Unreliable Accounts: How Regulators Fabricate Conceptual Narratives to Diffuse Criticism

63 Pages Posted: 14 Aug 2018

See all articles by Karthik Ramanna

Karthik Ramanna

Harvard Business School; University of Oxford - Blavatnik School of Government

Date Written: July 5, 2018

Abstract

In 2010, the U.S. accounting rulemaker (FASB) updated its longstanding constitution to eliminate “reliability” as a fundamental accounting property. FASB argued that “reliability” was misunderstood in practice and that this amendment clarified its original intent. Drawing on primary archival resources and field interviews with regulators, I provide evidence that the change also sought to legitimize the rise of fair-value accounting. By eliminating the need for accounting to be “reliable,” the change attempted to neutralize concerns about the subjectivity in fair-value estimates. Such subjectivity can facilitate accounting manipulation, and some fair-value rules can be attributed to lobbying by managers who stand to benefit. The change illustrates “conceptual veiling,” wherein regulators, seeking to diffuse criticism, including suspicions of capture, manufacture costly conceptual narratives for their actions.

Keywords: Capital Markets, Fair-Value Accounting, FASB, Regulatory Capture

JEL Classification: D72, G18, K22, M41

Suggested Citation

Ramanna, Karthik, Unreliable Accounts: How Regulators Fabricate Conceptual Narratives to Diffuse Criticism (July 5, 2018). Available at SSRN: https://ssrn.com/abstract=3222559 or http://dx.doi.org/10.2139/ssrn.3222559

Karthik Ramanna (Contact Author)

Harvard Business School ( email )

Boston, MA 02163
United States

University of Oxford - Blavatnik School of Government ( email )

10 Merton St
Oxford, Oxfordshire OX1 4JJ
United Kingdom

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