Agenda formation and accounting standards setting: lessons from the standards setters
The author acknowledges the helpful insights of participants at workshops held at the Department of Accounting and Finance at Monash University and the School of Commerce at Flinders University and the valuable comments received from an anonymous reviewer.
Abstract
There are many studies on lobbying of accounting standards, but the technical agenda of regulators is taken as ‘given’ and why a particular topic was admitted to the agenda is not investigated. Agenda formation is important as control of the agenda determines which topics get regulated and the form of the regulatory response. A few studies have explored agenda formation across regulatory institutions but are largely silent on the role of individual decision makers and technical staff. However, the standards setters have sought to explain their agenda processes. This paper reviews statements by the members of accounting standards setting agencies about their experiences of agenda formation. It identifies insights gained from standard setters and makes some suggestions for future research.
1. Introduction
A very extensive literature exists which examines the lobbying behaviour of various interest groups (principally large corporations and large accounting firms) with respect to regulations/standards proposed by accounting and auditing standards setting entities (primarily in the USA, UK and Australia). Much of this literature is reviewed in Walker and Robinson (1993), Baskerville and Newby (2002), and Zeff (2006) with other recent studies including Hill et al., (2002), Wilson and Ahmed (2002), Monem (2003), Tandy and Wilburn (2003), and Georgiou and Roberts (2004). In general, these lobbying studies examine one or more of the following topics:
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What economic incentives exist for various entities to lobby accounting standard-setters?
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How do economic incentives influence the preferences of lobbyists for the specific proposals of accounting standard setters?
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Is the lobbying behaviour of large accounting firms independent of the lobbying preferences of the firms’ clients?
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Are accounting standard setters responsive to the concerns of lobbying entities and are the standard setters unduly influenced by particular interest groups?
Walker and Robinson (1993) in their review of the lobbying studies literature strongly argue that our understanding of the accounting rule setting process is highly incomplete because in the existing literature (Walker and Robinson, 1993, p. 9):
1. the issues examined by the researchers have been limited to items already on the formal agenda1 of rule making bodies;
2. the studies have only examined written submissions, which provide limited insights into the nature of political activity surrounding accounting rule development.
They go on to indicate that the issue of how items find their way on to the standard setting body's agenda is vitally important but not well understood (Walker and Robinson, 1993, p. 9):
Hence the studies are looking at a late stage of the rule-making process on particular issues – the stage that may be the least contested. The answers to important questions such as How do issues gain admission to the agenda of a rule-making body?, How are some issues removed from the agenda or from active consideration?, What prompts the rule-making body to review or enact an accounting rule?, and Who are the gatekeepers that control the rule-making agenda? may reveal the existence of more significant lobbying behaviour than that evident in written submissions to discussion memoranda or exposure drafts. To date . . . there has been little attention directed to such questions.
The rule-makers themselves support the fact that agenda formation is an important aspect of standard setting. For instance, Beresford, an ex-Chairman of the US Financial Accounting Standards Board (FASB), has asserted (1993, p. 70):
I continue to believe that agenda setting is the single most important decision that we make at the FASB. Yet, for all the care that goes into this process, it may be one of our least understood and least appreciated activities.
The agenda of the rule makers is also of interest to those who might be affected by any potential accounting rule. Beresford reports that (1989b, p. 2):
[O]ne reason the Board has yet to win any popularity contests is that it is perceived as doing things to people rather than for people. Maybe that is why so many constituents are preoccupied with how and why we place topics on our agenda. Perhaps they reason that if the FASB doesn't put anything on the agenda, it can't ‘do’ anything to us.
Fogarty et al. (1992, p. 26) have argued, inter alia, that although accounting standard setters (in particular, the FASB) have asserted in their authoritative statements that ‘agenda setting is accomplished in a neutral manner’, acceptance of such a statement does not provide a basis for adequately studying the activities of accounting standard setters. This problem is not overcome when it is noted that ‘most all of the publicity that [a standard setter] receives pertains to the nature of its output’ (Fogarty et al., 1992, p. 33) whereas the agenda decision goes virtually unexplored by accounting researchers. They note that the shaping of the agenda reflects the actual power among a standard setter's constituents. They summarize the significance of understanding the importance of the agenda process as follows (Fogarty et al., 1992, pp. 36–36):
[A]genda decisions form an important domain to consider in understanding standard-setting. Far from a neutral effort to identify that which needs to be repaired, agenda processes reflect the same political dilemmas that pervade the balance of standard-setting. However, due to the strategic interests of the [standard-setter] and its ability to pursue its survival objectives, agenda setting cannot be thought of as a process wholly dominated by constituent wishes. Such a view is consistent with an unsophisticated notion that politics are evil. Project selection constitutes highly politicized action and merits study in that light.
Despite the importance of the agenda formation process, it has largely remained unexamined by accounting researchers except for a small group of empirical studies (Nobes, 1991, 1992; Young, 1993; Klumpes, 1994, 1995; Mezias and Scarselletta, 1994; Walker and Robinson, 1994a; Gordon and Morris, 1996; Ryan, 1998; Weetman, 2001; Hodges and Mellett, 2002; Jones et al., 2004). One reason for the paucity of literature on the agenda formation process is the difficulty in observing it. The majority of the papers just cited (with the exception of Mezias and Scarselletta (1994)) explore agenda formation at the institutional level, often using the ‘issue expansion’ models of Cobb et al. (1976) and Cobb and Elder (1982) and they commonly view agenda formation as a ‘competition’ between rival regulators for control of the ‘regulatory space’ (see e.g. Walker and Robinson, 1994a). Largely missing from this extant literature is the study of the individual actors (i.e. standards board members and their technical staff) who are primarily responsible for making agenda decisions. Knowledge about how standards setter ‘insiders’ (as individuals and as a group) analyse and prioritize potential technical topics would fill a large gap in our understanding about the political processes surrounding standards setting. It would also assist lobbyists to understand how they might best frame their petitions to regulators and assist the regulators to more clearly explicate the reasons for admitting or rejecting a particular technical item on their formal agenda.
Space considerations do not allow a formal review here of the existing accounting agenda studies cited above or of the models developed in the politics literature for studying the agenda formation process.2 Rather, the focus of the present paper is to collate the existing literature on agenda formation that describes the agenda experiences of the standards setters themselves and, in the light of this review, suggest some potential research topics that explore accounting standards setting agenda formation at the micro level, rather than at the institutional level that has been the major focus to date.
The present paper proceeds by describing the concept of an ‘agenda’ and then Section 3 describes the anecdotal evidence provided by members of the US FASB. Section 4 describes the scant direct evidence provided by other standards setters, such as the International Accounting Standards Board (IASB) and the Australian Accounting Standards Board (AASB) as to how they make agenda decisions. The present paper finishes by using the literature review to suggest some future research topics.
2. The concept of an ‘agenda’
The term ‘agenda’ can be used in a neutral and descriptive sense to refer to a list of items that are to be the subject of consideration by an entity or group. The list may be a series of problems, issues, or activities that need to be resolved or undertaken. The list could also be a set of objectives that need to be achieved.3 The term ‘agenda’ is used here in the sense of the list of accounting problems or issues that the standards setter has formally acknowledged as those topics that it is actively considering for the promulgation of accounting standards or other authoritative pronouncements. The agenda of accounting standards setters is often referred to as a ‘technical agenda’ because it is a list of projects for which the standards setter is developing accounting rules about definitions, recognition criteria, measurement, and disclosure items. The technical agenda can be distinguished from a ‘political’ agenda by which the standard setter might, for example, be seeking to defend or extend its power in the regulatory arena.4
The political science and mass communications literatures have noted that the concept of an agenda can be an extremely complex one. Rogers et al. (1993, p. 69, italics in original), for example, have noted that studies into the agenda setting process within the mass communications literature can be classified into three types:
Media agenda setting includes those studies that conceptualize the mass media news agenda as the main dependent variable of study. Public agenda setting includes those studies that conceptualize the relative importance of issues to members of the public as the main dependent variable of study. Policy agenda setting includes those studies that conceptualize the issue agenda of governmental bodies or elected officials as the main dependent variable of study.
In the accounting literature, studies of agenda formation have primarily fallen within the ‘policy’ category, where the focus has been upon the technical agenda of an accounting standards setter such as the IASB, the FASB or the AASB.
Within the context of the ‘policy’ agenda setting category, Kingdon (1984, p. 204) has sought to clarify the nature and complexity of a policy agenda:
A governmental agenda is a list of subjects to which officials are paying some serious attention at any given time. Thus an agenda-setting process narrows the set of subjects that could conceivably occupy their attention to the list to which they actually do focus. Obviously, there are agendas within agendas. They range from highly general agendas, such as the list of items occupying the president and his immediate inner circle, to rather specialized agendas, including agendas of such subcommittees as biomedical research or waterway transportation. Subjects that do not appear on a general agenda may be very much alive on a specialized agenda.
These comments illustrate the highly dynamic nature of the agenda setting process by which potential issues of interest emerge, might become a matter of general attention, and finally may (or may not) be admitted to the specific policy agenda of an appropriate rule-maker. The quote also demonstrates the potential complexity of the agenda process, which ‘poses considerable problems for the researcher aiming to develop a universal model of the agenda process’ (Robinson, 2000, p. 13).
The formation of an agenda is just part of a policy making process that Kingdon (1984, p. 3) has suggested consists of at least four stages: ‘(1) the setting of the agenda, (2) the specification of alternatives from which a choice is to be made, (3) an authoritative choice among those specified alternatives, as in a legislative vote or a presidential decision, and (4) the implementation of the decision.’ For Kingdon (1984, p. 4), a thorough understanding of the agenda process extends across the first two stages of the policy-making process, that is agenda setting and alternative specification, because different entities or ‘actors’ might play different roles in these stages. For example, members of a standards setting board may promote a particular accounting issue on to the technical agenda but it might be the board's technical staff who determine and define the set of alternative accounting solutions to that issue.
The role of the actors in the agenda process cannot be separated from the nature of the issues. At least two different distinctions can be found in the literature. Schattschneider (1960, pp. 22–28), for instance, has distinguished between ‘private’ and ‘public’ definitions of issues. Private issues are those strongly controlled by powerful special interest groups who gain by their ability to control the ‘rules of the game’. Public issues, on the other hand, are debated in the context of the whole, or a major segment, of the community and are an important component of democratic society. In accounting, there have often been claims that standards setting has been ‘captured’ by private interests (e.g. Walker, 1987). A second distinction lies in whether the issue in question is perceived to lie within the boundaries of ‘high’ or ‘low’ politics (Pross, 1992). Issues fall within the domain of ‘high’ politics if they are believed to be too important to leave to special interests or government entities. Rather, ‘[t]hey have to be resolved by the political leadership after full dress debate in the media, in Parliament, and often at intergovernmental meetings’ (Pross, 1992, p. 165). Recent events such as the ‘crises’ sparked by the subprime mortgage market and Enron illustrate situations in which solutions are demanded at the level of ‘high’ politics rather than just from agencies such as the Securities and Exchange Commission (SEC) or the FASB.
3. Anecdotal evidence on the agenda decisions of accounting standard setters
Although accounting academics have not extensively explored the agenda process of standards setters, those affected by those decisions (such as financial statement preparers and auditors) ask ‘recurring questions’ about why the standards setters select the projects that they do (Beresford, 1993, p. 70). In the USA, at least, this has been the catalyst for a number of formal statements and papers by the FASB, its Board members, and technical staff that attempt to explain the agenda decision process of that body (Van Riper, 1986; Beresford, 1988, 1989a, 1989b, 1993; Johnson and Swieringa, 1996; Reither, 1997; Miller et al., 1998; FASB, 2003). There seems to have been little attempt by other accounting standard setting bodies to similarly explain their own agenda decision processes and so the discussion below draws heavily on the FASB experience. Two aspects of this process are now described: (i) the emergence of potential projects; and (ii) the basis on which potential projects are selected for inclusion on the FASB's agenda.
3.1. Emergence of potential projects at the FASB
Reither (1997, p. 94) has noted that ‘the FASB is mostly reactive rather than proactive in its approach to identifying financial reporting issues’ that might be appropriate for inclusion on its agenda. Similarly, Beresford (1989a, 1993) has observed that other entities have brought nearly all of the potential projects to the FASB and he notes, as an example, that the stock compensation project was proposed by the American Institute of Certified Public Accountants (AICPA). The sources from which potential projects are derived are many and varied and include some formal mechanisms such as the Financial Accounting Standards Advisory Council (FASAC)5 and topics referred to the FASB from the Emerging Issues Task Force (EITF)6 as well as many informal sources such as the monitoring of business newspapers and periodicals by FASB technical staff, and the technical inquiries received from financial statement preparers and auditors (Reither, 1997; Miller et al., 1998, p. 68). Professional associations and regulatory bodies such as the AICPA, the Financial Executives Institute, industry organizations, and the SEC7 also regularly make representations to the FASB with regard to adding issues to its agenda (Van Riper, 1986, p. 1; Beresford, 1989b, p. 2; Johnson and Swieringa, 1996, p. 150; Reither, 1997, pp. 95–96; FASB, 2003, p. 3). International developments are another important source of topics, both in terms of identifying new issues and as opportunities for cost sharing on specific projects (Reither, 1997, pp. 96–97; FASB, 2003) and the rapid adoption of International Financial Reporting Standards (IFRS) since 2005 has significantly increased the level of cooperation between the FASB and IASB.
Johnson and Swieringa (1996) provide one of the most comprehensive case studies of how items can be brought to the attention of the FASB and the environmental and political factors that impact upon the debate prior to an agenda decision. In particular, they describe the events surrounding the lead up to the agenda decision for what ultimately became SFAS no. 115, Accounting for Certain Investments in Debt and Equity Securities. Their case study provides a valuable model for other researchers interested in studying how issues emerge as potential agenda projects because of their detailed analysis of the chronology of events, reference to FASB minutes and other relevant documentation, and interviews with key players. However, they do not provide detailed comments on the Board's actual agenda decision other than for some interesting comments that are pursued further below.
3.2. Admission of potential projects on to the formal agenda of the FASB
3.2.1. New topics
It has been stated that the FASB always has more potential topics than there are resources to devote to them all (Beresford, 1989a, 1989b, 1993). Indeed, Van Riper (1986, p. 1) states that the FASB ‘rejects more proposed topics than it accepts’. From the pool of potential projects we are told that the Board makes ‘its own decisions regarding its technical agenda’ (Beresford, 1989a, p. 27; Reither, 1997, p. 97) and that the decision to add a topic to the formal agenda is made as a ‘collective judgement’ (Van Riper, 1986, p. 1).8
In general terms alternative commentators have suggested that the FASB will add a topic to its formal technical agenda under the following circumstances:
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the topic is viewed as being ‘significant enough’ (Van Riper, 1986, p. 3);
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the topic is ‘most urgent and pervasive and most likely to provide a significant opportunity to improve financial reporting’ (Beresford, 1989b, p. 2);
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the topic is a ‘repair and maintenance’ project (Beresford, 1989b, p. 2); and
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the topic possesses the following three characteristics: (i) ‘the problem must be sufficiently significant in terms of its effect on the financial statements and its pervasiveness throughout the economy’; (ii) ‘the alternative solutions to the problem must be sufficiently different to be controversial’; and (iii) there must be a suitably high likelihood that the Board can resolve the issues in a manner that will be acceptable to the constituency’ (Miller et al., 1998, p. 69, emphasis in original).
A common theme among most of these different statements is that, to be considered for inclusion on the agenda, a potential topic must have implications which are far reaching enough and of such material impact that the Board is compelled to act. Beresford (1989a, pp. 26–27) has noted ‘There is not now, and never has been, a project on the Board's agenda that some substantial portion of our constituency did not believe required action.’ In addition, the statements above imply some political realities in that the topic must matter to at least some significant proportion of the Board's constituents and there is some a priori anticipation that an ‘acceptable’ solution can be negotiated. Of course, the devil is in the detail and we have no obvious metric for what is ‘enough’, or ‘sufficient’, or ‘significant’ or similar descriptors.
In the interests of public accountability, the FASB has published a set of formal criteria that it claims are used by Board members when making the agenda entrance decision and against which all potential projects are benchmarked. Until recently, this was the only formal statement about the agenda setting decision from any accounting standards setter9 and so it is appropriate to provide a full quotation of the criteria (FASB, 2003, pp. 3–4):
The Financial Accounting Standards Advisory Council (FASAC) regularly reviews the Board's agenda priorities and consults on all major projects added to the technical agenda.
After receiving input from the constituency, the Board must make its own decisions regarding its technical agenda. To aid in the decision-making process, the Board has developed a list of factors to which it refers in evaluating proposed topics.
Those factors include consideration of:
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Pervasiveness of the issue – the extent to which an issue is troublesome to users, preparers, auditors or others; the extent to which there is diversity of practice; and the likely duration of the issue (i.e. whether transitory or likely to persist);
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Alternative solutions – the extent to which one or more alternative solutions that will improve financial reporting in terms of relevance, reliability and comparability are likely to be developed;
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Technical feasibility – the extent to which a technically sound solution can be developed or whether the project under consideration should await completion of other projects;
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Practical consequences – the extent to which an improved accounting solution is likely to be acceptable generally, and the extent to which addressing a particular subject (or not addressing it) might cause others to act, e.g. the SEC or Congress;
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Convergence possibilities – the extent to which there is an opportunity to eliminate significant differences in standards or practices between the U.S. and other countries with a resulting improvement in the quality of U.S. standards; the extent to which it is likely that a common solution can be reached; and the extent to which any significant impediments to convergence can be identified;
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Cooperative opportunities – the extent to which there is international support by one or more other standard setters for undertaking the project jointly or through other cooperative means with the FASB; and
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Resources – the extent to which there are adequate resources and expertise available from the FASB, the IASB or another standard setter to complete the project; and whether the FASB can leverage off the resources of another standard setter in addressing the issue (and perhaps thereby add the project at a relatively low incremental cost).
It is not possible to evaluate the above factors in precisely the same way and to the same extent in every instance, but identification of factors to be considered helps to bring about consistent decisions regarding the Board's technical agenda.’
The above statement from the FASB is clearly more detailed and captures the more general factors identified in earlier literature. However, as explicitly noted in the last paragraph of the statement, a good deal about the actual operation of these different criteria remains unknown. One matter that is clear is that the criteria allegedly used by FASB members have changed over time. For instance, Van Riper (1986, p. 3), Beresford (1988, p. 1), Johnson and Swieringa (1996), and Reither (1997, p. 97) all indicate that the FASB had previously only used four of the above criteria, namely, pervasiveness of the problem, availability of alternative solutions, technical feasibility, and practical consequences. Over time these four criteria appear to have no longer been adequate for the environment faced by the FASB as, for instance, the global demand for the international harmonization of accounting standards has grown.
3.2.2. Examples of the application of the agenda decision criteria
Some commentators have attempted to indicate how the agenda decision criteria have been applied to particular topics. For instance, Beresford (1988) specifically sets out, inter alia, to demonstrate how the four (as it then was) agenda decision criteria were explicitly applied to admit one topic, accounting for stock compensation, to the FASB agenda while the application of the criteria to another topic, disclosure of risks and uncertainties, meant that it was unlikely to be admitted to the agenda at that time.10 With regard to stock compensation he indicates that this topic was added to the FASB agenda in March 1984 because it explicitly met all four criteria. In the case of pervasiveness, the AICPA, the SEC, and the large accounting firms had presented strong cases to the FASB to reconsider the topic. New techniques had been developed for valuing options suggesting that alternative solutions might be available and that evidence from the AICPA had suggested that the third criterion, technical feasibility, could be achieved. Finally, the ever increasing innovation in stock compensation plans that was being experienced at the time suggested to the Board members that the practical consequences would be that the SEC would intervene (and by implication this was undesirable).11
On the other hand, Beresford (1988) suggested that the ‘disclosure of risks and uncertainties’ project being reviewed for inclusion on the FASB's agenda at that time was unlikely to satisfy the four agenda decision criteria. Although the project had been brought to the attention of the FASB as a result of a report by the AICPA, there was no clear evidence that the majority of the FASB's constituents felt that this was a significant enough problem.12 Further, there was apparently considerable difficulty in agreeing on the appropriate scope of such a broadly defined topic that made it more difficult to assess the criterion of technical feasibility. The FASB also had in place FASB Statement no. 5, Accounting for Contingencies, which suggested that appropriate disclosure rules already existed and that the problem was more one of ensuring compliance with the rules. Beresford (1988) did not go on to specifically address the fourth criterion, practical consequences, in this case.
As part of an FASB Status Report, Beresford (1989c, p. 2) returns to the FASB's agenda decision by briefly describing why two projects were added to the FASB's 1989 agenda, although, in this case, he does not make explicit reference to the four (as they then were) agenda decision criteria. The first of these projects, accounting for interest methods, was added because it had been ‘a major controversy . . . for a long time’ and because of a wide diversity of accounting treatments in practice which lacked any cohesive rationale. Similarly, the second topic, impairment of assets, was added to the FASB's agenda again because of a perceived diversity in practice with respect to how asset write-offs were valued and disclosed and the type of terminology used by different firms in this context. In the case of both of these topics, as described by Beresford (1989c), the criterion of ‘pervasiveness’ would seem to have been the dominant concern of FASB members at that time.
Johnson and Swieringa (1996) in their case study of events surrounding SFAS 115 do not explicitly describe how each of the four criteria (as they then were) were used by Board members to formally admit the marketable securities project on the Board's technical agenda. However, they do specifically question the ability of the criteria to usefully assist the Board in dealing with what they term a ‘sea change’. This sea change was the major structural and technical changes that had occurred in the finance industry due to wide ranging developments in financial engineering and information technology leading to a transformation in how financial institutions, in particular, used financial instruments. Their experience with SFAS 115 caused them to ask (Johnson and Swieringa, 1996, p. 166):
Do the factors that the Board uses in deciding what to add to its technical agenda work well for sea change issues? Pervasiveness is defined in terms of ‘the extent to which an issue is troublesome,’ but sea change issues are likely to go well beyond troublesome. The factors of alternative solutions and technical feasibility fail to capture the extent to which sea change issues may be ill-defined, information has to be obtained and alternatives have to be fashioned and the factor of practical consequences fails to capture the extent to which sea change issues are perceived as threatening to many of the Board's constituents. Those constituents may try to ignore the issue, may resist bringing it to the Board's attention, or may try to convince the Board that the issue should be treated as a limited-scope issue that requires a limited solution – a solution that almost inevitably fits within the current accounting framework. Constituents will rarely suggest that fundamental changes in that framework are required.’
3.2.3. Re-examination of old topics
Beresford (1989b, p. 3) has indicated that the FASB's Rules of Procedure compel Board members to consider any written requests to review existing accounting pronouncements. In such cases the Board members need to consider whether the arguments presented in the written case were ones which were given adequate consideration in the lead up to the adoption of the pronouncement. In addition, consideration must be given to whether new events have occurred or circumstances have changed to such an extent that a review of the relevant pronouncement would be justified. He notes that the great majority of requests to re-examine existing pronouncements have been denied by the FASB on the grounds that the arguments given by the petitioners have already been adequately considered or ‘because of cost-benefit or relative priority considerations’ (Beresford, 1989b, p. 3).
3.2.4. Other issues associated with the FASB agenda decision13
Three additional issues arise from a review of the anecdotal evidence. These are:
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other factors influencing agenda entrance;
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definition of the scope and method of resolution of an agenda project; and
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projects’ agenda status post agenda entrance.
While describing the ‘frustrations’ of a standard setter, Beresford (1993, p. 71) indicates that ‘politics’ can be viewed as a potential influence on the agenda decision. This can occur in the context of tactics used by lobbying groups who might, for instance, be seeking to have a topic added to the FASB's agenda as a specific means of delaying any resolution of the topic.14 As an example he describes the case of accounting for marketable securities in which the AICPA and the Big Six (as they then were) accounting firms urged the FASB to add the topic to its agenda as a response to a call from the SEC for the adoption of mark-to-market accounting. However, when the FASB later issued an exposure draft which contained proposals to adopt mark-to-market accounting on a much more limited basis than originally suggested by the SEC, three of the Big Six firms fervently lobbied the FASB to reject the exposure draft.
Beresford (1993, p. 75) goes on to discuss another political claim which is the allegation that the FASB sometimes adds or deletes projects from its agenda because of ‘political pressure’ from politicians or various regulatory agencies. Although he recognizes the existence of such pressures, Beresford (1993) argues that these pressures are not always as powerful as might be expected.15 One reason is that different politicians and regulatory agencies are not all sending the same message on the same topic. He also argues that, in his experience, some politicians and regulatory bodies change their lobbying positions over time. However, he does go on to record that sometimes items need to be added to the agenda to instil discipline in financial reporting, even though this might properly be more the province of the AICPA or the SEC or other regulators. Such occasions might seem to be exercises in ‘stating the obvious’ but they are, nonetheless, important signals that the FASB is serious about compliance (Beresford, 1993, p. 76).16
Some commentators (Van Riper, 1986; Reither, 1997; Miller et al., 1998) note the importance of recognizing that the agenda decision also includes a consideration of what will be the scope or breadth of the proposed topic and what mechanism or vehicle will be used to resolve the problem. In the case of the former issue, Van Riper (1986, p. 3) observes that there is a tendency for proposed topics to broaden in scope as technical staff and Board members review the issues associated with the topic prior to making an agenda decision. Such broadening often occurs as analogous topics and inconsistencies in practice are identified but the scope is always subject to resource and time frame constraints. Reither (1997, footnote 6, p. 97) also notes that the scope of a project can change and that the Board tends to keep an open mind on this matter. However, she indicates that some sort of ‘predefined, preliminary scope’ is used as a benchmark for the agenda decision. Understanding the way in which scope decisions are made is also an important component of the agenda formation process as controversial topics could potentially be ‘scoped in’ or ‘scoped out’ as desired by powerful lobby groups. In addition to the scope issue, Miller et al. (1998) indicate that the Board must also make some decision about what type of pronouncement is to be used to deal with a potential agenda project. In the case of the FASB this might be an accounting standard or an interpretation or a technical bulletin. As these documents all have differing status and therefore influence, this too is another important area of study in the agenda decision process. The case study of SFAS 115 by Johnson and Swieringa (1996) is an excellent example of the importance of who controls the scope of a project. They note how the FASB originally began with a three step plan for a wide-ranging financial instruments project that would first consider disclosures, then recognition and measurement, and finally liabilities and equity. However, ‘almost from the beginning, the original plan for the financial instruments project came under some [external] pressure’ (Johnson and Swieringa, 1996, p. 164) with the result over time that the Board began adding ‘narrowly focused projects on financial instruments’ (Johnson and Swieringa, 1996, p. 163) which ‘significantly altered the overall approach that was planned for the financial instruments project’ (p. 164).
Finally, it is worth noting that the agenda decision is ongoing. Van Riper (1986, p. 3) writes that:
Even after a topic is added to the agenda, the question of whether a standard should be issued continues to be implicit in deliberations at every stage of the project.
The time lines for any specific project can be very long. For instance, the description of the SFAS 115 project by Johnson and Swieringa (1996) extends from May 1986 to November 1995 while the time line for SFAS no. 123, Accounting for Stock-Based Compensation began in November 1982 and finished17 in March 1995 (Kinney, 1996, p. 181). The importance of a project can be reassessed as circumstances change and it could be dropped (or re-instated) if necessary. As noted in a previous subsection, ‘finished’ projects might reappear for reconsideration in the future, although one might expect considerable resistance from standard setters and others to go over ‘old ground’.
In addition, projects are ranked in importance but we know nothing about how this ranking occurs. Beresford (1989a, p. 27) tantalisingly notes that ‘When several topics suggested to us pass this agenda screening, we must carefully assess the relative priorities of each potential project’ but he is silent on how this is done.
4. Agenda decision criteria at the IASB and the AASB
Until recently there has been virtually nothing written by non-US accounting standards setters about what criteria are used by them to admit potential projects on to their technical agendas. Brief, and not particularly informative, statements can be found on some standards setters’ websites. For instance, in the case of the IASB the following description was offered (IASB, 2003):
‘How does the IASB decide what subjects to add to its agenda?
Board Members, members of the Standards Advisory Council, National Standard Setters, securities regulators, other organizations and individuals and the IASB staff are encouraged to submit suggestions for new topics which might be dealt with in their accounting standards.
The International Organization of Securities Commissions (IOSCO), which represents securities market regulators around the world, completed a review of IASC Standards in 2000, and their Report contained several areas where their members would like to see improvements in IAS. The IASB Staff are working with IOSCO to determine priorities.
During much of the 1990's and up to its dissolution in January 2001, the G4+ 1 group of accounting standard setters has been influential in bringing topics to IASC's work programme. The G4+ 1 includes the Accounting Standards Boards of Canada and the UK, the Australian Accounting Standards Board, the Financial Accounting Standards Board (USA) and the New Zealand Financial Accounting Standards Board. IASC was an official Observer. The G4+ 1 sought to develop common responses to accounting problems around the world. Examples of G4+ 1 activities that resulted in IASB projects were business combinations and reporting financial performance.’
This description indicates something about where potential topics might come from but it is silent on the process and criteria used by IASB members to formally admit projects to the technical agenda once potential projects have been identified from the sources above.
However, the IASB recently formally signalled the factors that might impact upon its technical agenda in a draft document outlining its consultative arrangements (IASCF, 2006).18 Paragraphs 19 to 26 describe agenda setting at the IASB. These paragraphs note that the overarching consideration in making an agenda decision is the needs of the users of financial statements, where the presumption is made that the needs of investors will satisfactorily proxy for the needs of other groups of financial statement users. In the context of assessing user needs, the IASB evaluates the following five factors when deciding whether to add an item to its agenda (IASCF, 2006, para. 21)19:
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‘the relevance to users of the information involved and the reliability of information that could be provided’– within this factor consideration is given to changes in the financial reporting and regulatory environment, pervasiveness, urgency, and consequences (IASCF, 2006, para. 54);
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‘existing guidance available’– within this factor consideration is given to whether no guidance currently exists, or there is diversity in existing national standards or practice, and whether existing standards are too difficult to apply (IASCF, 2006, para. 55);
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‘the possibility of increasing convergence’;
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‘the quality of the standards to be developed’– within this factor consideration is given to the presence of alternative solutions, the costs and benefits of alternative solutions, and the feasibility of implementing a proposed solution in a timely way (IASCF, 2006, para. 57);
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‘resource constraints’– within this factor consideration is given to the presence of expertise external to the IASB, how much additional research effort will be required, and the availability of resources within the IASB (IASCF, 2006, para. 58).
Some parallels can be seen between this list and that described earlier for the FASB. However, like the FASB list, the agenda setting factors offered by the IASB have not been empirically studied and, perhaps more importantly, these IASB factors are contained in a document prepared by the IASCF and might not reflect the actual factors used by IASB members in the past or even in the future. In addition, there is no discussion of how the IASB factors interrelate with each other.
The Australian accounting standards setter, the AASB, offers little insight into its agenda setting processes. In 2003 it provided the following details (AASB, 2003):
The AASB monitors its work program on an ongoing basis. Each year the AASB prepares a Business Plan, which includes a work program, for submission to the AASB's oversight body, the Financial Reporting Council.
The key criteria applied when considering whether to include projects on the AASB's work program and in making any subsequent modifications are both formal and informal. The criteria are as follows – a project would not have to meet all the criteria to be adopted.
• International harmonization – whether a project is likely to help harmonize Australian financial reporting with reporting in other major standard-setting jurisdictions. This includes addressing gaps in the AASB's Accounting Standards when compared with some other standard-setting jurisdictions. The legislation under which the AASB is constituted establishes international harmonization as a key objective for the Board.
• Request by constituents – constituents may ask that the topic be dealt with and justify the need to tackle the issues. The formal channel for constituents to communicate with the AASB is the Board's Consultative Group.
• Referral by UIG – issues may be referred to the AASB by the Urgent Issues Group.20
Of course, as for some other national accounting standards setters, the decision to adopt IFRS virtually verbatim has significantly impacted upon the control which the AASB has over its technical agenda. With regard to private sector entities, the AASB is primarily reduced to being both a vehicle for the dissemination of IFRS and a lobbyist, like any other, on proposed IFRS. This has meant that the AASB has had to redefine itself more proactively as a standards setter for the public sector and not-for-profit entities.21 In the longer term, there are genuine concerns about the ability of national standards setters, with the exception of regulators in the USA and European Union, to have any significant impact upon the IASB's agenda as global based standards setting involves more significant disparities in power across potential participants (see Zeff, 2006; Howieson and De Lange, 2007).
5. Conclusions and suggestions for future research
This review of standards setters’ experiences of and policies on technical agenda formation indicates the existence of a rich field of potential research topics. Some influences on the technical agenda clearly occur at the institutional and political level and the studies cited at the beginning of this paper offer some benchmarks against which research can be conducted in those contexts. However, it is also clear that agendas are formed on the basis of decisions made by standards setters as individuals and collectively. Many research projects are possible that explore the agenda decision-making processes of individual or groups of standards setters.
For instance, this paper has described the seven agenda admittance criteria of the FASB (2003) but also noted the apparent flexibility in the way FASB members may use these criteria. Several interesting research questions can be linked to these criteria including22:
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Although the criteria used are contained in a formal statement by the FASB, to what extent do individual Board members actually employ these criteria? Are there additional criteria that are used collectively or by individual Board members and are not identified in the FASB's list? Do members of other accounting standards setting Boards also use these criteria?
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Are the criteria interpreted the same way across all Board members?
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Are the criteria equally weighted in importance and, if not, what weightings are applied?
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Are Board members prepared to make trade-offs between criteria and, if so, on what basis is this done?
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As noted previously, the FASB acknowledges that the application of these criteria may vary across different instances. What factors influence differences in application of the criteria across contexts and in what ways?
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What benchmark metrics are applied either collectively or by individual Board members when making decisions about ‘pervasiveness’, ‘feasibility’, ‘consequences’ and other similar judgements?
Another valuable set of research questions can be linked to understanding how the scope of a potential agenda project is initially defined and how it might be modified over time. Again, some of the factors affecting a project's scope will relate to the institutional and political environments but there are also interesting questions to be explored about the role of standards setters’ technical staff in defining and managing technical projects.
Much of the discussion in this paper has related to those regulators who set accounting and auditing standards but, given the interrelationships between such standards setters and other regulators, it would be valuable to learn more about how the members of other regulatory agencies set their agendas. This is particularly true of entities such as the EITF and the IFRIC who can both generate potential agenda items for consideration by their related standards setter or have items referred to them by the standards setter. Such mutual referrals suggest the possibility of interesting political games in defining and shaping agenda items. It might also be interesting to learn if ‘interpretations’ entities use different criteria for agenda entrance to ‘standards setting’ entities, and if so, why that might be the case.
In a related vein, although this paper has stressed the role of individual Board members in the agenda formation process, there is still much work to do at a more macro level, especially given the pre-eminence of the IASB as the global standards setter. As Zeff (2006) notes, the internationalization of standards setting has seen a much more complicated political game being played with a wider range of participants such as politicians, government agencies, and corporate regulators such as the SEC. The involvement of nation states or regional blocs (such as the European Union) potentially makes for a complex clash of cultures and attitudes to accounting regulation that suggest potential research opportunities based, for instance, within the political science literature as to where power resides and how it is exercised (see e.g. De Lange and Howieson, 2006). The existence of such powerful forces suggests an interesting question as to the extent to which even the members of the IASB have autonomy over the IASB's technical agenda.
Research methods to address these various topics can include detailed chronological case studies like the type conducted by Johnson and Swieringa (1996) and behavioural research methods to help identify, for example, the specific criteria used by standards setters and how those criteria might be weighted. Some of the data for research into standards setters’ decisions will be found in the public domain by way of minutes, memos, and other documentation. For example, since 2002 the agenda decisions of the IFRIC are now made public on the Web (IFRIC, 2007) and offer an opportunity for more insight into the factors driving agenda formation, at least in the context of ‘interpretations’. However, it will also be necessary to go beyond written evidence (which might be susceptible to a ‘sanitation’ process) to interact directly with the members of standards setting entities. If this is to be a mutually fruitful experience, researchers must ensure that their research questions and methods have been sufficiently developed and tested prior to making demands on standards setters’ time.
