Formal Participation in the EFRAG’s Consultation Processes: The Role of European National Standard-Setters

Abstract

While the European Financial Reporting Advisory Group (EFRAG) considers European national standard-setters (NSSs) as close partners that play a vital role in its legitimacy, empirical evidence on EFRAG’s consultation processes and the involvement of NSSs therein remains scarce. We use a multi-issue/multi-period approach to investigate the formal participation in EFRAG’s consultation processes. By examining 2,102 comment letters submitted to EFRAG in the 2002–2015 period, we find that NSSs typically outweigh other stakeholder groups in terms of level of participation across stages of the consultation process and project topics. Although NSSs’ level of participation is rather stable over time, it significantly varies across European countries. We also provide a recent classification of European NSSs and show that NSSs’ level of participation varies by their institutional status and is the highest for private NSSs. Our findings have implications for aspects of the legitimacy of both EFRAG and NSSs and shed light on the role of intermediaries in international accounting standard-setting.

Keywords:

• European Financial Reporting Advisory Group (EFRAG)
• International Financial Reporting Standards (IFRS)
• national standard-setters
• legitimacy
• standard-setting

JEL classification:

• M41
• M48
• F55

Acknowledgements

The authors are grateful for valuable comments and suggestions from two anonymous reviewers and the editor. Earlier drafts of this paper have benefited from comments received from participants of the Annual Congress of European Accounting Association 2017 in Valencia and workshop participants at the Technische Universität Dresden. Any remaining errors are our own.

Disclosure Statement

No potential conflict of interest was reported by the authors.

ORCID

Martin Gäumann http://orcid.org/0000-0001-5771-6729

Michael Dobler http://orcid.org/0000-0003-4872-0931

Notes

1 Other important examples of local accounting bodies are the Group of Latin American Standard-Setters (GLASS), the Asian-Oceanian Standard-Setters Group (AOSSG), and the Pan African Federation of Accountants (PAFA) (Camfferman & Zeff, 2018; IFRS Foundation, 2012; Wagenhofer, 2014; Walton, 2015; Wingard et al., 2016).

2 See Figure 1 for a simplified process at level 1. In addition to DPs and EDs, the IASB publishes requests for information to obtain input on technical projects as a form of agenda consultation. At the early stage of a project, the IASB may publish supplementary research papers, generally elaborated by technical staff members or NSSs, that are not always subject to a public consultation process (IFRS Foundation, 2016a).

3 There are other methods of influencing EFRAG and the IASB besides sending CLs. Formal methods of participation include attendance in project groups and public roundtable discussions, whereas informal methods consist of private meetings with board members or indirect lobbying through external auditors or professional organisations (Georgiou, 2010; Jorissen et al., 2012). Jorissen et al. (2012) find a considerable number of stakeholders that sent the same CL to both EFRAG and the IASB.

4 Dobler and Knospe (2016b) further distinguish between studies focussing on the content or success of participation through CLs in the standard-setting process.

5 BusinessEurope (2013) made the following observation on the draft report of Philippe Maystadt: ‘It is this due process that gives legitimacy to EFRAG and that ensures the high level of influence on IASB that EFRAG has achieved’ (p. 2).

6 Fédération des Experts-comptables Européens (2000) and Flower (2004) provide outdated survey data before or at the beginning of our sample period. It should be noted that some NSSs cannot be unambiguously assigned either a private or a governmental status due to their mixed characteristics (Hoarau, 2009).

7 We consider a CL signed by several authors as one CL. In four cases, co-authors signing a CL are affiliated with different stakeholder groups or countries of origin. Following Jorissen et al. (2012, 2013) and Kosi and Reither (2014), we classify these CLs based on the attributes of the first author. We consider a writer who submitted an individual and a co-authored CL only once.

8 This focus is justified given that these 32 European countries are affected by IFRS and we observe no NSSs from other European countries participating in EFRAG’s consultation processes. All EU member states and the EFTA member states of Iceland, Norway, and Liechtenstein are covered by Regulation (EC) No 1606/2002. In Switzerland, 63% of all listed companies and 93% of companies whose primary listing is on the International Standard of the SIX Swiss Exchange apply IFRS (IFRS Foundation, 2017a; Nobes & Zeff, 2016). Table 1 provides an overview and classification of NSSs from EU and EFTA member states.

9 For sake of brevity, we combine stakeholder groups (4) to (9) when providing the results on RQ2 and RQ5.

10 It should be noted that our assessments of membership and appointment of members are limited to permanent executive or decision-making boards in direct respect to accounting standard-setting. We consider a funding mechanism as private if it is essentially independent from governmental impact; a mandatory levy system is assessed as a system with governmental involvement, even if funds are collected from the private sector. For Bulgaria, the Czech Republic, Romania, and Slovakia, we use the year in which the first accounting law after their transition was adopted as the founding year of the governmental NSS.

11 As noted above, Ireland has no NSS (IFRS Foundation, 2017b; Kirwan & Pierce, 2017).

12 To calculate the expected number of writers for DPs and EDs within the group of NSSs at the DP stage, we multiply the total number of writers across all stakeholder groups at the DP stage (i.e., 103 writers) by the total number of writers in the group of NSSs at the DP and ED stages (i.e., 32 writers) and divide the result by the total number of writers at the DP and ED stages (i.e., 298 writers). Bamber and McMeeking (2016) employ a similar approach to assess differences in the stakeholder groups’ level of influence in the IASB’s standard-setting process. As the expected number of writers is based on the total distribution, statistical tests on the total number of writers become unnecessary.

13 To compare the level of participation of NSSs between the DP and ED stages, we multiply the CD ratio (i.e., 16 CDs at the DP stage divided by the sum of 16 and 97 CDs at the DP and ED stages) by the total number of CLs at the DP and ED stages (i.e., 769 CLs) to obtain 109 CLs as the expected frequency at the DP stage.

14 Sutton (1984) argues that accounting bodies are more likely to be influenced at an early rather than at a late stage of a consultation process, since they have not formed their position at an early stage. Likewise, the response on DPs rather than EDs may be more likely because DPs tend to deal with more substantive and controversial issues than EDs (Giner & Arce, 2014; Larson & Herz, 2013).

15 We offer an additional interpretation of this result in our Conclusions.

16 The authors thank an anonymous reviewer for suggesting this additional interpretation. The reviewer further notes that if NSSs representing their country in the ARC sent their views to EFRAG and then received them back from EFRAG as technical advice, the technical and political aspects of the endorsement process might be mixed together.