When the tail wags the dog? Digitalisation and corporate reporting

To facilitate digital corporate reporting and enable computers to ‘read’ accounting information, standard-setters must construct a taxonomy to assign contextual ‘metadata’ that codifies disclosures arising from accounting concepts, standards and practices. But digitalisation poses a problem for corporate reporting. Within internationally accepted accounting practice, ‘principles-based’ standards give companies significant discretion in deciding what they disclose and how they report accounts of their activity. How would the principles-based nature of corporate reporting be influenced by the construction of a taxonomy that seeks to specify all accounting disclosures? Drawing on literature examining the constitutive potential of classification and formal representation, we use our case study of the digitalisation project undertaken by the global standard-setter, the IASB, to understand how digitalisation intervenes on standard-setting and reporting practice despite the intentions of standard-setters. Our results detail how standard-setters sought to minimise the impact of digitalisation by modelling the taxonomy only on disclosures explicitly required by accounting standards. We reveal the circumstances that led the IASB to change its taxonomy design by seeking to capture not only what should be reported (as prescribed in extant accounting standards) but also what was being reported (as prescribed in a new classification called ‘Common Practices’). We analyse the process by which international accounting disclosure practices were judged to be ‘common’, and demonstrate how the ‘Common Practices’ classification was perceived by early users of the taxonomy. When interpreting the IASB’s Common Practices (what is) as disclosure standards (what should be), digitalisation generates a self-validating feedback loop that can generate more homogenous corporate reporting and push International Financial Reporting Standards beyond the principles-based approach they were designed to engender. Although standard-setters became increasingly aware of the influence of the digital (machine-readable) ‘tail’ on the traditional reporting (human-readable) ‘dog’, their attempts to take tighter control of the taxonomy development process strengthened user perceptions that the taxonomy and its ‘Common Practices’ represented an authoritative view of what should be reported. Our results reveal the process by which digital reporting both represents and intervenes in accounting, and how digitalisation impacts key accounting debates. As digitalisation attempts to provide a universal codification of reporting disclosures, it valorises comprehensive machine-friendly disclosure rules over principles, which offer standardised comparability over entity-specific communication. Our study also offers a perspective on the relations between information representation and intervention that moves beyond a study of passive, ‘reactive’ conformance to consider how representations can intervene despite the intentions of those generating the representation. In doing so, we reveal the constitutive potential of digital representations in generating ‘non-passive’ conformance

Connecting worlds: the translation of international auditing standards into post-Soviet audit practice

This paper analyses the use and circulation of nternational auditing standards within a large post-Soviet Russian audit firm, as it faces up to the challenges of international harmonisation. It describes this process as one of ‘connecting worlds’ and translation. In a detailed field study based investigation, it traces various attempts to articulate and link Soviet and post-Soviet worlds, old and new imagined audit worlds. The paper underscores the fragile and precarious nature of international standardisation projects. It shows how ideals of audit universalism and international comparability become enmeshed in, and challenged by, global divisions of audit labour, problems and practices of power and exclusion, and struggles for intra-professional distinction, which in turn undermine as well as promote the connecting of worlds through standards

The Hollow Promise of an Accounting Standard Setter

Purpose – This paper applies a power framework to critically analyse the international accounting standard setting process for the extractive industries. Design/methodology/approach – Publicly available data, including comment letters, annual reports, company websites, and IASC/IASB pronouncements, is used to make connections between the key plays involved in the international accounting standard setting process for the extractive industries. Findings – Lukes’ (1974) conception of power is used to explain the community of interests that developed between the IASC/IASB and extractive industries constituents. This community of interests is shown to have enabled the extractive industries to mobilise its power to paralyse the standard setting body and secure favourable regulation. While the politicisation of accounting standard setting is widely acknowledged, the revelation that economically dominant groups can covertly wield such power is a sobering one in the light of the worldwide promotion and adoption of International Financial Reporting Standards. Originality/value – This paper contributes to understanding of the presence of power in the international accounting standard setting process and how it is mobilised by key constituents

Empower Users of Financial Information as the IASC Foundation's Stakeholders. Testimony to the IASC Foundations's Constitutional Review Round Table in London, 19 June 2008. Bruegel Policy Contribution, July 11, 2008

Nicolas Véron comments on the proposal for governance reform ('constitution review') published in May 2008 by the IASC Foundation, the private-sector body which oversees the setting of International Financial Reporting Standards (IFRS). He emphasizes the unprecedented nature of this global governance experiment and advocates more direct representation of investors as the primary stakeholders of international accounting standard-setting, as well a more thorough consultation process. EXECUTIVE SUMMARY. The creation of a new body with authority over Trustee appointments and reappointments is a crucial step for the IASC Foundation. This body is likely to be granted more authority in the future over other key governance functions, including the Foundation’s funding. In this respect, the proposed Monitoring Group contains significant flaws, the primary one being its inability to credibly represent at global level the investors and other capitalmarket users which should be considered the Foundation’s key stakeholders. Moreover, the very short timetable proposed for the first part of the Foundation’s Constitution Review is not warranted by the circumstances. The Foundation's Trustees should take a step back and consider a revised concept of oversight body as part of a onephase Constitution Review to be completed in 2009

Corporate governance in Turkey: implications for investments and growth

Background Paper for Turkey’s Investment Climate Assessment 200

The Need for a Different Approach to Financial Reporting and Standard-setting

International Financial Reporting Standards are questioned. Possibly, there is a need for a different kind of standards and a different procedure for developing them. No doubt, there is a need for a more profound theoretical approach to these issues. Theory-building in accounting should include approaches whereby problem descriptions have a broad coverage and cross the boarders of traditional specialisations. In this paper, a theoretical approach is outlined. According to this approach, insights into control problems for every organisation and system can be gained by analysing relationships between global value chains and a hierarchy of one or several organisations. Time is crucial. Instrumentality is regarded as an inevitable and necessary guide line for any control system that relates resources to functions and visions. Instrumentality concerns the effects of tools on certain functions. In the paper financial reporting and standard-setting are placed in a wide context in which longitudinal relationships are essential for individuals, organisations and control systems. Basic financial accounting concepts and their relationships with business events are discussed. The importance of uncertainty for financial reporting is emphasized, and so is the fact, that control from top-levels is exercised at a distance. A tendency to instrumentalism is also recognized: measures and procedures, for example standard setting procedures, tend to be important in themselves, irrespective of ultimate economic functions in a wider perspective. The analysis in the paper is one application of a general approach to financial control for all types of organisations. The general approach is based on a number of previous research-oriented books published over several decades and the author´s specific own experiences from internal and external processes with organisations in focus. Consistency and integrative power of the ideas have been tested in relation to certain books in various fields outside the core of the subject: applied systems theory, theatre, sociology, economic history, institutional theory and economics.financial reporting; International Financial Reporting Standards; standard-setting; accounting standard setting bodies; supervisory boards; corporate governance; transparency; market value accounting; mark-to-market; fair values; historical values; accounting theory.

A US strategy for IFRS adoption

The US Securities and Exchange Commission has conducted a public consultation on a â??roadmap" it proposed late last year to adopt International Financial Reporting Standards in America. This debate takes particular relevance as the crisis has highlighted the importance of accounting standards as an instrument of economic policymaking, with a high-profile controversy about â??mark-to-market" accounting. Nicolas Véron responds with suggestions about how the SEC should both support IFRS, and push for reforms of standard-setting governance and globally consistent enforcement.