The role of constituency responses in setting accounting standards

Abstract

This study is an exploratory investigation to determine the role of constituency input in the standard formulation process of the Financial Accounting Standards Board (FASB). A case study is utilized to describe the constituency input and assess the role it played with respect to a specific accounting standard-setting context, the issue of accounting for restructured debt. The constituency responses are examined via content analysis in order to identify: (1) those interest groups which responded on the issue; (2) how the constituency responded and (3) the nature of the communications in the responses. Finally, tentative hypothesis are formulated concerning the interrelationships between the constituency input and the FASB's standard-setting process. The constituency response may be both written and oral. However, the FASB generally requires that written comments or an outline of planned remarks at the public hearing be submitted prior to the hearing and these written responses become a part of the public record. Therefore, the case study has been restricted to an analysis of the constituency written communication. When constituency responses were ranked according to the proportion of responses which utilized analytic techniques and addressed the fundamental accounting issues, financial analyst, CPA, and academe responses ranked the highest but accounted for less than nine percent of the total responses. Banking responses ranked the lowest and accounted for more than seventy percent of the total responses. Within interest groups, all groups except the accounting constituency (academe and CPA) mentioned that the economic impact of a standard should be considered by the Board. Additionally, with the exception of the accounting constituency, every constituency group commented on pervasive issues pertaining to the accounting framework which were not intended by the FASB to be addressed...