Question

Some accountants have said that politicization in the development and acceptance of International Financial Reporting Standards (IFRS) is taking place. Some use the term “politicization” in a narrow sense to mean the influence by governmental agencies, such as the European Union and the U.S. Securities and Exchange Commission, on the development of IFRS. Others use it more broadly to mean the compromise that results when the bodies responsible for developing IFRS are pressured by interest groups, businesses through their various organizations, financial analysts, bankers, lawyers, academics, auditors, and so on.

Instructions

1. What arguments can be raised to support the “politicization” of accounting rule-making?
2. What arguments can be raised against the “politicization” of accounting rule-making?

Answer 1

Part (a) We can present the following arguments for politicization of the accounting rule-making process:

• Outputs of accounting and accounting rules will be called successful only if they are able to inculcate a sense of trust and confidence among the public and the users. So those whose lives are impacted by the accounting, should have some influence and say on the accounting rules. Hence, there is a need for politiciztion of the accounting rule making process.
• Some of the accounting rules are deterministic and hence objective. However, not all accounting rules are deterministic and objective. Some of the accounting outputs require judgement and deals with proabilistic models. When judgements are involved, there may be a bias and hence conflicts between the interested parties. Once there is politicization, interest parties will come together and compromise. Only this way, the interest parties will gain confidence and trust in the fairness and objectivity of accounting rule making.
• Over the years, accountants have been unable to establish, on the basis of technical accounting elements, rules, which would bring about the desired uniformity and acceptability. This inability itself indicates rule setting is primarily consensual in nature.
• Accounting rules are generally prescribed by the Accounting Principles Board and business enterprises and individuals were made to follow them, since ages. Even though the lives of these enterprises and individuals were impacted by these accounting rules, they had a very little say in making of those rules. Politicization of accounting rules will give thse enterprises and individuals an opportunity to present their views while accounting rules are made. Thus politicization will lead to democratization of accounting rule making.

Part (b) We can present following arguments against the politicization of the accounting rule-making process:

• Accounting is very technical and so are the accounting rules. They therefore should be made by researchers and experts. Politicization will just not help in achieving this objective.
• Professional accountants have independence, ample education, right training, and unbiased objectivity, to decide what generally accepted accounting principles should be. Politicization will adversely impact their ability and may bias them while making the rules.
• Politicization will necessitate rules making through consensus, which is cumbsersome, time consuming and usuallyu not successful.
• Policitication may also lead to "lobbying" by various concerned parties, each trying to push that version of accounting rules that will be most beneficial to them.