ACCOUNTING REGULATION AND POLITICS

Accounting Regulation And Politics

Accounting Regulation And Politics

Question 1

This article examines the political processes surrounding public sector accounting standard setting, in particular, the Australian decision to adopt sector-neutral International Financial Reporting Standards (IFRS). It contends that the history of private and public sector involvement in the accounting standard setting process to date, and recourse to regulatory theory, assist in understanding these contemporary developments. The article reveals that private sector interests have dominated accounting standard setters at all important stages of standard setting in Australia. It concludes by arguing that, given this continued neglect by standard setters, if public sector financial reporting standards are to remain relevant to the public sector, then it may be necessary for public sector regulators to set their own standards.

Australia and New Zealand are two countries that have followed a sector-neutral approach to accounting standard setting (Hooks and Tooley, 2006). Simpkins (2006, p. 100) argues that, in the U.S.A., Canada and the U.K., where a separate standard setting board has responsibility for the public and private sectors, more attention is paid to the needs of public sector users. With Australia's sector-neutral approach, the introduction of international accounting standards has posed dilemmas for Australian standard setters, specifically in relation to the public sector. This article considers the political process surrounding the setting of Australian public sector financial reporting standards and argues that an examination of private and public sector involvement in the process to date will inform the current dilemmas for the public sector caused by the decision to adopt private sector International Financial Reporting Standards (IFRS).

Australia, until 2000, had a history of both private and public sectors developing financial reporting standards to suit their own unique operating environments (Miller, 1991). However, in January 2000, the Public Sector Accounting Standards Board (PSASB) merged with the Australian Accounting Standards Board (AASB) to form a 'new' AASB. The resulting standards applied to the private and public sectors. Critically, the new AASB was effectively captured by a mix of private interests, government strategy and international developments. In June 2002, the new AASB decided to adopt IFRS in Australia, effective in 2005. Because of their sector-neutral1 stance, this decision covered not only the private, but also the public sector. The purported benefits to capital markets, and to the efficacy of financial reports for multi-listed companies were widely reported (Saudagaran and Meek, 1997; AASB, 2002; Lonergan, 2003). In contrast, far less attention was given to the consequences for the public sector.

There have been persistent and consistent warnings about the differences between the public and private sectors and the dangers of applying private sector accounting standards to the public sector (see, e.g., Guthrie, 1987, 1990, 1998; Walker, 1987; Ma and Mathews, 1993; Conn, 1996; Mack and Ryan, 2006). Recently, Barton (2005) has argued persuasively that the application of professional accounting standards to the public sector has not been particularly successful. The move to sector-neutral IFRS has only exacerbated these problems because the focus of IFRS is on the private sector. But how did the situation for the public sector reach this stage? ...