The Big-4’s influence on rules-based accounting standards

Abstract

Purpose This study aims to evaluate whether the Big-4’s commenting efforts influence the characteristics of Financial Accounting Standards Board’s (FASB’s) Final_Standards using the content of their comment letters. Whether auditors lobby standard-setters to help their clients or to help themselves and whether they are successful are questions highly relevant to issues of auditor independence and audit effectiveness. Design/methodology/approach Based on components of Mergenthaler (2009), this study develops a rules-based continuum change score to measure how much more (less) rules-based a Final_Standard is compared to its exposure draft to evaluate the influence of the Big-4 on the FASB’s standard-setting for 63 accounting standards. Findings The findings show that extensive comment letters and increased uncertainty language are associated with increases in the rules-based attributes included in Final_Standards. These results suggest the Big-4 prioritize a reduction in their own litigation risk over the possible preferences of their clients for less rigid standards. Moreover, the results are consistent with their comment letters influencing the FASB’s decision to include more rules-based attributes in Final_Standards. Originality/value This study develops a potential proxy for audit risk by assessing the changes in the rules-based characteristics of proposed accounting standards and using the content of the comment letters to evaluate whether the Big-4 accounting firms may influence the FASB’s Final_Standards. Overall, this study provides a unique perspective on the influence of constituents on the FASB’s standard-setting.

Stakeholder Engagement in the Development of the Sustainability Reporting Standards of the Global Reporting Initiative (GRI) and of the International Sustainability Standards Board (ISSB)

“…Botzem 2014, Bamber & McMeeking 2016, in particular how this organization rebuilt its legitimacy after the harsh criticism due to the financial crisis (Kusano & Sanada, 2019), and what strategy the IASB followed to maintain its own legitimacy even during the COVID-19 pandemic (Moscariello & Pizzo, 2022). In the context of accounting standard-setting, the influence of the Big 4 accounting firms was also analyzed (Lysak 2020), as well as the lobbying for accounting standard-setting in the parliamentary environment (Hoffmann und Zülch 2014).…”

Fenntarthatósági átmenet: kihívások és innovatív megoldások : Nemzetközi tudományos konferencia a Magyar Tudomány Ünnepe alkalmából

“…Botzem 2014, Bamber & McMeeking 2016, in particular how this organization rebuilt its legitimacy after the harsh criticism due to the financial crisis (Kusano & Sanada, 2019), and what strategy the IASB followed to maintain its own legitimacy even during the COVID-19 pandemic (Moscariello & Pizzo, 2022). In the context of accounting standard-setting, the influence of the Big 4 accounting firms was also analyzed (Lysak 2020), as well as the lobbying for accounting standard-setting in the parliamentary environment (Hoffmann und Zülch 2014).…”