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COPENHAGEN BUSINESS SCHOOL Final assignment The IASB, the EU and the IFRS 9 standard: reflecting a schism in accounting standards Politics of International Business Standards M.Sc. International Business and Politics, 1 st semester January 17 th 2012 Lea Foverskov CPR # 050389-2294 Taps count: 30.552

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COPENHAGEN BUSINESS SCHOOL

Final assignment

The IASB, the EU and the IFRS 9 standard: reflecting a schism in

accounting standards

Politics of International Business Standards

M.Sc. International Business and Politics, 1st semester

January 17th 2012

Lea Foverskov

CPR # 050389-2294

Taps count: 30.552

JeppeMulvadJensen
Highlight

Page 2 of 22

Table of Contents

Introduction ................................................................................................................................................. 3

The IASB and fair value accounting ............................................................................................................. 5

A discursive analysis of the 2009 IFRS 9 debacle ........................................................................................ 8

Conclusion ................................................................................................................................................. 15

Bibliography ............................................................................................................................................... 17

Appendix A – Letter from Mr. Gerrit Zalm to Mr. Charlie McCreevy, November 18th 2009 ..................... 20

Appendix B – Letter from Mr. McCreevy to Mr. Zalm, November 19th 2009............................................ 22

Page 3 of 22

Introduction

Accounting is an area which affects the political economy of the world immensely. The standards of this

profession stipulate how to formulate and pass on economic information from various kinds of

organisations to the community. This information is relevant to people in direct and indirect contact

with these organisations, but also to laymen, as the recent economic crisis has shown.

It can be argued that accounting not only is a profession, but a way of constructing the economic reality

of individuals, companies and countries. (Hines, 1988) Far from being the neutral and objective

calculation of income and expenses, which it would like to seem, accounting is a political subject:

“accounting is political through and through. It is not a pure technique, far from it. It transmits a certain

vision of the company, which places it at the heart of the economic and social relationships between

the company and the various stakeholders.” (Burlaud & Colasse, 2011, p. 44)

Even though one may not accept the above arguments, accounting is clearly “at the heart of

distributive mechanisms” (Chiapello & Medjad, 2009, p. 449) with an immensely long list of affected

stakeholders, making “accounting rules a matter of public interest” (ibid.). This paper is an attempt to

increase attention on the matter on behalf of the public interest, not only from established academics

and accounting students, but from the next generation of political economy students.

Since the outbreak of the financial crisis in 2008, an increasing amount of attention has been paid to

accounting – especially fair value accounting, which has been applied extensively to financial

instruments. It has been used as a scapegoat for bankers and politicians alike, resulting in political

pressure being applied to an otherwise private area of global standard-setting. In 2009, the

International Account Standards Board (IASB) published an Exposure Draft on a new standard, IFRS

(International Financial Reporting Standards) 9, which would replace IAS (International Accounting

Standards) 39. The new standard represents a departure from mainstream fair value accounting

towards an alternative method of classification and measurement of financial instruments, following

Page 4 of 22

intense lobbying from especially European politicians and bankers. However, the new standard is no

less controversial than the old one and its path to adoption has been fraught with difficulty. The EU,

which announced its decision to adopt IASB’s standards in 2002, has been a particularly difficult

stakeholder in the process.

In this paper, I will analyse how the EU’s decision to adopt the IASB’s standards influenced the

discourse surrounding the IFRS 9 standard in the aftermath of the financial crisis. I find that the decision

influenced the discourse in a two-fold way: firstly, the IASB is committed to creating global accounting

standards, a process that was well underway before the crisis and the EU’s interference altered events;

secondly, the IASB’s relationship to the EU is more complex than of that between a standard-setter and

a user of the standards – the relationship represents a deep-seated and long-standing division between

Anglo-Saxon and Continental European accounting traditions (Burlaud & Colasse, 2011).

In writing this paper I employ a critical realist approach in Jonathan Grix’s sense of the word (Grix,

2004). The paper is critical towards the IASB’s attempt to become the global standard-setter in

accounting, especially considering the recent controversy surrounding the body. However, politicians

seem to be alternately in a rush towards convergence of standards and alternately backing away from

giving up too much power. Whether a re-politicalisation of this aspect of standard-setting, as advocated

by Bengtsson (Bengtsson, 2011)and Burlaud and Colasse (Burlaud & Colasse, 2011), is desirable, I am

not quite sure. However, it seems quite clear that accounting is too important an aspect of our

economic and financial situation to be decided on in a hurry during a crisis, where mistakes may be

made (Laux & Leuz, 2009).

The paper will proceed as follows: a brief section on the IASB and fair value accounting will serve as

background information on accounting standards as well as the case at hand. This will lead into the

main part, which consists of a discursive analysis of the process leading up to and following the

publication of the Exposure Draft on the IFRS 9 in July 2009. Finally, I wrap up in the conclusion.

Page 5 of 22

The IASB and fair value accounting

Who is IASB?

Here, I will provide some background information on the IASB and its historical relationship with the

EU. The IASB was founded in 1973 as the IASC (International Accounting Standards Committee).

According to Burlaud and Colasse, “[t]he idea was to create an organisation that would publish

standards which could be adopted by countries all over the world so that national benchmarks would

gradually converge.” (Burlaud & Colasse, 2011, p. 24) Today, they claim on their website to be closer

than ever to achieving this goal: “All major economies have established time lines to converge with or

adopt IFRSs in the near future.” (IFRS Foundation, 2012) In 2001, the IASB took over from IASC. Today,

the IFRS Foundation funds, oversees, and appoints the members of the IASB and other supporting

bodies. (IFRS Foundation, 2011)

Academics have suggested that the IASB (then IASC) was meant as a counterweight to the European

Community’s (EC) early attempts to harmonize commercial laws between member states, including

accounting: “Several authors…see in the creation of the IASC a professional riposte on the part of the

British to the European programme and the beginning of a game of strategy between professional and

political organisations, and between supporters of the Anglo-American accounting approach to financial

reporting and supporters of the Continental European approach.” (Burlaud & Colasse, 2011, p. 25) This

game of strategy has continued in the years since.

In 2002, a regulation was passed in the EU, effective from 2005, which made it mandatory for all

member states to apply the accounting standards of IASB. This was quite an extraordinary move,

removing national traditions in one swift motion, in favour of an integrated and efficient financial

market – an important goal for EU at the time. It was controversial because the EU lacked means of

control over the private standard-setter IASB: “…at the time, the EU had simply no statutory control

means on the IASB.” (Chiapello & Medjad, 2009, p. 449). During the crisis, the legitimacy of the IASB has

Page 6 of 22

been questioned by both the EU and other stakeholders and examined intensely by academics (Burlaud

& Colasse, 2011) (Richardson & Eberlein, 2011), and many have argued the EU is seeking to regain some

of its lost control by affecting the institutions and power relationships (Bengtsson, 2011). I will examine

the discursive elements of this here, focusing on the power play taking place between the Anglo-Saxon

accounting tradition and the Continental European one.

What happened during the financial crisis – why is fair value suddenly so

controversial?

The debate surrounding accounting standards has intensified since the financial crisis. As Accountancy

Age pointed out in October 2008 (Hinks & Jetuah, 2008), fair value accounting (hereafter FVA) served as

a scapegoat for politicians both in the USA and in Europe. Academics have also observed this effect:

“Whilst international accounting standards did not trigger the crisis, some observers have said that they

accelerated and even amplified it, mainly as a result of their pro-cyclical nature.” (Burlaud & Colasse,

2011, p. 23)

What is meant by FVA and why did it become so controversial? Traditionally, historic cost accounting

has been used to determine the value of assets that companies hold. Here, the value of an asset would

equal what it cost when it was acquired. FVA represents a different way of evaluating assets: it normally

implies using current market prices. In this way, the value of assets is more current and more

transparent, according to the proponents. (Laux & Leuz, 2009)

FVA is mostly applied to financial assets (Laux & Leuz, 2009) and as these began to lose their value in

the crisis in 2008, so the popularity of FVA plummeted. Assets had to be marked down on companies’

financial statements even though they had no intention of selling them now, and in spite of the fact

that they believed they would regain their value. In this way, companies’ financial problems were made

to look worse than they really were, according to the antagonists.

In the aftermath of the financial crisis, some stakeholders have demanded a change to the way fair

value accounting is applied to financial instruments. FVA is only applied to certain kinds of financial

Page 7 of 22

instruments: the standards issued by standard-setters deal with how to classify and thus measure the

instruments. Emergency amendments were made in October 2008 by the IASB after intense pressure

from the EU. These represented a possibility for banks to reclassify their assets from categories where

they are measured by FVA to categories (known as ‘held to maturity’) where their cost is spread over an

asset’s lifetime (Hughes, 2008b) (Hughes, 2008c).

The Exposure Draft on IFRS 9 published in July 2009 presents a further shift away from FVA: it allows

certain assets to be valued at historic or amortised cost. The Exposure Draft was only the first step out

of three in total towards a completely new standard on financial instruments, but this first step

represented the most important and perhaps also most controversial aspects: how to classify the assets

and thus how to measure them. In simple terms, the IASB proposed that assets should be classified

according to the predictability of their cash flows. If the instrument had predictable cash flows,

amortised cost could be employed; if unpredictable, fair value should be applied. (Hughes, 2009a) In

more complex terms, financial assets or liabilities can be measured at amortised cost only if it has basic

loan features and it is managed on a contractual yield basis – these two requirements mean that the

financial instrument has a predictable cash flow. (IASB, 2009a) (IASB, 2009b)

Although this new approach could lead to more instruments being measured at FVA, as Hughes points

out (Hughes, 2009a), it is a step towards more simple accounting standards, one of the most important

goals for the IASB to achieve with their new standards (IASB, 2009b).

Page 8 of 22

A discursive analysis of the 2009 IFRS 9 debacle

In this section, I will analyse the discourse of top politicians (i.e. state leaders), representatives of the

IASB (primarily the chairman, Sir David Tweedie, and his successor, Mr. Gerrit Zalm), and other relevant

stakeholders in the period leading up to and following the IASB’s publication of the IFRS 9 Exposure

Draft in July 2009. The articles are exclusively from the Financial Times (hereafter referred to as FT), as I

had to limit my search1, and span from the end of September 2008 to mid-2010. The dates span from

10 months before July 2009 to 10 months after, when the Exposure Draft was published. Another two

factors decided these dates: firstly, autumn 2008 represented the beginning of the public awareness of

the severity of the financial crisis; secondly, on June 25th 2010 the FT reported on the revised and

delayed workplan of the IASB and FASB to converge their accounting standards. Financial instruments

were not even to be converged, but merely to be comparable. (Sanderson & Tait, 2010) This indicates a

failure on behalf of the accounting standard-setters to achieve the goals set out for them by the G20

and a lessening of their influence with politicians.

2008: The IASB under pressure but answering back

The first article revealed by my Factiva search was dated September 24th 2008. It reported that the IASB

had called a special board meeting to discuss the calls for a relaxing of FVA rules. Up until then, big

banks had been the most vocal stakeholders, but the US government also began to stir on the matter.

This was the first time the IASB held an unscheduled board meeting, reflecting the severity of the

situation and the attention being paid to accounting and the standard-setters. (Hughes, 2008a)

In Europe it seems Nicolas Sarkozy, the French President, was the first to advocate reform of accounting

standards. (Hall & Tait, 2008) Holding the rotating presidency of the EU at the time, he had a special

position of influence within the European community, and as he was forced to bail out the bank Dexia

in late September, his motivation for listening to the demands of banks seemed to have increased.

1 In my original Factiva search, I also included the Wall Street Journal. However, no articles were found within the

search criteria.

Page 9 of 22

While Sarkozy was attempting to coordinate a top European response on this, David Cameron (then

leader of the UK’s opposition Conservative party) is to have said “the rules have made the crisis worse

and need to be addressed.” (Hughes & Hall, 2008)

Around the beginning of October, the FT brought an article with a quote from Charlie McCreevy, the EU

internal market commissioner. He is to have said, in response to the US demand for more flexible

accounting rules, “If other parts of the globe are going to change this particular area, then we will not

be found wanting in Europe, as our banks would be at a competitive disadvantage.” (Barber, et al.,

2008) As an Accountancy Age article noted a little later the same month (Hinks & Jetuah, 2008), this

kind of statement is strange, since the IASB specifically does not answer to national governments. The

consequences of EU’s decision to defer their accounting rules to a private, standard-setting body seem

to have been forgotten here. The issue at hand seems to be less about a power struggle between the

EU and the IASB at this point, but more about “leveling the playing field between the US and European

competitors.” (Hinks & Jetuah, 2008) However, for this level playing field to be accomplished at this

point, it required the IASB to be willing to bend the rules under pressure from the EU.

The middle of October saw IASB forced to make some changes in favour of politicians’ and bankers’ de-

mands. It was made easier for financial institutions to move certain assets into categories on their ba-

lance sheets, which did not require FVA. Hughes reported on the IASB’s decisions that “Sir David

Tweedie, chairman of the IASB, told the board it was better if the changes were made by accountants

rather than politicians.” (Hughes, 2008b) This leaves little doubt that the IASB gave in to the political

pressure emanating from the EU. A few days later, another report from Hughes indicated that European

banks were pushing for even more reform and even quietly calling for a regional body to replace the

IASB, which would have been an immense blow to the IASB’s efforts to create global standards.

(Hughes, 2008c)

This threat loomed even larger by October 17th (Hughes & Tait, 2008a). In the face of imminent further

EU demands, the CFO of the large bank HSBC was quoted as saying that if the project of global

Page 10 of 22

accounting standards was thwarted, it would be “a considerable step backwards and most regrettable”.

A partner at one of the biggest auditing firms, PricewaterhouseCoopers (PwC), warned the EU not to

head down the path of carve-outs and exemptions from IASB standards – it would make accounts

harder to compare because of limited “guidance”. So in the face of a threat to the project of global

convergence, important leaders in the community speak out to warn the IASB cannot be spared.

It seems this approach worked; five days later, on October 22nd, FT again report on the issue. (Hughes &

Tait, 2008b) Brussels has ‘defused’ the threat and although keen to see changes from the IASB, they will

be pursued through the “regular processes”. The meeting was comprised of “Commission officials, re-

gulators, banking and insurance representatives, investors and accountants” reflecting a broad range of

participants and interested stakeholders – but also a considerable number of non-politicians. Conside-

ring how large the fall-out threatened to be only a few days earlier, as well as earlier statements, the

declaration of Charlie McCreevy’s spokesman that “There was a very positive outcome, with unanimous

support for working within the IASB framework and in line with proper due process,” seems both like a

cover-up and an attempt to smooth away the disagreements that had haunted the press.

An opinion by Jack Ciesielski (Ciesielski, 2008), the writer and publisher of Analyst’s Accounting Obser-

ver, reflected the position of Laux and Leuz in their academic article on FVA: “it is possible that changing

the accounting rules in a crisis as the result of political pressures leads to worse outcomes than sticking

to a particular regime” (Laux & Leuz, 2009, p. 833). Ciesielski argues that the IASB is not ready to

become a global standard-setter and lead the convergence of accounting standards because of the way

they bent to political pressure during October 2008. He advocates more “friendly competition between

standard-setters” before convergence is attempted again.

In the meantime, the IASB began to be more open-mouthed about the political pressure that had been

applied to them in October. Sir David Tweedie, chairman of the IASB, criticized the relaxing of the FVA

rules on November 7th, commenting that it allowed the banks to use more of their own judgment in va-

luing assets – not a good thing, according to him (Hughes, 2008d). Furthermore, he was not so keen to

Page 11 of 22

admit that the EU’s pressure had led to the rule-change, blaming it on the inflexibility of the US system

instead. Some days later, Sir Tweedie was quoted again, this time in stronger language (Hughes, 2008e).

He revealed he had come close to resigning after the show-down with the EU in October, and that he

believed the European meddling “risked destroying” the convergence project. It is clear the IASB felt

threatened in the aftermath of the FVA discussion and was trying to regain the upper hand towards the

EU. At the same time, the French are much criticised: “It’s obvious the French are trying to kill this body

[the IASB]” said one official (Hughes, 2008e).

2009: IFRS 9 is published and not adopted by the EU

Over the next few months, discussions on the matter are quiet, and FVA only appears in the context of

a general argument on regulation and how much it should be tightened. By the late summer 2009 the

deliberations take off in earnest in the press again. In July the IASB published its Exposure Draft with the

new IFRS 9 standards, a reform of the previous IAS 39. FT report on this as a “shake-up of ‘fair value’ ru-

les” (Hughes, 2009a). Later in July, the Financial Crisis Advisory Group (a body established by IASB and

FASB in the aftermath of the crisis) published a report on the effect of FVA, which found that FVA was

much less to blame for the crisis than the discussion had led to believe. Furthermore, the authors critici-

sed the political pressure that had taken place at the time. (Hughes, 2009b) It is hardly surprising that a

committee established by the standard-setters exonerates the standard-setters’ arguments and ideas,

while criticising their opponents. The timing of the publication is quite good, leading up to the ratifica-

tion of the IASB’s proposed IFRS 9 – indicating that opponents should stifle their criticism and listen to

the experts. It is an attempt to once again control the discourse and lead the project of convergence

back on track.

A new opinionated article appears in FT in September 2009 by Nicolas Véron, a French economist and

senior fellow at the Bruegel think-tank (Véron, 2009). As with the previous article by Jack Ciesielski,

Véron is also not a big fan of convergence. Véron argues instead for focusing on improving the quality

of the standards.

Page 12 of 22

To continue in the strand of French criticism of IASB, the head of Axa, France’s largest insurance compa-

ny, criticised IASB in sharp terms only a few days later, saying IASB lacked accountability and that ac-

counting was too important a matter to be left to accountants. BNP Paribas’ chairman is also quoted for

criticism of FVA. (Daneshkhu & Hughes, 2009) This comes at a time when IASB is working on formula-

ting the new rules and could wish for nothing more but peace and quiet. The Franco-Europeans will not

let up though: the article also mentions the French finance minister, Christine Lagarde, as having sent a

letter to Charlie McCreevy, the EU Commissioner, to demand action on reforming accounting standards

and urging him to protect “European public interest”. All of this adds up to “dissatisfaction among some

Europeans with the IASB’s international, not European, focus.” (Daneshkhu & Hughes, 2009)

On November 11th 2009 the Financial Times start a reporting spree on the new standards proposed by

IASB – the IFRS 9 – and how the EU is reacting to them. The first article (Sanderson & Tait, 2009a) exa-

mines the EU’s letter to the IASB of November 4th, criticising the proposals for not limiting FVA enough.

This is at a time where the final draft was close to being accepted, with changes already demanded by

Brussels. Two days later it became clear EU would not adopt the new standards, with backing from Ger-

man financial institutions apparently of utmost importance (Sanderson & Tait, 2009b). This reinforces

the idea of European accounting standards being a competition between the Anglo-Saxon traditions

(represented by the IASB, founded in the UK) and the Continental European ones (mainly Germany and

France – see discussion above).

This observation is hammered home by Rachel Sanderson (one of the major writers of the FT articles

quoted in this paper), who on November 16th revealed that the voting patterns on the important deci-

sion of whether to adopt or postpone IFRS 9 indicated a clear “ideological schism” between the IASB

backed by the UK and many accountants on the one side, and mainly French, German and Italian politi-

cians and regulators on the other side. The sides represent a divide between believing standard-setting

should be done by private bodies, and believing it should be a tool for governments to provide financial

stability. (Sanderson, 2009a)

Page 13 of 22

Furthermore, the decision reverberated through the system of stakeholders. Letters passed between

Gerrit Zalm, Sir David Tweedie’s successor at the IFRS Foundation, and Charlie McCreevy, the now out-

going Commissioner on the Internal Market (Sanderson & Tait, 2009c)2. The first letter, dated Novem-

ber 18th 2009, from Zalm to McCreevy is polite on the surface but contains clear hints of disappoint-

ment and surprise. As Zalm points out, it was agreed between IASB and the EU Commission (as well as

other stakeholders) in June 2009 that the new standards be ready for adoption by November, so as to

allow EU adoption and implementation in time for year-end financial statements. He points to the ef-

forts made on behalf of the IASB to accomplish the deadline set and create standards that all would be

satisfied with: “…we supported and encouraged the IASB’s unprecedented efforts to take into account

the views of all stakeholders in Europe and elsewhere.” (Zalm, November 18th 2009, p. 1) Zalm tries to

show a certain amount of understanding for the EU’s difficulties in achieving consensus, but concludes

that “even if we understand the context of the EU’s political constraints related to the accelerated

endorsement procedure, we find the deferral decision particularly disappointing.” (Zalm, November

18th 2009, p. 2)

The return letter from McCreevy, November 19th, is much shorter than Zalm’s. Although it opens with

continued support for the IASB and their standards, it is clear that the EU wishes to assess the conse-

quences of the new standards, and also review the complete standard when published. McCreevy also

mentions “the changed financial outlook and market improvements” (McCreevy, November 19th 2009)

as a further reason for the deferred decision. Furthermore, he pointed out a new Commission would

shortly be taking office, so the final decision would be left to them.

The decision by the EU was monumental: the EU had not only been pushing for reform on its own, but

also in forums such as the G20, where IASB agreed to have the new standards ready in time for year-

end adoption. When the EU postponed adoption, it also meant European firms would not be able to

2 Sanderson and Tait only mention the letter from McCreevy to Zalm and only with a few citations. I found these

letters of such importance that I gained access to them in full. I have included them in the appendix and they are also listed in the bibliography.

Page 14 of 22

employ the standards in their 2009 financial statements – with some firms being in favour of this and

others absolutely not. (Sanderson & Tait, 2009b) This gulf was further reflected in an article on Novem-

ber 26th 2009, where it was made clear that some companies were going to use the new standards for

“internal use” and in preparation for their expected adoption at a later point (Sanderson, et al., 2009).

2010: Deadlines are pushed around and ambitions are lowered

In April 2010 it became obvious that the deadline of June 2011 in establishing a global set of accounting

standards was overly ambitious (Sanderson, 2010). The IASB and the American counterpart, FASB – who

publish the US GAAP standards – had a hard time agreeing on how FVA was to be employed in the futu-

re. While FASB stand for a pro-FVA approach, the IASB’s IFRS 9 proposals introduced an alternative me-

thod. Yet even this was not sufficient for the EU, who wanted to move even further away from FVA. The

June 2011 deadline was important because many countries had considered adopting IASB’s standards

(the IFRS) following convergence. In June 2010 the IASB and FASB issued a shortened workplan to try

and meet the June 2011 deadline anyway, in spite of difficulties. This would mean not covering every-

thing but achieving convergence on the most important points. (Sanderson & Tait, 2010)

Page 15 of 22

Conclusion

The IASB and the EU represent opposing sides of an age-old schism: that between Anglo-Saxon account-

ing traditions and Continental European accounting traditions. On the surface, the difference is be-

tween employing FVA and using alternative methods of measurement, such as amortised cost. How-

ever, at a deeper level it illustrates more fundamentally how accounting should be viewed by policy-

makers: as something complex and difficult to be standardised by experts and professionals in a sepa-

rate, private body that cannot be influenced by politicians – or as something that affects many more

stakeholders than a private body can possibly begin to conceive and which must therefore be brought

under the umbrella of government.

This ideological division has been revealed by the discourse being thrown back and forth by the IASB

and the EU in the time before, during and after the IASB’s publication of the Exposure Draft on the IFRS

9. The discourse was especially intense because of the EU’s adoption of IASB’s standards in 2002, ma-

king them dependent on the standard-setter, but also giving them certain leverage in the discussion.

This leverage existed because the IASB’s ultimate goal is to become the standard-setter for accounting

worldwide – and a denunciation by the EU in the eleventh hour would not have furthered the cause. In-

deed, it seems convergence has experienced a severe blow as a result of various events, far from all of

which are mentioned here, but one of the most important ones is undoubtedly the EU’s decision to

postpone adoption of the IFRS 9.

Accounting professionals have long wished for a single set of global accounting standards. However,

there is some evidence that high levels of standardisation may carry negative implications with them.

Paul E. Madsen has recently examined the level of accounting standardisation in the US and found that

especially within financial reporting the level of standardisation is too high for it to be optimally effi-

cient. Furthermore, Madsen’s study clearly shows that high levels of standardisation lead to a decrea-

sed level of discourse among standard-setters and accounting professionals: “...standard-setters re-

duce the breadth of the professional accounting dialogue. The isolation of this effect to financial ac-

Page 16 of 22

counting topics suggests that standard-setters exert important indirect influences over the accounting

profession.” (Madsen, 2011, p. 1702) These findings are likely to be relevant for the rest of the world as

well. How much are we willing to sacrifice to achieve complete standardisation? All critical discourse on

the matter? These are questions that are important to reflect upon as we go forwards.

There are clear disadvantages to the methodological approach I have taken: the Financial Times is not

likely to have reported on all the goings and happenings between the IASB and the EU in the period. As

a newspaper, they print the articles that are sensational and interesting now – and if something else co-

mes in the way, less interesting articles are shunted out. However, the Financial Times is a highly re-

spectable paper and within the time limitations of this paper, I found my approach worked well, and

where I found it insufficient, I compensated by highlighting certain important letters. Another disadvan-

tage is the lack of objectivity: newspapers lack the neutrality that also standard-setters claim they have

(and which I have tried to prove they do not). However, whatever approach I was to choose would carry

with it some kind of subjectivity. Overall, more research is needed in this area, but the conclusions rea-

ched here are important and interesting for further study on the matter.

Jane Fuller, co-director of CSFI (Centre for the Study of Financial Innovation) and former financial editor

of the Financial Times, wrote an article for FT right before all the controversy surrounding IFRS 9 really

broke out. In this, she hails the disappearance of both FVA and the efficient market hypothesis because

it will allow investors to “be free to use their brains to question market values and to treat accounting

numbers as evidence, not answers.” (Fuller, 2009) Perhaps this is the best way of formulating a critical

realist approach to accounting: accounting has long branded itself as the objective picturing of firms’ fi-

nancial situations, without clarifying the subjective valuations that take place along the way. Accounting

does not provide the full picture, no answer to the otherwise unsolvable equation, but merely a part of

the picture in the larger detective work it is for investors to discover whether a company represents a

good investment opportunity or not.

Page 17 of 22

Bibliography

Barber, T., Tait, N., Benoit, B. & Dinmore, G., 2008. Brusells keen to defend integrity of single market.

Financial Times, 2nd October.

Bengtsson, E., 2011. Repoliticalization of accounting standard setting - The IASB, the EU and the global

financial crisis. Critical Perspectives on Accounting, Issue 22, pp. 567-580.

Burlaud, A. & Colasse, B., 2011. International Accounting Standardisation: Is Politics Back?. Accounting

in Europe, 8(1), pp. 23-47.

Chiapello, E. & Medjad, K., 2009. An unprecedented privatisation of mandatory standard-setting: The

case of European accounting policy. Critical Perspectives on Accounting, Issue 20, pp. 448-468.

Ciesielski, J., 2008. Put the brakes on convergence before it is too late. Financial Times, Asia Ed1, 30th

October, p. 17.

Daneshkhu, S. & Hughes, J., 2009. Axa chief attacks IASB control of accounting rules. Financial Times,

London Ed1, 28th September, p. 23.

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Appendix A – Letter from Mr. Gerrit Zalm to Mr. Charlie McCreevy,

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Page 22 of 22

Appendix B – Letter from Mr. McCreevy to Mr. Zalm, November 19th

2009