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Political Lobbying Process In Australian Accounting Standard

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Question:

What is the Political lobbying process in Australian Accounting Standard?

 

Answer:

Introduction

This report is designed to conduct an academic research on examining lobbying on accounting standards. In today’s dynamic and competitive environment, it has been observed that Accounting has changed, is changing, and is likely to change in the future also. However, there exist certain lobby groups which play a critical role in the change of accounting. This practice has been modelled as lobbying and has accordingly been extensively investigated. In this regard, the report is to provide explanation and review of at least four quality scholarly journal articles that present evidence on this issue in the context of Australian country.

Political lobbying process in Australian Accounting standard

Lobbying on accounting standards can be defined as the actions of concerned individuals or organizations in influencing the standard-setting body. These actions may take the form of direct appeal to a decision-maker or an indirect attempt to influence the opinions of the public. It may comprises of oral or written efforts or urging, campaign offerings, public-relations promotions, and research supplied to legislative groups, and formal declaration before such committees. Australia has a history of lobbying the Federal Government regarding accounting issues (Königsgruber, and Palan, 2015). HIH in Australia is the instrumental in making the government attached to the setting of accounting standards in the country. The main purpose of the Australian government to get involved in regulating accounting regulations is to safeguard the public interests. This is because lobbying activities basically emerge from private interests which are more powerful than the combined efforts made to preserve the public interests. Also, it has been found that lobbyists tend to resist proposed changes by expressing pessimism in their statements, as opposed to explicitly disagreeing. However, constituents of Australia are less likely to block proposed changes as compared to lobbyists in other countries.

It has been observed that Australia is one of those countries where a huge number of lobbying companies are found. On the other hand, there are no such companies have been observed in Italy, Spain, and Korea, which lobbied in spite of having large organizations listed on the Foreign 500. However, there exist some factors that resist lobbying and are not related to the consent of the IASB. According to an analysis made by the UK investment management companies, it has been analyzed that the cost of lobbying is the main factor that slows down lobbying by the companies (Adibah Wan Ismail et al., 2013). However, some reports showed that the involvement rate of the companies in lobbying activities was high. Further, the evaluation of the lobbying programs by oil and gas sector also revealed that the decision to lobby was related with the probable effects of accounting methods on the financial interests of the company and its management.

Theories of Regulation and the Political Process of Standard Setting

Public-Interest Theory: According to this theory, regulation is the result of the regulatory authority acting as a manager for the public. In the absence of regulation, markets would not be able to function properly because of natural monopolies, and severe competition.

Capture Theory: This theory suggests that regulation is the product of forces of demand and supply. Although this theory clarifies the emergence of accounting regulation, but at the same time, it is subjected to disagreement among diverse interested lobbyists.

Institutional theory: This theory views that attitudes are influenced by the rules, and institutional and social settings Hellmann, A., (2016). It mainly emphasizes on organization’s efforts to attain social legality and sustaining reliability.

 

Political influences in the efficiency and effectiveness of Australian accounting regulation

According to Corporate Law Economic Reform Program (CLERP), the Australian government and political system appear to be involved in the setting of accounting standards by the Australian Accounting body (Königsgruber, and Palan, 2015). The body set the accounting standards with the aim to produce high quality reporting system in the organizations. The objectives of the authority also include facilitating Australian enterprises to reduce cost of capital and compete on an identical footing outside the domestic boundaries while keeping the confidence and trust of the confidence of the investors unshaken. Also, accounting standards are expected to win in global competition. However, these efforts fail due to dominance of private interest lobbying and its closeness to political system of the country (Mohammadrezaei et al., 2015). The responses of the CLERP have been also influenced by the lobbying of interest groups, which has resulted in substantial modifications in the CLERP proposals.

For instance, the interested parties lobbying seem to favour necessary alterations that Australian accounting standards should adopt International Accounting Standards. Some lobby supported that adoption of IAS would be beneficial not only for the Australian companies but also for the capital market of the country. It is also expected to defend and diversify the businesses overseas. Similarly, ICAA also argued that exercising IASs would result in reducing costs by allocating them to other countries. Another group lobbying named, G100 which consists of the Chief Financial Executives of Australia’s biggest companies was dissatisfied with the Australian Standard setting process and felt that adoption of International Accounting Standards would lead to effective fiscal intellect in the global field.

In addition to this, the changes were supported by AASB and AARF also. According to these, USA or UK model of autonomous body along with sufficient financial assistance, and unified research unit should be followed by the Australian standard setters. On the other hand, all these efforts went useless when CLERP announced that Australian accounting standards are not parallel with the important money market of UK, USA, and Europe and it is the main cause of higher cost of capital for Australian companies (Mohammadrezaei et al., 2015). In order to develop accounting standards successfully in commercial operations to fulfil the requirements of stakeholders and enhance the competitiveness of Australia internationally, the government of the country attempted to introduce some reforms and relevant policy structure in accounting standards.

Moreover, the need arises for developing institutional arrangements for setting standard process to ensure that the process functions in a approachable, efficient, and valuable manner so as to facilitate all the relevant users to get involved while maintaining the autonomy of the process.  In context of this, CLERP suggested that Australia needs to wound up issuing its own standards and should go for International Accounting Standards designed by International Accounting Standards Committee (IASC). The lobbying group had different views to their statements. ICAA also disagreed with the exercising of IAS’s as it considered IAS’s as precipitate. Apart from ICAA, Australian Institute of Company Directors and Australian Bankers’ Association also did not agree with the proposal. Interest groups lobbying also influenced accounting regulations (Hellmann, 2016). As a consequence, they became able to postpone the date of incorporation of International Accounting Standards in Australia. Since there was a great involvement of government in setting accounting standards of Australia, the process was much closer to the political system and influenced the lobbying of interest groups significantly.                          

Conclusion

On the basis of above academic research, it can be concluded that the size of lobbying corporations and apparent effects of the regulations on the economic welfare of the organizations are the key factors that determine the lobbying in the field of accounting standards. The evaluation of the arguments indicates that lobbying decisions throughout the organizations are heavily affected by the entity-level as well as the level of the industry and the country. Moreover, the institutes or bodies which lobbied in oppose of the proposals of adopting IFRS had debts agreement as compared to those that lobbied in the support of the proposal. However, the research failed to analyze the difference between non-lobbying attitude and lobbying against. Also, from the stakeholders’ theory viewpoint, entities are concerned for the strongest and legal stakeholders when carrying out lobbying effort. Thus, it can be said that IASB’s standard setting process enables specific interest lobbying to shape the standards for the accounting of financial statements and business community to a large extent. In this regard, Australian constituents are more influential in the process, thereby highlighting the nature of standards.

 

References

Adibah Wan Ismail, W., Anuar Kamarudin, K., van Zijl, T. and Dunstan, K., (2013) ‘Earnings quality and the adoption of IFRS-based accounting standards: Evidence from an emerging market’, Asian Review of Accounting, 21(1), pp.53-73.

Hellmann, A., (2016) ‘The role of accounting in behavioral finance’, Journal of Behavioral and Experimental Finance, 9, pp.39-42.

Königsgruber, R. and Palan, S., (2015) ‘Earnings management and participation in accounting standard-setting’, Central European Journal of Operations Research, 23(1), pp.31-52.

Mohammadrezaei, F., Mohd-Saleh, N. and Banimahd, B., (2015) ‘The effects of mandatory IFRS adoption: A review of evidence based on accounting standard setting criteria’, International Journal of Disclosure and Governance, 12(1), pp.29-77.

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