FASB and IASB: Dependence Despite Independence
Andreas M. Fleckner
Max Planck Institute for Comparative and International Private Law
December 9, 2008
Virginia Law & Business Review, Vol. 3, p. 275, 2008
To address the increasing challenges of legislating that governments face in modern societies, countries all over the world have begun to outsource rulemaking to bodies consisting of people familiar with the subject. One of the most instructive examples of the challenges today's legislators face is accounting: hardly anyone except professional accountants understand it, and it would be naive to assume that government officials or members of parliament could draft, discuss, and enact accounting rules. For that reason, policymakers rely on private entities to establish financial accounting and reporting standards. The two most influential standard-setters are the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB).
This paper focuses on the organizational structure of the FASB and the IASB and their susceptibility to outside influence. In principle, both boards are organized independently from private and governmental influence. However, as private bodies, the boards do not have the power to make their rules mandatory, so they have to convince potential users to prepare financial statements according to their standards, and policymakers to accept statements in accordance with them. The boards are therefore susceptible to forces that might threaten the application of their standards and their legitimacy. By referring to recent examples (such as share-based payments or IAS 39), the article illustrates that both boards have been subject to outside influence and, when put under pressure, both boards have made concessions and thereby jeopardized their independence.
Number of Pages in PDF File: 35
Keywords: FASB, IASB, IFRS, accounting, financial reporting, rule making, private standard setting
JEL Classification: F30, M41, M44, M47, G38Accepted Paper Series
Date posted: December 10, 2008 ; Last revised: February 3, 2009
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