Organizing Transnational Standard Setting in Financial Reporting
Chapter 1: Introduction: The Globalization of Accounting
The financial crisis of 2007–09 is frequently referred to as the most drastic and consequential episode in more than two generations. Housing prices plummeted, banks were taken over or went bankrupt, and production declined in many countries. Many people lost their jobs and sweeping austerity measures are likely to affect public spending for years to come. The financial sector was hit particularly hard. Some institutions took excessive risks and experimented with complex and opaque products they were illequipped to handle. The interbank market dried up, and even bank runs made front-page news. Vibrant discussions of the reasons soon emerged and brought to prominence an aspect of financial market regulation that had previously been discussed only among experts: Accounting rules now became the object of heated debate. Off-balance sheet accounting and the procyclical characteristics of fair value accounting were quickly identified as one important cause of the financial crisis. Moreover, more than just accounting rules were criticized. The G20 questioned the governance structures for standard setting in international accounting and called for immediate actions. In particular, it asked the standardization body to review its membership, to enhance transparency, and to ensure appropriate relationships with public authorities (G20, 2008, p. 6). Political reactions to the financial crisis moved accounting standards and transnational standardization bodies into a spotlight that they had successfully avoided for decades. For most of the time, accounting regulation had been the business of practitioners and experts. Once a federation of national associations, today’s International Accounting Standards Board (IASB)...