Volume 3, Issue 2 - Local or Global Accounting? Perspectives on International Accounting, Politics and the Polity

: The globalization of accounting standards as seen through the proliferation of IFRS worldwide is one of the most important developments in corporate governance over the last decade. I offer an analysis of some international political dynamics of countries’ IFRS harmonization decisions. The analysis is based on field studies in three jurisdictions: Canada, China and India. Across these jurisdictions, I first describe unique elements of domestic political economies that are shaping IFRS policies. Then, I inductively isolate two principal dimensions that can be used to characterize the jurisdictions’ IFRS responses: proximity to existing political powers at the IASB; and own potential political power at the IASB. Based on how countries are classified along these dimensions, I offer predictions, ceteris paribus , on countries’ IFRS harmonization strategies. The analysis and framework in this paper can help broaden the understanding of accounting’s globalization.

: The paper by Ramanna titled “The international politics of IFRS harmonization” is helpful to understand what has been going on with the International Financial Reporting Standards (IFRS) harmonization decisions by major countries. The author’s detailed descriptions of political and cultural aspects of global convergence are quite informative, and it is particularly interesting (if not controversial as the author acknowledges) to take the IASB’s European identity as a baseline against which other jurisdictions’ responses can be assessed. This comment purports to expand upon the theoretical framework suggested by the author by considering institutional cross-complementarity, allowing to reconsider the US exception, as well as provide information on and application to the case of Japan.

: The article “The International Politics of IFRS Harmonization” by Karthik Ramanna is extremely insightful and his approach appears in many respects groundbreaking. One major refreshing result is that it does justice to those who think that this area of society is by nature, as technical as it seems, a political phenomenon. However, the approach chosen takes as a given that the fate of International Financial Reporting Standards (IFRS) will depend on “The International Politics of IFRS Harmonization.” That leaves in the shadows some key elements that may well play a greater role and transform the course of events in a more powerful way. Among these are some additional geopolitical, macroeconomic, microeconomic and public interest perspectives. In that line of thinking, it could be interesting to study if, in addition to the two main factors identified by Ramanna in the politics of IFRS, one could identify another one: the “desirability” of IFRS for countries faced with the choice of accounting standards. This “desirability” would highly depend on the nature and intensity of the critique (both conceptual and fact-based) addressed to IFRS, but even more on the International Accounting Standards Board (IASB) response to that critique. In the face of a robust and well-grounded critique and in case of a lack of response by the IASB, the appetite for IFRS should decrease, shrink or could even disappear and harmonization will not happen in that form; whereas in case of changes in IFRS towards better balance and consideration given to issues raised by stakeholders, harmonious globalization could effectively materialize.

The study of Karthik Ramanna has opened a fascinating field for further studies on the politics of accounting standard-setting. Explaining the degree and timing of International Financial Reporting Standards adoption, however, may not only be done from a perspective combining international power and cultural distance. This short comment outlines a complementary political economy explanation by linking accounting standards to basic models of comparative capitalism.

: Ramanna (this issue) argues that the big question at the centre of IFRS research is: “is the political process underlying IFRS facilitating the production of economically efficient standards?”, and presents new evidence that is informative about the political process underlying IFRS adoption decisions. In this comment, I explore how questions about the economic efficiency of standards might come to be answered. The current expertise-based approach to the evaluation of accounting standards is likely limited because it requires the deployment of expertise where it is likely least valuable, in low-validity/low feedback environments. I propose regulatory field experimentation as a potential alternative means of accumulating the knowledge required to perform effective expertise-based evaluations of standards. But field experimentation could be costly and politically controversial. The proposal to permit multiple accounting standard-setters to compete in a given jurisdiction may be an effective means of reducing the reliance of the evaluative system on expertise, replacing it with market feedback.