Formal Participation in the IASB's Due Process of Standard Setting: A Multi-issue/Multi-period Analysis

Abstract

This paper sets out to enquire about the nature of constituents' participation in the IASB's due process in terms of representation (constituents' diversity and characteristics) and drivers to participate. We choose to adopt a multi-issue/multi-period approach to investigate constituents' formal participation. An analysis of comment letters sent directly to the IASB over the period 2002–2006, reveals that preparers sent most letters followed by the accounting profession and standard setters. With regard to timing, we find that preparers concentrate their participation efforts at a later stage in the process compared to the other constituents, who react earlier. Formal indirect participation in the IASB's due process by submitting comment letters to EFRAG is infrequently used by European constituents. In those cases where constituents exert influence to both IASB and EFRAG, they often use exactly the same comment letter. Concentrating on the drivers to participate, the data reveal that preparers, accountants and standard setters react significantly more when proposals have a major impact on the accounting numbers of a company. Users, stock exchanges and their supervisory authorities write significantly more comment letters when disclosure issues are at stake. Finally, participating preparers in the IASB's due process are larger and more profitable than non-participating preparers.

Acknowledgements

We thank Peter Walton, Katrien Van de Poel and the participants of the EAA Congress in Lisbon (2007), the EIASM workshop on Accounting Regulation in Siena (2007), the workshop at Erasmus University (2007), the Research Day on Accounting organized by Belgian universities (2007) and the Accounting in Europe conference in Catania (2009) for their useful comments.

Notes

Two recent statements of the IASB or its representatives underlying the importance of constituents' participation can be mentioned to show this awareness. (1) Joint Statement of the FASB and the IASB on ‘FASB and IASB reaffirm commitment to memorandum of understanding’, 5 November 2009 ‘We aim to provide a high degree of accountability through appropriate due process, including wide engagement with stakeholders, and oversight conducted in the public interest’, (2) prepared statement of David Tweedie, Chairman of the IASB to the meeting of the Council of the European Union (Economic and Financial Affairs), 20 October 2009 ‘We carried out an enhanced global consultation to ensure the input of all stakeholders was taken into account. In that regard, one clear message that we have heard from this Council and others is the need for broad stakeholder engagement in the standard-setting process to ensure a high-quality and broadly-respected outcome.’

We refer in this study to the international accounting standards with the term IASs, irrespective of whether they are International Accounting Standards or International Financial Reporting Standards.

The original research population of this study consists of comment letters written between 2002 and the summer of 2006 in response to 34 discussion papers and exposure drafts issued by the IASB. The total number of comment letters received in response to these discussion papers and exposures drafts is 3,398. We omit the comment letters sent in response to the first document issued by the IASB, which was a discussion paper on share-based transactions (= 164 comment letters) because the first responses to this discussion paper were sent to the former IASC. Due to a lack of response, the discussion paper was re-issued and the second set of comment letters was collected in 2002.

EFRAG received six comment letters from non-European constituents over the period 2002–2006. Three of these letters originated from the Accounting Standards Board of Japan (proposals on IAS 37, IFRS 3 and IAS 27) and the other three from American constituents who reacted on ED 2 on share-based payment.

There are a few examples where a straightforward assignment is not evident, like an academic working for the Big Four, but writing in his own name (was assigned to academia); an organization having corporations, financial institutions and academics as members (was assigned to corporations); a corporation involved in the financing and development of real estate projects (was assigned to preparers) or a governmental organization providing consulting on reporting standards (was assigned to governments).

If we run the models on EFRAG data, most of them are not significant or marginally significant at the 10% level.