried to make sure that at least one of these was occupied by a developing country (the first being Nigeria). The IASC also tried to involve associate members (or, subsequently, other IFAC member bodies) in the work of its steering committees, which prepared the drafts for discussion in the full committee or ‘Board’.

From the mid-1980s onwards, the threat of the UN as an alternative standard setter had for practical purposes disappeared, even though the UN’s Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR), established in 1982, continues to meet.¹⁶ With the end of the cold war and increased economic divergence among third world countries, the geopolitical representation of a ‘third world’ lost currency, to be replaced by a notion of a more diffuse group of developing countries and/or emerging economies. The IASC, and, subsequently, the IASB remained vulnerable to the criticism that the voice of emerging economies was not sufficiently heard in its deliberations, and their special needs not sufficiently taken into account. Its main line of defense against such criticism is that it has not been persuaded that such special needs, other than a general need for limited complexity, exist. The standard IFRS for SMEs was developed specifically for smaller entities, under the assumption that this would at least partly alleviate the challenge of applying IFRS in countries with less developed accounting infrastructure (on the development of IFRS for SMEs, see Ram, 2012).

5. The United States

There can be no doubt that the history of the IASC and the IASB can, in a sense, only be understood against the background of the dominant geopolitical position of the United States, either as the leading country of the Western bloc during the cold war, or as the single remaining superpower during the ‘pax Americana’ of the 1990s and early 2000s. Yet one must be careful with the application of the label ‘geopolitical’. While it is clear that the geopolitical dominance of the United States was intimately connected with the soft power of its economic, technological and cultural weight, and while, presumably, this soft power was reinforced by its hard military power, it would not be correct or helpful to label every instance of US influence on the process of international standard setting with the label of geopolitics.

For instance, it is evident that US Generally Accepted Accounting Principles (US GAAP) have, over time, been a very important source for international accounting standards. However, to a considerable extent this must be explained, not by the geopolitical position of the United States, but by the fact that for many years US GAAP was the most developed set of codified accounting principles in the world. In many cases where an issue came up at the IASC and the IASB, it was noted that the US standard setter had already carefully considered the same issue and come up with a reasonable solution. Simple technical superiority through a head start in developing accounting standards must account for a considerable proportion of US influence on international standards.

At the same time, it would be simplistic to ascribe the influence of US GAAP on IFRS merely in terms of technical superiority. Such an explanation is useful in some of the earlier standards issued by the IASC, such as IAS 17 Accounting for Leases (1982) which clearly owed much to FAS 13 Accounting for Leases (1976). However, from the late 1980s onwards, US influence on international accounting standards increased strongly because of the policy adopted by the IASC in 1987, in cooperation with the International Organization of Securities Commissions (IOSCO), to rewrite its standards to serve as the basis for cross-border listings. This meant, for practical purposes, that the IASC had to improve and strengthen its standards to make them acceptable to the US Securities and Exchange Commission (SEC), because the US capital market was by far the most important destination for companies seeking international listings of their securities (Camfferman & Zeff, 2007, Chapter 10). In some cases, this led the IASC to adopt US standards that it did not necessarily view as the best technical solutions, for the sake of a timely completion of a package of ‘core standards’ that could be endorsed by the SEC, and hence, by IOSCO. IAS 39 on the recognition and measurement of financial instruments is an important case in point.

Again, this does not necessarily require a geopolitical interpretation. Having a deep capital market is not per se a geopolitical variable, and the SEC’s decisions over time on accepting IAS/IFRS for use by foreign registrants without a 20-F reconciliation can be explained in terms of an agency working to fulfill its domestic mandate of protecting US investors.

Nonetheless, a general statement can be made that at least until recently there was considerable support in the United States for the view that it is in the US national interest, and therefore should be a matter of national policy, to foster the integration of US capital markets in an international economic and financial system based on free markets, international institutions and common standards (Elson, 2019, pp. 179–180). The ‘Washington consensus’, as it became known from the late 1980s onwards, may be seen as a specific version of this view with an emphasis on macro-economic policy, but with the implication that a common set of sound policies on financial markets is appropriate around the world, and not just in what used to be called the first world (Williamson, 2009). The ‘Washington’ of the consensus was not a mere reference to the US government, as it included the IMF and the World Bank. Yet the consensus did include the views of the US Treasury, and it is commonly understood (e.g. Beeson & Li, 2015; Soederberg, 2001) that promoting the consensus was at least very much compatible with overall US foreign policy objectives.

I am not aware of a conscious initiative on the part of the US Federal Government to incorporate accounting standards in an overall policy of promoting market-based institutions around the world. Even so, one does find, from the late 1980s onwards, that policy making on international accounting standards was increasingly informed by notions of the US taking a leadership role in creating globalized markets and their supporting institutions, both in its own interests and those of the rest of the world.

At the level of accounting standards, this outlook appeared to gain support from the 1980s onward, when it began to be argued, for instance, that the SEC’s policies should not purely be guided by the needs of US investors, but that it should also actively support the harmonization or internationalization of financial reporting requirements.¹⁷

This outlook is also apparent in the FASB’s vision document on the future of international accounting standard setting, published in 1999 (FASB, 1999). This document was issued while the IASC was considering its restructuring into what would become the IASB. In it, the FASB outlined its commitment to the ultimate objective of a single set of global accounting standards, used both for domestic and cross-border financial reporting. The FASB accepted that such standards should be developed and maintained by an international accounting standard setter (ISS), but asserted that the quality benchmark set by US GAAP should guide the work of the ISS, and that FASB should take a leadership role in order to ensure such a degree of quality of the international standards.

The FASB’s view was in line with that underlying the 1996 National Securities Markets Improvement Act. While this legislation was primarily aimed at strengthening federal oversight over capital markets, it did include a section 509 on ‘Promoting global pre-eminence of American securities markets’. Under this heading, the Securities and Exchange Commission (SEC) was exhorted to ‘enhance its vigorous support for the development of high-quality international accounting standards as soon as practicable’.

During the 1990s and early 2000s, it was widely accepted, certainly within the IASC/IASB, that US support was absolutely vital for achieving a single set of global standards. On this basis, a very strong US influence over the IASC/IASB’s technical work was generally accepted, both during the core standards phase of the 1990s and during the IASB/FASB convergence work of the early 2000s.

The leadership role of the US in setting international accounting standards peaked during the first decade of the twenty-first century. In the light of the SEC’s consideration of the use of IFRS by foreign registrants (accepted in 2007) and domestic registrants (proposed in 2008, but not acted upon), the IASB and the FASB went through a phase of very intensive work to converge their standards, while the possibility of the US adopting IFRS was a major factor in other countries’ policies on IFRS adoption.

As is equally well known, during the last ten years or so, the role of the US in international accounting standard setting has drastically changed. There is currently no perspective of domestic adoption of IFRS and, while there is still active participation by the FASB and US constituents in the work of the IASB, the notion that the US is playing or should play a leadership role has all but disappeared. And again, while one cannot trace this directly to conscious decisions on international politics at the national level, one can note the compatibility of a shifting stance on accounting standards with shifts in outlook on the role of the US in the international economic order.

At least from the early 2000s onwards, awareness was building that creating a globalized market place, more particularly, a global capital market, was not automatically beneficial to the United States. At the least, increased competition could also lead to the US losing its competitive edge. Up to a point, this simply reinforced the case for international accounting standards, as they could be conceived as removing unnecessary disadvantages for US capital markets and companies. This was the line taken, for instance, in two studies on maintaining the competitiveness of US capital markets published in 2007, the Bloomberg-Schumer report and a report commissioned by the U.S. Chamber of Commerce.¹⁸ At the same time, more fundamental doubts became apparent about the possibilities of creating an international level playing field, both in general and with respect to accounting standards in particular. Christopher Cox, for instance, the SEC Chairman who oversaw the lifting of the reconciliation requirement for foreign IFRS-users and introduced the rule proposal for domestic use of IFRS, also expressed concern that one could not simply assume that global capital markets would function according to traditional US free market assumptions, given significant state-ownership in major internationally listed companies, or the increasing importance of sovereign wealth funds (Cox, 2007). While Cox did not mention China, it is clear that US politicians had already been wary of China as a political and economic challenge. In annual reports issued since 2003 by the Congressional U.S.-China Economic and Security Review Commission, the lack of high-quality accounting standards in China, and weak enforcement of such standards, had been signaled as a risk, not just to US investors who might have difficulty in understanding the financial position of companies with opaque links to the Chinese state, but also to US national security as the same investors could unwittingly pour money in firms connected to ‘China’s defense-industrial complex.’¹⁹ The adoption of international accounting and auditing standards could, of course, be presented and recommended as a means of creating the necessary transparency, but overall, the Commission’s reports have exuded skepticism over the viability of a strategy to tie China into a network of internationally binding norms. In Congress, the prevailing view appears to be that strict imposition of US standards rather than international institution-building is the best strategy.²⁰

It has often been observed that the Trump administration is characterized by a lack of trust in international institutions, but at the level of international accounting standards one can already see that confidence in the possibility of global standards began to wane at an earlier stage. While the SEC lifted the 20-F reconciliation under Cox, a Republican-appointed chairman, it was under the Obama administration that the SEC effectively discarded the idea of adopting IFRS for domestic registrants. In the SEC’s final report on the issue (SEC, 2012), but also in the comment letters on the SEC’s 2008 rule proposal, the notion that the United States might have an international leadership role to play, ultimately in the interest of the United States itself, was mainly notable for its absence. Apart from the cost burden on US business of a transition to IFRS, a recurring argument was a lack of trust that other countries would be willing or able to enforce IFRS in the same way as the US would do. From that perspective, the policy issue is no longer how the US can encourage or lead the improvement of financial reporting in the rest of the world, but how US investors can be protected against malicious reporting practices from an uncontrolled world beyond US borders.

As an example which in its specific details is certainly not representative of widely held views at the time, but which does show how views on IFRS adoption in the US could be colored by a perception of a world with high risks to US national security, the following passage may be cited from the comment letter by Congressman Zachary P. Wamp (R-Tenn), on the SEC’s rule proposal for domestic adoption of IFRS: ‘Exposing U.S. companies to international standards could also put our nation at risk of being under Sharia Compliant Finance (SCF), which is based on Sharia Law. The number of converts to this radical law is increasing along with their control over financial markets. If the number of U.S. financial institutions complying with SCF increases, there is greater potential of radical organizations gaining significant influence in our markets.’²¹

Much less extreme but still important is the shift in emphasis in the SEC’s strategic plans. In the 2010–2015 strategic plan, international cooperation to strengthen the global financial system in the wake of the financial crisis was a prominent theme, leading, among other stated intentions, to the assertion that ‘the agency will promote higher quality financial reporting worldwide’, not least through the promotion of convergence of US and international accounting standards.²² In the 2018–2022 strategic plan, the international dimension is far less prominent, however, and cited mainly as a source of risks against which main street investors need to be protected.²³

6. China

Like the Soviet Union, the People’s Republic of China (PRC) did not figure at all in discussions at the IASC during the 1970s and the 1980s. Even though the PRC was recognized as the lawful member of the United Nations for China in 1971 and diplomatic relations with countries in the Western bloc were normalized, the upheavals of the Cultural Revolution (1966–1976) were probably not a suitable context for considering a role for the PRC in developing international accounting standards. One specific geopolitical issue with respect to China is the status of Taiwan. Somewhat out of step with the diplomatic situation, but still in line with the PRC’s as yet tentative opening to the outside world during the early 1980s, the IASC accepted a Taiwanese delegation for a 1984–1987 term in one of its rotating seats. The single delegate, S.T. Chiang, took his seat under the heading of the National Association of CPA Associations of the Republic of China.

As the ‘rise of China’ continued during subsequent years, the PRC gradually came to occupy a more prominent position at the IASB. In the closing years of the IASC, the Board held one of its meetings (which it did not hold in a single location, but around the world) in Beijing, in July 1997. From that time onwards until the end of the IASC, observers simply labeled as ‘China’ in the IASC’s minutes rather than showing the name of a particular organization, as in the case of other delegations, regularly attended Board meetings. Language was important in relation to China. The IASB, once it replaced the IASC in 2001, adopted the custom of referring to ‘jurisdictions’ rather than ‘countries’ when discussing the use of IFRS around the world. In doing so, it could still discuss the use of IFRS in Hong Kong or Taiwan independently from IFRS use in mainland China, without suggesting that these were separate countries. China was not the only reason for adopting this language, as the European Union could be cited as an important adopting jurisdiction which was not a country. Yet references to EU member states as ‘countries’ are not controversial, whereas businesses and other organizations outside China have faced pressure to avoid any suggestion that Hong Kong or Taiwan are countries. From 2014, when Taiwan first began to make a financial contribution to the IFRS Foundation, to 2016, it was listed in the geographical listing of ‘supporters’ in the Foundation’s annual report as ‘Taiwan’. From 2017 onwards it has been listed as ‘Chinese Taipei’, while, from the same year onward, ‘Hong Kong’ was listed as ‘Hong Kong SAR’.

Following the replacement of the IASC by the IASB in 2001, contacts with China were gradually but significantly extended. The IASB’s initial Standards Advisory Committee included a representative of the Chinese Ministry of Finance. In 2005, the first (mainland) Chinese member of the board of trustees of the IFRS Foundation was appointed, followed by the appointment of a Chinese Board member in 2006 and a member of the Interpretations Council in 2010. Over time, China has significantly increased its financial support for the IFRS Foundation, from approximately 1% of total contribution income in 2007 to approximately 10% in recent years. For some years now, its contribution is about equal to that from Japan. To put these numbers in perspective, it may be noted that the contribution from the European Commission and EU member states makes up a fairly stable one-third of the Foundation’s contribution income, whereas the contribution from the Unites States has declined from 18% in 2007 to 3% in recent years.²⁴ Since 2011, China has also provided the secretariat for the IASB’s Emerging Economies Group. In all, if one compares how China and Russia each came out of their isolated position with respect to international accounting standards, it is apparent that China has developed a much more active engagement with the IASB.

Nonetheless, in contrast to Russia, China has not fully adopted IFRS. After a major revision of Chinese accounting standards in the early 2000s, they were declared to be ‘substantially converged’ with IFRS, and accepted as such by the IASB, in February 2006. The set of standards issued in 2006, and since then amended from time to time to reflect changes in IFRS, are not a direct translation of IFRS, hence the claim of ‘substantial’ convergence. This is unlike Hong Kong Financial Reporting Standards, which do literally follow the text of IFRS.

In China, policies on accounting standards are set under direct government control. One implication is that, as in other policy areas, policies on accounting standards are formulated with explicit references to overall national policies, thus creating a hierarchy of policy documents from the national five-year plans downwards to policy statements of specific agencies or departments.

For instance, in October 2016 the Accounting Department within the Ministry of Finance issued a document on the implications for accounting reform of the 13th five-year plan (2016–2020),²⁵ which was in due course followed by further explanatory statements. Up to a point these documents reiterate longstanding views that accounting reform, including convergence with international accounting standards, are an element of an overall effort, stretching across many decades, to strengthen and develop the Chinese economy.²⁶ Hence, one can find references of how accounting reform will help China to achieve the objective of ‘moderate prosperity’ (xiaokang), a term which gained currency in the 1980s as an intermediate objective in China’s long road from a semi-colony towards its restored status as a great power.²⁷ Counting approximately from the foundation of the Chinese Communist Party in 1921, the achievement of xiaokang during the 13th five-year plan period is seen as completing the ‘first century’ of China’s recovery. This means that policies on accounting standards are primarily seen as domestic policies. However, because economic development and economic growth are inextricably linked to China’s increasing economic and political stature in the world, the geopolitical dimensions of China’s national policies are echoed in the policies on accounting standards as well. For instance, it is commonly observed that China is, and is destined to be, developing from a ‘large country’ (daguo) into a ‘strong country’ or major power (qiangguo), in every respect: economically, politically, and militarily.²⁸ This finds an echo in objectives to transform China from a ‘large accounting country’ (kuaiji daguo) into a ‘strong accounting country’ (kuaiji qiangguo).²⁹ This is not necessarily meant in a threatening sense as if China seeks to impose its accounting views on the world by force. Just as overall national policy is primarily expressed in terms of peaceful coexistence and cooperation, so do policy statements on accounting standards emphasize the need for international cooperation, and specifically by emphasizing how China supports calls from the G20 for a single set of high-quality global accounting standards.³⁰ But just as China’s status as a key G20 member is both a marker of its great-power status and a sign of its commitment to multilateralism, so can a commitment to international accounting convergence be combined with an explicit objective to enhance China’s ‘influence’ and ‘right to speak’ in international accounting standard setting.³¹

As indicated above, China has so far not fully adopted IFRS as a requirement for specific types of entities. The policy of maintaining ‘substantially converged’ yet not identical standards has been explained in terms of domestic circumstances, such as the absence of well-functioning markets to support specific applications of fair value, but also in terms of China’s position as a great power. In 2010, Liu Yuting, Director General at the Ministry of Finance, put China and the United States in a separate category which could not, ‘as other countries do’, adopt IFRS directly and in full (Liu, 2010, p. 84). In the same year, the Chinese accounting standard setter issued a ‘roadmap’ calling for continuing convergence with IFRS, rather than setting full convergence or adoption as a final goal.³²

More recently, the issue of international accounting standards has been linked to China’s Belt and Road Initiative (BRI). This a major strategic project initiated by the Chinese government in 2013, or perhaps rather an umbrella term covering a large number of greater and smaller separate projects, aimed at developing economic and trade infrastructure connecting Asia, Europe, and Africa.³³ Assessments of China’s objectives for the BRI and its effectiveness differ considerably, but the initiative is related to China’s expanding international influence and ambition to challenge or at least modify the US-led international economic order, and thus a central element in the narrative of a return of geopolitics.³⁴ Agreements between China and other countries classified as ‘Belt and Road agreements’ can range from general expressions of cooperative intent to specific infrastructure or financing arrangements. On this basis, more than 130 countries are regarded by China as ‘Belt and Road countries’. The BRI includes attempts at institution building such as the ‘Belt and Road Forum for International Cooperation’, held for the second time in April 2019.

Also in April 2019, a statement was issued on an ‘Initiative on Promoting Accounting Standards Cooperation among Participating Countries of the Belt and Road Initiative’. In this statement, the Chinese Ministry of Finance and accounting standards setters and similar bodies from Laos, Mongolia, Nepal, New Zealand, Pakistan, Russia, Saudi Arabia, Syria and Vietnam called on standard setters from all BRI countries to cooperate towards the shared objective of international convergence of accounting standards and the goal of developing a single set of high-quality global accounting standards.³⁵ This was followed by a first ‘Belt and Road countries accounting standards cooperation forum’ held in Xiamen, China, in November 2019 in which representatives from 16 countries participated and during which the outlines of a cooperation mechanism among these standard setters were agreed.³⁶ While it is not unusual for national standard setters to engage in bilateral or multilateral discussions, the April and November 2019 statements issued by the Ministry of Finance on behalf of the initiative are notable for mentioning accounting standards convergence and a single global standard in generic terms only, and their lack of specific references to the IASB or IFRS. Nonetheless, IFRS implementation issues and IFRS policies of the participating countries were important topics of discussion.³⁷ The proposed activities of the BRI Accounting Cooperation Forum, such as exchange of information and undertaking common research projects, look rather similar to those of the Asia-Oceanian Standard Setters Group (AOSSG), and the membership of the two groups overlaps to a considerable extent. However, the AOSSG was set up with clear encouragement from the IASB, and IASB representatives have always attended its meetings, while the BRI Accounting Cooperation Forum appears to position itself as more distant from the IASB.

At present, it is not possible to say what significance, if any, the creation of a BRI Accounting Cooperation Forum will have for international accounting standard setting. The AOSSG has been a useful mechanism for the IASB to avoid exchanging information and views with a large number of national standard setters on a bilateral basis, and it is conceivable that a BRI forum will play a similar role. It is also possible that this is not more than a way of signaling that Chinese officials in charge of accounting standards are attuned to national policies. It can also not be ruled out that the creation of the BRI forum is related to the transition, in 2019, of the chairmanship of the AOSSG from the Chinese Ministry of Finance to the Institute of Chartered Accountants in India. Yet whatever the fate of the BRI Accounting Cooperation Form will be, it is clear that accounting standards are not out of scope in China’s overall policy of creating international cooperative networks in which itself can play a leading role.

7. A Simple Framework and Some Thoughts About the Future

In the preceding sections I have attempted to illustrate – without any pretention to completeness – different ways in which the geopolitical context has impinged on the work of the IASC and the IASB, and the acceptance of IFRS. In this section, I attempt to reduce the variety of historical detail to a simple typology of possible relations between geopolitics and international accounting standard setting, and will use it to make some brief comments on current and possible future developments. I propose that we can think of the possible relations between geopolitics and international accounting standard setting in terms of three broad categories or spheres, which I label as ‘technical’, ‘symbolical’ and ‘substantial’.

Technical: I define this broad category to capture all aspects of international accounting standard setting that are unrelated to geopolitics. I use the word ‘technical’ to mean ‘non-geopolitical’. I do so because it is less cumbersome, and because it underlines that, in my view, there is a large element in international accounting standard setting that can properly be called ‘technical’. Up to a point,³⁸ it is valid to envisage the attempt to devise a set of standards that is applicable across a range of countries as a given and shared problem that would be solved in more or less the same way by any group of technically competent and well-informed people. Decisions on whether to adopt such standards at a jurisdictional level can also be part of this technical sphere, to the extent that such decisions are made without reference to the international political context but with reference to factors such as compatibility with national company law or availability of sufficient numbers of trained accounting staff. More broadly, and as a matter of convenience, I intend the label ‘technical’ to include the ‘normal’ politics of setting accounting standards for business enterprises, the politics of political lobbying that are ‘all in a day’s work’ for any accounting standard setter. I admit that this stretches the meaning of the word ‘technical’, and I don’t object to making finer distinctions within the category of ‘non-geopolitical’ aspects, but for the purpose of this paper I do not need such finer distinctions. In defense of my usage, I may add that many issues that give rise to politics, such as costs and benefits of standards, can be validly considered by the IASB, while it will be rather more uncomfortable when it comes to one country’s interests in conflict with those of another.

The point of distinguishing such a technical sphere in the context of discussing international accounting standards and geopolitics is to argue that very important elements of international accounting standard setting can be studied and understood without reference to geopolitics. I do not claim to know exactly how large this technical sphere is, certainly not when I have not offered a clear definition of geopolitics. To develop a better understanding of these boundaries is certainly a point where the academic accounting literature might well attempt to engage with the rich literature on geopolitics. Nonetheless, I would argue that this technical sphere is large in the sense there is much that can be said about international accounting standard setting without touching on geopolitics. In my view, one does not really arrive at a better understanding of, say, the leasing standard IFRS 16, by bringing in geopolitics. As a form of casual empiricism, the widespread adoption of IFRS may be noted in support of the hypothesis of a large technical or ‘non-geopolitical’ sphere. The only country which may perhaps be said not to have adopted IFRS for geopolitical reasons is North Korea. Other countries, which are in other contexts seen as challengers of the Western-dominated world order, such as Russia, Iran and also China, have more or less adopted IFRS. The absence of radically different alternatives to IFRS is another justification for assuming a significant technical component. To be sure, there are differences between US, French or Chinese GAAP on the one hand and IFRS on the other, but these are hardly of a nature to call into question a significant degree of worldwide consensus about what a set of high-quality accounting standards ought to look like. Even the standards issued by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), while based on an explicitly distinct world view and therefore potentially part of an alternative Islamic world order, pay tribute to IFRS. For instance, the recent standard FAS 30 Impairment, credit losses and onerous commitments clearly mirrors IFRS 9 Financial instruments with respect to accounting for credit losses, even though the effective interest rate method is replaced by the effective rate of return method.

I do not suggest that the scope of the technical sphere is fixed. Arguably, IFRS has reached a plateau of a more or less complete set of standards, without major gaps left. It is currently being discussed whether the IASB, or another board under the IFRS Foundation, should extend its role to developing standards for non-financial information.³⁹ If the Foundation accepts such a role, it will have to chart a new course for itself. This is likely to involve significant non-geopolitical politics of balancing the interests of reporting entities and various societal groups. Compared to, say, debating the impairment-only approach to accounting for goodwill, this could also bring in more geopolitical elements. Information about sustainability or companies’ discharge of their social responsibility can relate to national interest issues such as international conflicts over natural resource use, country-by-country tax reporting, or operations in territories with a contested international status. Providing insight in a company’s business model may touch on competing visions of how relationships among business, society and the state should be ordered.

Symbolical: I define this category as those aspects of international accounting standards that are related to or influenced by geopolitics, but in which the geopolitical dimension is essentially unrelated to what goes on in the ‘technical’ sphere as defined above. The most obvious components of this category are everything having to do with prestige or showing the flag. Given that the IASB exists, having one or more of one’s citizens on the Board can, for instance, be seen as the self-evident right of a great power, or as a prize to be gained by smaller countries. It is not too difficult to see that there has been a certain correlation between the national backgrounds of the people involved in international standard setting and the evolving geopolitical context. However, there is more to this category than simple prestige. The fact that, in current circumstances, we are not likely to see another Board member from Taiwan any time soon is a reflection of the kind of geopolitics that may at some point turn into armed conflict, but not one that will have any noticeable effect on the Board’s work or the use of IFRS around the world. Actions that may be symbolic with respect to accounting may contribute to the accumulation of real power and influence in other domains.

In principle, if the geopolitical context influences the mix of people involved in standard setting, this can in turn have an effect on the outcomes in the technical sphere, and in practice it probably has. However, I would argue that the effect has been relatively limited, so that it makes sense to conceptually isolate a symbolic aspect of the relation between international accounting standard setting and geopolitics: one may recognize a prestige point scored by Germany by having a German national on the IASB Board, without any clear expectations that this individual should achieve specific outcomes for Germany.⁴⁰ On the whole, I suggest that the people actively involved in international standard setting, at the IASC, and probably even more so at the IASB, have largely shared a similar outlook, irrespective of their national backgrounds. There have obviously been significant debates over issues such as the role of fair value or the prudence principle, and it is clear that one’s national background in terms of culture and training plays a role here. A changing mix of Board members has created more awareness of potentially relevant national circumstances. But on the whole it is notable how easily Board members from different national backgrounds have worked together, and have agreed that international accounting standards can indeed be thought of as a universal solution to a universal problem. In the past, an important explanation of this effect has probably been that, to put it bluntly, the main task of IASC and IASB Board members has been to produce something broadly resembling US GAAP. While this historical fact cannot be detached from the geopolitical context (see below), it also derives, as suggested above, from the purely technical factor of the head start of the United States in developing accounting standards.

While I suggest that one can conceptually distinguish the symbolical from the technical, they will often be mixed in specific phenomena or occurrences. It is quite conceivable, for instance, that some people in certain countries hold the belief that full adoption of IFRS is fine for smaller or weaker countries, but not in keeping with the international standing of their country. The desire to maintain a more or less converged national GAAP, as in the case of the United States, or to use carve-outs, as in the case of the European Union, may well be based on a mixture of motives from the technical and symbolic spheres. An example where the symbolic element appears to predominate is the current Japanese policy of maintaining a set of slightly modified IFRS as Japanese Modified International Standards (JMIS), which are hardly if at all used in practice.⁴¹

Notwithstanding the potential threat to IFRS of non-converged national standards or modified versions of IFRS, I hypothesize that the existence of a sphere of symbolic relations between geopolitics and international accounting standard setting works as a stabilizing rather than an undermining force for IFRS. The reason for believing this depends on the assumption that much of international accounting standard setting can plausibly be seen as technical. The apparent consensus about what high-quality accounting standards should look like, and the absence of fundamentally different financial reporting models that could be used to challenge IFRS suggests that, in terms of prestige, countries have more to gain by being seen as playing a leading role in the IASB than in setting up as the leader of a competing accounting bloc. The Olympic games offer a possible analogy: notwithstanding boycotts relating to cold war factors, the United States and the Soviet Union competed in sending better teams and hosting better games rather than withdrawing from the Olympic movement altogether. In countries where politics emphasizing the national interest or questioning the role of international organizations depend on voter support, such as the US, I see no indications that voters are galvanized by the idea of cutting loose from IFRS, so that the risk of such actions taken for symbolic reasons seems low.

Substantial: This last category, by definition, includes those aspects of international accounting standards that are related to or influenced by geopolitics and where the geopolitical dimension has a bearing on what goes on in the technical sphere. While the symbolic category is not devoid of interest, if only because geopolitics includes a large component of symbolism, speech acts and other forms of signaling, it is peripheral to the interests of many accounting academics. The substantive sphere is, by definition, the more interesting one from an accounting point of view, but also the most difficult to pin down. It includes both real but passive influence on international accounting standard setting of the geopolitical context, and active interventions. The passive influence is a form of collateral damage or collateral benefit. Active interventions require that views and actions on international accounting standards are consciously developed in the context of broader general geopolitical objectives. This implies that accounting standards are thought to play some role, however modest, in the global distribution of power and resources among countries.

In the overall scheme of things, it is apparent that launching aircraft carriers or obtaining a leading position in artificial intelligence will be more significant to safeguard the national interest than international accounting standards. I do not expect that international accounting standards are often discussed in foreign ministries or national security councils. I therefore expect that substantial relations between accounting standard setting and geopolitics will be mainly of the passive type. Nonetheless, it is not far-fetched to consider a relationship between international accounting standards and national interests in parallel with the distributive or legitimizing role of accounting and accounting standards in a national context. If accounting standards are seen as favorable to the international expansion of national firms, or as constraining activities of foreign firms, a geopolitical element can be introduced in international accounting standard setting based on the principle that ‘What is good for General Motors (Société Générale, Sinopec, etc.) is good for the country.’⁴²

The preceding sections have shown that there can be substantial relations between geopolitics and international accounting standard setting, in different ways. Paradoxically, perhaps, I would argue that the preponderance of the technical sphere in the history of international accounting standards is explained by the major geopolitical fact that IFRS as we know it emerged largely during a period of low geopolitical tension (or, to put it differently, during a period when globalization was in the ascendant), from the late 1980s to the early 2000s. It may look like a verbal trick to argue the absence of geopolitics is also a manifestation of geopolitics, but I do maintain that in this respect the geopolitical context has in fact been extremely important for international accounting standard setting.

IAS, and later IFRS, emerged as global standard in a context in which large parts of the world were willing to accept US leadership, and the US was prepared to give it.⁴³ As indicated in section 5, the head start of the United States in developing an elaborate set of standards made that US GAAP was a compelling frame of reference in any accounting discussion, and conducive to a view of accounting standard setting as a technical activity. The gravitational pull of US capital markets provided additional reasons for conceiving debates on international accounting standards as continuations of earlier technical debates on US GAAP, in similar terms. And while not, to my knowledge, part of an explicit policy at government level, support for international accounting standard setting by bodies such as the American Institute of Certified Public Accountants (AICPA), US audit firms or the FASB was compatible with a view that long-term US interests were served by fostering the development of an institutional infrastructure abroad, akin to what was seen to be effective in the US itself. Outside the US, a widespread favorable view of globalization helped to view the manifest US influence on international accounting standard setting as a by and large beneficial contribution to the overall quality of the global institutional framework rather than as a one-sided pursuit of US interests. It would seem that the substantial relationship between geopolitics and international accounting standard setting arising out of US dominance in world affairs is mainly of the passive or ‘collateral benefits’ type.

As of today, the leadership role of the United States in accounting standards appears strongly diminished. This is not just a technical matter in the sense that, because of the evolution of IFRS, US GAAP now longer offers a large unused potential of concepts and solutions waiting to be incorporated in international standards. The emphasis in the United States appears to have shifted from leadership to a more defensive posture in which financial reporting standards have become involved in growing tensions between the United States and China. Although, so far, the emphasis has been mainly on getting Chinese companies to submit to the same audit and audit oversight auditing standards as US companies, one can envisage a scenario where demands to level the playing field lead to a requirement for Chinese companies listed in the US to use US GAAP rather than IFRS. At any rate, recent discussions in the US over the reporting practices of Chinese companies show that the notion that accounting standards can be actively used in a setting of geopolitical tension is not wholly theoretical.

China has explicitly given its policies on international accounting standards a place in the overall narrative of its rise to great power status, among other things by linking it to the Belt and Road Initiative or China’s status as a key G20 member. This may well include an element of symbolism in the sense that it is clear that China seeks recognition as one of the major players in international accounting standard setting, just as it seeks such recognition in other domains. It is less clear what specific views on accounting standards China wishes to contribute on the basis of its enhanced status. Discussions continue about the existence and significance of a ‘Beijing consensus’ as an alternative economic and political model to challenge the Western or US-led model symbolized by the Washington consensus (e.g. Joshua, 2019; Kennedy, 2010). So far there have been no suggestions that China is seeking a different type of accounting standards in support of an alternative economic model. Existing differences between IFRS and Chinese standards have been justified on technical grounds such as the development stage of the Chinese economy and the absence of adequately functioning markets allowing widespread application of fair value. However if, as mentioned above, the work of the IFRS Foundation expands significantly into the area of non-financial reporting, it is conceivable that active interventions will become more frequent if expanded non-financial reporting would touch on issues that are seen as vital to the stability of China’s social, political and economic order.

8. Conclusions

This paper opened with the question what the ‘return of geopolitics’ might imply for international accounting standard setting, as, at first sight, a world with less appetite for international cooperation and increased national rivalry might appear as a threat to IFRS. What I have attempted to show in this paper is that geopolitics should be recognized, more than it has been to date in the academic literature, as a relevant factor in international accounting standard setting, even though I see no reason to assume that a more geopolitical world implies the imminent demise of IFRS or the IASB.

I have attempted to argue the existence of a significant ‘technical’ part of international accounting standard setting which is not influenced by geopolitics, but also the existence of a smaller but non-negligible element where meaningful relations with geopolitics can be observed. While the paper, in looking back at the IASC and IASB, focuses on setting standards for financial reporting, I have pointed out that an attempt to set international standards for non-financial reporting may well include a larger geopolitical element. For financial reporting standard setting, getting the geopolitical part in focus is not easy, and this paper has made only some tentative steps. The many limitations of this paper should be obvious to the reader, but I will mention the most important.

It is clear that the empirical or historical part of the paper is limited to some very simple outlines, without any pretense at giving a definitive account of the geopolitical situation of the last fifty years. My observations on the Soviet Union/Russia, for instance, are very elementary, not least because of my lack of access to relevant resources. Moreover, I have not even attempted to say anything about India, Brazil, or the Middle East. Geopolitics is not limited to large powers. The international political constellation can influence smaller countries’ dealings with international accounting standards as well, for instance as when South Africa’s tenure of a rotating seat in the IASC was seen, within the South African accountancy profession, as an important means of escaping the country’s international isolation during the apartheid era (Camfferman & Zeff, 2007, pp. 222–223). Even though I believe that a geopolitical perspective will clarify only some aspects of international accounting standard settings, I expect that a more systematic attempt on the part of accounting academics to apply insights from the rich literature on international politics will make a useful contribution to the literature.

Another important limitation of this paper is the simple analytical framework. Making a distinction between a technical or non-geopolitical sphere on the one hand and, on the other, aspects of international accounting standard setting that have a symbolical or substantial relation with geopolitics is a first step to bring some structure to a complex topic, but it is not sufficient. I would encourage reflection to develop a more refined understanding of possible connections between accounting standard setting and geopolitics. The framework as offered here is essentially descriptive, not based on an underlying view of how, for instance, influence and power can be accumulated in different domains (including international accounting standard setting) and how this builds up into what might be called an overall geopolitical stance or position. Another possible refinement suggested in the paper is a better articulated temporal dimension: can we think in terms of a shadow of past geopolitics cast over current accounting standard setting? This would create a link, for instance, with the literature on ‘Anglo-saxon’ accounting and its historical roots in the British Empire (e.g. Poullaos & Sian, 2010).

Despite these limitations and the challenge of dealing with them, I do believe there is a case for more explicit attention to the geopolitical context of international accounting standard setting, and that, if anything, current developments in international relations increase the relevance of this perspective.

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, 1984), or, conversely, to increase recognized losses in order to increase the likelihood of attracting international financial support (as in Giner & Mora, 2019). 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. (2013). See Gäumann and Dobler (2019) 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 (2009).

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 (2001), chapters 8–10 for the relation between general economic reform policies and policies on accounting regulation in the 1980s and 1990s.

27 See Alvaro (2013) 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 (2016), Callahan (2016), and Rolland (2017). 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, 2019).

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 (2015, 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 (2007) and Leblond (2011), 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.