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Abstract
This paper is devoted to investigate the recent development of Australian accounting
standards-setting in the light of theories of economics and sociology particularly in respect
of the events and controversies around convergence of international accounting standards.
The purpose of this paper is to examine the strength and weakness of different theories in
the analysis of standard-setting process and more importantly, seek to compare standard
setting process and major players involved in national and international arenas.
Accordingly through critical use of different theories, this essay suggests that although
certain propositions or assumptions of different theories may remain applicable under
different scenarios, however with regard to the theory as a whole, it may be argued that
each individual theory examined in this essay are not sufficiently sophisticated or suitable
in analysis of Australian accounting standard-setting in national and international arenas
Introduction:
Accounting standard setting has been controversial in terms of the institutional
standard-setting arrangements in place, regulations introduced by the standard-setting
bodies, intervention from the federal government on standard setting process and
increasingly significant corporate lobbying on the setting process from different corporate
sectors. The standard-setting process itself on both national and international arenas has
become a highly politicalized issue that different parties in this power play game would
maximize their own interests. Different theories would be applied to examine the standard
setting process in different stages of the history with regard to different players.
Theories appied in national arena:
It is reasonable to say that the assumption of the public interest theory holds as it can be
validated by what happened in the last two decades. Corporate failure was a commonplace
after the Expansion & Acquisition Tide in the 1980sand also was highlighted as, a major
issue following the demises of HIH and One.Tel. Major corporate failures, particularly
when several occur at the same time, inevitably lead to claims that failure was caused by,
or exacerbated by, shortcomings in the financial reporting system. Frequently, this has
resulted in legislation changing the financial reporting framework. Afterward the market
has asked the government for intervention which is the establishment of Accounting
Standards Review Board (ASRB). Therefore the right to set up standards has passed to the
neutral party in order to achieve public interest. In 1991, the ASRB was replaced by the
Australian Accounting Standards Board (AASB). It is established due to discontent of the
cooperative arrangements. It was a more powerful statue body, and it is established
according to the Peirson report (Loftus, 2006, 243). The authority of standard setting has
move more forward to the government side. Since 1984 accounting professional body was
funded by government and took its direction from and was accountable to the federal
government. Furthermore, government tightened its grips on accounting professional
bodies and the standard setting process after the crisis of HIH and One.Tel.
The essence of capture theory with regard to accounting standard-setting can be seen as,
regulates seek to take charge the regulators so that the rules that are subsequently realized
would be advantageous to the parties subject to requirements of the rules. In Australia the
AASB or ASRB are reasonably to represent the neutral party. The controversy over
conceptual framework SAC 4 can be regarded as a good case to illustrate the point. After
harsh criticism and intensive lobbying from corporate sector especially G100, the release
was postponed and its mandatory status was withdrawn by ASRB. Notwithstanding its
applications to some scenarios in reality, there are limitations where it fails to capture the
whole picture of accounting standard process with respect of all parties but only focus on
regulators and regulatees, and also "flaws"“ in which government has a passive role that in
fact, has its own interest to pursue and is turning increasingly active. The AASB has also
captured by some corporations, for example the AASB 1033, Presentation and Disclosure
of Financial Instruments, (Brown, 2001, 269) and also the AARF has continued to get
involve in the standard setting process. Therefore the standard was applied quite well in
Australian standard setting.
Under the private interest theory, government plays an active role that has its own
economic interest. Its legitimate authority to govern becomes a bargaining chip not only
for its self, but also among different lobby groups such as accounting professionals and
corporate sectors who are often viewed as in conflict with each other and these groups
most likely would lobby government to put in place legislation that economically benefits
themselves at the expense of others. In most cases, it can be argued that corporate sectors
are the most powerful lobby group with regard to its influence over both the powerful
government and standard-setters. For instance, in the name of reducing capital cost to be
listed in overseas market and increase the attractiveness of Australian corporation in the
global market, the G100 successfully persuaded ASX, federal government and eventually
the AASB whose leverage ironically will diminish accordingly to push the agenda for
Australia to embrace the international accounting standard which ironically, becomes hot
potatoes for G100 as they found its is not as desirable as they perceived initially. Compare
with previous two theories, private interest theory recognizes the active role government
which looks like the case in reality as government has its own interest although frequently
it is inclined to represent the interest of a certain group in society, such as the big
corporations. However, this theory ignores the ultimate function of the government to
pursue stability and efficiency of the economy which requires government seek a balance
