An analysis of the IASB and FASB process of identifying the objective of financial rep

Description
In their revised conceptual frameworks, the IASB and FASB pronounce that in their view valuation
usefulness is the single objective of financial reporting. The present paper addresses the question how
this decision was made by the boards and why stewardship was not identified as a separate objective.
Drawing on Flyvbjerg's work on rationality and power, the paper analyses the practices of standardsetting
in the specific case of the framework revision. The qualitative empirical study is based on the
material which is publicly available from the due process of the IASB and FASB and also builds on interviews
with board members, staff members and constituents. This paper finds that the decision usefulness
programme, developed in the US in the 1970s, was the body of knowledge which primarily
shaped and limited the debates during the framework revision. While decision usefulness was taken for
granted by all participants, even by those who were arguing for a separate stewardship objective, no
alternative rationality or programme associated with stewardship was discussed in the standard-setting
arena

Practices of standard-setting e An analysis of the IASB's and FASB's
process of identifying the objective of ?nancial reporting
Christoph Pelger
Department of Accounting, Auditing and Taxation, University of Innsbruck, Universit€ atsstr. 15, 6020 Innsbruck, Austria
a r t i c l e i n f o
Article history:
Received 29 July 2011
Received in revised form
18 September 2015
Accepted 1 October 2015
Available online xxx
Keywords:
Conceptual framework
Decision usefulness
FASB
IASB
Power
Rationality
Standard-setting
Stewardship
a b s t r a c t
In their revised conceptual frameworks, the IASB and FASB pronounce that in their view valuation
usefulness is the single objective of ?nancial reporting. The present paper addresses the question how
this decision was made by the boards and why stewardship was not identi?ed as a separate objective.
Drawing on Flyvbjerg's work on rationality and power, the paper analyses the practices of standard-
setting in the speci?c case of the framework revision. The qualitative empirical study is based on the
material which is publicly available from the due process of the IASB and FASB and also builds on in-
terviews with board members, staff members and constituents. This paper ?nds that the decision use-
fulness programme, developed in the US in the 1970s, was the body of knowledge which primarily
shaped and limited the debates during the framework revision. While decision usefulness was taken for
granted by all participants, even by those who were arguing for a separate stewardship objective, no
alternative rationality or programme associated with stewardship was discussed in the standard-setting
arena. The paper also shows that a “mundane” organisational structure put the staff in a crucial position
to in?uence board debates and sheds light on how disciplinary and self-disciplinary techniques affected
board members' decision-making in the framework project.
© 2015 Elsevier Ltd. All rights reserved.
1. Introduction
Conceptual frameworks in ?nancial reporting are supposed to
serve as guidelines for the day-to-day activities of standard-setters
and to frame their discourses with constituents institutionally. The
starting point for such conceptual frameworks is the de?nition of
the objective(s) of ?nancial reporting from which all other parts of
the framework, for example qualitative characteristics, de?nitions
of elements and measurement concepts, are supposed to be
derived (OB1
1
). In their revised joint framework, published in
September 2010, the International Accounting Standards Board
(IASB) and the Financial Accounting Standards Board (FASB)
de?ned valuation usefulness, that is, the usefulness of accounting
information for capital providers' assessments of future cash ?ows,
as the single purpose of ?nancial reporting (OB2).
2
In the boards'
opinion, stewardship, that is, the usefulness of accounting infor-
mation for assessing “how ef?ciently and effectively the entity's
management and governing board have discharged their re-
sponsibilities to use the entity's resources” (OB4), is encompassed
in such an objective, while former frameworks “have all posited a
separate role for stewardship” (Zeff, 2013, p. 264). The boards' de-
cision to subsume stewardship under valuation usefulness is
remarkable as stewardship historically was one of the main reasons
for the existence of accounting (e.g. Ijiri, 1975; Mattessich, 1995;
Watts, 1977) and is still said to shape accounting practices
(Murphy, O’Connell, &

O h

Ogartaigh, 2013).
The present paper addresses the question of how valuation
E-mail address: [email protected].
1
References to the Conceptual Framework for Financial Reporting (2010) (IASB,
2010b) are abbreviated as follows: OB refers to the ?rst chapter (objectives) and
BC to the Basis for Conclusions. References to the Discussion Paper (IASB, 2006) are
abbreviated as DP, references to the Exposure Draft (IASB, 2008) as ED.
2
In this paper the terms valuation usefulness and decision usefulness are used
interchangeably. However, if the term decision usefulness is employed in the paper
to re?ect a broader notion, which goes beyond valuation decisions and incorporates
other (economic) decisions, this will be made clear at the relevant points in the text.
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Accounting, Organizations and Society xxx (2015) 1e23
Please cite this article in press as: Pelger, C., Practices of standard-setting e An analysis of the IASB's and FASB's process of identifying the
objective of ?nancial reporting, Accounting, Organizations and Society (2015),http://dx.doi.org/10.1016/j.aos.2015.10.001
usefulness became the single objective of ?nancial reporting in the
recent framework revision by the IASB and FASB. In other words, it
is a study of the conditions of possibility that led to the margin-
alisation of stewardship. The research question is addressed by
meticulously tracing the development of the boards' decision-
making following a narrative strategy of sense-making (Flyvbjerg,
1998, 2001; Langley, 1999). By looking at “what is actually done”
(Flyvbjerg, 1998, p. 3), this paper offers a process perspective at the
micro-level (Arnold, 2009) and sheds light on the dynamics of the
practice of standard-setting in the case of the framework revision.
More speci?cally, the process of how the stewardship issue was
debated is scrutinised over the entire ?ve-year period of the boards'
due process. For the project under study all publicly available re-
sources from the due process, that is, staff agenda papers, board
meetings’ minutes and comment letters submitted by constituents,
were analysed. In addition, interviews were conducted with key
actors involved in the decision-making process, that is, members of
the IASB as well as staff members, and with constituents who
participated in the due process.
As a theoretical background this paper draws on the work of
Flyvbjerg (1998). In his study, he analyses the decision-making
process of a local government in Aalborg (Denmark) with regard
to the introduction of a newcity traf?c concept. His main focus is on
the relationship of power and rationality to unveil how democracy
works in practice. Flyvbjerg's approach follows a Foucauldian un-
derstanding of power. From this perspective, power is regarded “as
productive and positive and not only as destructive and negative“
(Flyvbjerg, 1998, p. 5), as “a dense set of omnipresent relations” and
as “ultra dynamic” (Flyvbjerg, 2001, p. 131). Based on his empirical
study, Flyvbjerg develops a grounded theory about the interplay of
power, knowledge and rationality. To make sense of the events in
the boards' framework project the present paper draws on
Flyvbjerg (1998) to identify the “open-textured and omnipresent
power relations in accounting standard-setting” (Fogarty, Hussein,
& Ketz, 1994, p. 33) and to reveal how knowledge, rationality and
power interact in the standard-setting arena. This involves an
analysis of governmental rationalities (Foucault, 1991) and prac-
tices in standard-setting, in particular “thinking about the nature of
the practice of government (who can govern; what governing is;
what or who is governed)” (Gordon, 1991, p. 2; also cf. Rose,
O'Malley, & Valverde, 2006). The case study contained within this
paper attempts to unveil who and what governs ?nancial reporting
standard-setting and how rationalities and programmes of gov-
ernment
3
are employed by focussing on the systems of thought,
along with the conditions and constraints which shape (US and
international) standard-setting practice.
The paper contributes to two streams of literature. First, ac-
counting literature has analysed the history of objectives of ?nan-
cial reporting (e.g. Murphy et al., 2013; Zeff, 2013) and focused on
the question whether stewardship and valuation are compatible or
alternative objectives (e.g. Bushman, Engel, &Smith, 2006; Gjesdal,
1981; Williams, 1987). The paper at hand adds to this strand of
literature as it reveals how the two objectives were discussed by
the standard-setters and their constituents in the recent framework
overhaul. The focus on the discourses of standard-setters and their
rationalities and rationalisations provides a newperspective on the
objectives of ?nancial reporting in addition to the existing histor-
ical, conceptual, analytical and empirical-quantitative studies. This
paper reveals how the elimination of stewardship was driven by
the focus on one particular body of knowledge, the decision use-
fulness programme which e based on the neoliberal government
rationality (Foucault, 2008; Lemke, 2001) e had been introduced
into US standard-setting discourses by academics in the 1970s. This
paper shows that the elimination of stewardship as a separate
concern is completely in line with a consistent application of the
logic of the decision usefulness programme and broader notions of
?nancialisation and neoliberalisation in accounting (Power, 2010;
Zhang & Andrew, 2014). While valuation usefulness was taken for
granted by all participants, even by those who were arguing for a
separate stewardship objective, no alternative rationality or pro-
gramme associated with stewardship was introduced or suggested
in the standard-setting arena. Thus, the decision usefulness pro-
gramme was able to maintain and extend its standing in the revised
conceptual framework.
Second, this paper attempts to further our understanding of
decision-making processes in ?nancial reporting standard-setting.
By explicitly focussing on the practices in the due process episode
that relates to the identi?cation of the objective of ?nancial
reporting, this study complements existing literature on the his-
torical development of IFRS (e.g. Arnold, 2012; Chua &Taylor, 2008)
and studies which have focused on institutional aspects of
standard-setting (e.g. Botzem, 2012; Richardson, 2009). The paper
shows that the “mundane” organisational structure of everyday
board work puts the staff in a crucial position. In the agenda papers
they prepare for the board meetings the staff are able to choose the
bodies of knowledge they deem relevant and to interpret this
knowledge. Thereby, the staff are in a position to shape board de-
bates signi?cantly. The staff's proposal to abandon stewardship and
the support they received from US board members link back to the
socialisation of this group in the US decision usefulness pro-
gramme. In the case under study, this position was to some extent
counterbalanced by the pressures arising from due process, as
constituents were by and large reacting very negatively towards the
boards' initial proposal, which disciplined board members to ?nd a
consensus. However, after the public consultations had taken place
this discipline evaporated and the staff, with their authority for the
drafting of the ?nal document, were able to reinstall the initial
proposal. This was supported by the self-discipline of board
members who were sympathetic towards stewardship due to the
perceived necessity to create an image of board unity and pressures
arising from convergence.
Although the present paper is motivated by the controversy on
stewardship, it is not an attempt to answer the question whether a
separate stewardship objective is (or should be) desirable (for this
position e.g. cf. AAA FASC, 2007; Kothari, Ramanna, & Skinner,
2010; Lambert, 2010; Whittington, 2008a) or not (e.g. Barth,
2007). In a similar vein, it is not a detailed discussion of the pros
and cons of decision usefulness (e.g. cf. Staubus, 1999; Williams,
1987; Williams & Ravenscroft, 2015) or an explicit analysis of the
usefulness of writing conceptual frameworks (Macve, 1997).
Instead, it presents a detailed portrayal of the practice of standard-
setting and analyses how one view of the appropriate purpose of
?nancial reporting became congealed as the “of?cial view” of the
IASB and FASB.
The paper proceeds as follows. The next section offers some
background on the objectives of ?nancial reporting, also providing
the related literature. Moreover, the current study is positioned in
the literature on standard-setting in accounting. This is followed by
an overview of the material employed in this study. After that, the
3
“Rationalities” or “styles of thinking” (Miller & Rose, 2008, p. 16) re?ect high-
level conceptions that usually have a moral grounding in “the ideas or principles
to which government should be directed” and “a distinctive idiom through which
they are articulated and which acts as a kind of intellectual machinery for rendering
reality thinkable” (Mennicken & Miller, 2012, p. 16). In contrast, programmes are
more speci?c designs in the form of “more or less formal documents [put forward]
by those who seek to con?gure speci?c locales and relations in ways thought
desirable” (Mennicken & Miller, 2012, p. 16). Programmes thus enable the trans-
lation of abstract rationalities into concrete documents aiming at changing or
in?uencing speci?c areas through speci?c technologies.
C. Pelger / Accounting, Organizations and Society xxx (2015) 1e23 2
Please cite this article in press as: Pelger, C., Practices of standard-setting e An analysis of the IASB's and FASB's process of identifying the
objective of ?nancial reporting, Accounting, Organizations and Society (2015),http://dx.doi.org/10.1016/j.aos.2015.10.001
boards’ due process regarding the objective of ?nancial reporting is
scrutinised in detail, and the ?nal section offers some conclusions.
2. Literature review
2.1. Objectives of ?nancial reporting
The history of accounting is closely linked to accountability (e.g.
Chen, 1975; Mattessich, 1995). Recordkeeping devices and double-
entry bookkeeping have been used from their very beginnings to
enable human beings to entrust resources to others and to monitor
how those people use them (Ijiri, 1975; Williamson & Lipman,
1991). In early times, this was often limited to preserving the sta-
tus quo, that is, the safekeeping of assets, and, hence, simple forms
of documentation were suf?cient for this purpose (Birnberg, 1980).
The concept of accountability was traditionally related to religious
(Christian) foundations, which also in?uenced early accounting
thinkers. For example, in the parable of the talents a landowner
gives different amounts of money to his servants, going on to
reward those who used the money ef?ciently and condemn those
who just kept it safe (The Bible, Matthew 25, 14e30; Luke 19,
11e27). This quite modern understanding of delivering perfor-
mance gained importance in the following centuries (Williamson &
Lipman, 1991) and was accompanied by changes in the ways ac-
counting was carried out. Nowadays, the separation of ownership
and control (Berle & Means, 1950/1932) is common in companies
and, from an economic perspective, there is a need for ?nancial
reports which enable shareholders to control management and to
set ex-ante incentives which direct the opportunistic steward
(agent) to exert the actions most bene?cial to the principal. In this
setting, accounting information has been a crucial device for
management to communicate the results to the owners (Ijiri, 1975,
1983; Lennard, 2007).
An additional role of ?nancial reporting that has grown with the
development of increasing capital markets is the valuation role of
?nancial reporting (e.g. Kothari et al., 2010). Since the Securities
Exchange Commission (SEC) took control of accounting regulation
in the US and in particular since the in?uential report of the
Trueblood Commission (American Institute of Certi?ed Public Ac-
countants (AICPA), 1973) and the inception of the FASB in 1973, the
main focus of (regulated) US accounting has been on serving users'
needs (Young, 2006). The watershed moment was the publication
of the Statement of Financial Accounting Concepts (SFAC) No. 1 in
1978 (FASB, 1978), the (former) conceptual basis for US-GAAP. This
was the ?rst time that ?nancial reporting's purpose was explicitly
and of?cially de?ned as providing information for capital providers
and other users to enable them to make rational investment, credit
and similar decisions (SFAC 1.34). Thus, decision usefulness in quite
general terms was identi?ed as the predominant objective, which
was then speci?ed with respect to the primary interest of users
(SFAC 1.32), which is assessing future cash ?ows (SFAC 1.37). Be-
sides, reference was made to the stewardship role of ?nancial ac-
counting (SFAC 1.50e53); although this purpose ewhile part of the
general decision usefulness notion (e.g. Gore, 1992) e was less
important than the valuation objective. Hence, US-GAAP can be
seen as the pioneer of decision usefulness with a strong focus on
valuation decisions (Whittington, 2008b).
The IASB framework, which was created by its predecessor, the
International Accounting Standards Committee (IASC), in 1989 (cf.
Camfferman & Zeff, 2007), stated in paragraph 12 (F. 12) that In-
ternational Accounting Standards (IAS)/International Financial
Reporting Standards (IFRS) follow the objective to provide useful
information for economic decisions, thus, representing a general
notion of decision usefulness. Additionally, ?nancial statements
also showthe results of management's stewardship (F. 14). While in
SFAC 1 decision usefulness was substantially narrowed down to
valuation decisions, in the IASB Framework the general concept of
decision usefulness includes both valuation and stewardship de-
cisions leading to the observation that “the IASB framework argu-
ably gives greater prominence to stewardship (than the FASB
framework does)” (IASB/FASB, 2005, p. 5).
In accounting literature, there have been studies on the rela-
tionship of valuation and stewardship usefulness. An important
early contributionwas Gjesdal's study (1981), which showed that in
a general agency setting the ranking of different accounting sys-
tems may differ froma stewardship vs. a valuation perspective. This
result was con?rmed by Paul (1992) and Lambert (2001) in other
agency papers. Intuitively, the basic trade-off results from the
valuation focus on ?rm value as opposed to the stewardship focus
on management's performance. Heinle and Hofmann (2011) extend
the trade-off to the case of additional non-veri?able measures that
are only implicitly contractible via share-based compensation.
However, it should be noted, that for the most part the studies by
Paul (1992) and Heinle and Hofmann (2011) focus on share-based
compensation and the trade-off results from a weighting of sig-
nals by the capital market which is different from an optimal
weighting for stewardship purposes. Hence, these ?ndings do not
necessarily mean that the norms created by accounting standard-
setters have different implications for the valuation and steward-
ship usefulness of accounting information.
Empirical studies by Bushman et al. (2006), Banker, Huang, and
Natarajan (2009) and Peng (2011) have explicitly tested the rela-
tionship between stewardship and valuation. Based on data from
the US the authors show that there is a signi?cantly positive rela-
tionship between their proxies for the two objectives. These results
are consistent with the impression that in practice accounting in-
formation is used both for valuation and compensation purposes
(Bushman &Smith, 2001).
4
Recent analytical papers by Kuhner and
Pelger (2015) in a static setting and Drymiotes and Hemmer (2013)
in a dynamic setting show that stewardship and valuation tend to
react in the same way to changes in (accrual) accounting charac-
teristics that are typically in?uenced by standard-setters. However,
Kuhner and Pelger (2015) point out that the relationship between
the two objectives is context-dependent and indicate that discre-
tionary leeway in an accounting system needs special attention
from a stewardship angle. Altogether, quantitative accounting
literature provides a rather mixed picture about the relationship
between stewardship and valuation, causing doubts to remain
whether the two objectives usually lead to common speci?c ac-
counting rules. In a recent literature review, Cascino et al. (2014)
note that “the stewardship and valuation roles of ?nancial state-
ments overlap, but are far from identical” (p. 190).
In the conceptual strand of literature, Williams (1987) distin-
guished between accounting that focusses on the means
(accountability) and the ends-focused notion of decision useful-
ness. He noted that these two “perspectives of arguing accounting
will not necessarily lead to the same understanding of accounting
phenomena” (p. 170). Similarly, authors like Ijiri (1975, 1983) or
Rosen?eld (1974) indicated how unclear the relationship between
both objectives is. It thus seems conceptually impossible to come to
a clear conclusion whether valuation usefulness should incorporate
stewardship concerns or not.
4
A further empirical study by Gassen (2008) analyses a more general contracting
role of accounting in relation to other stakeholders (e.g. creditors, employees) vs. its
valuation role and ?nds evidence of a trade-off between the two objectives. This
notion of contracting (also cf. Watts, 2003), however, is different from the agency
relationship between managers and shareholders that IASB/FASB subsume in the
stewardship objective (e.g. ED OB12).
C. Pelger / Accounting, Organizations and Society xxx (2015) 1e23 3
Please cite this article in press as: Pelger, C., Practices of standard-setting e An analysis of the IASB's and FASB's process of identifying the
objective of ?nancial reporting, Accounting, Organizations and Society (2015),http://dx.doi.org/10.1016/j.aos.2015.10.001
2.2. Standard-setting
Most literature that deals with ?nancial reporting standard-
setting relies on the positivistic cost-bene?t frameworks estab-
lished by Sutton (1984) and Watts and Zimmerman (1986). Here,
most studies focus on lobbying activities (Zeff, 2002), usually
concentrating on one (certainly important) part of the due process
where the constituents are formally asked to give their opinion on
the boards' proposals (for studies on the IASB e.g. cf. Giner & Arce,
2012; Hansen, 2011; Jorissen, Lybaert, &van de Poel, 2006; Jorissen,
Lybaert, Orens, & van der Tas, 2012; Jorissen, Lybaert, Orens, & van
der Tas, 2013; Larson, 2008). Furthermore, some empirical litera-
ture focuses on the (economic) incentives of constituent groups to
participate actively in the due process (e.g. Georgiou, 2002;
Georgiou, 2010). Quite recently, some quantitative studies began
to look beyond mere comment letter analysis or surveys of con-
stituents: Ramanna (2008) reveals the in?uence of pro-pooling
advocates on congresspersons in US goodwill accounting which,
according to his analysis, led to the quid pro quo of an impairment
only approach. Allen and Ramanna (2013) detect that FASB mem-
bers with a background in ?nancial services tend to propose
standards prone to fair value accounting and regard this as a reason
for the increasing use of fair values in US standards. The latter two
studies are interesting as they continue to rely on a positivistic
framework and carry out purely quantitative analyses but never-
theless explicitly raise the issue of politics in accounting standard-
setting and thus seem to take into account that “[a]ccounting
standardization is much more than dry technical debate and
rational decision-making. [ …] tandards’ content and the mode
of rule setting are closely intertwined. The organizational set-up is
the object of interest, politics and bargaining” (Botzem & Quack,
2009, p. 990; also cf. Fogarty et al., 1994; McLeay, Ordelheide, &
Young, 2000; Young, 2014).
The strength of qualitative research lies in its ability to provide
“thick descriptions” of the phenomena under study (Cooper &
Morgan, 2008; Gendron, 2009). Many interpretive qualitative
studies in ?nancial reporting suggest a reliance on rational choice
explanations pays too little regard to the actual context-driven
(historical and institutional) complexities surrounding the rele-
vant arenas and processes (Cooper & Robson, 2006; Robson &
Young, 2009). In such a vein, several studies have investigated
standard-setting at a national level. This in particular pertains to
the US standard-setter FASB. For instance, Young has analysed is-
sues such as agenda-setting taking place in a regulatory space
(Young, 1994), the rhetoric used by the FASB in its due process
(Young, 2003), the construction of the “user” as the crucial
benchmark for the standard-setter (Young, 2006) and the FASB's
continuous attempt to purify its decision-making as technical (and
not political) (Young, 2014). Fogarty (1992) employed institutional
theory to analyse the con?guration and operation of the FASB,
while Fogarty et al. (1994) emphasised the political nature of
standard-setting. Ravenscroft and Williams (2009) focused on de-
?ciencies in the US standard for share-based payments to illustrate
that the information metaphor in the FASB's conceptual framework
is ?awed (also cf. Williams & Ravenscroft, 2015). Studies in other
national contexts have focused on institutional aspects of standard-
setting. For example, Durocher, Fortin, and C^ ot e (2007) and
Durocher and Fortin (2011) analysed theoretically and empirically
what motivates constituents to participate in the consultations of
standard-setters in the Canadian context. Richardson (2009)
studied organisations that form “networks of rules” in the Cana-
dian standard-setting environment. With respect to the UK, Robson
(1991) analysed the establishment of the UK Accounting Standards
Steering Committee (ASSC). The present study is related to this
strand of literature in that it shares the aim of questioning the
taken-for-granted technical nature of standard-setting and rather
regards it as a social and organisational practice. In contrast to the
studies cited, the paper at hand aims at understanding standard-
setting in a joint project of the FASB together with the interna-
tional standard-setter, the IASB.
Hopwood (2000) claimed that “[t]he institutional and social
aspects of ?nancial accounting are still relatively unexplored” (p.
763) and in particular pointed at the scarcity of research analysing
the change towards international accounting (also cf. Hopwood,
1994). Chua and Taylor (2008) maintained that the rise of IFRS
cannot be explained solely by recourse to economic rationales but
that explaining this phenomenon requires attention to politics.
They proposed institutional theory as a means to understand na-
tional governments’ decisions to delegate standard-setting au-
thority to the IASB. In a similar spirit, Arnold (2012) analysed how
the rise of IFRS can be traced back to the reactions of politicians and
major international organisations in the aftermath of the East Asian
crisis in 1997/98. Posner (2010) scrutinised the development of
political in?uence on the IASC/IASB over time and Baudot (2014)
shed light on the convergence activities of the IASB and FASB.
In addition to historical studies, another strand of literature
focuses on the institutional setup of the IASB. For instance, Büthe
and Mattli (2011) analysed it as a transnational private standard-
setter role model, with a focus on the opportunities for national
bodies to convey their opinions in the international arena. In a
further study, the network of institutions and individuals shaping
the IASB and other organisations which form part of the IFRS
Foundation was also examined (Botzem, 2012; also Perry & N€ olke,
2005). Another institutional feature subject to academic scrutiny is
the due process, which the IASB formally follows in order to
counterbalance the absence of a clear chain of accountability
(Botzem, 2012; Richardson & Eberlein, 2011). The signi?cance of
fair value accounting (Power, 2010) and the “myth” of compara-
bility, the latter being fostered by the “docile” users of IFRS ?nancial
statements (Durocher & Gendron, 2011), have also been analysed
with regard to the IASB's identity-building. In contrast to the
studies referred to above, which mostly focus on historical or
institutional aspects of the rise of IFRS and its challenge to maintain
legitimacy (also cf. Botzem, 2014), the present paper focuses on the
practices of standard-setting. As “[t]he regulatory network provides
a discursive space inwhich accounting technologies develop and/or
are legitimized” (Richardson, 2009, p. 586), the present paper
complements the existing studies on institutional con?gurations by
focussing on the speci?c discourses and rationalities in (interna-
tional) standard-setting.
Practices and discourses in standard-setting processes are rarely
covered in literature. Robson (1993) provides a detailed analysis of
the discourses surrounding the introduction of the UK accounting
standard for research and development, while Robson (1994b)
traces the rise of in?ation accounting in the UK. With regard to
the IASB, Morley (2014) explains why the standard-setter stopped
its project on provisions; Erb and Pelger (2015) analyse the due
process which led to the replacement of “reliability” by “repre-
sentational faithfulness” and Ram and Newberry (2012) look at the
standard-setting process which was concerned with the develop-
ment of a standard for small-and-medium-sized entities (IFRS for
SMEs). The present paper differs from these studies in scope, as it
focuses on the due process which covered the identi?cation of the
objective of ?nancial reporting, as well as by the focus on knowl-
edge, power and rationality, inspired by Flyvbjerg (1998), that is
employed in analysing the boards’ due process.
3. Data
The study in this paper is based on multiple sources. First, all
C. Pelger / Accounting, Organizations and Society xxx (2015) 1e23 4
Please cite this article in press as: Pelger, C., Practices of standard-setting e An analysis of the IASB's and FASB's process of identifying the
objective of ?nancial reporting, Accounting, Organizations and Society (2015),http://dx.doi.org/10.1016/j.aos.2015.10.001
material which was of?cially published by the IASB and FASB was
considered (in particular Discussion Paper, Exposure Draft,
Framework for Financial Reporting). Second, all relevant staff
agenda papers distributed in advance of the board meetings
(publicly available online) were analysed. Third, board-meeting
minutes were used to follow the actual conversations that took
place in the board meetings. Minutes of the IASB meetings or joint
meetings by the IASB and FASB from2007 on are available online as
audio documents,
5
while brief minutes of the FASB meetings are
available online in written format. In addition, the IStaR newsletter
that provides a detailed account of IASB meetings was used as the
single basis for analysing discussions in IASB meetings before 2007,
serving, moreover, as an additional source of veri?cation for the
period afterwards where audio documents are available. Fourth, all
comment letters submitted to the Discussion Paper and to the
Exposure Draft were analysed. Fifth, interviews were conducted
with the following members of the IASB who were involved in the
framework project: Stephen Cooper, Philippe Danjou, Jan
Engstr€ om, James Leisenring, Prabhakar Kalavacherla, Sir David
Tweedie, Geoffrey Whittington. Additionally, the leading IASB staff
member in the framework project, Li Li Lian, along with Wayne
Upton, the former Director of Research of the IASB (nowDirector of
International Activities and Chairman of the IFRS Interpretations
Committee) and a former staff member of the IASB were inter-
viewed.
6
Sixth, interviews were conducted with constituents who
wrote comment letters to the IASB: one industrial preparer, one
association of preparers, three representatives of (different) asso-
ciations of accountants/auditors and one national standard-setter.
Additionally, two accounting academics were interviewed, one of
whom was an advisor to a user group. Interviews were conducted
between April 2012 and March 2014. Of the 17 interviews, 14 were
carried out face-to-face, one via Skype video-call and two by tele-
phone. All interviews (except one with the representative of an
auditors’ association) were tape-recorded. Anonymity was granted
to interviewees except board members and current members of
staff. The interviews ranged from 33 to 157 min in duration. While
all interviews covered further topics related to the framework and
general aspects of standard-setting, a signi?cant part of each
interview was devoted to questions on the objective of ?nancial
reporting. Table 1 provides all details about the interviews, while
Table 2, shown in the appendix, offers a detailed account of the
material employed in this study.
7
Drawing on the outlined material,
the decision-making process is chronologically analysed in the
following section.
4. Due process on the objective of ?nancial reporting
In 2002, the IASB and FASB agreed to work together in an
attempt to converge their ?nancial reporting standards (IASB/FASB,
2002). In their joint meeting in October 2004, the boards of?cially
placed the conceptual framework project on their convergence
agenda (IASB, 2004). They decided to conduct the revision in the
form of a multi-phased project and pronounced that “converging
the objectives should be dealt with early in the concepts project”
(IStaR, 2004, p. 32). In February 2005, the boards established that
objectives and qualitative characteristics should be part of the ?rst
phase (IASB, 2005a). The following sections analyse the due pro-
cess, which took place between 2005 and 2010.
8
4.1. Stage 1: ?rst thoughts on stewardship
The agenda paper, which IASB and FASB staff prepared for the
board meeting in April 2005 to summarise their initial de-
liberations on the objectives of ?nancial reporting, compares the
existent frameworks of the IASB and FASB and comes to the
conclusion that “stewardship is a subset of (rather than being
distinct from) the overall objective of decision-usefulness” (IASB/
FASB, 2005, p. 5). As the aim of the framework revision consisted
Table 1
List of interviewees.
Name Date Duration (min.)
Geoffrey Whittington (IASB member 2001e2006) 26 April 2012 157
Industrial preparer 03 May 2012 77
Association of accountants/auditors 10 May 2012 33
Accounting academic 10 May 2012 79
Former IASB staff member 10 May 2012 54
Accounting academic 11 May 2012 52
Association of accountants/auditors 21 June 2012 40
Philippe Danjou (IASB member since 2006) 18 July 2012 73
Sir David Tweedie (IASB Chairman 2001e2011) 19 July 2012 116
Prabhakar Kalavacherla (IASB member 2009e2014) (joint interview)
Li Li Lian (IASB staff) (joint interview)
19 July 2012 65
Jan Engstr€ om (IASB member 2004e2014) 20 July 2012 68
Association of accountants/auditors 07 September 2012 59
Association of preparers 20 September 2012 60
National standard-setter 17 October 2012 110
Wayne Upton (IASB senior staff) 18 October 2012 84
Stephen Cooper (IASB member since 2007) 19 October 2012 90
James Leisenring (IASB member 2001e2011) 03 March 2014 60
5
Complete minutes of the meetings on this project are not available for the
time before 2007 as the Due Process Handbook of the IASB, which states that IASB
“[m]eetings are recorded. [ … ] Recordings of meetings are available on the IFRS
Foundation website” (IFRS Foundation, 2013, p. 9), was ?rst introduced in 2006.
6
Note that all board and staff members provided their individual views, which
do not necessarily re?ect the of?cial opinion of the IASB. Explicit written permis-
sion to quote the interviewees (board and staff members) was granted, with one
exception where the interviewee granted implicit written permission by
acknowledging receipt of the statements but not reacting to a deadline for
corrections.
7
Table 2 includes references to the quoted literature. Material which was not
referenced in the paper is available on the websites of FASB or IASB. The volumes of
IStaR Newsletters which were used in this study are also included in Table 2. For the
sake of brevity, Table 2, however, does not include the list of monthly IASB news-
letters (IASB Update) which were also consulted.
8
The names of board members serving at the time of the initial discussions
about accounting objectives in April and July 2005 are provided in Table 3 for the
FASB and in Table 4 for the IASB. Retirements and replacements during the time
until the publication of the framework in September 2010 are presented in Tables 5
and 6. All tables are provided in the appendix.
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mainly in aligning and improving the former frameworks instead of
a revolutionary change in their content (Bullen & Crook, 2005), the
staff recommended the retention of the role of stewardship in this
form, that is, as a subset of decision usefulness (IASB/FASB, 2005).
In the joint IASB/FASB meeting in April 2005 (IStaR, 2005a, pp.
30 f.) IASB staff member Crook asked the boards whether a refer-
ence to stewardship was still necessary. Some board members
pointed out that they perceived incongruences of notions of
stewardship with the decision usefulness view. For example,
McGregor “agreed that stewardship was an old word and should be
dropped”, while Trott mentioned that “it sounded like record-
keeping, not communication” and Leisenring noted that taking up
terms such as stewardship as an objective “was more mischievous
than helpful”. In contrast, Whittington and Cope claimed that
stewardship was a relevant consideration for standard-setters.
Other board members were confused about differences between
the terms “accountability” and “stewardship”. Schipper demanded
a vote and FASB Chairman Herz then took up the earlier question by
staff member Crook, asking: “Who would have decision-useful
only?”, in other words, who would prefer to abandon steward-
ship. Three FASB and six IASB members were in favour of this
suggestion. No board member objected to Herz's subsequent pro-
posal to ask the staff to carry out more research on stewardship
(also cf. FASB, 2005a).
The further analysis by the staff consisted in a detailed scrutiny
of the existent FASB/IASB frameworks, frameworks by other na-
tional standard-setters and dictionaries. On this basis, the staff
identi?ed three possible alternatives of dealing with stewardship
(IASB, 2005b, p. 1):
1) Stewardship is included in the framework as an objective of
?nancial reporting,
2) stewardship is included in the discussion in the framework,
where it is stated that information useful for “investment, credit
and similar resource allocation decisions” can also be used for
assessing management's stewardship,
3) stewardship is eliminated from the framework, an explanation
for this being given in the Basis for Conclusions.
The staff argued that the ?rst alternative would not be in line
with the frameworks in place and would overemphasise steward-
ship, thus suggesting that the second alternative be chosen.
The agenda paper prepared by the staff served as an important
device as it set the scene for the following board discussions. It
should be noted that the preparation of agenda papers in advance
of board meetings authorises the staff to suggest what counts as
“right” or “appropriate” in the particular context of the board
meetings, but does not necessarily re?ect the “truth” of the content
of underlying documents.
9
As Flyvbjerg (1998) notes, “interpreta-
tion is itself a means of becoming master of something” (p. 227).
Hence, the tasks of collecting and interpreting material and
deriving recommendations put the staff in a crucial position. Ac-
cording to the former IASB Chairman, Tweedie (interview), such a
constellation was not unintended:
“In general, the staff should be the experts. They should go and
research something, because we are covering all sorts of sub-
jects and they should be covering one subject, which they
should know more about than anybody in the entire board. And
then they present their views. [ … ] The staff de?nitely has an
in?uence, for example in drafting papers, partly because we
don't have time. Like everyone they have an agenda, because
everyone has opinions, but, ultimately, the board decides.”
A former IASB staff member (interview) corroborated the
importance of the staff: “They [the staff members] write the board
papers. So the way they express the views will undoubtedly have an
in?uence on some board members.” Given the central role of the
suggestions the staff posits in agenda papers, it is worth re?ecting
on the bodies of knowledge the staff considered in developing their
recommendation. The staff primarily took recourse to former
frameworks, which, to a large extent, had been prepared on the
basis of the FASB framework (Zeff, 2013). As the staff drewon SFAC 1
and its followers, the subsequent paragraphs shed some light on the
history of the rise of the decision usefulness programme in the US.
Several decades of standard-setting by the accounting profes-
sion in the US, starting in 1939 with the Committee on Accounting
Procedure, succeeded in 1959 by the Accounting Principles Board,
had been unsuccessful in establishing consistent accounting prac-
tices (e.g. Gore, 1992; Zeff, 1972). In light of the criticism raised
against both the standard-setting institution and the content of the
standards it produced, there was a looming threat of SEC or gov-
ernment intervention, which would have resulted in the with-
drawal of standard-setting authority from the private sector (Gore,
1992). Thus, a basis for unifying accounting practice was sought
which would determine the “ends” of ?nancial reporting and
thereby provide a guideline for standard-setters to choose the best
approach among different accounting alternatives. “No longer
should it be possible to legislate accounting standards by ?at; no
longer should it be possible to thunder ‘Thou shalt’ without
continuing with ‘because’” (Sorter & Gans, 1974, p. 2). The prob-
lematisation of the objective of ?nancial reporting in standard-
setting discourses during this period paved the way for the intro-
duction of a government programme which aimed to address the
identi?ed problem. In developing such a programme, the standard-
setter that took over in 1973, the FASB, could build on the efforts of
accounting academia which had intensively discussed objectives
and concepts of ?nancial reporting during the 1960s and 1970s (Erb
& Pelger, 2015; Zeff, 2013). The predominant view which emerged
in academia (Staubus, 2003), and which was explicitly pronounced
in documents such as “A Statement of Basic Accounting Theory”
(ASOBAT) (AAA, 1966) and the Trueblood Report (AICPA, 1973) was
that ?nancial reporting should provide useful information for
capital providers supporting their assessments of future cash ?ows.
This decision usefulness view had been born in Chicago, where
Staubus ?rst developed what he termed “a theory of accounting to
investors” in his dissertation (Staubus, 1999, p. iii). The idea gained
popularity in accounting academia, where the logic of ?nancial
economics and its inherent knowledge claims, adopted from the
disciplines of ?nance and economics, were becoming increasingly
in?uential (Barker & Schulte, in press; Ravenscroft & Williams,
2009; Young, 2006).
10
More generally, neoliberalism in the
9
For example, the staff's statement that stewardship is a subset of decision
usefulness in the existent frameworks (IASB/FASB, 2005) can be doubted, in
particular for the IASB framework where stewardship was clearly mentioned as an
additional consideration: “Financial statements also [in addition to the provision of
decision useful information] show the results of the stewardship of management”
(IASC, 1989; F. 14). Moreover, it should be noted that in contrast to SFAC 1.34 (“and
other decisions”) the staff paper even said “and other resource allocation decisions”
thereby more explicitly limiting the scope of decision usefulness to valuation de-
cisions. Neither did the staff provide any reason for narrowing down the de?nition
of decision usefulness nor had the boards e as far as the available documents show
e previously passed any resolution on this point.
10
Ravenscroft and Williams (2009) and Chabrak (2012) re?ect on the political and
social origins of this turn in accounting. In particular, they show the role of
(neoliberal) ideologies, shaped by the Mont P elerin Society, for the spread of ideas
in economics and from economics to ?nance and accounting.
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Chicago variant (Foucault, 2008) pursued “a progressive enlarge-
ment of the territory of economic theory by a series of rede?nitions
of its object, starting out from the neo-classical formula that eco-
nomics concerns the study of all behaviours involving the alloca-
tion of scarce resources to alternative ends” (Gordon, 1991, p. 43).
11
Economics, thus, extended its realm by transposing “economic
analytical schemata and criteria for economic decision making onto
spheres which are not, or certainly not exclusively, economic areas”
(Lemke, 2001, p. 197), such as ?nancial accounting.
12
This is, for
example, re?ected in Staubus' (2003, p. 193) statement that “[a]
ccounting is a branch of economics.” As academic input was sought
by the standard-setter (Staubus, 2003) to legitimise its existence
and its activities, the neoliberal economic rationality spread from
accounting academia to the world of standard-setting. Economics
became the “intellectual machinery for government” (Rose & Miller,
1992, p. 183, emphasis in original) in ?nancial reporting and the
economic perspective of neoliberalism was the rationality adopted
by the FASB and expressed in the decision usefulness programme in
SFAC 1.
The decision usefulness programme was in sharp contrast to
former practical conventions along the lines of “accounting is what
accountants do” (Young, 2006, p. 581) and a radical departure
(Gore, 1992) fromprevalent understandings of accounting practices
at that time. While not being formally identi?ed as an objective of
?nancial reporting (Zeff, 2013), Murphy et al. (2013) emphasise that
accountability/stewardship was the “living law” underlying day-to-
day accounting practice. Accountability, however, was denied as a
proper basis for standard-setting (e.g. Staubus, 2003) because a
clear break with former practices was intended. The decision use-
fulness programme as a “deliberate and relatively systematic [form]
of thought [endeavoured] to transform those practices” (Dean,
2010, p. 32). The re-conceptualisation of the role of ?nancial
reporting followed a general reliance on market mechanisms:
“Decision usefulness relies heavily upon the language of self-
seeking rationality, markets, and economic ef?ciency to describe
accounting problems and interpret accounting events” (Williams,
1987, p. 169). According to the decision usefulness view, ?nancial
reporting standards should be developed following the demands of
“users”, who are perceived as rational actors in capital markets. In
this setup the “user” of ?nancial reporting information became
crucial, not as a real-world actor, but as a ?ctitious abstract (con-
structed) rational decision-maker (Young, 2006), epitomising the
“central point of reference and support [of neo-liberal thought],
namely homo oeconomicus” (Lemke, 2001, p. 200, emphasis in
original). The advent of user orientation ?rst remained an abstract
general programme, which did not have immediate effects on ac-
counting practice (Ijiri, 1975). Nonetheless, the terminology of
discourse in ?nancial reporting changed as accounting was “deci-
phered using economic criteria and within economic terms of [its]
intelligibility” (Lemke, 2001, p. 198; Foucault, 2008, p. 243; also cf.
Williams, 1987). Due to decision usefulness’ “rapid rise to a domi-
nant position in accounting thought” (Staubus, 1999, p. iii), the
“accountability root metaphor” was replaced by the information
metaphor (Ravenscroft & Williams, 2009) which re?ected the
establishment of a novel way of thinking about accounting.
Thus, the staff recommendation in 2005 not to consider stew-
ardship as a separate objective, should be seen in the historical
context of the rise of the decision usefulness programme against
formerly dominating notions of stewardship. In fact, the respon-
sible staff members seemed to be aware of the history of the de-
cision usefulness programme. Bullen and Crook (2005)
acknowledge that there was a controversy in the 1970s when the
superiority of decision usefulness over stewardship was ?rst
introduced, while decision usefulness was “accepted today and
regularly cited by the Boards and their constituents in discussions
about proposed standards” (p. 4). This clearly signals how decision
usefulness was taken-for-granted, which was clearly not the case
with stewardship, despite it being part of the earlier frameworks.
From the perspective of the decision usefulness programme e as
we will see in more detail in the next section e stewardship was an
alien element and “its inclusion in the existing frameworks [was]
largely for historical reasons” (IASB/FASB, 2005, p. 6). Thus, the
staff's evaluation became an exercise in rationalising the aban-
donment of stewardship. This was ?rst apparent in the way argu-
ments were presented in the staff agenda papers. The staff failed to
produce reasons for including stewardship as a separate objective,
placing emphasis on arguments which stressed the inappropri-
ateness or redundancy of stewardship. Second, in deriving a
rationale for relegating stewardship, the staff took selective
recourse to a certain body of knowledge, the decision usefulness
programme from SFAC 1, while ignoring others. In particular, the
body of research introduced above in the “Literature review” sec-
tion, which has repeatedly questioned the claim that stewardship
might be encompassed in decision usefulness, was not taken into
account at all by the staff.
13
As Flyvbjerg (1998) puts it: “The
documentation not produced is just as interesting as that which is
produced” (p. 31, emphasis in original). Ultimately, the agenda
papers did not include a balanced assessment of the advantages
and disadvantages associated with different possible objectives of
?nancial reporting. Instead of raising awareness of the origins of
decision usefulness and the potential problems of including stew-
ardship in such a programme (or problems of decision usefulness
more generally), the staff agenda papers reproduced and reem-
phasised the decision usefulness programme.
4.2. Stage 2: cultural clashes
The staff's proposal was discussed in the FASB meeting on 27
July 2005 (cf. FASB, 2005b). The single user on the FASB, the former
analyst Young, was strongly in favour of a separate stewardship
objective. However, the other board members did not share his
opinion. Instead, they followed the staff's recommendation and
con?rmed that stewardship should not be stated as a separate
objective. One board member, Trott, suggested the elimination of
any discussion of stewardship fromthe main text of the framework
as, in his opinion, there was no need to waste space on discussing
non-objectives.
The arguments brought forward by FASB members were as
follows (cf. FASB, 2005b, pp. 3e7). First, stewardship was placed
outside the realm of ?nancial reporting and rather regarded as a
11
The description of the Chicago (or American) variant of neoliberalism was
introduced by Foucault in his lectures in 1978e1979 (cf. Foucault, 2008). In
particular, Foucault contrasted this version of neoliberalism with the “European”
neoliberalism mainly shaped by the German ordoliberals.
12
Note that Staubus' development of decision usefulness in Chicago was no
coincidence as Staubus (2003, p. 163) contends that “I am not sure I would have
reached that point in my thinking [that ?nancial information should be useful in
making decisions] in any environment other than that of the University of Chicago.”
For the Chicago spirit of that time in economics cf. Chabrak (2012). Apparently
independent from Staubus' ideas, the in?uential report of the Trueblood study
group (AICPA, 1973) was prepared by several group and staff members with con-
nections to Chicago (cf. Zeff. 2014).
13
In its agenda paper (IASB, 2005b) the staff referenced two academic papers
(Ijiri, 1983; Rosen?eld, 1974) and one study report (AICPA, 1973). However, even
those few documents were merely used to introduce de?nitions, while the authors'
arguments about the relationship of stewardship and decision usefulness were not
taken up.
C. Pelger / Accounting, Organizations and Society xxx (2015) 1e23 7
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task that needs to be accomplished by internal mechanisms eother
institutions than ?nancial reports. For example, Schipper argued:
“In contrast to outside investors who rely on ?nancial reports to
make investment decisions, a governing board has the power to
demand the information necessary for it to determine whether
management is ful?lling the stewardship role. [T]he board can
require that internal reports be prepared for its use. The external
?nancial reports are not the appropriate mechanism for
communicating information on stewardship to the governing
board.”
In a similar vein, Trott contended that “[a]ccountability of re-
sources of a company is the responsibility of that company's in-
ternal control function”. Second, it was stated that a stewardship
objective necessarily entailed the separation of management and
enterprise performance (Crooch) and even if this link was not
inevitable, many constituents still may perceive stewardship as
implying the distinction (Schipper). Interestingly, the former user
Young denied that this argument bears any practical relevance.
Third, negative consequences/implications of a stewardship
objective were evoked in a very general form. For example, Schip-
per introduced the sharp sword of room for earnings management
because stewardship allegedly entailed too many opportunities for
management to in?uence ?nancial reporting. Moreover, Herz
regarded stewardship as a possible limitation towards future-
oriented (modern) accounting, arguing that it focused on past
transactions, while ?nancial reporting wanted to assist in assessing
future cash ?ows. Hence, all FASB members except Young seemed
pretty convinced that a stewardship objective was unnecessary or
even detrimental for ?nancial reporting centred on investors'
concerns.
14
In the IASB meeting on 20 July 2005 (IStaR, 2005b, pp. 11e13),
several board members also expressed their support for the staff
recommendation; for example, Leisenring noted that “he would not
object to dropping the terms [stewardship] altogether”. Leisenring,
Barth, McGregor and O'Malley pointed to dif?culties in de?ning
stewardship and used this as an argument not to see it as an
objective. Their reference to different understandings of steward-
ship was countered by Cope, who mentioned “it was also important
to reach a common understanding of what the Board meant by
useful for economic decision-making, as there was a difference of
opinion on that point as well”. Whittington noted “there were
different views of the term ‘economic decision-making’, even
within the investor community”. McGregor and Smith both chal-
lenged Whittington to produce examples of implications of a
stewardship objective, while Barth observed that “Board members
had been unable to come up with an example of information that
would be useful for stewardship and not economic decision-mak-
ing”. In response to Tweedie and Whittington, who argued for a
separate stewardship objective, Leisenring contended that “to
separate stewardship as an objective exaggerates what can be
accomplished by ?nancial statements”. While eleven board mem-
bers agreed with the staff's proposal, three decided to vote against
the inclusion of stewardship in decision usefulness: Cope, Tweedie
and Whittington.
The boards' majority view was that “the objective of ?nancial
reporting [ … ] encompasses providing information useful in
assessing management's stewardship” (DP OB28) and a separate
stewardship objective “would add nothing in substance” (DP
BC1.35). In the board meetings, this view was articulated by FASB
and US IASB board members in particular and is rooted in the US
positioning of ?nancial reporting in the system of corporate
governance. In the US, traditionally, governance is under the au-
thority of individual states, many of which do not even have min-
imum ?nancial reporting requirements (Bush, 2005). Shareholder
protection by corporate law is generally weak, in particular in the
state of Delaware where most listed corporations are registered
(Bush, 2005; Siepel & Nightingale. 2014). The national regulations
of the 1930s (Securities Act, Securities Exchange Act) aimed at
regulating sales of securities and information provided to the
markets. The focus was on abandoning information asymmetries
between secondary markets and companies (Bush, 2005) and
implied that ?nancial reports were regarded as “a reliable basis for
the pricing of shares so as to ensure the ef?cient functioning of
capital markets” (Eberle & Lauter, 2011, p. 6).
This focus on markets and investors gained in importance for
the preparation of ?nancial reports when the FASB took over US
accounting regulation on behalf of the SEC in 1973 and established
the decision usefulness programme as the guideline for standard-
setting. This abstract and academic programme was successfully
mobilised by the FASB for its identity-building, as the FASB's de?-
nition of the role ?nancial reporting should play resonated partic-
ularly well with the US governance context and the SEC's
preferences (Macintosh, 1999): “How does this affect the investor?
That is the way they think, this is their mind-set.” (Tweedie,
interview). This is indicative of a more general regulatory
perspective in the US, which is based on the economic rationality of
Chicago neoliberalism (Foucault, 2008; also Ravenscroft &
Williams, 2009). The government rationality of neoliberalism ex-
tends the realm of the economy to other (non-economic) areas
(Foucault, 2008; Gordon, 1991; Lemke, 2001). Fromthis perspective
stewardship is completely absorbed by the focus on resource allo-
cation decisions as bad performance by management is sanctioned
by the market. Shareholders who are not satis?ed with manage-
ment's stewardship are supposed to sell their shares or to look for
other solutions in the market for corporate control (e.g. in the form
of takeovers)
15
:
“In the US owners express their preference by buying and selling
shares. This method of intervention uses the stock market and
so it is understandable that in the US they don't see any differ-
ence between stewardship and valuation.” (Association of ac-
countants/auditors, interview).
This re?ects the all-encompassing nature of the neoliberal
governmentality underlying ?nancial reporting standard-setting.
This perspective elides differences between the economic and the
social (Gordon, 1991; Lemke, 2001) and conjectures that “human
action [is] governed by a speci?c unique (economic) rationality”
(Lemke, 2001, p. 197). In such a setting every other purpose is not of
primary relevance, as the resource allocation decisions of rational
investors will capture other attributes in their cost-bene?t calculus.
The silencing of any possible alternative objectives of ?nancial
reporting, such as stewardship, follows logically from the decision
usefulness programme. Hence, US board members had dif?culties
to de?ne stewardship and to understand why some other board
14
At the end of the board meeting, there were ?ve votes in favour of the staff
recommendation. While Young voted in favour of a separate stewardship objective,
Trott was in favour of alternative three, mentioned above, that is, no reference to
stewardship in the main text.
15
Note that the arguments by Schipper and Trott (FASB, 2005b), quoted above,
positioned stewardship outside the scope of ?nancial reporting. While on the one
hand this might merely re?ect the arbitrary nature of arguments against stew-
ardship, it might also demonstrate the dif?culties of US board members to make
sense of the idea of stewardship in ?nancial reporting.
C. Pelger / Accounting, Organizations and Society xxx (2015) 1e23 8
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objective of ?nancial reporting, Accounting, Organizations and Society (2015),http://dx.doi.org/10.1016/j.aos.2015.10.001
members deemed it important to state it separately: “There were
some on the boards who thought that stewardship just doesn't
exist.” (Cooper, interview). One example was IASB member Lei-
senring (interview):
“I often have no idea what people mean by stewardship. That is
one of the reasons why I have resisted having it as any stated
separate objective because through all of the process I was
repeatedly asking, “What do you mean by it?”, and never heard a
satisfactory explanation.”
He also noted that this re?ected the US perspective on ?nancial
reporting:
“I may be prejudiced because there has not been an explicit
stewardship objective in the history of US ?nancial reporting
standard-setting. Hence, my background is not the same as that
of some others.”
Re?ecting on the different importance of stewardship, Upton
(interview), con?rmed:
“Stewardship is, perhaps, a cultural issue because it has never
arisen in my experience in the United States. I never e in any of
the discussions around concepts when I was at the FASB eheard
it come up at all. The focus was all on investors and lenders and
resource allocation decisions. However, I did encounter it at the
IASB the moment I walked in the door.”
These two quotations are interesting as they reveal that the
existence of stewardship, arguably as a second-order but none-
theless explicit objective in SFAC 1, had not even been noted by
individuals who had spent decades in US standard-setting. This
reemphasises the staff's earlier point that stewardship's inclusion
in SFAC 1 was perceived as being mainly for historical reasons. The
major objective, which rose against traditional notions of stew-
ardship, was decision usefulness. For example, McGregor, quoted
above as regarding stewardship as an “old word”, argues that the
turn towards decision usefulness re?ected progress in ?nancial
reporting:
“Prior to the advent of conceptual frameworks, accounting
standards and ?nancial reporting were based on vague princi-
ples and conventions, such as true and fair, prudence, stew-
ardship, conservatism, matching and earnings process rather
than on a robust set of inter-related concepts re?ecting under-
lying economic phenomena” (McCahey & McGregor, 2013, p. 4).
By the same token, clearly distancing ?nancial reporting fromits
traditional core activities, Barth (2008, p. 1164) argues that
“?nancial reporting is not about bookkeeping e it is about
providing information to outside providers of capital”. It should be
noted that this perspective re?ects a deliberate detachment of the
rationalities and programmes of standard-setting from the day-to-
day practice of ?nancial accounting (also cf. Erb & Pelger, 2015).
The rise of the decision usefulness programme re?ected the
academicisation of ?nancial reporting standard-setting in the US
based on neoliberal economic thought. This does not only refer to
Staubus' initial thoughts about decision useful accounting, but also
to those academics who served as full time staff members of the
Trueblood study group, whose report served as a template for the
FASB's framework. In particular, George Sorter from the University
of Chicago, who served as Director of Research of the study group,
had a major in?uence on specifying the objective's focus on the
users' cash ?ow projections in the ?nal report (cf. Zeff, 2014). Since
the late 1960s, US accounting research has taken the decision
usefulness programme for granted (Staubus, 2003) and large parts
of the accounting academy have lent a scienti?c aura to the concept
as researchers have placed particular emphasis on the study of
capital market effects of accounting standards.
16
The Chicago
School of Economics and its followers postulated that “explaining
and predicting security prices is a common accounting practice,
while matters of stewardship and accountability are of much lesser
consequence” (Chabrak, 2012, p. 456). While the real value of the
numerous studies for assisting standard-setters’ decision-making
might be doubted (e.g. Holthausen & Watts, 2001; Miller &
Power, 2013), it is important for our case that two of the board
members quoted above, Katherine Schipper (FASB) and Mary Barth
(IASB), actually were part of the academic accounting elite in the
US
17
and have published a multitude of market-based accounting
studies.
18
Hence, these two academic board members from the US
were strongly committed to the decision usefulness programme
and acted as “carriers” (Power, 2010, p. 203) of this line of thinking
into the standard-setting discourse.
All in all, given their socialisation in the decision usefulness
programme, board members with a US background were sceptical
towards any separate stewardship objective. The same applies to
the staff:
“The framework project was dominated by the FASB staff, it was
written in America. It was a copy or an extension of the existing
American framework. They [the staff members] were of course
not deliberately taking sides but they were only trying to be
helpful and to do good work. But nevertheless of course they
were trained as FASB people, they thought like FASB people so
there was a tendency to adopt a lot of FASB ideas. This came
through not only in the framework project but in all sorts of
projects.” (Whittington, interview).
Several interviewees stressed that more resources were spent
by the FASB staff on the project due to the much larger workforce in
place there: “We [the IASB] had not got the staff. [ …] On the side of
the staff there were some pretty powerful well-experienced
American guys on this project.” (Tweedie, interview). This meant
that the large number of board and staff members from the US,
socialised in the decision usefulness programme, were in a crucial
position to make their understanding of ?nancial reporting the
“of?cial view” of the IASB and FASB in the Discussion Paper as they
initiated and shaped the debate.
Opposition to the relegation of stewardship came particularly
from IASB members with a UK background. Tweedie and Whit-
tington shared both an academic background and long experience
on the British Accounting Standards Board (ASB). Cope was also
educated in the UK with a degree from Cambridge University and
three years of professional experience in London before he went to
the US in the early 1960s (Miller, Redding, & Bahnson, 1998, p. 44).
16
Oler, Oler, and Skousen (2010) reveal the vast dominance of empirical-archival
papers on ?nancial reporting topics in leading North-American accounting journals
since the 1970s.
17
Schipper received her PhD from the University of Chicago, the traditional place
of positivistic economic thought (Ravenscroft & Williams, 2009), and Barth's PhD
supervisor was Bill Beaver, one of the pioneers of capital market research (Beaver,
1981).
18
Market-based accounting research is methodologically based on the positivistic
framework developed by Watts and Zimmerman (1986), but does to a large extent
singularly focus on the valuation role, while neglecting contracting consequences of
?nancial reporting (Holthausen & Watts, 2001; Kothari et al., 2010). For instance,
Mary Barth openly advocates the use of value relevance studies (Barth, Beaver, &
Landsman, 2001) and sees no point in pursuing contracting issues in standard-
setting (Barth, 2007).
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The economic rationality of neoliberalism has been less pro-
nounced in UK ?nancial reporting standard-setting than in the US
(Robson, 1994a). This stems from the predominant role of profes-
sional conventions, at least implicitly based on stewardship, which
for a long period shaped ?nancial reporting in the UK. In fact, it was
only in the late 1990s that the UK standard-setter, the Accounting
Standards Board (ASB), ?rst published a “Statement of Principles”
where it explicitly de?ned objectives and placed stewardship on an
equal level with decision usefulness (ASB, 1999, par. 1.6). Hence,
there was no comparable history of neoliberal thought of the Chi-
cago variant becoming the government rationality of the UK
standard-setter with an accompanying programme of decision
usefulness. Instead, the framework (ASB Statement) re?ected what
were (inductively) perceived as being the dominant uses of ac-
counting information in practice. This was taken up by Whittington
and Tweedie in their Alternative View to the Discussion Paper (DP
AV1.3):
“[Stewardship] is at the heart of the ?nancial reporting process
in many jurisdictions, where the ?nancial statements are pre-
sented to the shareholders at an annual general meeting, which
approves the ?nancial statements, elects directors, approves
dividends, and conducts other important business. The ?nancial
statements provide input into these decisions [ …].”
This statement is based on the fact that the governance setting
in the UK differs markedly fromthat in the US (Bush, 2005): “That's
what the ?ght was about e different philosophies.” (Tweedie,
interview). Rooted in successive Companies Acts, signi?cant power
has been granted to shareholders and ?nancial reports have been
seen as reports by the management to the shareholders (Lennard,
2007; Siepel & Nightingale, 2014). Shareholders in the UK thus
have taken a much more active role than in the US:
“In the UK there is more of a culture of shareholders taking
massive interest in the business which is expressed in other
ways than buying or selling their shares e they actually inter-
vene in the business by telling the CEO to go or to change di-
rection.” (Association of accountants/auditors, interview).
In the UK setting, accounting information is the major device to
alleviate owner-manager con?icts and thereby “directly links
?nancial reporting and corporate governance” (Eberle & Lauter,
2011, p. 441). Hence, in contrast to the US governance setting,
which is centred on acting at a distance through the market for
corporate control, owners in the UK do not act solely through
markets but have other mechanisms at hand and pay attention to
additional aspects which might not necessarily impact future cash
?ows in a signi?cant manner. “The idea that you value companies
just by discounting cash ?ows is in my viewsomewhat of a naivety”
(National standard-setter, interview). In this view, ?nancial
reporting is not necessarily restricted to being part of the neoliberal
government rationality outlined above.
While evaluation of management performance and its success
or failure in market terms (with effects on future cash ?ows)
certainly in?uences decisions about remuneration or replacement,
thereby possibly overlapping with the decision usefulness pro-
gramme, consistent with the history of accounting and its stew-
ardship role (e.g. Birnberg, 1980; Murphy et al., 2013), aspects of
morality might also play a role. Williams (1987) notes that
accountability considers the constraining role of ?nancial reporting
and encompasses the language of fairness (and distributive justice)
which, however, is alien to the decision usefulness programme
(also cf. Bayou, Reinstein, &Williams, 2011). In fact, such a language
can be found in the Alternative View which explicitly referred to
the stewards’ “integrity” (DP AV1.3) as an important consideration.
In addition, Tweedie (in board meetings) pointed to the task of
?nancial reporting to constrain the “snouts-in-the-trough” behav-
iour of managers. It is also interesting to see how, on the one hand,
the Discussion Paper articulates the economic view in its Basis for
Conclusions, the core characteristic of neoliberal rationalities
(Lemke, 2001). It deliberately avoids any moral tone, stating that
“providing information for the speci?c purpose of helping to decide
what constitutes excessive remuneration or unjust enrichment is not
the purpose of ?nancial reporting” (DP BC1.41, emphasis in orig-
inal). On the other hand, the two authors of the Alternative View
maintain that “the stewardship objective requires that information
relevant to these purposes should be supplied” (DP AV1.6).
“This is where Geoffrey Whittington and I disagreed with them
because we were coming from the basis that e as ownership
and management are separated e management had to report to
shareholders what they have done. Americans don't understand
that. [ …] It was a different mind-set. I didn't want their US view
to go through because it was a partial view. If we are going to
have an objective chapter, I don't want to have a partial view in
that which cuts out the whole rest of the world.” (Tweedie,
interview).
As stewardship was perceived as “a problem”, all discourses
centred on the question whether it is worth making it a separate
objective or not. However, decision usefulness was not substan-
tially challenged. The only exceptions were the comments by Cope
and Whittington in the July 2005 IASB meeting, where they argued
that decision usefulness was also subject to various un-
derstandings, countering the criticism against stewardship. Such a
perspective on decision usefulness has also been mentioned in the
literature. For instance, Williams (1987) maintains that it “has a
pachreston [a universal panacea] quality” as “[v]ery little concern
seems to be given to de?ning just what decision usefulness is to
connote” (p. 170). Zeff (2013) notes that decision usefulness is “yet
another term with diverse meanings, or at least diverse in-
terpretations” (p. 265). This point, however, was not pursued as
even the proponents of stewardship accepted the objective of de-
cision usefulness, providing an example for “institutional thinking”
(Young, 1996). Indeed, “[t]he user perspective is taken to be one of
such obviousness that it requires neither a physical manifestation
nor an appeal to conventionally accepted evidential bases”
(Hopwood, 1994, p. 249). This becomes manifest in the Alternative
View, where stewardship and decision usefulness are regarded as
“parallel objectives [ … ] which have different emphases” (DP.AV
1.4).
Thus, the decision usefulness programme was powerful in
shaping the “conduct” of board members, as its replacement was
neither thinkable nor doable. In this sense government rationality
“refers to the way in which behaviours are oriented” by guidance,
not control, leading to the paradox of the free, yet disciplined, in-
dividual (McKinlay &Pezet, 2010, p. 487). Note that this role existed
despite de?ciencies associated with the decision usefulness pro-
gramme. For instance, Williams and Ravenscroft (2015) demon-
strate that “decision usefulness as a criterion for accounting policy
is a hollowconcept” (p. 784). Other literature has not only hinted at
operational dif?culties of the decision usefulness programme but
also stressed that decision usefulness is in fact not the primary role
of accounting information in practice. For example, Chua and Taylor
(2008) argue that e according to empirical evidence e contracting
(of which stewardship is part) is a more important role for ?nancial
reporting than informing investors. Kothari et al. (2010) go even
one step further and claim that stewardship emerges naturally as
the major objective of ?nancial reporting “as a consequence of
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economic forces shaping a GAAP designed to facilitate ef?cient
capital allocation” (p. 248).
19
It is interesting in this regard that the
only “real-world users” on the FASB (Young) and IASB (Cope), both
from the US, argued (and voted) in favour of stewardship which
reveals a gap between the constructed user viewarticulated by the
majority of board members and actual user views in practice. This
gap is not particularly new as the decision usefulness programme
has since its beginnings kept an “analytical distance” (McKinlay &
Pezet, 2010, p. 487) from the real world of users (Hopwood,
1994), but reemphasises the perseverance of that distance.
20
A
more critical stance towards decision usefulness and re?ections on
its de?ciencies might have destroyed the “illusion” of an operable
basis for standard-setting. Such analysis, however, was absent
which is not surprising as Flyvbjerg (1998) reminds us: “Power,
quite simply, provides that knowledge and that rationality which is
conducive to the reality it wants” (p. 36).
The voting outcomes in the IASB meeting of July 2005 suggest
that stewardship was largely an issue relevant to the UK. However,
the ?nancial reporting model in the UK is seen to be closer to
Continental Europe than to the US (Bush, 2005; Eberle & Lauter,
2011). Hence, Tweedie (interview) said that he “was surprised we
didn't get more support from the Europeans”. It should be noted,
however, that Continental Europe has a different tradition where
banks have usually been the most important players in ?nancing
companies and creditor protection has been the most important
objective of ?nancial reporting (for the example of Germany cf.
Working Group on External Financial Reporting, 1996). Such
possible alternative objectives for ?nancial reporting established
(or at least discussed) in other (national) settings were not at all
considered by staff and board members and thus attributed the
status of non-issues.
21
Board members from these countries
apparently did not have strong opinions on the objective. In fact, it
was dif?cult for themto understand howstewardship differed from
the decision usefulness programme, with the latter also being
accepted by the stewardship proponents, and why such a question
might matter:
“David [Tweedie] was a bit surprised that I didn't object more. I
told himthat I agreed with himbut that this was at that moment
not something that I could really stand up on and say: This is
exactly how I want to have it.” (Engstr€ om, interview).
Thus, the European board members did not oppose the Dis-
cussion Paper:
“It may be surprising in a way that the other European and
Japanese members didn't vote that way [against the DP]. I know
that they weren't enthusiastic about what was being done but I
think they bought the argument of the FASB that it didn't matter
very much because it was included anyway. That was a clever
way to sell the devaluation of stewardship: It is there anyway so
it doesn't matter where it is precisely.” (Whittington, interview).
Hence, the US view dominated the early debates on the
framework:
“There was a block of people fromthe US and their sympathizers
who did share a common culture of accounting and put that
view in a very articulate way. Then there was the rest of the
world which was so divided; we were a Tower of Babel.”
(Whittington, interview).
The division mentioned in the latter quotation signals that there
was no clear competitor to the decision usefulness programme
(also cf. Power, 2010). In other words, stewardship lacked an
autonomous rationality. Williams (1987) stresses that while deci-
sion usefulness is “ends focused”, “accountability describes an
obligatory relationship [ …] in which one party is expected to give
an account of its actions to other parties [and is, therefore,] means
focused” (p. 170). Any attempt to develop explicit objectives that
guide a standard-setter in their future activities might have an
inherent preference for “ends focused” conceptions. Hence, the
absence of a blueprint for ?nancial reporting, a programme guided
by stewardship, contributed to the dif?culties of non-UK board
members, despite their general sympathy towards such a purpose,
to be convinced of the necessity to state a separate stewardship
objective. The fact that there was no clear rationality behind and no
explicit programme associated with “stewardship”, was crucial in
weakening its position in contrast to the universally accepted de-
cision usefulness programme.
4.3. Stage 3: resistance
In the next stage, the discussionwent beyond the boardrooms as
the boards’ proposal entered the public arena where, as part of the
regular due process, constituents were asked to provide their
comments on the Discussion Paper. In the 132 comment letters (CL)
(out of 179) which explicitly referred to stewardship more than 82%
(109 comments; 86% in the counting of the IASB staff; cf. IASB,
2007a) were opposed to the version which encompassed stew-
ardship in valuation usefulness.
22
Instead, the vast majority argued
for a separate stewardship objective. Many of these comments
followed the text of the Alternative View closely, either by making
references to or even copying parts of this document.
The staff prepared a comment letter summary that was pre-
sented to the FASB in February 2007 (cf. FASB, 2007a, pp. 5 f.).
Overall, the board members seemed surprised by the constituents’
resistance and Linsmeier eventually suggested “that it would be
helpful to identify why European constituents heavily support
stewardship.” In the IASB meeting in February 2007 (IStaR, 2007a,
pp. 8 f.; IASB, 2007e) a broader discussion erupted about the
comment letters. First, a group of board members adopted a very
critical stance towards the comments received. The major
19
Notably, this is also in line with arguments developed by the very prophets of
positive accounting theory (Watts & Zimmerman, 1986; Watts, 2006) who
emphasise accounting's contracting role (also cf. Kothari et al., 2010). US re-
searchers who focus on analytical agency modelling, based on the ?ndings of
Gjesdal (1981), have also been prone to favour a separate stewardship role of
?nancial reporting (e.g. AAA FASC, 2007; Lambert, 2010).
20
As an aside, note that the SEC concedes that more than 50% of trade in equity in
the US is based on high-frequency trading (SEC, 2010, p. 3606; for some background
also cf. Lewis, 2014), a form of investment which is not in need of any “useful”
?nancial reporting information. I thank an anonymous reviewer for this comment.
21
Later in the project one possible alternative objective was explicitly positioned
as a non-issue in the Basis for Conclusions: BC1.20e1.23 deal with the objective of
?nancial stability which in the aftermath of the ?nancial crisis gained some
importance due to regulators' concerns (cf. IStaR, 2009, pp. 7 f.). The IASB did not
discuss the advantages and disadvantages of such an objective and its relation to
decision usefulness in much detail, but McGregor concluded that “we need to
provide something in the [framework] document why this shouldn't be [an
objective of ?nancial reporting].” (cf. IASB, 2009c).
22
Comment letters on the DP may be found on the website of the IASB: http://
www.ifrs.org/Current-Projects/IASB-Projects/Conceptual-Framework/DPJul06/
Comment-Letters/Pages/Comment-letters.aspx. Arguments mentioned in favour of
separating stewardship were, among other things, the historical (e.g. DP CL179,
EFRAG) and practical (e.g. DP CL99, ACTEO/MEDEF/AFEP) importance of steward-
ship, links of ?nancial reporting to corporate governance (e.g. DP CL14, New South
Wales Treasury) and research ?ndings indicating differences between stewardship
and decision usefulness (e.g. DP CL121, Norwegian Accounting Standards Board).
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argument was that “stewardship means different things to different
people” (Barth). This argument had already been introduced in the
early board meetings and formed part of the Basis for Conclusions
in the Discussion Paper: “Views about the meaning and implica-
tions of a stewardship objective differ” (DP BC1.33). It was furthered
by Leisenring who noted that “there are about 40 different notions
out there and most are dramatically incompatible with each other”,
leading to the at least implicit suggestion by Smith to ignore the
letters: “If there are 86% against but there are 40 different notions,
each is only about 2%. [ …] The reality is: there is no consensus, the
viewof what it means is so diversi?ed.” It is interesting to compare
these statements with the actual conceptions held by proponents
of stewardship. In fact, there was no major disagreement about the
de?nition of stewardship in the comment letters, but almost all
constituents followed the de?nition suggested in the Alternative
View: “Stewardship is concerned with the accountability of the
directors, or management board, of a business entity to its pro-
prietors or owners” (DP AV1.3). The argument of “different un-
derstandings”, hence, was not fairly re?ecting the content of the
underlying comment letters. Indeed, no proof was presented for the
argument, for example by listing the “40 different notions”.
Flyvbjerg (1998) maintains that “[t]he repetition of statements
until they have an effect is a principal strategy in the rationality of
power and in the way in which power de?nes reality” (p. 113). By
constantly highlighting the perceived “different understandings”
this argument created its own reality and even came to be accepted
by proponents of stewardship. For instance, Tweedie (interview)
noted:
“The problemwas that we got a lot of de?nitions of stewardship
in the comment letters to the DP. That was lovely ammunition
for them. That's where we thought people could not translate it.”
In this regard, the opponents of stewardship were successful in
“de?ning a speci?c reality rather than understanding what reality
is” (Flyvbjerg, 1998, p. 36). Hence, it was the interpretation of
comment letters that led to the “myth” of different understandings
of stewardship. In fact, the argument might be termed tactical as it
can be employed to almost every accounting term e including
decision usefulness (cf. Cope's comment in the July 2005 IASB
meeting quoted above) e and was actually likewise employed to
demote reliability as a qualitative characteristic (Erb & Pelger,
2015).
“We all have different views on what fair value is, what assets
are e even with a conceptual framework in place. I don't know
whether fair value translates so well into other languages. They
were looking for justi?cations.” (Whittington, interview).
In spite of similar de?nitions, it is nevertheless fair to say that
constituents did indeed have somewhat different opinions on the
possible implications associated with a separate stewardship
objective. Many constituents emphasised that a separate steward-
ship objective would be re?ective of the actual role of ?nancial
reporting and econsistent with the Alternative Vieweargued that
stewardship does not necessarily (and not a priori determinable)
lead to different accounting standards. Others, however, used it as
an attempt to foster (or hinder) changes in accounting standards:
“That's why some people place such a high importance on the
word stewardship, because they equate it with a whole series of
decisions in ?nancial reporting” (Cooper, interview).
In particular, it was used by some constituents to highlight their
discomfort with the boards’ advances towards future-oriented
accounting that allegedly de-emphasises reliability concerns (e.g.
DP CL83, BG Group; DP CL107, BDO). In their view, stewardship is
strongly linked to reliability (e.g. DP CL33, IDW; DP CL146, Swiss
Holdings) and entails historical cost accounting (e.g. DP CL75, RWE;
DP CL97, KPMG). For instance, a representative from an industrial
preparer that sent a comment letter stressed (interview):
“We were not interested in stewardship at all. But we wrote the
comment letter [to the DP] because we took every opportunity
to make clear that we were opposed to fair value accounting.”
In this way “[t]he interest in the accounting technique [was]
translated into the terms and objectives of the policy discourse”
(Robson, 1991, p. 552). Based on such exploitations of stewardship,
Upton (interview) concluded:
“I think stewardship means whatever I want it to mean. That is
the conclusion that I came out of the comment letters with. It is
not a free standing intellectual construction. It seems to be
working backwards fromwhat I want. [ …] I'm not sure I know
what stewardship means. I knowwhat it meant in the parable in
the New Testament. But unfortunately, Christ didn't tell us
whether he favoured fair value or historical cost. So that doesn't
help me very much.”
While Upton stressed the dif?culty to infer the consequences of
a stewardship objective, others pointed more directly at the link
between stewardship and historical cost:
“I believe that one of the reasons that the stewardship objective
got as much attention as it did was that, ?rst, it meant perhaps
different things to different people and, setting that aside, early
on people decided that stewardship would require historical
cost. With that assumption, stewardship became an acceptable
argument in any debate about fair value. People said: ‘I am in
favor of stewardship and if this was a separate objective, you
would have to stay away from fair value.’” (Leisenring,
interview).
Note that the two authors of the Alternative View both insisted
that “[stewardship] has nothing to do with historical cost” (Twee-
die, interview; also cf. Whittington, 2008b).
23
But independent of
the question whether and in what way such a link might exist, the
simple fact that a few comment letters asserted a link between
stewardship and historical cost was enough for stewardship's op-
ponents to build an argument: “It was seen as defending historical
cost.“ (Whittington, interview). This argument was solely based on
the opinion of a few constituents and did not re?ect any broader
evidence. In fact, during the whole due process there was no
detailed inquiry by the staff or anyone else into the measurement
implications of stewardship. This again emphasises that “[p]ower
does not seek knowledge”, but “de?nes what counts as knowledge
and rationality, and ultimately, [ … ] what counts as reality”
(Flyvbjerg, 1998, p. 27, emphasis in original).
The perception that stewardship is linked to historical cost is all
the more remarkable if the history of the rise of decision usefulness
is brought to mind. In fact, since the 1960s many academics in the
US have promoted a turn towards current value accounting to make
?nancial reports more relevant or useful (Erb & Pelger, 2015) as
they perceived accounting practice based on historical cost to be
fundamentally ?awed (Ball & Brown, 2014). The salient reports by
23
Interview statements by both Leisenring and Upton suggest that they would
understand stewardship as leading to a full fair value model.
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AAA (1966) and the Trueblood Committee (AICPA, 1973) both
indicated a preference for current values (Williams & Ravenscroft,
2015). Miller (1990) notes that “those who devise [ … ] technolo-
gies argue for and promote their signi?cance in relation to very
general and abstract ends which they promise to bring about” (p.
317). Hence, for several of its proponents, decision usefulness was
meant to pave the way for current values in accounting standards. A
focus on capital market participants’ assessments of future cash
?ows, in their view, rationalised the requirement for timely mea-
surement. For example, Staubus (without presenting any evidence)
claims “users ?nd reporting-date measurements of assets and lia-
bilities more relevant to future cash ?ow-oriented decisions than
older measurements” (Staubus, 1999, p. 337). In this way, current
value accounting was the technology that sought to translate the
general programme of decision usefulness. For instance, Barth
(2014) takes the objective of valuation usefulness and the qualita-
tive characteristics from the revised conceptual framework to
deduce the superiority of fair value accounting as opposed to un-
modi?ed and modi?ed historical cost. In this way, the decision
usefulness programme “is a blueprint for redesigning the knowl-
edge base of an entire profession” (Power, 2010, p. 206).
Staubus (1999, p. iv) points to dif?culties decision usefulness
experienced when it was introduced as
“resistance to the implications of the decision-usefulness
objective, especially current measurement, by preparers of
?nancial statements [was] a prominent feature of the American
standards-setting environment in the nineteen-seventies.”
It is noteworthy, however, that such resistance was primarily
directed at the “implications of decision usefulness”, while the
programme and the underlying government rationality have
largely remained unchallenged.
24
Again, this reveals the power of
neoliberal governmentality which constituents as well as board
members apparently deem irreplaceable. As the decision useful-
ness programme “provides a highly ambiguous resource from
which to guide and change accounting practice” (Robson, 1994a, p.
205), it is suf?ciently vague to be acceptable for all board members
and constituents, including those with preferences for current
values and others. In this way, the decision usefulness programme
has given a “kind of regulated freedom” (Rose &Miller, 1992, p. 174)
to members of standard-setting bodies. Although the program-
matic aspect of decision usefulness, attempting to change “tech-
nologies” in accounting practice, in other words, to move to current
values, has been made very explicit by those who developed the
concept (Staubus, 1999) and by those who are today its most
fervent supporters (Barth, 2007, 2014), this link has not proven to
be detrimental for decision usefulness. In fact, in the comment
letters to the Discussion Paper, opponents of fair value accounting
preferred to focus on exploiting stewardship than on challenging
the decision usefulness programme.
All in all, two major arguments were employed by opponents of
stewardship to counter the opinion prevailing in comment letters.
First, allegedly stewardship means “different things to different
people” and, second, it was highlighted that some perceived it to
mean historical cost. Comparing the history of the decision use-
fulness programme with the very arguments raised against
stewardship, a paradox may be observed, as the identical re-
proaches of “different meanings” and a “clear measurement
implication” can both likewise be employed to challenge decision
usefulness. The fact that decision usefulness has been taken-for-
granted, however, led the debates to focus singularly on steward-
ship. In particular US board members, who had faced decade-long
struggles to establish current values in the US (Miller et al., 1998),
came to see the constituents as “the villains all getting together,
producing a petition” (Whittington, interview). This becomes
apparent in their refusal to investigate the controversy any further,
in other words, their “will to ignorance” (Flyvbjerg, 2001, p. 31).
Eventually, however, other board members stepped in and
emphasised the need to rethink the importance of stewardship and
claimed that such a large opposition of comment letters simply
could not be ignored (Bruns, Danjou, Jones, O'Malley, Yamada). For
example:
“I sure as hell hope we don't ignore the amount of noise that
came out of the comment letters. I don't know how you can get
that sort of response and just say it's not important” (Jones, IASB,
2007e).
This statement re?ects what might be called the “disciplining
role” of the due process in that a strong opposition by constituents
puts the IASB in the position that it needs to reach out to constit-
uents and to provide justi?cations for its proposals. This was not
just driven by the majority of comment letters arguing for stew-
ardship, but by the fact that very in?uential organisations put their
weight behind a stewardship objective. For example, the European
Financial Reporting Advisory Group (EFRAG) in a joint endeavour
with national standard-setters from Europe published a separate
report (PAAinE, 2007) very clearly articulating a preference for
stewardship. Even the public press, inparticular The Financial Times,
repeatedly took up concerns about the elimination of stewardship
(e.g. Burgess & Jopson, 2006; Hughes, 2007; Jopson, 2006). Such
resistance in the comment letters and beyond had a particular in-
?uence on the IASB. Although it is an independent transnational
private institution (Büthe & Mattli, 2011), Botzem (2012) and
Richardson (2009) show that the IASB is embedded in a network of
organisations on which it depends in terms of technical and
?nancial resources. Hence, it is not in a position to make its decision
without paying attention to its “customer base”, that is, those
parties affected by IFRS and the national or supranational govern-
ments which decide on the delegation of standard-setting au-
thority to the IASB. Consequently, the IASB's legitimacy to a
substantial extent rests on the due process that it follows in every
standard-setting project (Richardson & Eberlein, 2011). This insti-
tutionalised form of consultation, despite missing clear chains of
accountability (Büthe & Mattli, 2011), is able to discipline the IASB
not to depart too far from public opinion. In such a sense trans-
parency and public consultations enable surveillance of board
members' activities by constituents which somewhat constrains
the behaviour of board members. Hence, the IASB decided to ask
the staff to conduct outreach activities with constituents to better
assess the constituents' concerns.
4.4. Stage 4: comforting constituents
The outreach activities comprised staff meetings with a sample
of constituents who had written comments on the Discussion Paper
in June 2007. Those constituents argued that the boards' de?nition
of decision usefulness in the Discussion Paper had been too narrow,
because, for example, decisions on remuneration and turnover
would not necessarily be encompassed by the focus on resource
allocation decisions. Apparently, there were no dif?culties in
24
However, note that when decision usefulness was ?rst proposed by the FASB as
the objective of ?nancial reporting, there was notable opposition in the US by
preparers that felt more attached to traditional/professional conventions along the
lines of stewardship (e.g. Armstrong, 1977; Burton, 1978). Recent surveys of US CFOs
indicate that they see valuation as the major role of ?nancial accounting, while also
acknowledging a role for stewardship (Dichev, Graham, Harvey, & Rajgopal, 2013).
C. Pelger / Accounting, Organizations and Society xxx (2015) 1e23 13
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objective of ?nancial reporting, Accounting, Organizations and Society (2015),http://dx.doi.org/10.1016/j.aos.2015.10.001
agreeing on the de?nition of stewardship, as nothing about this
aspect is mentioned in the staff's documentation (IASB, 2007b).
While some board members in the discussions above had portrayed
constituents as promoting stewardship as a means for pushing
their individual agendas, the outreach activities revealed a very
different reality. An accounting academic who took part in the
outreach as an advisor to a user group (interview) noted: “If there
are separate standards is a secondary issue. You have to start with
the objective and when you write the standards, then, you consider
all objectives.” In particular, with regard to the concern that stew-
ardship implied historical cost he remembered:
“We told them [the staff] that we were not concerned with
historical cost but we were concerned about the objective. In
some cases, stewardship might imply fair values. We didn't see
that there was a necessary link between stewardship and
measurement.”
Thus, the staff's concern about consequences of stewardship and
a linkage with historical cost was mitigated. Constituents made it
clear that stewardship e in their opinion e was a matter of
emphasis that could be dealt with by enlarging the decision use-
fulness concept. The staff seemed to follow this line of argumen-
tation and prepared an agenda paper recommending a broader
objective of decision usefulness for capital providers including both
valuation and stewardship usefulness as separate notions
25
:
“The staff thinks the Board should reason from ?rst principles
when developing the conceptual framework. [ …] Thus, it is not
necessary, and perhaps not appropriate, to ask how ?nancial
reporting would differ based on whether or not providing in-
formation that facilitates assessment of stewardship was iden-
ti?ed as an objective of ?nancial reporting. If the Boards think
that the objective should be broader [than suggested in the DP],
then the proposed objective should be broadened even if the
Board has not identi?ed any effects that would have on the rest
of the framework and ?nancial reporting” (IASB, 2007d, p. 8).
This statement is interesting in several respects. First, it re?ects
that the constituents were apparently able to convince the IASB's
staff of their reasoning. A representative of an association of ac-
countants/auditors who was involved in the talks with the staff
(interview) con?rmed, “They wanted to understand what our
concerns were. The IASB staff seemed to be reasonably sympathetic
to our concerns at that point.” This perception emphasises the
disciplining role that the due process apparently exerted on staff
members at this stage. Second, the staff's statement, for the ?rst
time in the entire framework project, suggests openness towards
other objectives without restriction to the narrowvaluation viewof
the decision usefulness programme. Apparently, constituents had
to remind the IASB's staff of how to conduct a proper evaluation of
the objective. This might re?ect Flyvbjerg's (1998) observation that
“[r]eason is one of the few forms of power which those without
much in?uence still possess” (p. 132). Third, the statement clearly
contradicts the earlier arguments by sceptics of stewardship. It is
explicitly acknowledged that the objective chapter is not the place
to specify ex-ante the consequences for ?nancial reporting. How-
ever, it should be noted that this quotation only appeared in an
agenda paper prepared for a meeting of the staff with the IASB's
Standards Advisory Council (SAC). While the general proposal of
broadening decision usefulness was still included in the agenda
paper for the meetings of the FASB and IASB in September 2007,
possibly due to the in?uence of FASB staff members, the reasoning
was not repeated. The absence of this rationalisation for stating
stewardship separately once again made it vulnerable, as we will
see later.
However, at ?rst the members of the FASB were very supportive
of the changes and one member (Linsmeier) suggested taking the
broadened objective into account in the next steps of the frame-
work project (FASB, 2007b, p. 4): “He [Linsmeier] stated that the
change would be productive because it may cause the Boards to
think differently when making standard-setting decisions.” The
IASB members welcomed the changes in their meeting as well and
appreciated the way the staff dealt with the “constructive criticism”
(Leisenring, IASB, 2007c). The only author of the Alternative View
still on the board, Tweedie, also applauded the new version: “I
think I should congratulate the team. You did a very good job on
trying to deal with this.”
Some board members (e.g. Zhang, Barth) recommended
de?ning stewardship more precisely in the document, again
pointing at possible implications. This position, however, led Lei-
senring (IASB, 2007c) to comment:
“I disagree [ … ] that we should have a clear de?nition of
stewardship. We are gonna get 500 letters from six different
groups telling us: That's not what I mean. What we got now is
saying stewardship means a lot of things to a lot of people.
Obviously, people have to make decisions as investors and
creditors other than just cash ?ow. Fine, we hope this infor-
mation is helpful. But if we go beyond that, we're going to
debate what it is. If Whittington was sitting here, we would have
just been more vehement and Whittington and Tweedie
wouldn't have agreed. They blended together in a common
dissent and they are not in the same ball-park.”
This quotation illustrates that the concern about “different
meanings” and possible implications was not mitigated, but
apparently the due process disciplined even vocal opponents to
stewardship. It is interesting, though, that Whittington and Twe-
edie's voting behaviour is clearly depicted as “deviation”. In this
statement “subjects are individualised and rendered visible in a
way that [… compares their …] behaviour to a norm or standard”
(Durocher & Gendron, 2011, p. 238). This argument paved the way
for the self-discipline of board members in guaranteeing board
unity, which became important in the ?nal stage.
In the Exposure Draft, ?nally, a broad objective of decision
usefulness was introduced (EDOB9) that was speci?ed with respect
to valuation usefulness (ED OB10-11) as well as stewardship use-
fulness (ED OB12). Notably, there was no Alternative View to the
Exposure Draft. As a result, the solution to broaden decision use-
fulness to include both valuation and stewardship as separate
considerations successfully gained the support of opponents and
supporters of stewardship among board members, not least
because they could both ?nd their views in the document. While
one group could still point at the “one” objective of decision use-
fulness, the other could point at the separate standing of stew-
ardship with regard to valuation.
“I think we were responsive by better articulating that what
many people think of as stewardship was implicitly included in
the proposed objective. The comment letters did back off on
their criticism between the DP to the ED and the continuing
Board member dropped his dissent.” (Leisenring, interview).
25
Actually, this way of dealing with stewardship had already been suggested in
the IASB board meeting in February 2007 by Philippe Danjou (IASB, 2007e): “I think
it's a mistake to oppose the terms. I think it's like a book with a title. [ …] The title
of the book is decision usefulness, and the chapters are about forecasting cash
?ows, about assessing management's performance [ … ]”.
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The boards received 142 comments on the Exposure Draft.
26
Many of these expressed their appreciation of the changes, as can
be seen in the following comment from the Institute of Chartered
Accountants of Ireland (ED CL17, p. 2):
“[We welcome] the changes made to the original [DP] to
recognise that decision usefulness should encompass both
resource allocation decisions and also the need for management
to be accountable [ …], i.e. the stewardship function. Although
stewardship is encompassed within decision usefulness, it has
now been clearly stated as a key objective of ?nancial
reporting.”
Despite their general approval, some comments made it clear
that they expected the boards to consider stewardship explicitly in
their further standard-setting projects (ED CL82, Basel Committee
on Banking Supervision; ED CL105, ACTEO). Moreover, many com-
ments combined a generally favourable attitude to the Exposure
Draft with some hints at further amendments, partly referring to
the need to put more emphasis on the stewardship objective (in the
ED “rather a ?eeting mention” (ED CL112, Hundred Group of
Financial Directors, p. 2)). Additionally, a number of comments
rejected the Exposure Draft because they felt stewardship was
insuf?ciently recognised as an objective in its own right, that is,
distinct from decision usefulness (ED CL7, HoTARAC, p. 6):
“While widening decision usefulness to include a concept of
stewardship that is not con?ned to “resource allocation de-
cisions” is an improvement, compared to the [DP], it is still
insuf?cient. This is because it does not adequately re?ect the
original and primary purpose of ?nancial reporting in many
countries; that is to hold management to account.”
While these constituents did not make it explicit and did not
propose a distinct programme associated with stewardship, these
comments come closest to questioning the hegemony of the deci-
sion usefulness programme.
The comment letter analysis was presented by the staff at
meetings of the IASB and FASB in December 2008. This time there
was no further discussion on the stewardship topic and in the
following meetings (IASB: March 2009; FASB: April 2009) both
boards agreed to retain the objectives as stated in the Exposure
Draft (cf. FASB, 2009; IASB, 2009a). Hence, the staff embarked on
the editorial work. During the balloting process some comments by
board members were collected by the staff and presented in board
meetings, for instance on stewardship in the IASB meeting in
September 2009. Kalavacherla, who had become a board member
in January 2009, while conceding that he had not followed the
earlier discussions, questioned why stewardship should be sepa-
rated and not be encompassed in the valuation objective: “As a
board member, if I place stewardship differently from valuation,
how would I make a different decision in setting standards?”
(Kalavacherla, interview). This suggests that changes in the
composition of board members can materially affect the course of
standard-setting projects. New board members have not experi-
enced the parts of the due process that took place before but just
enter with their opinions at a later stage. This emphasises that the
stability of solutions (or power relations more generally) hinges on
the stability of the broader setting (also cf. Flyvbjerg, 1998, chapters
17 and 18), speci?cally board membership.
Taking up Kalavacherla's argument, the staff remarked in its
agenda paper (IASB, 2009b, p. 11, emphasis added):
“Most of the comments on stewardship indicate that the dis-
cussion of the stewardship objective seems to be incomplete
and its implications are not clear. One board member suggests
that the stewardship objective is implicit in the objective related
to decisions about providing resources.”
In the September 2009 meeting (IASB, 2009c), Lott (FASB staff)
elaborated:
“There were a number of comments and questions about
stewardship [ …] e I am just looking for some guidance here. [
… ] I can visualise, at least in general, how assessing prospects
for cash ?ows leads to certain conclusions about measurement
or recognition, but I am not really sure what stewardship leads
to. There was one staff memo once [which said] there might be
some differences related to disclosures [ …] That seems to be a
fairly minor part. If that is the only thing, I question whether we
really need this listed as an objective.”
This statement is interesting for several reasons. First, the staff's
line of argument that it wants to know in advance which conse-
quences arise is clearly articulated (also cf. IASB, 2009b). In this
way, the absence of any clear implications springing from a stew-
ardship objective is used to rationalise its obsolescence. Flyvbjerg
(1998, p. 228) notes that “rationalization presented as rationality
is a principal strategy in the exercise of power.” It is striking how
different Lott's reasoning is when compared to the IASB staff's
earlier conclusions after the meetings with constituents in 2007.
Even though at that time the argument was basically invalidated by
recourse to reason and logic, it still remains politically important
because of its aptness to serve as “rationalisation presented as ra-
tionality”. Second, Lott mentioned that he could “visualise” impli-
cations of the valuation objective with regard to measurement and
recognition. Although he did not give any details about such
“conclusions”, one might assume that he was thinking about fair
value accounting. Again, it is worth noting that during the entire
due process there was never any attempt to identify implications
which might result from the valuation usefulness objective. Third,
the importance of the staff is corroborated by the fact that during
editorial work they attempted to question the whole objective
(IASB, 2009b, p. 13): ”Should assessing stewardship be retained as
an objective of ?nancial reporting?“
Despite the staff's attempt to eliminate stewardship, the disci-
pline triggered by the due process still seemed to work, as board
members (with the exception of Kalavacherla who agreed with the
staff's concerns) denied the need to change the document:
“I don't think there are two objectives. It would be appalling to
think that we thought there should be. My suggestion is that we
have already spent more time on this subject than it is worth.
What you have done was carefully crafted. People were happy
with it. Let's not throw any nitroglycerine into this ?re.”
(Leisenring).
“I just wanted to support Jim's plea. I think we have done as
much as we should do on stewardship. [ …] It is a very sensitive
area. If you want to make the Chairman apoplectic, then make
major changes.” (McGregor)
These two statements re?ect a case of realpolitik as even strong
opponents of stewardship did not want to touch the carefully
crafted compromise in order to avoid further debates. This attitude
26
Comment letters on the ED may be found on the website of the IASB: http://
www.ifrs.org/Current-Projects/IASB-Projects/Conceptual-Framework/EDMay08/
Comment-Letters/Pages/Comment-letters-2008.aspx.
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was also due to the perception by Leisenring and others that in fact
there was only one objective in the Exposure Draft, that is, decision
usefulness. Again, it should be emphasised that the wording
allowed for multiple perspectives on the objective. This ambiguity
contributed to the lack of challenge to the Exposure Draft by either
side at this stage.
Subsequent to this debate, the staff prepared the ballot draft
including the following paragraph that was largely consistent with
the Exposure Draft (IASB/FASB, 2010, pp. 1 f.):
“The objective of general purpose ?nancial reporting [ …] is to
provide ?nancial information about the reporting entity that is
useful in making decisions about providing resources to the entity
and in assessing whether the management and the governing
board of that entity [ …] have made ef?cient or effective use of the
resources provided.”
4.5. Stage 5: changes in “wording”
The ?nal stage included further editorial work by the staff and a
?nal discussion of the subject in a joint board meeting. At ?rst, the
staff observed that still
“some sections seemed not to re?ect what the boards wanted.
So we brought it back [to the board] and said: Some of your
fellow board members disagreed. We need direction what's to
be done.” (Lian, interview).
In the agenda paper, the staff remarked that some board
members had raised concerns that the paragraph on the objective
could be read as consisting of two objectives, which would not
resemble the boards’ preferences. The staff agreed with the con-
cerns and thus proposed the elimination of the second part of the
sentence (the part on stewardship) and the provision of some
discussion in further paragraphs below on the ef?cient and effec-
tive use of resources by management: “What we wanted to do was
to make this a single objective, because the boards always wanted
this.” (Lian, interview). This interpretation is interesting because it
contradicts a widespread view on the Exposure Draft. For example,
Wayne Upton, in a board meeting noted clearly that “there were
two objectives” (IStaR, 2007b, p. 20). However, as mentioned above,
the Exposure Draft allowed for different interpretations, which led
others to see just one objective. The revised paragraph suggested by
the staff to the boards read (IASB/FASB, 2010, p. 2):
“The objective of general purpose ?nancial reporting [ …] is to
provide ?nancial information about the reporting entity that is
useful in making decisions about providing resources to the
entity through investments and loans or other forms of credit.”
This new draft was discussed in a joint meeting of the IASB and
FASB on 17 May 2010 (IASB, 2010a). This meeting provides an
example that “stable power relations can at any time turn into
antagonistic confrontation” (Flyvbjerg, 1998, p. 230 f.). The twenty
participants e ?ve fromthe FASB, ?fteen fromthe IASB e discussed
intensively. On the one hand, FASB and North-American IASB
members strongly supported the staff's changes and pronounced a
focus on assessing future cash ?ows: “The original wording [Ballot
Draft] confused the objective [ … ]. Predicting the entity's cash
?ows, that's our objective. Stop all this ?ddling around.” (Leisenr-
ing). Moreover, it was stressed that having a single objective would
be of value per se: “I think it is much more clear to have one
objective than have multiple objectives.” (Siegel, FASB). For
example, this argument is rooted in practicability concerns of
future standard-setting activities:
“I do believe it is important to try to make this a singular
objective. If we are going to be held to what some might [think
of being] two separate objectives then we are going to be
challenged to the rest of the framework to ask how de?nitions
and measurement and entity and everything else deals either
with amounts, timing and uncertainty of [cash] in?ows and our
stewardship. And I don't think we have any willingness to carry
through in parallel through the whole conceptual framework
thinking about whether de?nitions and measurements and
entity have special circumstances for those two separate items.”
(Linsmeier, FASB).
In contrast to the FASB and US IASB members, other IASB
members were more sceptical about the staff's recommendation
and clearly spelt out that it differed fromthe original (ED) wording:
“When I read what you proposed, what the staff proposed it is
downgrading again stewardship.“ (G elard). The US members'
argument about the value of a single objective was doubted: “I'm
not sure there's anything wrong with having two objectives. I think
that's a fact of life that people have different objectives when they
invest and they need information for different purposes.” (Danjou).
Moreover, several members argued that the two objectives did not
con?ict and so there was no necessity to drop stewardship: “Two
objectives? Are they con?icting? I don't think so.” (Engstr€ om).
“I didn't feel that there was any real problem with possibly two
objectives. In fact, I see it as one objective. It is to inform in-
vestors to enable them to make decisions. And there are a
number of decisions that they have to make. So I didn't see these
two and even if it were two then I would still keep it. [ …] I think
it [the revised version] confuses the notion of stewardship.”
(Cooper).
Tweedie remarked that the decision about how to position
stewardship was of some importance: “This isn't gonna be a minor
issue because there are people out there who feel very very strongly
about it.” He ?nally asked for a vote on the draft. All FASB members
endorsed the staff version, while only six out of ?fteen IASB
members agreed. However, the vote was not binding as Tweedie
suggested that the staff should once more amend the paragraphs
discussed and that a decision would be made at a later time. Thus,
the paper was delegated to the staff once more. The stewardship
issue was not discussed in any further board meeting but according
to the interviewees drafts of the ?nal version were circulated
among board members as changes were merely regarded as
“editorial”. On 27 September 2010, the boards published with
unanimous approval the ?nal version of phase A, which closely
resembles the version the staff presented in May 2010:
“The objective of general purpose ?nancial reporting is to pro-
vide ?nancial information about the reporting entity that is
useful to existing and potential investors, lenders, and other
creditors in making decisions about providing resources to the
entity. Those decisions involve buying, selling, or holding equity
and debt instruments and providing or settling loans and other
forms of credit.” (IASB, 2010b; OB2).
Only in respect of ful?lling the stated objective of assessing
future cash ?ows (OB3) is it acknowledged that stewardship in-
formation plays a certain role in that endeavour (OB4). Further-
more, it is added that “information about management's discharge
of its responsibilities is also useful for decisions by existing in-
vestors, lenders, and other creditors who have the right to vote on
or otherwise in?uence management's actions” (OB4). However,
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these kinds of (stewardship) decisions are not an objective of
?nancial reporting. The change in emphasis compared to the
Exposure Draft is obvious. Moreover, it is notable that the word
“stewardship” was taken from the main text. In the Basis for Con-
clusions, it is explained that this was due to dif?culties in trans-
lation (BC 1.28), an argument which interviewees said had been
used by the IASB for the ?rst time ever. Zeff (2013, p. 307) quoted
Leisenring and Johnson's (FASB staff) view that the reference to
translation dif?culties was a polite way of saying that there were
too many different understandings of stewardship.
Statements by those who were sympathetic to a stewardship
objective, according to their statements in the May 2010 board
meeting, show that two disciplining factors played a major role in
their acceptance of the ?nal version. The ?rst was that the image of
board unity needed to be maintained. As Durocher and Gendron
(2011) state, “eing castigated as abnormal or outside the norm
[ … ] tends to incite effort to normalize” (p. 238). Hence, neither
Tweedie nor any other board member was willing to dissent on the
framework based on the downgrading of stewardship as “the whole
idea of a conceptual framework is: you don't want dissents because
it is supposed to be international” (Tweedie, interview). This
disciplining role of board unity suggests that any dissent on the
framework would have been detrimental to its major role to act as a
unifying basis for board members on which they create accounting
standards:
“As an IASB Board member, you do not dissent on single words
or paragraphs. You assent or dissent on the whole document. I
was satis?ed with the formulation in the ?nal version, which is a
compromise between those who wanted stewardship and those
who didn't want it. Even though I am not fully satis?ed with the
description of the role of stewardship as it is in this version, the
whole document is an improvement over the previous frame-
work.” (Danjou, interview).
Hence, any schism of the IASB with regard to the objective
needed to be avoided. It is noteworthy how several IASB members
who were sympathetic towards stewardship and argued in favour
of it during the May 2010 board meeting justi?ed their decision to
approve stewardship's relegation by downplaying its importance:
“I didn't see it [stewardship] was that important. To my mind the
fact that it was there, that it was on the ?rst page, that to me was
good enough.” (Cooper, interview).
“I don't take a ?ght with staff and fellowboard members over an
unimportant thing. What difference does it make if we have it
here or there?” (Engstr€ om, interview).
“This was a massive compromise. [ …] We were quite clearly in
the minority. If there had been a straight vote, it would have
gone against us. [ … ] So you have to make sure that you don't
lose. So you might argue that is not winning, but it is better than
losing. I'd rather have a compromise than to be voted down.”
(Tweedie, interview).
The second factor that disciplined the IASB members who were
sympathetic towards stewardship to agree with the ?nal version
was that the project was joint work together with the FASB. The
members of the FASB were very clearly committed to valuation
usefulness and did not see the necessity of a stewardship objective,
with the exception of Young in 2005, who had retired as a board
member before 2010. Their clear votes and arguments in the May
2010 meeting put pressure on the IASB to follow, rather than to
endanger convergence, particularly in light of the pending SEC
decision whether or not to adopt IFRS for US home issuers. The
pressure arising from this constellation was felt strongly by the
IASB Chairman: “That was one project out of ten. It was getting in
the way.” (Tweedie, interview). The US view, thus, implicitly came
to be seen as the norm from which a departure was not possible.
While the US board members did not use any explicit pressure in
the May 2010 meeting by relating their views to broader notions of
convergence, the disciplining power of convergence was none-
theless clearly perceived by (non-US) IASB members. Thus, Tweedie
regarded a continuing open confrontation with the FASB about the
objective as unbearable and was in the end willing to accept that
the elevated position of stewardship contained in the Exposure
Draft could not be kept:
“We had to be careful that we didn't completely turn FASB off.
You can stand and object and object and object and all you do is
damaging other things. This was not the only project, this was
low priority compared to getting the standards done. Massive
disagreements down there could sour the whole relationship, so
you have to be careful in that situation. A lot of it is politics and
change management. You cannot have global standards without
the Americans.” (Tweedie, interview).
This statement is very close to Flyvbjerg's (1998) argument
about why open confrontation is a quite rare phenomenon: “[O]pen
confrontations use up more resources, are often experienced as
unpleasant, and tend to delay, if not kill off, other activities” (p. 193).
Ironically, while the IASB accepted the US preference for the
objective of ?nancial reporting (partly) for sake of convergence, and
thereby the decision usefulness programme on a global scale, in the
years since convergence has come to an end. The boards have
drifted apart in several projects and now even embark on new
projects independently, for example on the remaining parts of the
framework revision (IASB, 2012). Moreover, the SEC has still refused
to make a decision on IFRS adoption for US home issuers. While the
US have not joined the IFRS coalition, the rest of the world has to
live with the ?nancial reporting objective based on the US view.
This might be seen as an expression of US hegemony in global
?nancial reporting, a ?nding which might deserve consideration in
further analyses of convergence.
The two factors contributing to the unanimous approval of the
?nal document are examples of realpolitik in standard-setting. In
contrast to the September 2009 meeting, when the opponents of
stewardship exercised realpolitik following due process discipline,
in May 2010, its proponents also exercised realpolitik when
accepting its downgrading. Both instances refer to “self-surveil-
lance” of board members as “they begin to normalize their
behaviour by questioning and auditing their own actions and be-
haviours” (Stein, 2008, p. 1013). In the case under study the self-
surveillance relating to the due process was not enduring as the
disciplining role of the due process vanished during the less
transparent (“hidden”) phase of balloting and ?nal decision-
making. Constituents apparently do not follow this phase in
much detail “because we are not invited to comment on it” (Ac-
counting/auditing association, interview). As the due process
discipline disappeared, the disciplinary role of board unity and
convergence took its place and constrained the actions by the board
members who were in favour of stewardship.
It is also important to emphasise the crucial role staff played in
rationalising the abandonment of stewardship during the balloting
process: The question of a separate stewardship objective was said
to be “splitting hairs; stewardship is about cash ?ows. It's
embedded. It was redundant.” (Lian, interview). “My frustration is
that I have never seen it adequately de?ned. If I had stewardship as
a parallel concept, one that I had to weigh and balance, howwould I
do anything different?” (Upton, interview). According to
C. Pelger / Accounting, Organizations and Society xxx (2015) 1e23 17
Please cite this article in press as: Pelger, C., Practices of standard-setting e An analysis of the IASB's and FASB's process of identifying the
objective of ?nancial reporting, Accounting, Organizations and Society (2015),http://dx.doi.org/10.1016/j.aos.2015.10.001
interviewees, the FASB staff were not positive at all towards such an
objective from the outset, something which becomes very clear in
the early agenda paper (IASB, 2005b). Ron Lott, the Technical Di-
rector of the FASB in the Framework Project, was very sceptical
about stewardship (National standard-setter, interview; Zeff, 2013),
while Todd Johnson, a further senior staff member of the FASB, is
quoted in Zeff (2013), as saying “we [ …] queried the stewardship/
accountability proponents time after time as to exactly what
additional information would be included [ … ] as the result of
including a stewardship/accountability perspective” (p. 307). It is
again remarkable how these statements differ from the logic
adopted after the outreach meetings with constituents in 2007.
Instead of referring to reason when assessing the status of stew-
ardship, rationalisations were presented as rationality.
Rose et al. (2006) maintain that “language should be analysed as
a key element in the process of forming networks through
persuasion, rhetoric and intrigue” (p. 89). Such a “network” was
particularly apparent among US board members and the staff. This
network was far more cohesive (and thus stable) than the other
board members building the “Tower of Bable”. The all-inclusiveness
and the incontestability of the decision usefulness programme are
stressed in the following statement:
“If there was a consistent idea of stewardship with speci?c
consequences, it might be acceptable to me. I would never let it
contradict in any way an objective of providing information for
resource allocation decisions but if it supplemented that in some
way, I would have no objections to it.” (Leisenring, interview).
This quotation elucidates that, in the eyes of its opponents, it
was basically impossible to justify a separate standing for stew-
ardship. Leisenring delineates three conditions for a stewardship
objective: ?rst, that it needs to be clearly de?ned (which he denies
it is); second, that implications are clear; and third, that it may not
differ from valuation usefulness. It is remarkable that (except, of
course, for the third condition) valuation usefulness itself is unable
to meet these criteria.
It is apparent that the result in the framework was not consis-
tent with the due process that took place. Reading the ?nal
framework, however, a different story is told. There, the valuable
input of constituents is appreciated in the Basis for Conclusions
(BC1.25e27). This reemphasises the power of the staff who drafted
these sections and used its interpretations of the due process as an
ex-post-rationalisation of the ?nal outcome. Furthermore, the
feedback statement on the framework project states:
“ome respondents [to the DP] noted that investors, lenders
and other creditors make decisions other than those related to
resource allocation decisions. [ … ] We agreed with the re-
spondents to the discussion paper. The revised wording that we
used in the [ED] was intended to capture the concept of stew-
ardship. [ … ] However, in light of the comments received, we
have modi?ed the wording so that the chapter now describes
what stewardship encapsulates.” (IASB, 2010c, p. 7).
There is a certain irony in that this statement alleges that con-
cerns were taken up factually, although in substance they were not,
as exactly the controversial single focus on resource allocation
decisions from the Discussion Paper reappeared in the ?nal docu-
ment. Substantial differences and confrontations between constit-
uents and board members and among board members were hence
concealed by the rhetoric of transparent, consensus-oriented,
“good” standard-setting. The feedback statement is actually writ-
ten in a way that attempts to “persuade us to accept the con-
struction [of the standard-setting process] as a fact” (Young, 2003,
p. 625). Despite meticulously following the formal due process
requirements, as outlined in the Due Process Handbook, the ?nal
framework is basically a repetition of a prior version (Discussion
Paper) that was dismissed by both constituents and boards. The
phase of balloting, thus, proves to be a grey area, which potentially
undermines and devalues all of the efforts undertaken in the prior
phases of the due process.
5. Conclusion
This paper has analysed the decision-making process of the IASB
and FASB with regard to the abandonment of stewardship as a
separate objective in the conceptual framework. Focussing on the
conditions of possibility for the abandonment of stewardship as a
separate objective gives some indications of what and who governs
in standard-setting. In the framework revision project, it was
apparent that the body of knowledge which had been established
in the US in the 1970s as the decision usefulness programme was
very powerful in shaping the early proposals and limiting further
debates. On the one hand, the socialisation of US board and staff
members in the decision usefulness programme made them strong
opponents of a separate stewardship objective. On the other hand,
the proponents of stewardship, mostly with a UK background, were
unable to set out an alternative programme but also accepted the
valuation usefulness objective. Other (non-UK) board members had
dif?culties seeing the importance of a separate stewardship
objective, accepting US-based rationalisations for its relinquish-
ment. The fact that the valuation objective was taken-for-granted
and that there was a lack of any clear alternative, contributed to
the reproduction of the decision usefulness programme in the
revised conceptual framework.
The analysis in this paper suggests that a programme which is
widely accepted, or taken-for-granted, among actors can prevail in
spite (and partly because) of its ambiguity and vagueness. In
comparison, ideas which are unable to mobilise any larger pro-
gramme are continuously challenged, challenged by points which
might likewise be used to question a programme that is taken-for-
granted. In particular, criticism only centred on stewardship, while
similar arguments (“different meanings”; “clear measurement
implication”) could likewise have been raised against valuation
usefulness. With regard to the question whether it is really neces-
sary to have a separate stewardship objective in the conceptual
framework, this indicates that if the objective of ?nancial reporting
is problematised in the presence of the decision usefulness pro-
gramme, stewardship is possibly unable to offer an alternative. In
such a set-up any reference to stewardship necessarily remains
marginal, not entailing any fundamentally different perspective on
?nancial reporting and standard-setting.
Flyvbjerg (1998) stressed that “power procures the knowledge
which supports its purposes” (p. 226). In fact, in this episode of the
framework revision the decision usefulness programme as the
central body of knowledge primarily worked “through” the staff in
shaping and in?uencing the debates. First, staff members exert
in?uence by selecting and interpreting existing documents and
evidence and writing the agenda papers on which the discussions
in the boards are based. Second, the staff has the discretionary
leeway to slip in fundamental changes under the heading of mere
changes in wording.
27
Hence, the “mundane” organisational rou-
tines that put the staff in the position to write agenda papers for the
27
Even if board members recognise certain biases in the preparation and say so
publicly in board meetings (“Somebody is taking that wording that we actually
agreed upon [ …] and reworded it in a way that we didn't discuss and agree upon.”,
IASB, 2010a) this apparently does not entail any consequences.
C. Pelger / Accounting, Organizations and Society xxx (2015) 1e23 18
Please cite this article in press as: Pelger, C., Practices of standard-setting e An analysis of the IASB's and FASB's process of identifying the
objective of ?nancial reporting, Accounting, Organizations and Society (2015),http://dx.doi.org/10.1016/j.aos.2015.10.001
board meetings and to edit the ?nal documents are central to un-
derstanding the abandonment of stewardship. This ?nding might
justify much more emphasis on the activities of the staff in further
research on standard-setting (also see Botzem & Quack, 2009; Erb
& Pelger, 2015; Walker & Robinson, 1993). For example, future
research might shed more light on the question why certain bodies
of knowledge are taken up in standard-setting, while others, such
as academic research ?ndings, seem to be largely ignored.
It is also interesting that in the case under study constituents
ultimately did not govern standard-setting. While their cam-
paigning against the boards' early proposal in the Discussion Paper
was successful at ?rst, because they could rely on the discipline due
process exerts on board members (and thereby were able to in-
?uence standard-setting “at a distance”), eventually, during the
“hidden” editorial phase of the due process, this discipline evapo-
rated and made it possible to place the early Discussion Paper
suggestion in the ?nal framework document in a very similar form.
As outlined by Richardson and Eberlein (2011), deliberation in the
due process requires “the primacy of logic, reason and evidence
over power relationships and special interests” (p. 224). However,
the case in this paper reveals that while consensus might partly be
achieved at some stages by recourse to reason, the due process has
its own power dynamics and these might simply re-establish a
formerly discarded “solution” in the end. Due process discipline
might be important, but other self-disciplinary mechanisms can
counteract this form of discipline. This was shown in the implicit
pressure to follow the majority (“norm”) to keep the image of a
united board as well as in the pressures arising from convergence
with the FASB, which both proved crucial in guaranteeing stew-
ardship proponents’ approval of the ?nal framework document.
Note that this ?nal shift was not due to any pressure exercised by
powerful individual board members on others, but rather to the
constellation in the context of convergence and the implicit pres-
sures for board unity existing “between” (Foucault, 1979) board
members.
Based on these ?ndings, the paper offers some indications of
what it takes to make sense of how due process, and standard-
setting more generally, work in practice. Networks of institutions
in which the standard-setter is embedded (Botzem, 2012;
Richardson, 2009), board members’ backgrounds (Botzem, 2012)
and the background of constituents who participate in the due
process (Jorissen et al., 2012, 2013) are all important considerations
in understanding practices of standard-setting. However, beyond
the focus on institutional aspects, this study highlights that it is
particularly important to pay attention to the bodies of knowledge
which shape the debates and to the discursive interplay of
knowledge, rationality and power and associated mechanisms of
(self-)discipline in standard-setting. Indeed, such an analysis of the
politics involved in the practices of standard-setting might help us
to understand why and how certain solutions are adopted by a
standard-setter in a speci?c project. For example, future research
might address the question of how deeply the decision usefulness
programme is actually embedded in the thinking of board members
by scrutinising how the programme is employed and interpreted in
standard-setting projects dealing with speci?c accounting issues.
Acknowledgements
I am grateful to Chris Chapman (the editor) and two anonymous
reviewers for their constructive feedback. I also would like to thank
Lisa Baudot, Richard Barker, Rachel Baskerville, Albrecht Becker,
Sebastian Botzem, Mark Clatworthy, Carsten Erb, Guido F€ orster, Rolf
Uwe Fülbier, Lukas Goretzki, Markus Grottke, Silvia Jordan, Hans-
Jürgen Kirsch, Christoph Kuhner, Anne McGeachin, Martin Messner,
Margit Münzer, Alberto Quagli, Sigrid Quack, Christian Schwens,
Brian Singleton-Green, Peter Walton, Geoffrey Whittington, Ste-
phen Zeff and participants at the EAA Conferences in Rome, Paris
and Glasgow, the EUFIN Workshop in Prague, the BAFA Annual
Meeting in Newcastle, the VHB P?ngsttagung in Würzburg and the
Centre for Accounting Research and Theory seminar at the Uni-
versity of Innsbruck for helpful comments and suggestions. I ex-
press particular gratitude to Peter Walton for granting me access to
relevant volumes of the IStaR newsletter and to all interviewees for
sharing their time and insights. I am, of course, solely responsible
for what remains. Financial support provided by the German Na-
tional Academic Foundation is gratefully acknowledged.
Appendix
Table 2
Material employed in the analysis of the boards' due process.
Time period Board Document Source/reference
2004e2005 (before DP) IASB/FASB IStaR Newsletter (20 October 2004) IStaR (2004)
IASB Agenda paper (February 2005) IASB (2005a)
IASB/FASB Agenda paper (April 2005) IASB/FASB (2005)
IASB/FASB IStaR Newsletter (22 April 2005) IStaR (2005a)
FASB Joint board meeting minutes (22 April 2005) FASB (2005a)
IASB Agenda paper (July 2005) IASB (2005b)
FASB Board meeting minutes (27 July 2005) FASB (2005b)
IASB IStaR Newsletter (20 July 2005) IStaR (2005b)
IASB/FASB Discussion Paper IASB (2006); DP
IASB/FASB Comment Letters IASB website
2007 (before ED) IASB Agenda paper (February 2007) IASB (2007a)
FASB Board meeting minutes (28 February 2007) FASB (2007a)
IASB IStaR Newsletter (20 February 2007) IStaR (2007a)
IASB Audio document board meeting (20 February 2007) IASB (2007e)
IASB/EFRAG IStaR Newsletter (public meeting 17 April 2007) Peter Walton
IASB Agenda paper SAC meeting (June 2007) IASB (2007d)
IASB Agenda paper (June 2007) IASB (2007b)
FASB Board meeting minutes (29 August 2007) FASB (2007b)
IASB Agenda paper (September 2007) IASB website
IASB IStaR Newsletter (19 September 2007) IStaR (2007b)
IASB Audio document board meeting (19 September 2007) IASB (2007c)
(continued on next page)
C. Pelger / Accounting, Organizations and Society xxx (2015) 1e23 19
Please cite this article in press as: Pelger, C., Practices of standard-setting e An analysis of the IASB's and FASB's process of identifying the
objective of ?nancial reporting, Accounting, Organizations and Society (2015),http://dx.doi.org/10.1016/j.aos.2015.10.001
Table 3
Members of the FASB at the time of the April and July 2005 meetings.
FASB member Previous professional activity
George J. Batavick Preparer (Industry)
G. Michael Crooch Auditor (Arthur Andersen)
Robert H. Herz (Chairman) Auditor (PwC)
Katherine Schipper Academic (Ohio State University)
Leslie F. Seidman Preparer (Financial Industry)
Edward W. Trott Auditor (KPMG)
Donald M. Young User (Analyst)
Table 2 (continued)
Time period Board Document Source/reference
IASB/FASB Exposure Draft IASB (2008); ED
IASB/FASB Comment Letters IASB website
2008e2010 (after ED) IASB Agenda paper (December 2008) IASB website
FASB Board meeting minutes (10 December 2008) FASB website
IASB IStaR Newsletter (16 December 2008) Peter Walton
IASB Audio document board meeting (16 December 2008) IASB website
IASB IStaR Newsletter (19 March 2009) Peter Walton
IASB Audio document board meeting (19 March 2009) IASB website
FASB Board meeting minutes (2 April 2009) FASB (2009)
IASB Agenda paper (September 2009) IASB (2009b)
IASB IStaR Newsletter (15 September 2009) IStaR (2009)
IASB Audio document board meeting (15 September 2009) IASB (2009c)
IASB/FASB Agenda paper (May 2010) IASB/FASB (2010)
IASB/FASB IFRS Monitor (17 May 2010) Peter Walton
IASB/FASB Audio document board meeting (17 May 2010) IASB (2010a)
FASB/IASB Framework for Financial Reporting IASB (2010b)
IASB Feedback statement IASB (2010c)
Table 4
Members of the IASB at the time of the April and July 2005 meetings.
IASB member Country Previous professional activity
Mary E. Barth (Part-time) USA Academic (Stanford University)
Hans-Georg Bruns Germany Preparer (Industry)
Anthony T. Cope UK/USA User (Analyst)
Jan Engstr€ om Sweden Preparer (Industry)
Robert P. Garnett South Africa Preparer (Industry)
Gilbert G elard France Auditor (KPMG)
Thomas E. Jones (Vice-Chairman) UK/USA Preparer (Financial Institution)
James J. Leisenring USA Standard-setter (FASB)
Warren J. McGregor Australia Standard-setter (Australian Accounting Research Foundation)
Patricia L. O‘Malley Canada Standard-setter (AcSB)
John T. Smith (Part-time) USA Auditor (Deloitte)
Sir David Tweedie (Chairman) UK Standard-setter (ASB)
Geoffrey Whittington UK Academic (Cambridge University)
Tatsumi Yamada Japan Auditor (PwC)
Table 5
Changes on the FASB during the development of phase A of the conceptual framework project.
Date Retired member New member
01/07/2006 Schipper Linsmeier
01/07/2007 Trott Smith
2008 Batavick Siegel (since 01/10/2008)
2008 Crooch e
2008 Young e
C. Pelger / Accounting, Organizations and Society xxx (2015) 1e23 20
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Date Retired member New member
01/07/2006 Whittington (UK) Danjou (France)
01/07/2007 Cope (UK/USA) Cooper (UK)
01/07/2007 O'Malley (Canada) Zhang (China)
01/07/2007 Bruns (Germany) e
01/01/2009 e Kalavacherla (India/USA)
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01/07/2009 Jones (UK/USA) McConnell (USA)
01/07/2009 e Gomes (Brasil)
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