An unprecedented privatisation of mandatory standard-setting: The case of European accounting policy

doi:10.1016/j.cpa.2008.09.002

Critical Perspectives on Accounting

Volume 20, Issue 4, May 2009, Pages 448-468

https://doi.org/10.1016/j.cpa.2008.09.002 Get rights and content

Abstract

The EU-member States have long intended to harmonise their respective accounting rules in order to facilitate the comparison between European companies. This process was brutally accelerated by a 2002 regulation announcing that as of 2005, listed companies would be required to comply with the accounting standards enacted by the IASB (International Accounting Standards Board), a private body which, until then, had no public mandate.

After having tried to harmonise internally the respective standards of its members, the EU has thus decided to resort to private subcontracting, an even more puzzling decision when one realizes that at the time, the EU had simply no statutory control means on the IASB.

Building on this striking episode of privatisation of the regulatory process, we first examine the structure and governance of the IASB, and the process leading to the transplantation of its norms into EU law. In a second part, we argue that while diverse, the reasons behind such relinquishment of public authority lie primarily within the EU itself. In a third part, we show that in the area of accounting, such transfer of competences went well beyond known forms of delegation to private sector. In a final part, we discuss the subsequent—and so far successful attempt of the EU to reassert its authority as well as its agenda in this area.

Section snippets

Review of literature

Walker and Robinson (1993) have noted that “most studies of the rule-making process in accounting have focused on political activity undertaken through written submissions to the profession-sponsored boards developing accounting standards. This form of lobbying activity represents a late, and relatively insignificant part of the overall political process surrounding rule-development. Earlier stages of rule-making process involve contests over the powers of regulatory agencies, the composition

The European accounting standard-setting system in 2005 and 2006

The IASB, which is now responsible for developing European accounting standards, is a private organisation built on a carefully struck balance between various internal bodies (Section 1.1). Once produced, IASB standards are adopted and incorporated into European law by regulation, following a procedure known as “comitology” (Section 1.2).

The origins of the drift into privatisation

How did the EU come to consider that contracting out accounting regulation to a private body was an acceptable solution? While the IASB's political intelligence is undeniable, its rise is primarily attributable to the EU's inability to get its members to agree on a common accounting system. To overcome this obstacle, the IASB's private status was not a hindrance but rather a necessity (Section 3.1). Clearly, there was a deliberate intention of the EU to take a secondary role (Section 3.2), but

Accounting privatisation in perspective

Rather than the principle of a private sector participation in the area of accounting, which is rather banal, it is the conditions and the magnitude of such participation that are puzzling.

This observation is based on a comparison with other comitology practices (Section 4.1) and co-regulation practices (Section 4.2). We also show that the IASB avoids the constraints that apply to the so-called independent administrative authorities (IAAs) which are regulatory arrangements very similar to the

The new policy of rekindling of public scrutiny in accounting standard-setting

During the past months, the EU seems to have revised its policy of disengagement. The action of the EFRAG is now better scrutinised (Section 5.1), and the IASB is under a growing pressure, thanks to the remarkable success of the IFRS, that has brought additional stakeholders in the picture (Section 5.2). As a result, the IASB is left with no choice but to improve its governance (Section 5.3).

Conclusion

Accounting standards concern a far greater audience than market actors (companies, auditors, bankers and investors). They also determine the information accessible to employees, citizens and States and ultimately serve as a basis for calculating a number of economic rights.

Having failed to take the measure of these public ramifications of accounting, the EU has invited a private body to become involved in every aspect of the standard-setting process without retaining any real means of

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View full text

An unprecedented privatisation of mandatory standard-setting: The case of European accounting policy

Abstract

Section snippets

Review of literature

The European accounting standard-setting system in 2005 and 2006

The origins of the drift into privatisation

Accounting privatisation in perspective

The new policy of rekindling of public scrutiny in accounting standard-setting

Conclusion

Sociologie du travail

Accounting, Organizations and Society

Accounting, Organizations and Society

Accounting, Organizations and Society

Accounting, Organizations and Society

Rechtchetzung in der Europaische Gemeinschaft, Zeitschrift fur Gesetzgebung

Heft

Le commerce international électronique: vers l’émergence de règles juridiques transnationales

Clunet

Contribution à l’analyse des processus d’élaboration des normes comptables: une étude comparée des processus français et britannique. Thèse de doctorat en sciences de gestion

Paris IX-Dauphine

La normalisation comptables et ses acteurs

Revue Sciences de gestion

De la réforme 1996–1998 du dispositif français de normalisation comptable

Comptabilité-contrôle-audit

The new lex mercatoria and the harmonization of the laws of international commercial transactions

Boston University International Law Journal

Les principes généraux de la lex mercatoria-Contribution à l’étude d’un ordre juridique anational, Paris

Librairie Générale de Droit et du Jurisprudence (L.G.D.J)

Droit du commerce électronique et normes applicables: l’émergence de la lex electronica

Revue de Droit des Affaires Internationales

Frontières du droit et lex mercatoria

Archives de Philosophie du Droit

Rapport de synthèse

The Politics of accounting rule-making: developing an Australian acconting standard

Abacus

Drafting accounting law: an analysis of institutionalized interest representation

Accountability in accounting? The politics of private rule-making in the public interest

Governance