Control over accounting standards within the European Union: The political controversy surrounding...

Critical Perspectives on Accounting xxx (2013) xxx–xxx

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Critical Perspectives on Accounting

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Control over accounting standards within the EuropeanUnion: The political controversy surrounding the adoptionof IFRS 8§

L. Crawford a, J. Ferguson b,*, C.V. Helliar c, D.M. Power a

a University of Dundee, United Kingdomb University of Strathclyde, United Kingdomc University of South Australia, Australia

A R T I C L E I N F O

Article history:

Received 8 March 2011

Received in revised form 12 February 2013

Accepted 6 March 2013

Available online xxx

Keywords:

Accounting regulation

European Union

Hegemony

IASB

IFRS 8

Institutional field

Critical

Public interest

A B S T R A C T

This paper presents an analysis of the struggle for power within the international

accounting arena by examining a highly politicised debate surrounding the adoption of

International Financial Reporting Standard (IFRS) 8, Operating Segments, which saw the

European Union (EU) attempting to contest the authority of the International Accounting

Standards Board (IASB). Informed by a broadly institutional approach, the paper reports

the results of interviews with preparers, legislators, regulators, auditors and users about

the introduction of IFRS 8 and focuses on how the European Parliament (EP) required the

European Commission (EC) to initiate its own consultation procedures as part of a new

endorsement process. Findings from this study highlight how the debate over the adoption

of IFRS 8 led to the EU implementing a structure that is arguably more aligned to the

European tradition of State involvement in the regulatory process. In this sense, while the

EU’s position vis-a-vis the IASB remains relatively weak, they have, however, initiated a

forum whereby the pronouncements of the IASB can be contested.

� 2013 Elsevier Ltd. All rights reserved.

1. Introduction

The aim of this paper is to analyse a struggle for power within the international accounting regulation arena – a debatesurrounding the adoption of International Financial Reporting Standard (IFRS) 8, Operating Segments, which saw theEuropean Union (EU) attempting to contest the authority of the International Accounting Standards Board (IASB). Analysis ofsuch struggles provide an important opportunity for understanding the relationships of power and institutional forces thatinfluence the field of accounting regulation (Bengtsson, 2011). In this respect, our work both builds upon and complementsrecent studies into the EU/IASB dynamic. In their analysis of the EU’s decision to comply with International AccountingStandards (IAS) in 2002, Chiapello and Medjad (2009, pp. 448–449) point out that such ‘‘wholesale subcontracting ofstandard setting to a private organisation’’ has been unprecedented; they suggest that the EU has resorted to ‘‘a privatisationof the accounting standards [handing control] unconditionally and irrecoverably to a private organisation over which it hasno influence’’ (European Commission, 2001, quoted in Chiapello and Medjad, 2009). Similarly, Perry and Nolke (2006, p. 575)note that, ‘‘in hardly any other case has such wide-ranging authority been delegated to a private body’’. While Chiapello and

§ The authors would like to thank the ICAEW for generous funding of this research. The views expressed are those of the authors and not the ICAEW.* Corresponding author. Tel.: +44 01415482944.

E-mail address: [email protected] (J. Ferguson).

Please cite this article in press as: Crawford L, et al. Control over accounting standards within the European Union: Thepolitical controversy surrounding the adoption of IFRS 8, Crit Perspect Account (2013), http://dx.doi.org/10.1016/j.cpa.2013.03.001

1045-2354/$ – see front matter � 2013 Elsevier Ltd. All rights reserved.

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L. Crawford et al. / Critical Perspectives on Accounting xxx (2013) xxx–xxx2

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Medjad’s (2009) analysis describes the EU’s capitulation to the IASB, one recent study has highlighted the EU’s reengagementwith accounting standard setting that has led to a ‘‘serious questioning of the standards and even the raison d’etre of theInternational Accounting Standards Board (IASB)’’ (Bengtsson, 2011, p. 567). Our paper also draws attention to the EU’sattempt to assert its authority within the standard setting process by analysing a highly politicised debate surrounding theadoption of International Financial Reporting Standard (IFRS) 8, Operating Segments.

There exists a well-established body of literature that draws attention to the political aspects of accounting regulation.Much work in this tradition focuses on issues of process or outcomes and is connected to a conception of power that is seen toinvolve, ‘‘explicit conflict: one party or group getting another group to do something that they would not otherwise want todo’’ (Cooper and Robson, 2006, p. 427). In terms of process, much ‘‘research into the ‘politics’ of standard setting. . .

examine[s] who was involved in the development of a particular accounting rule or regulation [and] who appears to haveinfluenced the outcome’’ (Cooper and Robson, 2006, p. 4271). In terms of outcomes, research in this tradition often explicitlyconsiders the economic consequences of accounting standards (Fogarty et al., 1994; Fogarty, 1992; Solomons, 1978; Zeff,1978, 2002) or their broader social impact with regard to their effect on ‘‘distributive mechanisms’’ involving a range ofstakeholders (Chiapello and Medjad, 2009, p. 449). The emphasis in this paper will be on process. As Hopwood (1994)reminds us, international accounting regulation is an ‘‘active political process’’ – one which is characterised by a range ofinstitutions entering the process at different times and with different agendas. By examining the process through which theEU struggled for power within the supranational accounting arena, our paper helps shed light on the ‘‘shifting politics’’ ofinternational accounting (Hopwood, 1994, p. 251).

Our concern with process is informed by an institutional analytical approach focused primarily at the level of the‘‘institutional field’’ (Arnold, 2009, p.54).2 According to Arnold (2009, p. 55), analysis at this level is ‘‘adept at exploring thepolitical struggles within and between international accounting firms, professional bodies, and regulatory authorities’’. Inundertaking our analysis at this level, we are mindful of Cooper and Robson’s (2006, p. 425) concern that research whichfocuses on the negotiations and politics of accounting standard setting often has a tendency to view the process as pluralistic– i.e. ‘‘that power is socially diffuse, depending on which groups get their way in specific circumstances’’. For Cooper andRobson (2006, p. 426), ‘‘more sophisticated conceptions of power’’ should draw attention to issues of ideology and theoperation of hegemony. As Djelic and Sahlin (2009, p. 187) note, power struggles over accounting regulation ‘‘are framed byinstitutional forces and dynamics that can reflect hegemonic logics. . . Hence, relational power games need to be looked at inthe context of structuring fights for hegemony building’’. In this sense, our analysis is informed by extant research that drawsattention to the hegemonic logics that influence the field of international accounting regulation. By focusing on the dynamicbetween the IASB and the EU, this study helps address ‘‘the dearth of serious analytical research on almost all aspects ofsupranational accounting’’ (Hopwood, 1994, p. 251).

The remainder of this paper is structured as follows: the following section provides an overview of the extant literaturethat takes an institutional approach to international accounting regulation, drawing attention to the forces that shape thefield. The background to IFRS 8 is then delineated; this is followed by a presentation of our findings from interviews withstakeholder groups affected by the standard. The final section offers some discussion based on the issues identified in theresearch.

2. Contextual location and institutional field

According to Camfferman and Zeff (p. 14), national accounting traditions began to break down ‘‘under the influence ofglobalisation’’. In particular, they note that a shift towards international accounting standards was driven by ‘‘the advent ofan internationally orientated public capital market and the concomitant demand for much more informative financialreporting to investors’’ (Camfferman and Zeff, p. 14). Such an interpretation is commonplace in the extant literature, and iseither explicitly stated or implied in a large number of studies into international accounting regulation (for example,Bhimani, 2008; Erickson et al., 2009; Garrido et al., 2002; Hora et al., 1997; Kimura and Ogawa, 2006; Thorell andWhittington, 1994). However, according to Arnold (2009, p. 49) such a ‘‘functionalist’’ and ‘‘orthodox’’ interpretation

1 Cooper and Robson (2006, p. 417, emphasis in original) provide an overview of studies into regulation and professionalisation in accounting; therefore,

Cooper and Robson (2006) delineate a wide range of social theories and methodological strategies that have informed this area.2 Arnold (2009) condenses Hollingsworth’s (2003) classification of institutional research into three levels: micro, mezzo, and macroanalysis.

Microanalysis is directed at the level of the organisation, and aims to examine ‘‘how economies and economic decisions are embedded in norms, values,

shared meanings, habits, and behavioural templates’’ (Arnold, 2009, p. 51). Mezzo-level analysis is directed at the wider institutional field, such as the

accounting or financial sectors, and aims to ‘‘understand how economic activity is embedded in institutional arrangements such as legal and regulatory

regimes’’ (Arnold, 2009, p. 51). Marco-level analysis is concerned with the ‘‘institutional arrangements governing economies as a whole’’ and tends to focus

on ‘‘long-term historical processes whereby the institutional arrangements governing capitalist economies have come into being’’ (Arnold, 2009, p. 51). In

many respects, Arnold’s (2099) classification corresponds with Thompson’s (1990) framework for the typical characteristics of social contexts. Drawing on

Bourdieu’s concept of field, Thompson outlines four ‘‘distinct’’ levels in which the researcher can direct their analysis: spatio-temporal setting, fields of

interaction, social institutions and social structure. Importantly, while Thompson (1990, p. 140) acknowledges that these are ‘‘distinct levels of analysis’’, he

also suggests there is likely to be a degree of overlap between the different levels. Thompson (1990) briefly illustrates with an example of the field of the

higher education, which would be characterised by different institutions (such as universities and higher education colleges), but would also be shaped by

the wider social structure (in particular, class, gender and race). Similarly, while the main focus of our is analysis is at the mezzo level, concerned with the

struggles between organisations involved in the accounting regulation process, we also draw attention to wider ‘‘macro’’ institutional forces that shape

economies as a whole (Arnold, 2009).




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‘‘obscures the ways in which historically developed institutional forms and political actions have shaped the evolution ofcapitalist economies, financial markets, and financial accounting practice’’ (see also, Botzem and Quack, 2009). In thisrespect, Arnold (2005, 2009) makes a case for an institutional approach to the study of international accounting regulation.Such an approach, according to Arnold (2005, p. 309), avoids the fallacy of characterising the growth of international capitalmarkets as some kind of natural phenomenon and draws attention to how capital markets, and the role of accounting withinthem, are ‘‘the product of political agency and intent’’.

Drawing on extant research that takes a broadly institutional approach to international accounting regulation, it ispossible to sketch out the agency and intent at the heart of the current EU/IASB dynamic. This literature underscores theinstitutional force of neoliberalism as a hegemonic logic that shapes the field of accounting regulation (Arnold, 2009;Djelic and Sahlin, 2009). The following discussion of the literature draws attention to these issues by highlighting ‘‘theinfluence structures at work and the dynamics that have resulted in active spheres of European and internationalaccounting policy’’ (Hopwood, 1994, p. 242). The section concludes with a caveat: hegemonic logic is often contestedand resisted; this can both limit the extent to which it is assimilated and may lead to the incorporation of opposingviews within its own logic (Thompson, 1990). This process whereby the hegemonic logic of one group may be contestedand resisted is part of the struggle for power over international accounting regulation which the current paperexamines.

2.1. International accounting standards board

The IASB is a private accounting standard-setter based in London. It is has a two-tier structure: (i) the ‘‘parent entity’’, theIASC Foundation, which is based in the US State of Delaware and whose Trustees oversee funding and the appointment ofboard members and (ii) ‘‘the board’’ which ‘‘elaborates standards’’ and has ‘‘full sovereignty over its decisions’’ (Chiapello andMedjad, 2009, p. 453). The IASB was founded in 2001 and is the successor to the International Accounting StandardsCommittee (IASC).

According to Hopwood (1994, p. 243), a key motivation for the foundation of the IASC was the entry of the UK in theEuropean Economic Community (EEC). The British accountancy profession feared the ‘‘imposition of continental Europeanstatutory and state control’’ and sought to counter this threat by helping to develop international accounting regulations thatreflected Anglo-American practice (Hopwood, 1994, p. 243; see also, Flower, 1997). In particular, the proposed modus

operandi of the IASC reflected UK and US practice in so far as it stressed independence from the state, was dominated by thelarger accounting firms and served the interest of transnational corporations (Arnold, 2005; Gallhofer and Haslam, 2006,2007; Mattli and Buthe, 2005; Puxty et al., 1987).

While the IASC’s influence was fairly limited following its inception (Hopwood, 1994), this was to change in the late1980s, when it sought alignment with (predominantly US) security regulators (see also Arnold, 2005; Chua and Taylor, 2008;Noel et al., 2010; Richardson and Eberlein, 2011). In particular, it has been suggested that the IASC/IASB was used as a vehicleof political expediency by the Securities and Exchange Commission (SEC) who were under pressure to ‘‘liberalise [their]stringent disclosure requirements’’ (Hopwood, 1994, p. 244). By acting through the International Organisation of SecuritiesCommissions (IOSCO), the SEC sought to construct ‘‘an international basis for accounting disclosures that would beacceptable to the USA’’ (Hopwood, 1994, p. 244; see also, Botzem and Quack, 2006; Chua and Taylor, 2008; Flower, 1997).The close links between the IOSCO and the IASC/IASB have continued unabashed – notably, since 1995, when the IOSCO andIASC/IASB cooperated on ‘‘IASs/IFRSs usage in cross-border offerings and listings rather than national Standards’’ (Gallhoferand Haslam, 2007, p. 641; see also, Camfferman and Zeff, 2007; Flower, 1997; Richardson and Eberlein, 2011; Street, 2006).When it became apparent that this process would be facilitated by convergence towards US standards, the IASB has activelysought to work closely with the Financial Accounting Standards Board (FASB).3 As Gallhofer and Haslam (2007, p. 639) note:

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‘‘Via the IASC/IASB, accounting has increasingly aligned to a narrow Anglo-American capitalism: with capital marketinternationalization and equity finance’s enhanced significance, we are witnessing accounting regulation’sAmericanization, if not crude reduction to global sameness’’.

Despite the long-standing mutuality of interest between FASB and the IASB it was not until 2002, when bothorganisations signed a ‘‘Memorandum of Understanding’’,4 that a formal commitment to convergence was ratified. Evenwith this clear public commitment for convergence, De Lange and Howieson (2006, p. 1010) expressed more than a degree ofscepticism regarding FASB’s sincerity, stating that there was a clear indication from FASB’s ‘‘rhetoric’’ that they ‘‘reserve[d]the right to go their own way’’ (De Lange and Howieson, 2006, p. 1010). In particular, De Lange and Howieson (2006) noted

pite the IOSCO and the IASC reaching an agreement on core standards in 1993, US regulators, continued to insist on US-GAAP as a requirement for US

In order to address this quandary, the so-called ‘‘G4 + 100 group was established (Botzem and Quack, 2006, 2009). The group comprised members of

l standard setting bodies from Australia/New Zealand, Canada, the UK and the US, and representatives of the IASC (who served in an ‘‘observer’’

y). The aim of the G4 + 1 group was ‘‘to influence the future course of international standard setting on the basis of the frameworks already

hed in the four countries, paving the way for a clear-cut capital-market approach’’ (Botzem and Quack, 2009, p. 991). According to Flower (1997, p.

he IASC’s membership of the ‘G4 + 10 group is very significant evidence in confirmation of the claim that the IASC represents, essentially, the Anglo-

an approach to accounting’’.

o known as the ‘‘Norwalk agreement’’ (Richardson and Eberlein, 2011).

se cite this article in press as: Crawford L, et al. Control over accounting standards within the European Union: Theical controversy surrounding the adoption of IFRS 8, Crit Perspect Account (2013), http://dx.doi.org/10.1016/.2013.03.001




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that the FASB ‘‘represents the constituents of the world’s largest capital market’’, which other international firms andinvestors are keen to access; in this respect, it held considerable power in relation to the IASB.

The lure of acceptance by the world’s largest capital market has played a crucial role in driving the accountingharmonisation agenda, along with the support of key institutions. In the early 1990s, large and influential companies inEurope began to seek listings in major stock exchanges around the world. Some of these ‘‘Global players’’, encountereddifficulties due to the fact that their accounts, prepared in accordance with their national legislation, were not acceptable insome of the world’s capital markets (Flower, 1997, p. 281).5 The EC, alert to the danger that large European companies mighthave been drawn towards US GAAP, were prompted to take action. Following some persistent lobbying by large Europeancompanies, the ‘‘the European Commission turned towards the. . . IASC’’, reasoning that if they allowed companies ‘‘to drawup their consolidated accounts using the International Accounting Standards, then this would probably largely solve thesecompanies’ problems and would certainly check the movement towards US GAAP’’ (Flower, 1997, p. 287).

2.2. The IASB and the EU

As of the 1st January 2005, all stock exchange listed companies in the EU are required to use IFRS issued by the IASB andendorsed by the European Parliament (EP). As Chiapello and Medjad (2009) note, the IASB’s rise to prominence in Europe ispartly ‘‘attributable to the EU’s inability to get its members to agree on a common accounting system’’. While appeals tonational sovereignty stalled the harmonization project within Europe, paradoxically, ‘‘Member States found themselvesforced to unite against the threat of a US-controlled standard-setting process’’ (Chiapello and Medjad, 2009, p. 455).According to Chiapello and Medjad (2009, p. 455), ‘‘the EU Member States agreed to this step because the IASB. . . produced‘‘global’’ private standards that were by definition less offending to a host country than ‘‘foreign’’ public standards’’ (see also,Perry and Nolke, 2006).

In terms of process, Chiapello and Medjad (2009, p.455) point out that no EU representative can sit on the IASBscommittees or ‘‘even vote in consultative committees’’. This has led to questions regarding the political legitimacy of theIASB’s standard setting process. For example, the EP of the EU has noted that the IASB:

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. . . is a private self-regulatory body which has been given the role of lawmaker for the EU . . . [the EP] underlines thatthe IASCF/IASB . . . lack transparency, legitimacy, accountability and are not under control of any democraticallyelected parliament or government, without the EU institutions having established the accompanying procedures andpractices of consultation and democratic decision-making that are usual in its own legislative procedures. . .

(European Parliament, 2008, p. 4, quoted in Richardson and Eberlein, 2011, p. 217)

Nevertheless, the EU adhere to a complex procedure called ‘‘comitology’’6 which, as far as accounting standards areconcerned, prevents the EU from relinquishing complete control of the accounting standard setting process. Chiapello andMedjad (2009, p. 454) outline this process as follows:

‘‘First, each standard is reviewed from a technical standpoint by the EFRAG (European Financial Reporting AdvisoryGroup), which examines its compliance with the European framework directives. Next, it is submitted for politicalapproval to the ARC (Accounting Regulation Committee), made up of Member State representatives. If approval isgiven, the Commission can issue a regulation for adoption’’.

However, while the EFRAG participates during the ‘‘due process’’ consultation at the early stages of a standard’sdevelopment, the EU has ‘‘no control over the EFRAG either’’ (Chiapello and Medjad (2009, p. 454). According to Chiapelloand Medjad (2009, p. 454), the EFRAG, like the IASB, is privately financed and managed; its committee membership ispredominately represented by the financial sector and large audit firms (Chiapello and Medjad, 2009; Noel et al., 2010; Perryand Nolke, 2006). In assessing the role of the EFRAG vis-a-vis the accounting standard setting process in Europe, Perry andNolke (2006, p. 579) argue that:

‘‘By closely connecting the IASB to the EU, and institutionalizing the consultation mechanism through EFRAG, it washoped that European accounting regulators could influence the substantive development of the new IFRS... Somewhatironically, the EU’s move to assert itself in the battle for global accounting standards has led to a large scaledismantling of dominant accounting regulations within most of the member states, in favour of practices that can beconceived as being part of US hegemony.’’

difficulties faced by some large European companies seeking a US listing are perhaps best illustrated by the Daimler Benz NYSE listing in 1993.

prepared their accounts under German Law, the SEC found them unacceptable. As Flower (1997, p. 284) notes, ‘‘The company was obliged to prepare

ciliation statement that presented equity and profits according to US GAAP. Not only was this costly, but, more seriously, it revealed remarkable

ces between the figures. . .under the two sets of accounting rules. . . Investors were undoubtedly confused by these disclosures and, no doubt, asked

lves the question: which set of accounting rules produced the correct figure; US GAAP, with a loss of DM 1839 million or the German rules with a

f DM 602 million?’’

process of comitology was introduced in 1999 and confers powers from the European Council to the EC to adopt implementation legislation.

er, this process was amended in July 2006 to introduce ‘‘. . .regulatory procedures with scrutiny. . .’’ that give the EP and the Council the power ‘‘. . .to

the adoption. . .’’ of EC draft legislation, justifying their opposition by indicating that the ‘‘. . .draft measures proposed by the Commission exceed the

enting powers. . .’’ (EU, 2006).

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That IFRS 8 is virtually identical to its US counterpart, SFAS 131,7 in many respects exemplifies how a US hegemonicdiscourse pervades the IASB and the accounting standard setting agenda in Europe.8

This review of the literature has outlined the contours of the institutional field of international accounting and drawnattention to the forces that help shape the field. From this discussion, it has been suggested that the international accountingarena reflects the agency of key participants in the field, including ‘‘states, corporate forms of capital (transnationalcorporations and industry lobbies), and international economic institutions’’, who have pushed for accounting practices thatare broadly aligned with Anglo-American hegemony (Arnold, 2005, p. 302). A particular feature of this hegemony is thepriority ascribed to capital markets and their constituencies – perhaps reflected in the pivotal role played by the SEC(operating through the IOSCO) in shaping the role of the IASB. As Botzem and Quack (2005, p. 13) note, the growing influenceof financial market actors in the accounting standard setting arena serves to strengthen the ‘‘logic of investor transparency’’.

While, on the whole, we broadly concur with the interpretation of such an analysis, there is a tendency in existing studiesto downplay the significance of resistance and contestation in influencing the institutional environment. In this sense, weshare Bengtsson’s (2011, p. 570) view that institutional approaches to international accounting regulation tend to assumethat ‘‘institutional systems are inherently stable’’ and that ‘‘actors are passive respondents with little or no ability towithstand changes in their institutional environment or influence it in any way’’. As Cooper and Robson (2006, p. 430) note,one should not overlook the ‘‘potential [for] fragmentation and perhaps even disorganization’’

Alluding to the operation of hegemony in education, Apple (1991, p. 10) reminds us that while knowledge is never aneutral activity, it is neither, nor need it be, a ‘‘complete mirror reflection of ruling class ideas’’. In order to maintain its ownlegitimacy, the ruling power must integrate many interests, ‘‘even opposing groups under its banner’’ (Apple, 1995, p. 27).9

Gray (1998) alludes to this dynamic in the context of the growing influence of neoliberalism within Europe. He argues thatwhile the hegemonic logic of neoliberalism will alter Europe’s social market economies irrecoverably – it does notnecessarily imply that it will be assimilated wholesale. In this respect, Gray (1998) highlights how the legitimacy of existingsocial structures within Europe will enable them to endure, and to an extent alter, neoliberalism apparent ineluctability.10

Similarly, in the context of accounting regulation, and more specifically the EU/IASB dynamic, we should perhaps be open tothe possibility that Anglo-American hegemony will not be fully assimilated, and that political actors have some ability(however limited) to shape the institutional field (Bengtsson, 2011). The adoption process for IFRS 8 by the EU highlights, tosome extent, how the existing institutional field surrounding international accounting is contested.

3. Background to IFRS 8 – operating segments

As part of the IASB-FASB convergence process discussed in the previous section, the IASB produced IFRS 8 ‘‘OperatingSegments’’ to replace IAS 14(R). IFRS 8 is identical to its US counterpart – SFAS 131, except for minor differences andterminology changes necessary to conform to other IFRS.11 The standard is effective for accounting periods starting on orafter 1st January 2009.12

Segmental reporting has always been an area that was problematic for standard setters (Rennie and Emmanuel, 1992;Emmanuel et al., 1999; Edwards and Smith, 1996); even when IAS 14(R) was in force, concerns were expressed about thedisclosures that companies were required to make (Jermakowicz and Gornik-Tomaszewski, 2006). The IASB issued itsrevised proposal to IAS 14(R) as an Exposure Draft (ED) and then published all the comments to this Exposure Draft for IFRS 8.It is clear that there were many more comments for this proposed standard than for most EDs,13 with 182 submissions beingreceived from regulators/professional bodies, preparers and the Publish What You Pay coalition (PWYP) members (IASB,2006a). Surprisingly, there were very few views submitted from traditional users of financial statements such as investorsand analysts. The IASB finally issued IFRS 8 in November 2006, based on its analysis on the comments (IASB, 2006b).

The new standard (IFRS 8) is different from its predecessor IAS 14(R) with its focus on the ‘management approach’ todefining segments. The management approach requires ‘‘identification of operating segments on the basis of internal reports

7 As stated in IFRS 8 ‘Operating Segments’, the standard ‘‘. . .achieves convergence with the requirements of SFAS 131 except for minor differences . . .

[and] the wording of the IFRS is the same as that of SFAS 131 except for changes necessary to make the terminology consistent with that in other IFRSs’’ (IFRS

8, para IN3). Specifically, IFRS 8 requires: (i) segment assets to include intangibles; (ii) segment liabilities to be disclosed if reviewed by management; and

(iii) determination of reportable segments in matrix organisations to be consistent with the core principle, whereas SF AS 131 does not (IFRS 8, para BC 60).8 It should be noted that accounting standards of the IASB are accepted as legitimate in the international financial architecture, being recognised by the

G20 as necessary for global financial stability and used by international organisations, such as the IMF and the World Bank, to benchmark national

regulatory practices (Humphrey et al., 2009). Thus, US hegemonic discourse arguably runs deeper than just the EU context discussed above.9 A similar interpretation of the operation of ideology is offered by Boltanski and Chiapello (2005), who refer to the Spirit of capitalism as an ideology that

justifies engagement with capitalism. According to Boltanski and Chiapello (2005, p. 20), in order to justify engagement, the dominant ideology must ‘‘draw

upon resources [and beliefs] external to it’’, even when such beliefs are ‘hostile’ to [the dominant ideology]’’. In this sense, the dominant ideology maintains

its continuity through ‘‘a kind of synthesis’’ or ‘‘convergence with its enemies’’ (Boltanski and Chiapello, 2005, p. 20).10 There is a danger of seeing this dynamic as social market Europe vs. Anglo-American capitalism. However, as discussed above, the reality is a little more

complex, especially given the role of vested interests and political agency within Europe that are aligned to a neoliberal agenda.11 Thus, Neveling (2007) suggested that the IASB had adopted a standard that was ‘‘vague and represented . . . US [requirements] over European accounting

methods.’’12 IFRS 8 allows for early application of the standard and in such cases required the reporting entity to disclose that fact (IFRS 8, para 35).13 For example, the IASB received 90 comment letters in 2007 on IAS 23 – proposed amendments of borrowing costs and 72 comment letters in 2008 on

IFRS 3 – proposed amendments to business combinations.





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that are regularly reviewed by the entity’s chief operating decision maker in order to allocate resources to the segment andassess its performance’’ (IASB, 2006b). This ‘through the eyes of management’ approach, also requires the use of non-IFRSmeasures for reporting segments if these measures are used internally. Therefore, a major criticism of IFRS 8 was that itfollows the approach adopted by the US standard, SFAS 131, and requires disclosure of information that has been producedfor internal management decisions, rather than information that has been prepared in accordance with accounting policiesfor external users (Sukhraj, 2007b; Veron, 2007a).14 Thus, the management approach of IFRS 8 relies on managementdiscretion to determine the composition of a group’s segments and how these segments’ performances are to be measuredand reported. Herrmann and Thomas (2000) suggest that defining segments under the management approach, and notaccording to a segment’s risk, return and growth profile, will lead to a decrease in the usefulness of the disaggregatedinformation for forecasting purposes. This contradicts one of the EU requirements for IFRS adoption; that standards shouldmeet the criteria of ‘‘understandabiliy, relevance, reliability and comparability . . . needed for making economic decisions. . .’’(Veron, 2007b, p. 17).15 The management approach, use of non-IFRS measures and adoption of an ‘alien standard’ were threemajor concerns that the Committee on European and Monetary Affairs (ECON) raised during the EU endorsement of IFRS 8(IASplus, 2007; Veron, 2007a)

Further additional concerns have been raised about the fact that IFRS 8 has adopted additional features of the USstandard: for example, criticism has been voiced about the term ‘‘chief operating decision maker’’ (CODM), as IFRS 8 does notprescribe who this person is or should be (Crawford et al., 2010; Sukhraj, 2007a). While this term is frequently used in USaccounting standards (for example, SFAS 131), IFRS 8 was the first instance when the CODM featured in a standard issued bythe IASB. IFRS 8 itself suggests that the CODM could be ‘‘the chief executive officer or the chief operating officer, or. . . a groupof executive directors. . .or, the board of directors’’ (IFRS 8, para 7–8) and aligns it with the function of allocating resources to,and assessing the performance of, the operating segments of the entity. Indeed, the term CODM was taken from the USstandard on segmental reporting (SFAS 131) that has been criticised for being ‘‘vague and represent[ing]. . . US[requirements] over European accounting methods’’ (Neveling, 2007).

In addition, while IAS 14(R) mandated disclosure of geographical segmental information, IFRS 8 mimicked the USstandard and only required limited entity-wide information about geographical areas ‘‘. . . unless the necessary informationis not available and the cost to develop it would be excessive . . .’’ (IFRS 8, para. 33). Such entity-wide geographical disclosuresare limited to only reporting revenues from external customers and non-current assets, and distinguishing between theentity’s country of domicile and foreign countries in total16. Where an individual foreign country is considered material, thencountry-level disclosure is required. However, the standard does not define ‘material’, and as Herrmann and Thomas (2000)argue, this lack of guidance could mean that the ‘‘potential benefits of country-level disclosure may never be realised (p. 14)’’as reporting entities may adopt high materiality thresholds. Indeed, Sukhraj (2007b) suggests that investors were ‘‘spittingmad. . . [and] perturbed by the removal of geographical segmentation which they deemed as important to them’’.

Critics have also suggested that the use of non-IFRS measures under IFRS 8 may reduce the decision usefulness ofsegmental information reported under IFRS 8 (Sukhraj, 2007b). Finally, segmental disclosures under IFRS 8 only have toreconcile ‘‘the total of the reportable segments’ [disclosures such as revenues and assets] to the [figures reported in] theentity’s primary [financial statements]’’ (para. 28). Therefore, disclosures provided for individual segments do not have tosum to the total amounts on the face of the financial statements (Crawford et al., 2010). Indeed, a sizeable reconciling itemmay have to be included to ensure that segmental disclosures aggregate to the total figures reported in the primary financialstatements. This reconciling item may hinder comparability over time and across companies.

The main objectors to IFRS 8 were NGOs and charities, many of whom submitted comments to the IASB during the EDconsultation process under the umbrella body of the PWYP coalition.17 In particular, the coalition raised objections to thestandard about the fact that companies might not disclose as much disaggregated information under IFRS 8 as they hadpublished under IAS 14(R). This problem was highlighted for companies operating in the mineral and extraction sectors indeveloping countries. NGOs and charities were concerned that information about such companies and the magnitude of

14 The EC took into consideration the results of various academic research papers showing that SFAS 131 in the US had a positive impact on the usefulness,

predictability and quantity of disclosure in financial statements. However, the standard that preceded SFAS 131in the US was not equivalent to IAS 14(R),

which preceded IFRS 8; therefore it may not have been appropriate for the EC to have taken this US-based research into account (European Commission,

2007).15 It is perhaps worth noting that following the implementation of the Fourth and Seventh Directives, a number of European accounting systems shifted

from an ‘‘almost exclusive purpose’’ of determining tax payments, to one that aimed to provide ‘‘useful information for the business community’’ (Haller,

2002, p. 156). Williams (2009, p. 275) views the shift to ‘‘decision usefulness’’ as a ‘‘financial reporting revolution’’ that began in the US in the early 1960s.

For Williams (2009, p.275), this revolution was an ‘‘ideological one’’, which served to privilege the role of markets and investors above all else. Therefore, the

EU’s criteria for IFRS adoption is, to a large degree, informed by a decision-usefulness approach, and could arguably be conceived as manifestation of Anglo-

American hegemony.16 IFRS 8 also requires entity-wide disclosures in respect of products/services and major customers, in addition to information about geographic areas.17 Of the 182 submissions to the IASB, 80 were from the PWYP coalition. A detailed analysis of the other 102 submissions reveals that 45 were from

preparers, 7 from users, 12 from standard setters, 29 from professional bodies, 7 from accountancy firms and 2 from ‘others’. The comment letters received

by the IASB from the PWYP coalition were similar in form and content and were isolated by the IASB from the other comment letters to be ‘considered

separately’ (European Commission, 2007). It is interesting to note that the PWYP coalition adopted an investor position in their lobbying activity – given that

their primary concern is with the impoverishment of developing/resource rich countries due, in part, to a lack of transparency in the financial flows from

companies to governments. According to Gallhofer and Haslam (2007, p. 652), the position adopted by PWYP was ‘‘strategic’’, given that the IASB had

advised the NGO that investor support would strengthen their cause.





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payments made to governments and officials in these countries would not be divulged; thus, they suggested that theaccountability of these companies could be undermined (Murphy, 2009). Most importantly, the PWYP coalition objected tothe IASB’s consultation process that ‘‘combined [80] PWYP letters into a single view, diluting impact in terms of the numberof positions going to the Board (Gallhofer and Haslam, 2007, p. 652).18 Further, they were critical of the IASB for initially notagreeing to meet with the PWYP coalition.

As a result of these objections and enabled by the new comitolgy process of 2006 (see footnote 6), the EP set inmotion its own consultation process on IFRS 8 – the first standard to be subject to this level of scrutiny (EuropeanCommission, 2007). Under the EU’s endorsement process, EFRAG recommended adoption of IFRS 8, but expressedreservation that IFRS 8 did not represent an improvement on the predecessor standard; by contrast, ARC votedunanimously in favour of IFRS 8 (Veron, 2007a). However, the ECON of the EP expressed a number of reservations aboutIFRS 8 and, under the new comitology procedures (see footnote 6), asked the EC to undertake an impact assessment ofIFRS 8 (Veron, 2007a; IASplus, 2007); following an analysis of this consultation, the EC recommended that theParliament should pass IFRS 8 in to law. An investigation of the submissions received by the EC (European Commission,2007) revealed that very few users, regulators and auditors responded to the EC’s questionnaire on IFRS 8; only 6 ‘users’replied to a specific questionnaire targeted at ‘users/analysts’. A more general questionnaire about the proposedstandard only elicited responses from 46 users out of a total of 165 replies.19 The EC’s analysis of these questionnaireswas heavily criticised for conflating viewpoints from separate stakeholder categories and presenting an unbalancedsummary of ‘‘. . .the majority of respondents. . ., without indicating which category of stakeholders raised particularconcerns’’ (Veron, 2007a).

Subsequent to this consultation process the EP endorsed IFRS 8 in November 2007 for all EU countries but expressedregret in its resolution ‘‘. . .that the impact assessment carried out by the [European] Commission did not sufficiently takeinto account the interests of users’’ (European Parliament, 2007). In addition, the EP motion expressed concern about thepractice of issuing standards for convergence purposes; the possible reduction in geographical disclosures; and the absenceof guidance about the identity of the CODM within the standard. From this regret, it would appear that the EP has endorsed astandard that it clearly perceived as less than ideal for the European context. The objective of the current paper is to analysethe struggle for power within the international accounting regulation arena by focussing on the EU endorsement process forthis controversial standard.

4. Research approach

Drawing on Gallhofer and Haslam (2007, p.634; see also, 1997, 2006), this paper undertakes a critical analysis of theinterrelations of transnational accounting regulators and their contextual location, focusing on the struggle for powerbetween the EU and IASB surrounding the adaption of IFRS 8. Such an approach necessarily goes beyond the tendency to‘‘bracket accounting from the socio-political context’’ (p. 634), by highlighting, among other things, the political agency andinstitutional forces that shape the field of accounting regulation (see also Arnold, 2005). Informed by the broadlyinstitutional approaches to accounting regulation outlined above, we focus on the concerns of stakeholders about the EUendorsement process of IFRS 8, drawing attention to the hegemonic logic that informed the process as well as the role ofcontestation and resistance.

A series of 15 semi-structured interviews with stakeholders was undertaken. The stakeholder groups of the interviewees(preparers, regulators, legislators, fund manager-analysts, auditors and other users) are noted in Table 1 and broadly reflectthose that submitted comments about IFRS 8 as part of the EC consultation exercise before the standard was endorsed(European Commission, 2007)20; however, it is worth pointing out that only two of the interviewees had been directlyinvolved in the submissions to the EC as part of the endorsement process for IFRS 8 as professional bodies and tradeorganisations typically make submissions on their members’ behalf. As the views of respondents to the IASB and EUconsultation process are publicly available, the researchers wished to elicit the views of those affected by the standard butwho had not necessarily engaged directly in the process.

A semi-structured questionnaire was developed from the literature and piloted on a number of academics andpractitioners. This set of 15 questions was grouped into two sections. The first three questions sought background detailsabout each interviewee. The second section included 12 open-ended questions to ascertain interviewees’ views about the EUendorsement process and asked about whether they21:

18 Interestingly, the IASB did not combine the submissions from members of the Small Companies Alliance despite the fact that, like the PWYP’s letters, the

submissions were similar.19 Of the 165 questionnaire responses, 60 were received from preparers, 9 from standard setters, 42 from organisations (including national governments

and regulators), 8 from accounting firms and 46 from users (including submissions from the Publish What Your Pay (PWYP) coalition) (European

Commission, 2007, p. 21).20 The interviewees were selected in order to get a range of perspectives on the process surrounding the adoption of IFRS 8. Thus, while the stakeholder

groupings were established beforehand and draw on the categories of respondent that took part in the IASB’s and EC’s consultation process (preparers,

users, standard setters, institutes/regulators, accountancy firms and other), the actual participants were randomly approached. In addition, a decision was

taken to interview legislators as these were seen to be a key constituency in the IFRS 8 adoption process.21 In fact, the semi-structured questionnaire had three sections. The final section involved 10 closed questions that asked the 15 interviewees about the

changes to segmental reporting proposed in IFRS 8 relative to existing requirements in IAS 14R. These are not discussed in the current paper.




Table 1

Interviewee profile and stakeholder grouping.

Stakeholder group Interviewee Position Sector

Preparer P1 Chief accountant Banking and investment

P2 Finance director Communications technology

Regulator R1 Research director Standard setter

R2 Board member Standard setter

R3 Technical director National professional body

R4 Technical director International professional organisation

Legislator L1 Civil servant European Commission

L2 MEP European Parliament

Auditor A1 Partner Big 4 accounting firm

A2 Senior manager Big 4 accounting firm

Institutional Investor I1 Analyst Asset management

I2 Fund manager Asset management

I3 Investment advisor Asset management

User U1 Private investor

U2 NGO representative NGO/charity

Table 2

A Summary of Interviewee Responses.

Summary question Summary answer

P1 P2 R1 R2 R3 R4 L1 L2 A1 A2 I1 I2 I3 UI U2

Did you have any concerns about the introduction of IFRS8? Yes Yes Yes Yes Yes Yes Yes Yes No Yes Yes Yes Yes Yes Yes

Did you participate in the IASB or EU consultation processes

prior to IFRS 8 endorsement?

Yes No No Yes Yes Yes Nr Yes Yes Yes No No No No Yes

Was your response supportive of IFRS 8? Yes – – No Yes Yes – Yes N N – – – – No

Why did the EU implement its own consultation process? L DK L, P P P P, L P, L P P CS Na CS P CS L

Why did so few investors participate in the consultation

process?

C, U D C, U R U U Na R C,T C,D R,T R R DK D

Were you aware of the PWYP coalition? Yes No Yes Yes Yes Yes Yes No No No No Yes No No Yes

Was it right to treat the PWYP coalition consultation

responses as one response?

Yes Yes Yes Yes Na Yes Yes Yes Yes Yes Yes Yes Yes No No

Key: Nr, not relevant; N, neutral; L, pressure group lobbying; DK, do not know; P, power and politics; CS, controversial standard; Na, not answered; C,

standard too complex; U, unorganised; D, investors do not care; R, rely on representative groups to participate on their behalf; T, lack of time; –, not

applicable.


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� w
ere aware of political struggle between the IASB and the EU at the time of the IFRS 8’s adoption; � s aw IFRS 8 as a ‘‘contestable’’ standard that was being introduced to further the convergence agenda of the IASB rather than
because of any great demand for changes in segmental reporting;
� h ad concerns about the adoption of IFRS 8 and communicated these concerns at any stage during the IASB consultation or
EU endorsement process; and
� w ere familiar with the lobbying of certain groups, such as the PWYP coalition, about the contents of IFRS 8 and the relative
absence of the user participation in the consultation process.

Each interview lasted about one hour and was attended by two of the research team; one member was present at allinterviews to ensure that a consistent approach was adopted and to supply some insight about the overall support among theinterviewees for the findings reached. All interviews were digitally recorded; these recordings were supplemented withnotes made during the interview discussions. All recordings were transcribed and the transcriptions analysed by two of theresearch team in conjunction with the notes that had been taken. Tables were constructed for each stakeholder grouping tosummarise the responses of the interviewees to the questions asked. These tables were then scrutinised when writing up thefindings. A summary of the interviewees’ responses is shown in Table 2.

5. Findings

The interviewees were first asked for their perceptions about the motives behind the adoption of IFRS 8. All stakeholdergroups, apart from the investors, shared some concern that the standard was being adopted as part of the convergenceprocess with the US. The tone of some interviewees’ comments suggest that they objected primarily to the perceived‘‘American exceptionalism’’ in the standard setting process – i.e. the ideological position that the US is ‘‘superior relative to





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other nations and international laws’’ and standards of behaviour (De Lange and Howieson, 2006, p. 1023). For example, oneauditor (A1) thought that there was no demand for IFRS 8, that IAS 14R had been quite adequate, and that the change wasbeing implemented purely to aid the harmonisation process with the FASB. Another interviewee, legislator L2 asked: ‘‘Whyshould we [the EU] be pushed around to accept an American standard?’’ One of the non-investor users, U2, noted that theissue of convergence seemed to have been more important than concern for the public good.

In contrast with the views above, regulator R3 also drew attention to the importance of adopting IFRS 8 in order tofacilitate the harmonisation process. He expressed concern that the standard might not get adopted or endorsed and worriedthat ‘‘the whole accounting language would disintegrate’’ if all IFRS did not become mandatory in the EU. Further, preparerP1 viewed convergence with the US standard as a distinct advantage; her firm had adopted IFRS 8 early in order to harmoniseits financial statements with US requirements and eliminate any GAAP differences because they were contemplating a USlisting in the near future.

Drawing on the institutional literature outlined at the beginning of this paper, the views expressed by the intervieweesabove support the interpretation that the political agency and intent of the key participants in the field are framing theagenda in their own interests. In particular, the FASB can be viewed as one of the ‘‘dominant actors’’ who occupy a centralposition within the accounting regulatory field and who seek to ‘‘protect and defend’’ the ‘‘dominant frames andunderstanding in the field’’ (Djelic and Sahlin, 2009, p. 185). In many respects, our interviewees’ comments highlighted therelative power of the FASB over the IASB and the EU, and lend support to the belief that convergence would be a one-sidedprocess favouring the requirements of US regulators (De Lange and Howieson, 2006). In other words, given the lure of a USlisting for some European companies, if the EU were to reject an IASB standard, it could potentially jeopardise theharmonisation project within Europe, leading to some companies electing to adhere to US GAAP (Chiapello and Medjad,2009; De Lange and Howieson, 2006; Flower, 1997).

As previous sections highlighted, a particular feature of IFRS 8 was that it attracted a good deal of lobbying during theEuropean endorsement process. One interviewee suggested that this lobbying had mainly emanated from one ‘‘narrow’’stakeholder group. User U2 was not surprised by this lobbying at the EU level; he argued that the IASB was dominated bymultinational organisations and large audit firms and had not listened to his concerns at the exposure draft or discussionpaper phase; he had therefore turned to the EU as the next step in his attempt to influence the outcome of segmentalreporting. Similarly, investor I2 commented that, in contrast to his dealings with the IASB, he felt that the issues he had raisedwere considered during the EUs endorsement process. Indeed, Regulator R1 reflected that the lobbyists: ‘‘were sufficientlysuccessful . . . to cause the EU to wake up to the fact that it did have an endorsement process and that it should be takenseriously.’’ In short, it could be argued that the EUs endorsement process provided ‘‘peripheral actors’’ with a legitimateplatform that enabled them to mount a challenge to ‘‘the structuring practices of meaning and action’’ in the field ofaccounting regulation (Djelic and Sahlin, 2009, p. 185).

From the discussions with interviewees, it was clear that IFRS 8 itself had not been perceived as a major concern, but ithad been issued at a time when political sensitivities were heightened, as demonstrated by Regulator R4:

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‘‘When everybody commented originally on the exposure draft in relation to IFRS 8 nobody knew that it would be apolitical issue afterwards. It was just co-incidence that this became a political issue. If there were any other standardup for endorsement, it would have been that standard. The Parliament was ready for a fight. So it was a co-incidencethat it was IFRS 8’’

One reason for this readiness for ‘‘a fight’’ was that the influence of the IASB was regarded as having become verypowerful. For example, regulator R4 noted:

‘‘The EU is getting more and more disenchanted with the IASB. . . ten years ago European accounting regulation was adesert. Europe ignored accounting until the EU decided to adopt IFRS and [they] had the force of law. . . [then] Europesuddenly woke up [to the powerful position of the IASB].’’

The reason for this view was the impression, already alluded to, that American influence was growing, particularlywith reference to accounting standards that were being issued by the IASB and endorsed in Europe. Again, the issue atstake was not so much the content of the standard, but with process and what the standard was perceived to represent –i.e. a manifestation of ‘‘American essesntialism’’ (De Lange and Howieson, 2006). According to Merryman and Perez-Perdomo (2007, p. 3), ‘‘the basic charters and the continuing legal development. . . of the European Union are the work ofpeople trained in the civil law tradition’’. In the context of regulating economic activity, the civil law tradition tends toemphasise ‘‘public interest regulation’’ and the ‘‘acceptance of state intervention’’ whereas the Anglo-American commonlaw tradition is market oriented, with regulation emerging as the result of market failure (Ogus, 2004, p. 149). It is forthis reason, that Ogus (2004, p. 149) notes that, ‘‘continental European systems have been less comfortable thancommon law jurisdictions with regulating agencies that are, at least to some degree, independent of government’’. AsRegulator R3 explained:

‘‘[MSPs] see themselves as democratically elected. They have powers to set the rules. They see a significant democraticdeficit in the IASB . . . the criteria for endorsement. Standards need to be conducive to the European public good. Theendorsement mechanism is a negotiation ploy to encourage the IASB to pick up the European view. [There is a] definiteundercurrent of suspicion and anti-Americanism.’’





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Legislator L2 agreed with this view when he noted that:

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‘‘My German and French colleagues felt that was a complete affront to their . . . democratic scruples. . .Some of mycontinental colleagues [ask] who is this David Tweedie that he can sort of decide for us all our accounting. . .

[standards] without any reference to the democratic process?. . . and a few Americans and a few Europeans decide allthese accounting rules and things like segments and fair value. . . and the political machine doesn’t have any lookin. . .we have passed this responsibility over to this self appointed quango!’’

Preparer P1 also noted that some countries wanted to reduce the power of the IASB in the standard setting process andthat IFRS 8 was the first opportunity for the EP to achieve this goal. Indeed, R3 commented that the French were critical of theIASB even before this standard. Legislator L1 quipped that there were definitely concerns in Europe over: ‘‘. . . a private bodyin London developing standards that ultimately become European Law.’’ He continued that there had been support forMadame Beres, the Rapporteur of the EP’s Committee on Economic and Monetary Affairs, who had argued that ‘‘we don’twant to have US standards, we want European standards.’’22

From these responses, it would appear that IFRS 8 was controversial because of the timing of its endorsement; the EU hadjust changed its rules on the comitology process. As legislator L1 noted:

‘‘IFRS 8 was under the new comitology procedure with scrutiny. This new procedure formally started in 2008 but theEuropean Parliament anticipated these changes and brought IFRS 8 within the new procedure early. . . The newprocedure gives more powers to the European Parliament to reject IASB regulations if they are not conducive to theEuropean public good. . . Normally legislators would not give away such powers – the only thing it has is theendorsement process.’’

He noted that the EP wanted to ensure that standards had to go through the legislative process and that it was not justgoing to rubber stamp them in future. He continued that standards had to be justified politically, socially and economically. Itwas the timing of IFRS 8 that allowed it to become a ‘‘political football’’. IFRS 8 itself, according to L2, was not a huge issue andParliament actually let it go through quite easily. Instead, he noted that the EP had wanted the IASB to take note of theParliament’s role in the endorsement process.

As outlined in the literature review, the Parliament required the EC to conduct an impact assessment of a standard forthe first time under the new comitology procedures. The Commission then had to draft the legislation and Parliament hadto approve or not approve the EC recommendations. In the past, the EC often did not have time to do these impactassessments; but in the case of IFRS 8 this was demanded by Parliament and the EU consultation exercise took place.However, I1 did not think that the EU should have had its own consultation process. He thought that the IASB held enoughconsultations and that he did not ‘‘understand what the EU was going to achieve by doing the same process over again?’’However I3 was:

‘‘. . .a bit more prosaic by realising that the EU had only just put in place the architecture to give consideration to thesematters and that [IFRS 8] was the first [accounting standard] that was in their pipeline.’’

One common finding that emerged from the interviews was that those based in Brussels shared the same view: that IFRS8 had been used purely as a vehicle to highlight the Americanisation of European standards and that it was not the standardper se that had caused such an outcry. The interviewees based in the UK did not appear to have the same inside knowledgeabout this issue as those based in Brussels; they thought that it was the standard itself that had caused the furore.

After discussing the European endorsement process, the interviewees were asked further questions on the adoption andendorsement of IFRS 8. In general, none of the interviewees had read any of the responses to the exposure draft, discussionpaper or the EU’s public consultation unless it was part of their job or because of a vested interest. Audit firms and regulatorsusually only submitted one organisational response, for example via the technical departments of audit firms; theindividuals within these organisations did not respond in their own right. Only two individuals were involved personally in

eems apposite to note that the above comments suggest that resistance by European stakeholders to the IASB is not necessarily predicated on the

ion that the IASB reflects a neoliberal/market-based ideology that is incongruent with European norms and tradition. Instead, the above comments

that contestation is a manifestation of different worldviews related to the democratic process. In their analysis of trends in transnational

ance, Djelic and Sahlin (2009, p. 186, emphasis added) refer to regulatory ‘‘fields as complex combinations of spatial and relational topographies with

ul structuring forces in the form of cultural frames or patterns of meaning’’. Djelic and Sahlin (2009, p. 188) delineate five institutional forces which

ingly structure fields in transnational regulation (i) scientization, the authority ascribed to scientific rationalisation; (ii) marketisation, the belief in

eriority in of markets; (iii) organising, the structure and coordination of rules and regulatory processes; (iv) moral rationalisation, the ‘‘rationalised

entized assessment and celebration of virtue’’, and; (v) deliberative democracy, ‘‘a view of democracy that emphasizes dialogue and deliberation and

onomy of participating actors’’ (p. 188). Of particular relevance to our discussion are the institutional forces of marketisation and deliberative

acy. The institutional literature, outlined at the beginning of this paper, tends to emphasise the force of marketisation in shaping the trajectory of

tional accounting regulation – for example, through the priority ascribed to capital markets and their constituencies (Arnold, 2005; Botzem and

2005; Gallhofer and Haslam, 2006; Perry and Nolke, 2006). However, we suggest that the force of deliberative democracy is also of particular

ce within the EU/FASB/IASB dynamic. More specifically, as outlined above, given the civil law tradition embedded within the EU, stakeholders within

are resistant to forms of regulation and regulatory agencies independent of government. An alternative (or complimentary) interpretation of the

wees’ comments is that resistance emerged out of a concern over who controlled the standard setting process – i.e., concerns were not necessarily

ver issues of ideology or the democratic process, but over control.





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responding to IFRS 823 and both of these had an inherent interest in segmental reporting; one of these was user U2 who hadconcerns about aspects of the standard, and the other was a preparer (P1) who responded because he wanted the standard tobe adopted. Only two interviewees looked upon the standard unfavourably: one user U2 and a regulator R2 who was againstthe adoption of an American standard on principle. Indeed, the regulator went as far as calling it a ‘‘scoundrel’s charter.’’

A major critic of IFRS 8 during the adoption and endorsement process had been the PWYP coalition; thus, the next part ofthe research examined whether stakeholders had been aware of the PWYP, whether the views of all the charities and NGOsshould have been treated as only one submission by the IASB, and whether the IASB should have entered into a dialogue withthem. The regulators were the main group that knew about the PWYP24; in general, there was little or no knowledge of thePWYP coalition among the other interviewees. Most interviewees agreed that the IASB should have treated the responses ofthis group as just one submission rather than many individual submissions; only user U2 disagreed with the IASB’s stancewhen he noted that it was: ‘‘utterly fraudulent behaviour!’’ Reasons advanced in support of the IASB’s view were variedacross the interviewees but one factor that was common in the responses was that the PWYP lobbying emerged from just anarrow stakeholder group. Regulator R2 stated that:

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‘‘The consultation process is not a poll. It looks for arguments on a standard. You don’t count heads. You look forevidence and arguments. The idea that the IASB meets people to negotiate is wrong- else you would get the mostskilled negotiators always winning the argument. If it’s just to meet them to re-iterate what they said when theargument has already been rejected – it’s not arrogance – it’s just not to negotiate with lobby groups.’’

Other interviewees from different stakeholder groups also commented that it was the quality of the argument that shouldhold sway. One regulator made a disparaging remark that the PWYP had only raised ‘‘bad’’ arguments. Legislator L1 notedthat there would be an unbalanced result if legislation was based on percentages of respondents agreeing or disagreeing toissues while another (L2) declared: ‘‘Why be deluged by hundreds [of responses making the same point] when one will do!’’A regulator added that a single collective response was much more effective. Further, an auditor (A1) commented that theIASB did not have time to meet everyone. Indeed, some submissions by other bodies represented the views of many partiesand the IASB had not met with them. For example, the professional accounting firms had made one response for all theiremployees and clients, while the Chartered Financial Analyst organisation represents thousands of investors and analysts.One auditor (A2) did, however, note a word of caution by pointing out that the similarity of the letters sent by the PWYPcoalition members was like a petition- and that petition signatories should not be ignored just because they came from thesame place. Nevertheless, given that the IASB did not combine the submissions from the Small Companies Alliance (seefootnote 16), despite the fact that their comments were similar, suggests an overall inconsistency in due process proceduresthat raise pertinent questions about ‘‘representational adequacy’’ (Robson and Young, 2009, p. 357).25

Overall, amongst the interviewees, the requirements of IFRS 8 were not seen as a cause for concern for most of thestakeholders interviewed. It was just a disclosure standard that some parties had latched on to for other motives.26 Severalstakeholders noted that the only other issue that they had consulted or been concerned about was on the structure of theIASB itself and the appointment of its trustees. Thus, IFRS 8 itself was not deemed to be a particularly controversial standardand as one preparer (P1) summarised: ‘‘of all the standards to pick on, this one seemed so innocuous.’’

6. Discussion

What emerged from the interviews is that IFRS 8 was a ‘‘battleground’’ for control over accounting standards within theEU. MEPs wanted to contest the IASB’s power to determine financial reporting requirements. There was a feeling among theBrussels-based interviewees that the elected representatives should have some say in mandating how EU-listed companiesreported to shareholders. They had been given powers under the new comitology process and had decided to exercise thesepowers when IFRS 8 came before them for approval.

In many ways, IFRS 8 was an ideal standard for those looking to ‘‘pick a fight’’. It had been introduced primarily toharmonise segmental disclosure requirements with its US counterpart, SFAS 131 (see footnote 7). However, rather than thetwo standard setting bodies coming together to agree a new common approach, the IASB just seemed to adopt the USstandard; indeed, IFRS 8 was substantially identical to SFAS 131 which supported the arguments of those who suggested thatthe harmonisation process was leading to the ‘‘Americanisation’’ of IAS/IFRS. The management approach proposed, the

m Table 2, eight interviewees indicated that they had participated in the IASB or EU consultation process. Three of these were regulators and one was

ator who did not formally submit a response. Also, the two auditors (AI and A2) argued that they participated in the consultation process via their

rms, but did not make an individual submission prior to endorsement of IFRS 8.

m Table 2, all four regulators were aware of the campaign by the PWYP coalition. In addition, one preparer (P1), one legislator (L1), one investor (I2)

e user (U2) knew about the PWYP’s lobbying.

wing on Hunt and Hogler (1993), Robson and Young (2009, p.357) highlight the issue of ‘‘representational adequacy’’ in the establishment of ‘‘voice

isms (e.g. comment letters and public presentations) used to obtain external input during the process of developing accounting standards.’’ While

tions, accounting firms and other financial market participants tend to use such mechanisms, as a matter of course, to express their preferences in

elopment of accounting standards, the views of other stakeholder groups tend to be poorly represented (Robson and Young, 2009, p. 357).

st of the stakeholders noted that IAS 39 had been/was still a much bigger problem with more contentious accounting requirements and that there

n a lot of discussion in the EP on IAS 39. A few interviewees expressly mentioned the French banks and French President in this regard. Another

d that was of more concern was IAS 19.





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terminology (such as the CODM) used and the permission to employ non-IFRS measures when reporting on segmentalactivities all mirrored the contents of SFAS 131. Further, IFRS 8 gave company management a great deal of freedom on whatand how segmental activity was to be reported. It therefore was less onerous for large multinational organisations than theprevious standard (IAS 14R) had been. While such an approach might be more appropriate for developed countries such asthe UK and the USA where large multinational companies have their headquarters and with large analyst communities whoare able to convey to management the type of segmental disclosures that they require, it may less useful in mainlandEurope27; as Alexander and Eberhartinger (2010, pp. 37–38) note:

27 In i

[IASB] s

‘‘reserv

the imp28 It is

implem

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‘‘IFRSs were developed for . . . essentially . . . capital market purposes. The EU on the other hand [has] . . . a strong andlong-standing Roman law tradition very distinct from the common law tradition which underlies many of thecountries involved in establishing the original ethos of the IASB. In addition, the majority of the economies within theEU have a weaker historical emphasis on capital markets as major sources of business finance, and a tradition offinancial reporting requirements focused on non-publicly traded enterprises. It follows that a juxtaposition of IFRSsand EU traditions is likely to involve differences of attitude and expectation, and therefore potentially to involvedifficulties and mutual suspicion and uncertainties’’.

According to some of the interviewees, the new consultation process that operated during the introduction of IFRS 8sought to convey to the IASB that the EP was not simply going to rubber stamp any standard that was issued. Further, theyseemed to suggest that the stance taken over IFRS 8 would encourage the IASB to consult with the EU on future standards soas to avoid any more public disagreements; even if no formal consultations were to take place in the future, they hoped that itmight strengthen the hand of those members within the IASB who could argue that a proposed change might not get supportfrom within the EP.

One interpretation of the findings is that the EP tried to assert itself and establish some control over decision makingabout accounting standards to be applied in Europe by requiring the European Commission to conduct an impact assessmentprior to IFRS 8’s endorsement. The EP motion to endorse IFRS 8 highlighted significant concerns about: (i) IFRS 8requirements in relation to geographical disclosures and the identity of the CODM; (ii) the ‘‘one-sided’’ process ofconvergence; and (iii) the approach taken by the European Commission when analysing stakeholder responses to its impactassessment survey (EP, 2007). However, despite these concerns, the EP endorsed IFRS 8 on 14th November 2007 without anyrequirement for major deviations from the US standard, SFAS 131. This calls into question whether the EP really had assertedits authority through the new comitology process. Ultimately, the risks associated with the non-adoption of a standard maylimit any actual power of the EP. As Chiapello and Medjad (2009) note: ‘‘The EU would be the primary victim of its decision toreject an IASB standard. . .’’ (p454) as this would impede the harmonisation of accounting within Europe; if IFRS are notapproved by the EP, companies can account for ‘‘. . .transactions concerned in any way they choose’’. Perhaps through gradualinvolvement in international standard setting, the EU will be able to engage more informally with the IASB at an earlier stageof the standard setting process. The recent EU intentions to contribute to IASB (and EFRAG) funding (Chiapello and Medjad,2009; Larson and Kenny, 2011) together with enhanced EP powers associated with the new comitology process, mayencourage the IASB to consider the impact of their standards within Europe.28

Interestingly, the discussions with interviewees indicated that IFRS 8 itself was an uncontroversial standard. Thus,although the supra-national level concerns raised about the process of convergence and the influence of US practice on whatultimately became EU law may have been at the forefront of some interviewee responses, the practical implications of IFRS 8were less of an issue. Nevertheless, as the EP motion indicated, there were some concerns about the requirements of IFRS 8.For example, although the comment letters submitted during the IASB and EU consultation process, indicated support for thegeneral ‘through the eyes of management’ approach to reporting segmental information, further investigation of thecomment letters revealed that there were some concerns about how this approach should be implemented (IASB, 2006a;Veron, 2007a). At the time of the interviews, the first financial statements prepared under IFRS 8 had not been issued;problems with the wholesale adoption of a US standard in the EU context may only become apparent once companies engagewith IFRS 8. Indeed, there are early indications that the implementation of IFRS 8 in the UK may cause problems forcompanies reporting segmental information (Financial Reporting Review Panel (FRRP), 2010); the FRRP had to issue awarning in January 2010 about the segmental reporting practices of UK companies that adopted IFRS 8 early.

7. Conclusions

The purpose of this paper was to analyse the struggle for power within the international accounting regulation arena byfocusing on the highly politicised debate surrounding the adoption of IFRS 8. By drawing on the views of stakeholders in thisprocess – including preparers, legislators, regulators, auditors and users – this study provides insights into how the the EU

ts resolution to endorse IFRS 8 into EU law, the EP stated that ‘‘. . .the convergence of accounting rules is not a one-sided process where one party

imply copies the financial reporting standards of the other party [FASB]’’ (European Parliament, 2007). In this resolution, the EP explicitly expressed

ations’’ and ‘‘regrets’’ about the process and requirements of IFRS 8, specifically in relation to: the standard setting process; the concept of the CODM;

act on geographic disclosures; and the use of non-IFRS measures.

worth noting that, at the time of writing, the IASB is considering European research (Crawford et al., 2012; ESMA, 2011) in relation to its post-

entation review of IFRS 8. This is the first time that academic research has been tabled in IASB staff papers for debate (IASB, 2012a, 2012b).





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attempted to gain some sovereignty over accounting standard development. Despite the fact that there had been a highly co-ordinated campaign against IFRS 8 under the umbrella body of the PWYP coalition, which took issue with the lack ofaccountability and transparency, no substantive changes were made to the standard. In effect, this led to the wholesaleadoption of a US standard, SFAS 131. However, the PWYP campaign itself possibly helped the EU to ‘‘wake up’’ to its ownendorsement processes and to initiate, arguably, a more substantive form of resistance to the perceived power of the IASB. Byexploiting its own comitology process, the EU was able to send a strong signal to the IASB that it had the power to rejectstandards. It seems that the EU’s challenge of IASB’s authority was primarily driven by a deep suspicion of ‘‘Americanessentialism’’, and was primarily concerned with the regulatory process and who had control over this process. In addition, itis conceivable that the EU’s move was driven by traditional political values concerning the role of the State in the politicalprocess and scepticism towards an Anglo-American approach more tolerant of independent regulatory agencies.

These findings, taken in conjunction with the institutional aspects of the field outlined earlier in this paper, suggest thatthe EU has a somewhat contradictory attitude to the perceived ‘‘Americanization’’ of international accounting regulation. Onthe one hand, the EU has embraced the logic of marketisation and has actively sought ways to enable large EU companies toobtain a listing on foreign exchanges through the harmonisation of accounting standards. Furthermore, the EU’s adoption of‘‘decision usefulness’’ as an objective of financial reporting and as a criterion in assessing the adoption of financial reportingstandards, would suggest that a more Anglo-American/market based orientation is favoured. However, on the other hand,there remains a deep-seated cynicism towards an accounting regulatory regime that represents Anglo-American values suchas independence from the State and, to an extent, the emphasis it places upon the market.

Drawing on Gray (1998), it is possible to make sense of these apparent contradictions. In outlying what he describes as a‘‘new Gresham’s Law’’, Gray (1998, p. 78) suggests that ‘‘global laissez faire. . . designed to reflect the American free market’’ putssocial market economies at a competitive disadvantage. This is because firms in social market economies have to bearadditional social costs, such as labour costs, regulatory costs and tax costs, which ‘‘enable them to function as social institutionswithout undermining the cohesion of the larger societies in which they operate (Gray, 1998, p. 79). When capital is mobile, itwill gravitate to where costs are lowest – in order to compete, social market economies are forced to reduce their socialobligations. This process, where ‘‘bad capitalism tends to drive out good [capitalism]’’, is described by Gray (1998, p. 78) as‘‘competitive deregulation’’ or ‘‘downwards harmonization’’. As mentioned earlier in this paper, this process is unavoidable andit has altered social market economies irrecoverably (Gray, 1998). Nevertheless, the social structures in place within socialmarket economies will, to various degrees, prevent the wholesale assimilation to an Anglo-American model.

The findings reported in this paper, taken in conjunction with the institutional aspects of the field of accountingregulation previously outlined, suggest there is some merit to Gray’s (1998) analysis. For example, the urgency with whichthe EU sought a solution to the problem of European companies seeking foreign listings is conceivably linked to the pressuresassociated with ‘‘global laissez faire’’ and the increasing role of financial markets. In other words, existing accountingregulation within social market economies that was, to an extent, concerned with maintaining social cohesion, was provingtoo costly for firms. Further, in a global competitive environment, bank finance was proving too costly, ushering a movetowards equity finance and more developed capital markets. In this context, one can appreciate the ‘‘downwardharmonization’’ pressure exerted on the EU and why they turned to the IASB for a solution. Nevertheless, our findings suggestthat as a result of the debate over the adoption of IFRS 8, the EU managed to implement a structure (the comitology process)that is, arguably, more aligned to the European tradition of state involvement in regulation. In doing so, the EU hassuccessfully resisted the wholesale assimilation of accounting standards that are a representation of Anglo-Americanhegemony. While we acknowledge that the EU’s position vis-a-vis the IASB is relatively weak, perhaps exemplified by theadoption of IFRS 8 without any substantive changes, they have, nevertheless, initiated a forum whereby the IASB can becontested – one which may prove to be crucial in the future. In this sense, we agree with Boltanski and Chiapello (2005, p. 41)and take ‘‘some consolation’’ in the following observation by Karl Polanyi:

Pleapolitj.cpa

‘‘Why should the ultimate victory of a trend be taken as proof of the ineffectiveness of the efforts to slow downprogress? And why should the purpose of these measures not be seen precisely in that which they achieved, i.e. in theslowing down of the rate of change? That which is ineffectual in stopping a line of development altogether is not, onthat account, altogether ineffectual. The rate of change is often of no less importance than the direction of the changeitself; but while the latter frequently does not depend on our volition, it is the rate at which we allow change to takeplace which may well depend upon us’’ (Polanyi, 1944, p. 39).

Acknowledgements

The authors would like to thank the Institute of Chartered Accountants in England and Wales for the grant funding thatenabled the interviews to be conducted. The authors would also like to thank the referees for their helpful comments whichhave been used to revise the paper.

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