Summary
The present study aims to contribute to an understanding of the complexity of lobbying activities within the accounting standard-setting process in the UK. The paper reports detailed content analysis of submission letters to four related exposure drafts. These preceded two accounting standards that set out the concept of control used to determine the scope of consolidation in the UK, except for reporting under international standards. Regulation on the concept of control provides rich patterns of lobbying behaviour due to its controversial nature and its significance to financial reporting. Our examination is conducted by dividing lobbyists into two categories, corporate and non-corporate, which are hypothesised (and demonstrated) to lobby differently. In order to test the significance of these differences we apply ANOVA techniques and univariate regression analysis. Corporate respondents are found to devote more attention to issues of specific applicability of the concept of control, whereas non-corporate respondents tend to devote more attention to issues of general applicability of this concept. A strong association between the issues raised by corporate respondents and their line of business is revealed. Both categories of lobbyists are found to advance conceptually-based arguments more often than economic consequences-based or combined arguments. However, when economic consequences-based arguments are used, they come exclusively from the corporate category of respondents.
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Extract
Setting Uk Standards On the Concept of Control: An Analysis of Lobbying Behaviour
1. Introduction
The lobbying behaviour of participants in the accounting standard-setting process can be complex (Sutton, 1984;Young, 1994; Georgiou, 2004; Kwok and Sharp, 2005; Masocha and Weetman, 2007). This paper seeks to contribute to understanding of this complexity. It examines empirically lobbying activities on four related exposure drafts (EDs). These drafts preceded two UK accounting standards, namely FRS 2 Accounting for Subsidiary Undertakings (ASB, 1992) and FRS 5 Reporting the Substance of Transactions (ASB, 1994), that regulate the concept of control used to determine the scope of consolidation in the UK, except for reporting under international accounting standards.1We expect that the concept of control would initiate rich patterns of lobbying behaviour due to its controversial nature and its importance to financial reporting. The scope of consolidation is central to corporate reporting, as significant business activities have increasingly come to be conducted by group structures rather than single entities (Wooldridge, 1981, 1991; Nobes, 1987, 1993; Flower, 2004). As consolidation became the dominant method for preparing group financial statements, so the concept of control determining the scope of consolidation proved to be one of the most challenging conceptual and technical issues for accounting regulators (Nobes, 1987, 1993; Flower, 2004). Regulations determining the composition of the group have the potential to instigate a range of economic consequences through their implications for contracting relationships (e.g. debt covenants) and through other economic mechanisms (Moonitz, 1978; Peasnell and Yaansah, 1988; Mian and Smith, 1990a; Paterson, 1993; Nobes, 1993; Flower, 2004). Likely effects arise due to impacts on accounting numbers reported on the balance sheet and financial relationships existing off-balance sheet (and associated measurements of gearing, risk, and debt capacity) as well as within the income statement (with associated impacts on measured performance and financial ratios of efficiency and profitability) (Peasnell and Yaansah, 1988; Paterson, 1993; Flower, 2004). It is not surprising therefore that the concept of control as a determinant of the scope of consolidation has been at the centre of much controversy in the evolution of the UK generally accepted accounting principles (GAAP) (Bircher, 1988; Nobes, 1987, 1993; Rutherford, 2007: 258- 264). The public and regulatory debate, with its practical and theoretical disputes, has been widely reported, for example by Nobes (1987, 1990, 1993), Ebling (1989), Pimm (1990), and Rutherford (2007: 258-264).Adiscussion of the UKsetting at the time the EDs were released is presented in the regulatory background section of the paper. Controversy on the control concept continues within the international regulatory arena (Ketz, 2003; Flower, 2004; Camfferman and Zeff, 2006; Hoogendoorn, 2006). At the time of writing, the IASB had two projects in train that related to this concept.2Analysis of the four EDs that led to FRS...See the full content of this document
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