SEC's acceptance of IFRS-based financial reporting: An examination based in institutional

Description
In 2007 the Securities and Exchange Commission (SEC) made an historic ruling allowing foreign registrants
to file IFRS-based financial statements without reconciling to U.S. GAAP. With that decision, the
SEC changed its longstanding practice of adhering to a single set of accounting standards in the U.S. The
decision diminishes the standing of two previously powerful institutions: U.S. GAAP and the SEC itself.
We examine this important change drawing generally on institutional theory. We draw on several
models to obtain insights into the likely roles of both regulator and regulatees, into the reasons the
particular type of incremental change mechanism was observed, and into the influence of powerful
transnational organizations on both the fact of change and timing of change. The key contribution of the
article is to explicate incremental institutional change by examining specific mechanisms of change given
the multi-level dynamic of accounting regulation. First, the interplay between national and transnational
players and their coalitions shape what becomes an acceptable change mechanism.

SEC's acceptance of IFRS-based ?nancial reporting: An examination
based in institutional theory
Anna Alon
a, *
, Peggy D. Dwyer
b
a
University of Agder, School of Business and Law, P.O. Box 422, 4604 Kristiansand, Norway
b
University of Central Florida, College of Business Administration, Kenneth G. Dixon School of Accounting, P.O. Box 161400, Orlando, FL 32816-1400, USA
a r t i c l e i n f o
Article history:
Received 19 September 2012
Received in revised form
6 November 2015
Accepted 11 November 2015
Available online xxx
Keywords:
Institutional theory
Institutional change
Layering
IFRS
Transnational regulation
a b s t r a c t
In 2007 the Securities and Exchange Commission (SEC) made an historic ruling allowing foreign regis-
trants to ?le IFRS-based ?nancial statements without reconciling to U.S. GAAP. With that decision, the
SEC changed its longstanding practice of adhering to a single set of accounting standards in the U.S. The
decision diminishes the standing of two previously powerful institutions: U.S. GAAP and the SEC itself.
We examine this important change drawing generally on institutional theory. We draw on several
models to obtain insights into the likely roles of both regulator and regulatees, into the reasons the
particular type of incremental change mechanism was observed, and into the in?uence of powerful
transnational organizations on both the fact of change and timing of change. The key contribution of the
article is to explicate incremental institutional change by examining speci?c mechanisms of change given
the multi-level dynamic of accounting regulation. First, the interplay between national and transnational
players and their coalitions shape what becomes an acceptable change mechanism. Second, layering
mechanism, where new rules are attached to existing ones, is typically expected to destabilize existing
institutions but can also decrease the push for broader change by layering regulation only for a particular
segment. Finally, strategies employed by transnational accounting ?rms to sti?e or promote institutional
change are of interest. We focus speci?cally on their role in solidifying a transnational coalition of
challengers to U.S. GAAP and therefore of apparently effecting the timing of the change. Documentary
empirical data were drawn from the comment letters provided to the SEC in response to the proposed
change, as well as from the SEC's ?nal ruling document and from related releases. We analyze formal
comment letters issued in response to the proposed 2007 rule, compare those to expectations based on
theory and in some cases to prior public positions taken. We interpret our ?ndings against the backdrop
of meta level shifts in regulatory loci toward privatization and transnationalization of standard setting.
© 2015 Elsevier Ltd. All rights reserved.
1. Introduction
In 2007, the U. S. Securities and Exchange Commission (SEC)
made an historic ruling related to the acceptability of accounting
standards other than U.S. GAAP. The ruling allowed foreign issuers
trading on U.S. markets to ?le IFRS-based ?nancial statements
without reconciling the information to U.S. GAAP. This event rep-
resented a marked change in the SEC's longstanding position
regarding the acceptability of accounting standards other than U.S.
GAAP for its registrants (Bealing, 1994; Bealing, Dirsmith, &Fogarty,
1996; Licata, Bremser, & Rollins, 1997).
The 2007 decision has considerable rami?cations for two pre-
viously powerful and longstanding institutions: U.S. GAAP and the
SEC itself. As to U. S. GAAP, the decision had the effect of setting
unreconciled IFRS-based statements on an equal footing with U.S.
GAAP for foreign registrants. As more fully developed below, this is
a particular type of incremental change mechanism, called layering,
that is theorized to occur under certain environmental conditions
(Mahoney & Thelen, 2010). As to the SEC itself, the rule had the
effect of ceding some of its control over the site and content of U.S.
accounting regulation and diminishing its power relative to other
standard setters. Because of the global signi?cance of these two
institutions, and the previous vehement and longstanding resis-
tance of the SEC to this change, the purpose of this study is to
examine that empirical episode against a framework of institu-
tional theory and prior research.
* Corresponding author.
E-mail address: [email protected] (A. Alon).
Contents lists available at ScienceDirect
Accounting, Organizations and Society
j ournal homepage: www. el sevi er. com/ l ocat e/ aoshttp://dx.doi.org/10.1016/j.aos.2015.11.002
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Accounting, Organizations and Society 48 (2016) 1e16
The study is responsive to calls by Edelman and Stryker (2005)
and Bozanic, Dirsmith, and Huddart (2012) related to the concep-
tualization of the construct of regulation within empirical studies
based on institutional theory. In that regard we adopt a conception
of regulation as constructed, ?uid and at least partially endogenous
(Bozanic et al., 2012; Cooper & Robson, 2006). We also respond to
calls for more theoretically focused examination of the incremental
types of change that make up the majority of most actual empirical
events (Mahoney & Thelen, 2010; Streeck & Thelen, 2005; Van der
Heijden, 2011). Insights from theories of incremental change allow
us to both address the particular type of change mechanism
employed, and the role of particular types of challengers as relates
to the timing of the change.
The study is informed by the literature focused on the role of
actors from outside national borders in shaping U.S. national reg-
ulatory processes. As noted by Botzem (2012), most regulatory
power is still predominately assigned to public authorities. None-
theless, it is increasingly the case that accounting regulatory change
occurs in the context of new international ?nancial architecture
(Humphrey, Loft, & Woods, 2009) where powerful, private sector,
transnational players play a signi?cant role (e.g., Botzem, 2012;
Büthe & Mattli, 2011; Cooper & Robson, 2006; Djelic & Sahlin-
Andersson, 2006; Greenwood & Suddaby, 2006; Humphrey et al.,
2009; Suddaby, Cooper, & Greenwood, 2007).
In the empirical portion, we conduct a qualitative examination
of the comment letters received by the SEC on the 2007 proposal to
accept IFRS statements from foreign issuers. We examine the dif-
ferential positions and legitimization strategies used by domestic,
foreign, and transnational players as they attempt to in?uence the
regulator. Because of the signi?cance of the ruling to the SEC's own
power, we also empirically examine the source, content and logic
used by respondents regarding the SEC's role in the future. In order
to demonstrate the particular signi?cance of the positions taken by
the transnational players, including the transnational accounting
?rms, we compared the positions of those players in a general sense
to positions taken on a topically similar concept release that had
previously been issued in 2000.
We interpret our ?ndings against the backdrop of meta-level
shifts in regulatory loci, where the SEC appears to have compro-
mised its prior strong position in light of the general phenomenon
of privatization and transnationalization of standard setting. The
removal of the reconciliation requirement contributed to the
weakening of the existing structure of U.S. GAAP and the SEC,
because it reduced the scope of their boundaries. However, the
decision may have had less of an impact on the position of the SEC
as a regulator. On the one hand the SEC has a clear reduction in
relative standard-setting power, but the decision may have limited
the ?ight of transnational ?rms from the U.S. stock exchanges over
which the SEC has jurisdiction.
The primary contribution comes from the integration of con-
cepts from Mahoney and Thelen's (2010) incremental change
theorizing with insights from the substantial literature on the role
of powerful transnational organizations which allows for a multi-
level study of international ?nancial architecture. We provide a
deeper understanding of the particular type of incremental change
mechanism, a side-by-side layering of acceptable standards. While
layering is typically associated with the destabilization of existing
institutions, it can also decrease the push for broader change by
layering regulation only for a particular segment. We contribute to
the study of incremental institutional change by examining the role
of the public behavior of the regulator and of in?uential regulatees,
in the context of a change that had been previously adamantly
resisted. Through the case illustration, we built on Djelic and
Quack's (2003) claim that globalization does not necessarily
destroy national institutions but instead pushes along their
evolution and demonstrate how it occurs and why.
Finally, strategies employed by transnational accounting ?rms
to sti?e or promote institutional change are of interest. We focus
speci?cally on their role in solidifying a transnational coalition of
challengers to U.S. GAAP and therefore of apparently effecting the
timing of the change. Big 4 came to support the removal of the
reconciliation and argued for choice in standards for foreign issuers
but continued to support a single standard requirement for do-
mestic issuers. Once the SEC faced a uni?ed coalition of trans-
national challengers that included the transnational audit ?rms, it
formulated a response that was acceptable to that coalitionwithout
producing a strong backlash from the powerful domestic excep-
tionalists. In facing a diverse constituency which includes certain
powerful but provincially-oriented members of U.S. Congress, as
well as internationally oriented ?nancial statement preparers and
accounting ?rms, the SEC evolved in both its standards and its
scope toward a hybrid change solution that appears to temporarily
satisfy both of those groups.
The study proceeds as follows. First we discuss selected histor-
ical information on U.S. and transnational accounting standard
setting. The next section includes discussion of models from insti-
tutional theory and of prior empirical literature that help frame our
study and interpret our results. We then present a conceptualiza-
tion of the empirical episode and description of the method. The
following section provides a brief overview of the episode and
discusses the study's research method and results. The ?nal section
provides a discussion, interpretation and implications.
2. U.S. and transnational accounting standard-setting
In the United States, legal authority to establish accounting
standards rests with the United States Securities and Exchange
Commission (SEC). The SEC was established in 1934 in connection
with Congressional legislation known as the Securities Act of 1934.
Along with the 1933 Securities Act, it was passed in response to the
stock market crash of 1929, and was intended in part to rectify
accounting de?ciencies that contributed to it (Palmon, Peytcheva,
& Yezegel, 2011). From the beginning, the SEC's mission was “to
achieve and maintain stable and effective capital markets” for
publicly-traded securities; as part of that mission it was awarded
the statutory power to set U.S. ?nancial accounting and reporting
standards (Palmon et al., 2011). Over the years it has retained sole
legal authority, although it has consistently delegated accounting
standards setting to a private sector body. Since 1973, the Financial
Accounting Standards Board (FASB) has been the private sector
body promulgating accounting standards.
Although the SEC has seldom directly reversed the FASB or its
predecessors, its in?uence on the FASB has nonetheless been sig-
ni?cant (Palmon et al., 2011; Seligman, 1985). The SEC issues pro-
nouncements and interpretations on topics that lack authoritative
guidance or are ambiguous. These tend to in?uence the FASB
agenda and frequently result in FASB disclosure guidance that is
consistent with the SEC's recommendations (Palmon et al., 2011).
The SEC also has direct impact on ?nancial reporting through its
Staff Accounting Bulletin (SAB) process, which are authoritative for
SEC registrants and in that regard have equal standing with FASB
standards. For some time, the SEC was considered an effective
example of a good securities regulator. The SEC's centralized au-
thority was seen as a model of functioning securities regulation
(Prentice, 2005). A number of countries had designed their regu-
latory structure using the SEC as a template, including Germany,
France, China, Korea, and Japan (Prentice, 2005). These consider-
ations placed the institutions of U.S. GAAP and the SEC at a prime
location of worldwide accounting regulation (De Lange &
Howieson, 2006).
A. Alon, P.D. Dwyer / Accounting, Organizations and Society 48 (2016) 1e16 2
2.1. Internationalization & the SEC
In the last half of the 20th century, as ?nancial and business
environments became increasingly internationalized, some critics
argued that domestic regulation of non-harmonized accounting
standards was a barrier to trade and investment (Arnold, 2005).
Partially in response to those concerns, the International Ac-
counting Standards Committee (IASC) was founded in 1973. The
IASC successor entity, the International Accounting Standards
Board (IASB) continues to advance IFRS as a uni?ed global set of
standards. One goal of these standards is to improve comparability
and transparency of ?nancial information (Alon & Dwyer, 2014;
Daske, Hail, Leuz, & Verdi, 2008).
The adoption of IFRS by the EU countries was an important
milestone in the journey toward widespread IFRS adoption. It was
also the result of interesting political posturing. In the 1990s, Eu-
ropean companies had begun to gravitate toward U.S. GAAP in an
effort to attract investment. Not long thereafter, in 1995, the Eu-
ropean Commission (EC) announced it would support the IASC
standards and abort the efforts to create European accounting
standard-setting body (Flower, 1997; Stolowy & Ding, 2003). It was
asserted that the EC's decision was motivated by the need to
establish a common EU position on accounting issues and to have
more in?uence over the IASC's regulatory processes (Flower, 1997).
Perhaps more interesting, it was claimed that ‘‘in the mind of not a
few Europeans, the IASC represented a fortress against U.S. ac-
counting imperialismda fear that U.S. GAAP would come to
dominate world accounting’’ (Zeff, 1998).
At that point the SEC did not consider IFRS as a viable alternative
for U.S. domestic reporting (De Lange & Howieson, 2006; Flower,
1997). Foreign issuers were required to reconcile their ?nancial
data to the U.S. GAAP. The Commission claimed that only U.S. GAAP
adequately ensured investor protections (Levitt, 1998; Sutton,
1997). Also, because IFRS are less detailed than U.S. GAAP, the SEC
questioned if the core standards can be operational considering the
interpretive issues (Sutton, 1997). In February of 2000, the SEC's
Commissioner maintained that “international accounting stan-
dards are now in their infancy and are, in large part, untested. It is
virtually impossible to predict with any degree of accuracy the
effectiveness of these standards upon implementation” (Hunt,
2000). For some time, this adamant position had considerable
support; until early 2000, many informed observers considered U.S.
accounting standards among the best and the most comprehensive
in the world (Carpenter & Feroz, 2001; Levitt, 1998). Additionally,
SEC and other critics expressed concern over the IASB's lack of
enforcement ability. However, at the same time, SEC was actively
involved in the development of IFRS processes and increased its
support for the use of IFRS in other jurisdictionsda posture that De
Lange and Howieson (2006) interpret as “double standard
exceptionalism”.
A comprehensive account of the SEC's interactions with IASB
and its predecessor is beyond the scope of this paper. We highlight
here a few of the important moments in the SEC/IASB relationship
only to support our point that the SEC has been instrumental in
in?uencing IFRS while at the same time trying to resist those
standards for its home country. Since 1987 the International Or-
ganization of Securities Commissions (IOSCO), where SEC plays an
active role, has been involved with the IASC (Botzem, 2012;
Camfferman & Zeff, 2007; Simmons, 2001). In 2001, the IASC was
restructured substantially along the lines advocated by the SEC; the
Commission had insisted on such organization to better shield IASB
from external in?uences (Botzem, 2012; De Lange & Howieson,
2006). Shortly thereafter, the SEC publicly supported the Memo-
randum of Understanding signed between the FASB and the IASB
regarding their commitment to developing high-quality
compatible ?nancial reporting standards (De Lange & Howieson,
2006). This Memorandum of Understanding, also known as the
Norwalk agreement, was believed by some to be setting the stage
for genuine and substantive convergence efforts (De Lange &
Howieson, 2006). Nonetheless, there still exist fundamental dif-
ferences both between (1) the operation of the SEC and FASB as
compared to the IASB, and (2) between IFRS as compared to U.S.
GAAP. Signi?cant areas of distinction exist, including the regulatory
structure, level of guidance, and enforcement.
IFRS is developed by the IASB, which is a privately organized
regulator funded mostly by contributions (Büthe & Mattli, 2011;
Larson & Kenny, 2011). Due to somewhat voluntary nature of its
funding, concerns about independence are frequently raised;
additionally, the organization does not always receive the expected
funds and tends to incur de?cits (IFRS Foundation, 2012). The SEC
itself is a public regulator funded by the U.S. Congress. Over the past
20 plus years, coincident with the extended period of deregulatory
zeal in the U.S. Congress, the SEC has not always maintained real-
dollar funding levels. On the other hand, the SEC's delegate, the
FASB is consistently funded by fees assessed on publicly traded
companies.
One of the main underlying differences between U.S. GAAP and
IFRS is the level of guidance that each set of standards provides. U.S.
GAAP is largely rules-based and provides extensive guidance on
how to record transactions. IFRS, in contrast, are principles-based
and rely heavily on expert judgment for application.
1
Such ?exi-
bility is claimed to allow regulated organizations to construct the
meaning of compliance (Edelman, Uggen, & Erlanger, 1999). It also
allows companies to maintain ?avors of national standards (Nobes,
2006).
A ?nal difference relates to enforcement. The SEC is tasked with
ensuring compliance with reporting standards for issuers on the
U.S. capital markets. The IASB is not responsible for the enforce-
ment of IFRS and relies on national bodies to performthat function.
While the SEC faces enforcement challenges due to the previously
mentioned budget issues, the IASB faces enforcement challenges
that are dependent upon the goodwill and competence of the
various national bodies.
In spite of the SEC's public support for IFRS elsewhere, as
recently as 2000, the SEC, the FASB, and the major transnational
audit ?rms were publicly opposed to the use of unreconciled IFRS
for its registrants. In a 2000 Concepts Release, the SEC sought
feedback on a number of issues, including whether or not it should
accept unreconciled IFRS-based statements. At that time, the vast
majority of domestic respondents opposed it, as did the FASB.
Perhaps more importantly, three of the (then) Big 5 transnational
accounting ?rms commented and opposed unreconciled IFRS-
based statements. This is in contrast to the 76% of other non-
domestic participants who were then in favor of waving the
reconciliation requirement (SEC, 2000). As further developed
below, this is theoretically important because it reveals the absence
of a publicly uni?ed coalition of transnational players at that time.
In summary, by the turn of the century the SEC had become an
active and in?uential participant in the IFRS process while simul-
taneously maintaining that U.S. GAAP was the only quality standard
for the U.S. market. This position on GAAP was shared by the FASB,
and the public statements of a majority of the transnational ac-
counting ?rms. With the 2002 accounting scandals, the credibility
of U.S. GAAP came under ?re (see for example, Bratton, 2004;
1
At the conceptual level they are indeed different. However, both U.S. GAAP and
IFRS have been criticized for (differently) allowing opportunistic application. Thus,
it remains unclear whether, at the application level, this difference is as signi?cant
as is often claimed.
A. Alon, P.D. Dwyer / Accounting, Organizations and Society 48 (2016) 1e16 3
Patsuris, 2002). In light of this new round of criticism of U.S. GAAP,
and the SEC's already considerable support for IFRS in other juris-
dictions, the SEC's adamant resistance to IFRS for it transnational
and foreign registrants may have become harder to publicly justify.
3. The conceptualization of regulation and change in
institutional theory
3.1. General models of institutions and institutional change
The study is rooted in institutional theory, in which the
construct of institutions serves as a primary building block. In-
stitutions are social forms and practices that achieved widespread
acceptance and have demonstrated resilience (Oliver, 1991; Scott,
2001). Institutions are also theorized to create a commonly un-
derstood social framework for behavior (Barley & Tolbert, 1997). A
substantial body of literature relates to the stability of institutions,
however, our interest is in the theorizing that addresses institu-
tional change.
General theories have acknowledged that institutional change is
a political process re?ecting the power of interested actors (Dillard,
Rigsby, &Goodman, 2004). Some models seek to explain the extent
to which, and the ways in which, powerful actors enable change as
compared to less powerful actors. The categories of dominant and
fringe have been used in these models to characterize actors at
extreme ends of the power continuum
2
(Davis, Diekmann, &
Tinsley, 1994; Djelic & Quack, 2003; Maguire & Hardy, 2009).
Players are considered dominant if they hold a “central position in
terms of power and social status” (Djelic & Quack, 2003, p. 24).
Fringe players are those that lack dominant positions, centrality
(Maguire & Hardy, 2009), and communication networks
(Lounsbury, 2001).
While the dominant/fringe continuum has been useful in
explaining some changes, scholars noted that in an increasingly
globalized environment, those categories may not be suf?cient to
classify the actors involved. Thus, Djelic and Quack (2003) offered
an expanded model of institutional change based on two di-
mensions (the D & Q model). The ?rst dimension was the previ-
ously mentioned centrality dimension re?ected by either dominant
or fringe location. The second dimension was the geographic scope
dimension, onwhich players are labeled as either foreign, domestic,
or transnational. The model loosely predicts how, based on the
two-dimensional categorization, different groups participate and
in?uence institutional change.
D &Q posit that dominant local players normally are invested in
the local structures and during periods of stability, tend to resist
change (Djelic & Quack, 2003). In periods of critical challenges,
however, domestic dominant players turn into active promoters of
change (Djelic & Quack, 2003). Finally, because fringe players have
less power and fewer resources than others, they must be unusually
innovative to in?uence change processes; in the case of foreign
fringe players, they may lack access to or interest in the process
(Djelic & Quack, 2003).
A particular contribution of the D & Q model is its expanded
theorizing regarding transnational players. In contrast to domestic
dominants, transnational dominants, are theorized to be “unsatis-
?ed with the preexisting institutional conditions characteristic of
their country of origin” and are likely to be active promoters of
institutional change (Djelic & Quack, 2003, p. 24). It is important to
note that they are not addressing cases where transnational in-
?uences result in the destruction of national level institutions;
rather they theorize cases where transnational in?uences result in
changes in those institutions. D & Q assert generally that change is
more likely when the national level institution comes in direct
con?ict with a transnational challenger. They note the signi?cance
of the emergence of truly transnational players with truly trans-
national identities and senses of self. These true transnationals
become important, because they are not only powerful but they
typically become carriers of an alternative set of rules down to the
national level.
Accounting scholars have taken up the issue of transnational
in?uences. At the meta level, accounting scholars note that the
evolution of accounting standards is occurring within an interna-
tional ?nancial architecture that is in?uenced by market actors,
private authoritative bodies, and public authoritative bodies (e.g.,
Humphrey et al., 2009; Malsch & Gendron, 2011). In both auditing
and ?nancial accounting, regulators and professional bodies are
moving toward global-level governance. Increasingly, the ideolog-
ical focus at the global level has been one of free-market orientation
in general, and on satisfying information needs of the capital
market participants in particular (e.g., Botzem, 2012; Power, 2010).
3.2. Models speci?c to change in formal regulation
The role of law and regulation has always been an important
element in institutional theory, and a number of models speci?cally
addressing formal regulation have evolved over time. In early
models, lawand regulation were often treated as coercive, concrete
and exogenous force; regulators could not only establish rules but
could enforce conformity (Maguire & Hardy, 2009; Scott, 2001).
From that older perspective, regulation was perceived to unilater-
ally shape the functioning of economic actors (Coglianese & Kagan,
2007). Some recent treatments of regulation are more complicated.
The regulatory capture perspective offers a viewon the other end of
the spectrum where regulated organizations are perceived to have
enough power to directly control regulators and regulatory change.
In this perspective, the “captured” regulators are theorized to
advocate the interests of parties they should be regulating in a fairly
overt manner (e.g., Horwitz, 1986; Luchansky & Gerber, 1993;
Richardson, 2009).
A number of authors are critical of both the previously discussed
extreme treatments (Bozanic et al., 2012; Cooper & Robson, 2006;
Edelman & Stryker, 2005). Instead, these authors prefer to theo-
rize regulation as mutually an in?uence on, as well as in?uenced by,
the economic structures within the ?elds it seeks to regulate. These
middle ground perspectives still acknowledge the operation of
power and power struggles in the regulatory process, but in a less
overt and determinative fashion than advanced in regulatory cap-
ture theory (e.g., Bozanic et al., 2012; Edelman & Stryker, 2005).
Bozanic et al. (2012) provided empirical insight on this view of
regulation by examining an SEC change of rules related to the issue
of insider trading. Toward that end, they examined the positions
taken and the affective tones of comment letters issued in response
to the proposed regulation. They found that the ?nal ruling
restricted options but not as stringently as the initial proposal; they
interpret this as evidence the regulator has been in?uenced by the
regulatees. Additionally, they found that the SEC was dispropor-
tionally attentive to comments from the legal profession and the
securities and investment industry, and that the SEC relied
disproportionately on what Bozanic et al. (2012) classi?ed as
“credentialed” organizations in their choice of respondents to
reference in their ?nal ruling. The authors interpreted those
credentialed organizations as being most likely ideologically allied
2
The actors involved in the change process have been classi?ed as dominant vs
fringe (Djelic & Quack, 2003), core vs peripheral (Davis et al., 1994), insider vs.
outsider (Maguire & Hardy, 2009). The players that are known as dominant, core or
insider are thought to be in the dominant elite position. In this study, consistent
with Djelic and Quack (2003), dominant vs. fringe classi?cation is used throughout.
A. Alon, P.D. Dwyer / Accounting, Organizations and Society 48 (2016) 1e16 4
with the corporate executives whose actions stood to be most
restricted by the rule, and would therefore be perceived as credible
by those executives.
3.3. Mechanisms of incremental change
A common critique of institutional theorizing is its over-
emphasis on sudden change and exogenous shocks as the cause
of change (Djelic & Quack, 2003; Mahoney & Thelen, 2010).
Mahoney and Thelen (2010) advanced model of gradual change
that theorizes the role played by certain endogenous elements in
determining the particular type of change mechanism that
emerges. They argue that gradual change is empirically common
and theoretically interesting in its own right. Their treatment is
political/critical, in that they explicitly recognize the distributional
properties of institutions as being an important factor in under-
standing when and how the institution changes.
Mahoney and Thelen (2010) posit a two factor model to explain
differences in the types of change mechanisms that have been
observed in the literature. They focus on four types of change
mechanisms: displacement; layering; drift; and conversion. A
“displacement” occurs when the old rules are completely replaced
by the new rules. A “layering” occurs when new rules are set up
aside the old rules, without replacing the old rules. “Drift” occurs
when the old rules are not replaced but merely neglected or not
enforced. Finally “conversion” occurs when old rules are not
replaced but are opportunistically reinterpreted or reapplied. The
two factors theorized to determine which mechanism will emerge
are: (1) the level of discretion in the interpretation or enforcement
of an institution's rules and (2) the veto possibilities of actors that
wish to maintain the status quo. We discuss layering below
because it is the type re?ected in the SEC proposal that we are
studying.
Layering involves “the introduction of new rules on top or
alongside existing ones” (Mahoney & Thelen, 2010, p. 15; Streeck &
Thelen, 2005). Layering is theorized to be more likely when sup-
porters of the status quo have strong veto power and when
enforcement of rules is likely (Mahoney & Thelen, 2010; Van der
Heijden, 2011). In such circumstances, powerful veto players can
protect the old institution from being completely replaced, but
cannot thwart the addition of new elements alongside the old
practices (Mahoney & Thelen, 2010). New layers may not initially
challenge the existing institutions, but in the long-run they can
sometimes undermine existing structures and lead to eventual
transformation (Mahoney & Thelen, 2010). The theorized agents of
change in a layering mechanism are challengers who want new
rules but who are willing to work within the existing system to get
them, and to follow the old rules in the interim.
The previous review of selected literature leads us to several
summary observations in regard to the empirical episode we are
examining. First, we expect to observe mutual in?uences of the
powerful regulatees or their surrogates on the regulator, as well as
the obvious direction of in?uence of the regulator on the regu-
lated. As further developed below, we expect to observe strong
in?uence of neoliberal ideology. We expect powerful transnational
organizations to be the most in?uential of the regulatees. In
combining the insights from Djelic and Quack (2003) and
Mahoney and Thelen (2010), we expect layering to occur only
when a suf?ciently powerful set of transnational challengers come
together in a coalition. This is because the veto power of the SEC is
essentially absolute, therefore change must come through the
system. Since the Big 4 international accounting ?rms are among
the most powerful of the transnational participants with an in-
terest in accounting standards, we next review the literature
relevant to their role.
3.4. Dominance of international accounting ?rms
Botzem(2012) has observed that “globally active auditing ?rms”
have come to play a dominant role in international standard
setting. Supporting this, prior studies have examined how the Big 4
effectively replaced professional associations and national regula-
tors to become the site of professionalization and de facto regula-
tors. This resulted partially by virtue of their size and ability to
in?uence standard setting but more importantly by their in?uence
on subsequent worldwide interpretation and application of stan-
dards (Cooper & Robson, 2006; Greenwood, Suddaby, & Hinings,
2002; Suddaby et al., 2007). This shift in professionalization is
more than just a shift in site however, but one of ideology as well.
As part of an extensive review of academic and non-academic
literature about the Big 4 (then the Big 5), Suddaby et al. reached
the following conclusion, capturing the ?rms' ideology, in speci?c
response to their role in the GATS construction:
… the Big 5, their multinational clients and the WTO coalesce
into a mutually reinforcing project that supports transnational
systems of market regulation in which professional services …
are to be governed by 'laws' of supply and demand. Traditional
professional regulation, such as those historically produced
between professional associations and the nation state, are
identi?ed as alien to this emerging ?eld …(Suddaby et al., 2007,
p. 346)
Consistent with their characterization as transnationally aligned
actors, the Big 4 played signi?cant roles in the evolution of the
International Accounting Standards Committee, predecessor of
IASB (Tamm Hallstr€ om, 2004), and in the development and
implementation of the resulting IFRS. Employees of these ?rms
held appointments as IASC board members, experts, and steering
committees project managers with responsibilities for standard
development (Botzem, 2012; Tamm Hallstr€ om, 2004). The ?rms
were active in funding IASC and continued to provide substantial
?nancial support to the IASB upon reorganization (Larson & Kenny,
2011). The ?rms also legitimized IASB through active and regular
participation in the comment process (Larson & Kenny, 2011).
The adoption of IFRS by countries around the world has not only
increased the in?uence of the Big 4 as providers of consistent
standard interpretation, it has also provided substantial consulting
opportunities. Because of the principles-based nature of the IFRS
standards, the Big 4 are seen as valuable agents of consistent
interpretation (Albu, Albu, Pali-Pista, & Vladu, 2011). All big
transnational audit ?rms formed working groups and developed
training materials to foster consistent interpretations and to avoid
diverging application of the standards (Hoogendoorn, 2006; Tokar,
2005). All the Big 4 have established global IFRS resource divisions
to aid in high quality standard development, as well as ultimate
implementation (Tokar, 2005, p. 692). This scope of training and
resources is not readily accessible by smaller ?rms. Consequently,
large ?rms became key players on which companies rely for IFRS
conversion and preparation of ?nancial statements (Hoogendoorn,
2006).
The foregoing suggests that the Big 4 accounting ?rms have
substantial reputational investment in the content of IFRS and
considerable ?nancial investment in their IFRS-related practice.
Moreover, they are widely regarded in the literature as having
shifted to a transnational orientation as regards regulation. It thus
seems unlikely that they would object to a move toward more
acceptance of IFRS on either normative or pragmatic grounds. The
Big 4 can justify their support because IFRS, and its logic, has ach-
ieved a certain level of global respectability that was even endorsed
by the SEC for other jurisdictions.
A. Alon, P.D. Dwyer / Accounting, Organizations and Society 48 (2016) 1e16 5
The evolution of the Big 4 toward positions of normative and
pragmatic alignment with IFRS have theoretical signi?cance for the
institutional status of U.S. GAAP. As argued by Oliver, the environ-
ment may have evolved to a condition of dissensus about US GAAP,
that may be a precursor to its deinstitutionalization (1992, p. 569).
Speci?cally, Oliver argues that when powerful stakeholders ?nd
their current interests are in con?ict with maintaining an older
practice, they may reduce their support for the older practice. No
crisis is required for this process to begin. Second, she argues when
there is a breakdown in the extent of normative agreement over the
preferability of a practice, then other practices will receive more
serious attention. The upshot of this analysis is that, at the time of
2007 episode, there was no reason for the SEC to necessarily as-
sume that the Big 4 would continue to support U.S. GAAP as the
premiere set of standards.
4. Empirical episode
4.1. The current episode conceptualized
It is useful to conceptualize the current empirical episode using
the previously discussed models. The episode of interest is the
SEC's proposal to allow foreign registrants to ?le unreconciled,
IFRS-based ?nancial statements while continuing to require U.S.
GAAP-based statements for domestic ?lers. Note that domestic
issuers were not impacted, i.e. there was no institutional change
proposed for them. In contrast, under the proposal foreign issuers
were provided with increased ?exibility and could ?le using U.S.
GAAP, IFRS, or reconciled statements; i.e. a layering of IFRS
alongside U.S. GAAP. In addition to creating two different con-
ceptual outcomes, the existence of two differentially impacted
groups has implication for the likely participation rates in the
comment letter process.
3
Two different institutions are targets of change in this episode.
One is U.S. GAAP; it is being downgraded to one option among
many for foreign registrants. Additionally the SEC itself is subject to
substantive change. By creating condition where different practices
are accepted, the SEC reduced its own power vis-a-vis other stan-
dard setters. It created a subset of ?lers who are using standards
that are only very indirectly under its in?uence.
An important element in the Mahoney and Thelen (2010) model
is the concept of variable veto power. Because the SEC has essen-
tially absolute veto power over accounting standards used by U.S.
registrants, it becomes necessary to answer the question why
would the SEC even consider rules posed by challengers of any
nature. The answer appears to be two-pronged, but in both in-
stances related to the role of powerful transnational corporations.
The simplest answer is that if powerful transnational registrants
become too dissatis?ed with SEC rules, they can simply ?ee the U.S.
exchanges and trade on other well established and monitored ex-
changes. The more complicated answer relates to the possibilities
of intervention and discipline by the U.S. Congress. It has been well
documented that members of U.S Congress receive substantial
support from powerful transnational corporations and that
Congress has passed accounting-related regulations consistent
with the theorized interests of those corporations (Roberts &
Bobek, 2004; Roberts, Dwyer, & Sweeney, 2003; Thornburg &
Roberts, 2008). It is also documented that Congress will threaten
sanctions when powerful corporations disagree with proposed
accounting standards (Beresford, 2001; Morgenson, 2001; Zeff,
1997; 2002). These possibilities explain why the SEC, in spite of
its technically absolute veto power, must as a matter of pragmatics
consider challenger rules when the challengers are in?uential
enough and uni?ed enough.
Prior to the proposal, publicly available evidence suggested that
the transnational challenger coalition included many transnational
registrants and foreign and transnational associations, but impor-
tantly did not include the transnational accounting ?rms. However,
it is interesting to note that the SEC has framed the problem so that
in order to agree with the SEC, a participant must oppose the
currently institutionalized practice of U.S. GAAP. This may have
been a signal of the response the SEC expected.
Primary data include 118 comment letters received by the SEC in
response to this proposal and the SEC's ?nal ruling issued after the
comment process was completed. Secondary data include com-
ments to (1) the 2000 Concept Release exploring the issue of
reconciliation for foreign issuers, and (2) the 2007 Concept Release
exploring allowing domestic companies an option of using IFRS. We
required the 2000 data to support our expectation that a group of
previously divided set of elites, the transnational players, had
become more uni?ed, and that this strengthened coalition of
transnational challengers was important to SEC dropping its
resistance.
The comment letters are analyzed using latent content analysis,
where the intention is to uncover underlying categories of meaning
(Berg, 2004), as opposed to narrowcounts of words and terms. Two
coders read the letters to identify theoretically established cate-
gories and the type of legitimacy communicated by the partici-
pants. The preliminary differences in coding were discussed and
either resolved or coded as ‘‘other’’ if irresolvable. A limitation of
the study is its restriction to primarily a single regulatory episode
that is only one event in a long process of underlying regulatory
change; this sampling problemis common to all empirical research.
Comment letters were chosen as a reasonable but imperfect
proxy for the actors' positions. On the one hand, because they are
public, comment letters are highly sanitized versions of actual
position. On the other hand, again because they are public, they are
hard to refute or turn around and therefore arguably a proxy of the
most likely actual position.
4.2. Phase one: analysis of positions taken and rhetoric used by
respondents
In the ?rst phase, the type of respondent was recorded based on
the categories suggested in prior research (e.g., Mezias, 1990;
Suddaby et al., 2007): individuals, institutional users of ?nancial
information, preparers of ?nancial information, audit and other
professional ?rms, professional associations, trade associations,
and regulatory agencies. Next, respondents were categorized based
on the two dimensions of the D & Q model. Due to their lack of
resources, individual respondents were classi?ed as fringe players.
Institutional users, preparers, audit and other professional ?rms,
trade and professional associations, and regulatory agencies were
considered dominant players due to their availability of resources,
position of power, and/or social status (Djelic & Quack, 2003).
While the extent of their dominance varies, these groups have
signi?cantly greater resources than individual users of the ?nancial
information. To capture the impact of geographic scope, re-
spondents were coded as domestic, transnational, or foreign. We
researched the participants and categorized them based on their
local, national, or international focus and/or presence. An impor-
tant factor in the classi?cation was their geographic scope of
operations.
3
Contemporaneous with the proposed rule that we are studying, the SEC had
also issued a 2007 SEC Concept Release. This release explored whether U.S. com-
panies should be allowed to use IFRS. Not surprising, this release had signi?cantly
higher input from domestic participants than did the proposed rule that we study
in this paper.
A. Alon, P.D. Dwyer / Accounting, Organizations and Society 48 (2016) 1e16 6
We analyzed responses based on the position taken and the
rhetoric used to support that position. In order to become a viable
alternative, the new practice has to obtain and retain legitimacy
(Greenwood et al., 2002; Suddaby & Greenwood, 2005), and
rhetoric is a tool of persuasion used in the process of creating
perceived legitimacy. Greenwood et al. (2002) identify both
pragmatic and normative
4
legitimacy as types that are important
in developing support for a new practice. Pragmatic legitimacy
involves portraying a practice as bene?cial for a speci?c constit-
uency, and as such is often self-interested (Greenwood et al., 2002;
Suchman, 1995). Normative legitimacy involves portraying the
practice as ?tting within currently established prescriptions, as a
“right thing to do” and is more likely to re?ect a concern for
broader interests (Greenwood et al., 2002; Ruef & Scott, 1998;
Suchman, 1995).
We expected that proponents of the SEC's proposal for change
would criticize the pragmatic legitimacy of reconciling IFRS to U.S.
GAAP (Greenwood et al., 2002). Prior literature suggests the
following rhetorical themes may be used to frame the pragmatic
weaknesses of the current practice: excessive cost to registrants,
excessive complexity, lack of usefulness, and lack of material dif-
ferences between the standards (Jamal et al., 2008). We note that
these particular references to the pragmatics, with their focus on
market operations, are consistent with the widely accepted
neoliberal market ideology which is argued to be the foundation of
the current transnational ?nancial architecture (Humphrey et al.,
2009). Proponents were not expected to attack the normative
legitimacy of reconciling IFRS to U.S. GAAP. This is because recon-
ciliation provides information that arguably makes standard dif-
ferences more transparent for investors, which is an issue of
normative importance.
While we did not expect proponents to attack the normative
legitimacy of U.S. GAAP, we did expect them to support the
normative legitimacy of the IASB and IFRS-based reporting. In that
regard, we anticipated themes relating to the alignment of IFRS
with established notions such as investor information needs and
transparency in ?nancial reporting (Ball, 2006; Jermakowicz &
Gornik-Tomaszewski, 2005). We also expected proponents to
reference the legitimacy of IASB as a standard-setting body. Themes
such as IASB quality, independence, and funding suf?ciency were
expected to be observed in this regard. Proponents were also ex-
pected to convey the pragmatic bene?ts of IFRS-based reporting.
The following themes were anticipated: greater investment op-
portunities, lower cost of preparation, and lower cost of capital
(Ball, 2006; Hopkins et al., 2008; Jamal et al., 2008; Jermakowicz &
Gornik-Tomaszewski, 2005).
We expected opponents to focus on the normative legitimacy of
the existing practice, and to question the normative legitimacy of
the proposed alternative. This focus on normative legitimacy is
expected because, if the proposed alternative is not normatively
preferred, pragmatic bene?ts are harder to sell.
4.3. Phase two: respondents included in the SEC's ?nal ruling
In the second phase, we analyzed the source and content of
responses that the SEC referenced in support for its ?nal ruling.
Similar to Bozanic et al. (2012), we use this approach as a way of
teasing out the players that were most in?uential on the SEC and
that the SEC believes are most credible in its justi?cation of its
ruling to other members of the public.
4.4. Phase three: analysis of positions taken on SEC's future role
As previously discussed, the SEC's role going forward is an issue
of some tension to both the SEC and the other institutional players.
Historically, the scope of the SEC's jurisdiction and its ability to
dictate accounting practices for such a large set of registrants has
been a substantial source of power. The proposal results in a de facto
reduction of the SEC's power as it creates a subset of ?lers who are
using standards that are only very indirectly under the SEC's in-
?uence. While the SEC has some degree of input into the IFRS
process, that in?uence is slight when compared to the power it has
over U.S. GAAP. One way in which this power could be recovered is
if the SEC was to obtain more control over IFRS in the future.
Therefore, in the third phase of analysis we separately examine
comments made by participants relating to the SEC's role going
forward.
5. Results
5.1. Respondent type
The highest level of participation was seen from preparer cor-
porations and trade associations. Preparers provided 34 out of 118
comments (29%) and trade associations 32 out of 118 (27%).
Transnational audit and other professional service ?rms send in 9%
of the letters. Professional associations and regulatory agencies
accounted for 11% and 8% of the comments, respectively. In-
dividuals provided 14 out of 118 comments (12%). Institutional
users of ?nancial information, such as rating agencies, and other
user surrogates provided 5 out of 118 comments (4%). In some
cases, participants could ?t into more than one category. That ap-
plies to globally active ?nancial ?rms, including Citibank, HSBC, and
UBS, which were coded as preparers but are also users of ?nancial
information. Details on the participants and classi?cation are pre-
sented in Appendix 1.
European-based players dominated the process; they provided
54 out of a total of 118 letters. Comments were received from Eu-
ropean organizations and preparers, trade groups, and regulatory
agencies located in seven EU countries. There are a signi?cant
number of European companies trading on the American ?nancial
markets who are already required to ?le on other exchanges using a
variant of IFRS that differs from that exempted in the SEC proposal,
therefore the level of interest by European ?lers is not surprising.
Two responses were received from Australian organizations. Asia's
participation was limited to the Korean Accounting Standards
Board. Developing and transition economies generally did not
comment.
As indicated in Table 1, transnational participants provided 69
out of 118 comments, followed by the domestic players with 29
comments and foreign players with 20. These data support the
growing literature maintaining that regulation and governance are
becoming increasingly transnational (Djelic & Sahlin-Andersson,
2006).
5.2. Phase one results: positions taken and rhetoric used by
respondents
Three levels of position were coded: oppose the change; sup-
port the change, and call for broader change. The third coding
level was required because the SEC proposed to eliminate the
reconciliation requirement only for ?lers using the English version
of IFRS as published by the IASB (SEC, 2007a). However, a sub-
stantial number of respondents are already required to ?le else-
where using a different variant of IFRS. These respondents were
among the most likely to call for broader change to include
4
The terminology is similar to Ruef and Scott (1998). Some researchers referred
to this category as moral legitimacy (for example Greenwood et al., 2002; Suchman,
1995).
A. Alon, P.D. Dwyer / Accounting, Organizations and Society 48 (2016) 1e16 7
acceptance of their IFRS variant.
Comments supporting the change accounted for 82 percent of
all responses. Foreign and transnational players, including audit
?rms, overwhelmingly favored the proposal and supported the
acceptance of IFRS statements from foreign issuers without U.S.
GAAP reconciliation. Out of 33 preparers supporting the change, 18
comments (55%) came from the ?nancial ?rms that also use
?nancial statements of other companies to make investment de-
cisions. These ?rms were uniform in their support for the proposal
while they did not provide a single comment on the same issue for
the 2000 Concept Release. Most proponents advocated waiving the
reconciliation not only for users of the approved English version of
IFRS but for certain jurisdictional and translated versions of IFRS.
For example,
We strongly recommend that the Commissionwill eliminate the
U.S. GAAP reconciliation requirement for companies that pub-
lish their ?nancial statements in accordance to widely used
high-quality jurisdictional variants of IFRS, such as IFRS as
adopted by the EU (SEC, 2007a: Nokia).
Not surprisingly, 67% of the letters recommending broader
change came from the European participants asking for acceptance
of the EU's version of IFRS.
On the domestic side, eleven out of the twelve U.S. individuals
who commented on the proposal opposed the change. Some
deemed the proposal to be premature while others argued for
keeping the status quo. For example, a letter submitted by two
academics urged the SEC “not to succumb to this growing hege-
monic pressure from the London based IASB and others” to
remove the required reconciliation (SEC, 2007a: Agbejule &
Burrowes).
We next analyzed respondents' rhetoric. Proponents justi?ed
their positions by attacking the pragmatic legitimacy of the current
approach and by endorsing the pragmatic and normative legiti-
macy of the proposed change. Many proponents referred to the
high cost of the existing process, the minimal differences between
U.S. GAAP and IFRS, and the lack of usefulness of the reconciliation
for investors. For example,
We fully support the Commission's proposal to accept IFRS
?nancial statements from FPls without reconciliation to US
GAAP. This reconciliation still absorbs substantial resources.
However, the bene?ts which it affords users have considerably
diminished as the IASB and FASB have progressed in their
convergence efforts, so that reconciliation differences have
become largely minor technical points or purely historical
“legacy” items re?ecting former differences which have now
disappeared for new transactions, e.g. goodwill (SEC, 2007a:
Novartis).
More seamless international markets, lower cost of capital for
preparers, and increased investment opportunities for U.S. in-
vestors were other pragmatic themes, as illustrated by the
following quote from a professional association in Scotland.
With business operating globally, a single set of global ?nancial
reporting standards is necessary in order to enhance investor
con?dence, by facilitating analysis of ?nancial statements on a
comparable basis. This ultimately will contribute to a lower cost
of capital for businesses and freedom for companies to list on
different stock exchanges. This will be of bene?t to the US by
making it more attractive for foreign companies to list in the US,
and providing greater choice for US investors (SEC, 2007a:
Institute of Chartered Accountants of Scotland).
The comparability argument is curious as acceptance of IFRS
statements by the U.S. markets introduces a second set of standards
that users have to navigate. That would appear to make compara-
bility across companies more elusive.
Proponents also presented IFRS as a normatively acceptable
alternative. The supporting rhetoric emphasized the high quality of
IFRS standards and the adequate transparency of the IASB's pro-
cesses. They also argued the minimal differences between GAAP
and IFRS would mean that investors would likely suffer no negative
impact:
We fully support the proposal to eliminate the IFRS e U.S. GAAP
reconciliation. We believe that IFRS ?nancial statements provide
high-quality and transparent information to users of ?nancial
statements. The recent efforts towards convergence by the IASB
and the FASB have resulted in substantially similar sets of ac-
counting standards and we do not believe that investors would
make different investment decisions for the same company if
the company prepared its ?nancial statements under IFRS or U.S.
GAAP (SEC, 2007a: Deutsche Bank).
The focus of the transnational and foreign proponents on
normative legitimacy may be explained by a desire to position their
support within the established norms of public interest and
investor protection. For example, transnational audit ?rms high-
lighted the independence of IASB standard-setting process and the
high quality of IFRS.
Table 1
Classi?cation of comment letters by position of participants.
Domestic Participants Transnational Participants Foreign Participants Total
Position Position Position
1 2 3 1 2 3 1 2 3
Individuals 11 0 1 0 0 0 1 1 0 14
Institutional Users 2 1 0 1 1 0 0 0 0 5
Preparers 0 0 0 1 17 16 0 0 0 34
Auditors/Prof Services 0 0 0 0 3 8 0 0 0 11
Trade Associations 0 3 3 0 8 10 0 2 6 32
Prof Associations 4 2 1 0 0 3 0 1 2 13
Regulatory Agencies 1 0 0 0 0 1 0 1 6 9
Total 18 6 5 2 29 38 1 5 14 118
where:
Position 1 ¼ oppose allowing foreign issuers to ?le with SEC using IFRS without reconciliation to U.S. GAAP.
Position 2 ¼ support as proposed by SEC.
Position 3 ¼ call for a broader acceptance than proposed by SEC.
A. Alon, P.D. Dwyer / Accounting, Organizations and Society 48 (2016) 1e16 8
IASB was constituted with a commitment to “develop, in the
public interest, a single set of high quality, understandable, and
enforceable global accounting standards that require high
quality, transparent, and comparable information in ?nancial
statements and other ?nancial reporting to help participants in
the world's capital markets and other users make economic
decisions.” Given the composition of the IASB, IFRS are issued
through a robust process that is transparent to the public and
re?ect the collective input of technicians and practitioners from
around the world (SEC, 2007a: Ernst & Young).
PwC and D&T were the only two of the Big 4 who commented
on both the 2000 IFRS-related Concept Release and the 2007 Pro-
posed Rule. In 2000, these two ?rms supported the reconciliation
requirement. Below is the response of PwC to the Concept Release
in 2000, using investor protection as the norm in support of its
argument:
We do not believe that a solid case has been presented for
relaxing the reconciliation requirement. In recent years, U.S.
markets have shown themselves to be signi?cantly focused on a
single ?gure of earnings. Bringing IAS into the domestic
marketplace at this point means that there would be two (and
quite different) measures of earnings, which is apt to lead to
confusion (SEC, 2000: PwC).
In contrast, and despite the fact that GAAP and IFRS continued to
have signi?cant differences in 2007, the two ?rms of PwC and D&T
experienced a turn-around in their positions, and argued in 2007 to
end the reconciliation requirement. Now arguing the normative
acceptability of IFRS, for example:
Acceptance of IFRS without a U.S. GAAP reconciliation should
not be based on howclose its standards are to U.S. GAAP, but on
the quality of the standards and the suf?ciency of the infor-
mation they present to investors. In this regard, we believe that
the quality and transparency of IFRS is suf?cient to eliminate the
reconciliation to U.S. GAAP (SEC, 2007a: PwC).
So publicly, by 2007, transnational audit ?rms were no longer
sole GAAP supporters but had become challengers, advocating for a
layering of IFRS alongside U.S. GAAP for foreign ?lers. Their public
positions were now coaligned with those of other transnationals
who had been challenging the use of GAAP for some time. Ironi-
cally, at the same time, in responses to the 2007 Concept Release
exploring IFRS for domestic issuers, the ?rms did not support
layering of standards citing dif?culties related to the comparability
of IFRS and U.S. GAAP and advocated for a more de?nitive
commitment to IFRS for domestic reporting:
We believe that granting an option to domestic issuers to use
IFRS without a plan and timetable for requiring all domestic
issuers to adopt IFRS would hinder comparability in ?nancial
reporting and run counter to the goal of promoting a single set
of high-quality, globally-accepted accounting standards. A
mixed IFRS-U.S. GAAP regime that would result from an elective
system would increase complexity in the ?nancial reporting
system for preparers, auditors, users and educators because of
the need to maintain knowledge of both IFRS and U.S. GAAP
(SEC, 2007c: KPMG).
While determining the exact reason for the double standard for
domestic vs international ?lers is beyond the scope of this paper,
what is clear is that by 2007 the Big 4 ?rms were fully committed to
IFRS, and no longer even modest supporters of US GAAP as a long-
term solution.
Some of the most interesting and contradictory responses were
made by domestic organizations. The American Accounting Asso-
ciation (AAA) is one domestic organization that did not present a
uni?ed perspective. Two opposing comments were received from
different committees of AAA. Although both letters cited prior
research, the committees came to different conclusions. The
Financial Reporting Policy Committee of the Financial Accounting
and Reporting Section of the AAA opposed the proposal, chal-
lenging its normative legitimacy. In this regard, their rhetoric
focused on the usefulness of the current practice for investors, as
follows:
Our reviewof the academic research literature does not support
the SEC's proposal to eliminate the U.S. GAAP e IFRS reconcili-
ation requirement for foreign private issuers. The research on
the IFRS-U.S. GAAP reconciliation suggests that material differ-
ences between IFRS and U.S. GAAP exist and that information
contained in the reconciliations are re?ected in investment
decisions made by U.S. investors (SEC, 2007a: Financial
Reporting Policy Committee of the AAA).
In contrast, the Financial Accounting Standards Committee of
the AAA supported the proposal, as follows:
Financial statements based on IFRS can provide good ?nancial
reports that are equivalent to those based on U.S. GAAP. While
there are differences in the ?nancial reporting environment
(governance, legal regime, audit, and securities regulation)
among countries, the SEC should not wait until all elements of
the ?nancial reporting environment are harmonized on a global
basis, even assuming that harmonization were possible and
desirable. Allowing foreign companies to use IFRS without
costly reconciliations to U.S. GAAP is likely to make U.S. stock
exchanges more competitive and provide useful feedback to U.S.
accounting standard setters about the ef?cacy of their standards
(SEC 2007a: Financial Accounting Standards Committee of the
AAA).
We note that this committee references the implied desirability
of market tests of standards and the pragmatic issue of costly
reconciliation in its argument. This is consistent with Büthe and
Mattli (2011) emphasis on the market dimension of global
standard-setting where standards compete for dominance.
Another interesting contrast was observed in the position taken
by the New York State Society of CPAs (NYSSCPA) and the AICPA as
represented by its Center for Audit Quality. The NYSSCPA is one of
the largest and oldest state accounting organizations in the U.S. The
society was established in 1897 and has approximately 28,000
members (NYSSCPA, 2010). It is a long-time publisher of a well-
respected journal, and has historically been an active participant
in accounting and auditing debates. Its position was that the pro-
posed change is premature and normatively challenged:
As the Commission acknowledges in the proposed rule,
convergence of IFRS and U.S. GAAP is far from complete, and
signi?cant differences remain … .These differences will create
an uneven competitive ?eld for domestic and foreign registrants
and will make it dif?cult for investors to compare the perfor-
mance of companies from different geographies (SEC, 2007a:
New York State Society of Certi?ed Public Accountants).
In contrast to the NYSSCPA, The AICPA Center for Audit Quality
supported the proposal. Normally these associations might both be
A. Alon, P.D. Dwyer / Accounting, Organizations and Society 48 (2016) 1e16 9
expected to take a protectionist stance in support of existing do-
mestic regulation. However, the AICPA argued for change, as
follows:
Overall, the Center supports the elimination of the U.S. GAAP
reconciliation for foreign private issuers using IFRS, which we
believe is an important step in the process toward development
of a single-set of high-quality globally-accepted accounting
standards. In addition, we do not believe that the elimination of
the U.S. GAAP reconciliation should be predicated on the ade-
quacy or continuation of the convergence process, nor on the
development of further guidance in areas not currently
addressed by IFRS (SEC, 2007a: AICPA Center for Audit Quality).
Other opposition was primarily voiced by certain professional
associations and domestic individuals. These opponents stressed
the normative legitimacy of the current approach. Their rhetoric
focused on investor usefulness and standards quality. Jack Cie-
sielski, a member of FASB's Investors Technical Advisory Commit-
tee, highlighted some of these points:
The reconciliation currently provides investors with visibility
into corporate earnings arising from the choice of accounting
methods. As currently formulated, this proposal will turn in-
vestors' vision into blindness. It would run counter to the
Commission's public policy mission (SEC, 2007a: Jack Ciesielski).
Opponents also attacked the normative legitimacy of the pro-
posed newapproach, expressing concerns about the quality of IFRS,
lack of enforcement at the IASB, and the uniformity of IFRS
implementation.
The IFRS are not as of yet of the same quality as U.S. GAAP. The
problems of interpretation that a principle-based systemsuch as
IFRS engenders are compounded by the fact that there is no
effective enforcement mechanism to ensure compliance (SEC,
2007a: William Craven).
Opponents were also concerned about comparability problems
that could arise due to inconsistent application across countries.
Historically, when a country adopts IFRS, it is not always exactly as
issued by the IASB but as approved (and often modi?ed) by some
local endorsement mechanism. These processes can result in
jurisdictional differences.
The idea of one universal IFRS is largely a myth. There are
actually numerous versions of nationally recognized IFRS: there
is an Australian IFRS, Hong Kong IFRS, etc., an actual potpourri of
standards. While the IASB is attempting to reverse this little-
discussed situation and elevate its own brand, it is misleading
at this point to assume that other sovereign nations have or will
abdicate their national interest to a body over which they have
no control. Why then should we? (SEC, 2007a: Gaylen Hansen,
CPA).
Finally, one commenter offered a somewhat protectionist
concern about the regulator's independence, as follows:
Abeit indirectly, FASB would be beholden to IASB's donors as it
was to its donors before SOX. That is not likely in the interests of
investors, markets or the public (SEC, 2007a: Lawrence
Cunningham).
As Congress is one of the players that has the in?uence over the
SEC, public opposition to the proposal was limited to two senators
who voiced their concerns as below:
While the Sarbanes-Oxley Act preserved the SEC's authority to
set its own accounting standards, the SEC's proposal to treat
standards set by the IASB as generally accepted, whether
expressly or impliedly, is an end-run around Congress' intent in
establishing the independent funding mechanism and other
quali?cations necessary to justify reliance on a standards-setter
other than the SEC itself (SEC, 2007a: Jack Reed and Christopher
Dodd, U.S. Senate).
For domestic participants, layering of IFRS contributed to “divide
and conquer” as perceived indirect impact of the change did not
evoke signi?cant and united opposition.
5.3. Phase two results: respondents referenced in the SEC's ?nal
ruling
We analyzed the particular comments that the SEC chose to rely
on and reference in its ?nal ruling. We believe this analysis sheds
light on which particular parties were most in?uential on the SEC;
it also sheds light on which parties the SEC believed would add
most credibility to its ?nal ruling.
The SEC disproportionately referenced comments from the
transnational auditing and professional service ?rms. While 9% of
comment letters were received from this group, they accounted for
about 30% of the references made in the ?nal ruling. More gener-
ally, the SEC relied heavily on transnational respondents in its
choice of letters to reference in the ?nal ruling. Approximately 73%
of the comment letters referenced in the SEC's ?nal ruling came
from transnational participants, while these types of participants
represented only 58% of total population.
The Commission drewon responses fromthe Big 4 transnational
?rms to support several topics in its ?nal ruling. One such topic was
the SEC's discussion of its own role. In these instances, the SEC
seemed to have referenced comments that adopted a positive
framing of its appropriate role going forward. That is, the SEC
referenced those comments that were framed in terms of what
respondents thought the SEC should do, as opposed to what it
shouldn't do. For example, PwC and Deloitte were referenced for
the following statements:
Most commenters that addressed the role of the Commission
with respect to the IASB felt that the Commission should
continue to participate in the IASB and IFRIC's due process.
Many felt that continued interaction with the IASB through
IOSCO was appropriate (SEC, 2007b, p. 14e15).
This is somewhat in contrast to many of the comments that
were negatively framed in terms of what the SEC should not do,
particularly as it related to the issuance of separate guidance. It
appears the SEC used the Big 4 responses to create a favorable
image of the commenters' overall position relating to its forward
going role.
The SEC also relied heavily on Big 4 responses to support the
?nal ruling paragraphs that address whether a speci?c level of
convergence must be demonstrated before the reconciliation was
eliminated. Three of the Big 4 were cited in support of a statement
that such a level of convergence was not necessary. Additionally,
Grant Thornton was referenced in support of a claim that auditors
are already more than familiar enough to audit unreconciled
statements and that doing away with the reconciliation would
actually accelerate the incentives to develop IFRS capabilities.
The SEC did not ignore opponents' comments in the ?nal ruling.
Impression management theories suggest that opponents would be
A. Alon, P.D. Dwyer / Accounting, Organizations and Society 48 (2016) 1e16 10
referenced in a public document to convey the sense that the
process was legitimate and all voices were heard. That said, the SEC
did not reference opponents in proportion to their participation in
the process. Approximately 18% of the comments opposed the
proposal but this group accounted for about 15% of the total ref-
erences in the ?nal ruling. For example, the AAA Committee that
supported the proposed ruling was referenced, while the opposing
AAA Committee was not. The AICPA, which supported the proposal,
was cited eight times in the ?nal ruling while the opposing
NYSSCPA was cited only twice.
Some of the opponents' topical concerns recognized in the ?nal
ruling were related to the adequacy of the IASB's organizational
structure, as well as its lack of ?nancial independence. On these
topics, the SEC referred to comments from several domestic orga-
nizations with investor protection missions. The SEC also noted
opponents' concerns relating to the suf?ciency of the present level
of convergence between IFRS and US GAAP. For example, SEC
referenced the letters from NYSSCPA, Maverick Capital, and In-
vestors Technical Advisory Committee stating that “many of those
not in favor of the amendments believed that convergence to date
was insuf?cient to merit the removal of the reconciliation
requirement at this time”. In a balancing effort the SEC referenced
contrasting comments on the same topic by the Corporate
Reporting Users' Forum (representing professional investors and
analysts), Goldman Sachs, and Merrill Lynch in stating that “other
commenters representing users of ?nancial statements, though,
noted that the reconciling information is not very useful to them in
evaluating IFRS ?nancial statements” (SEC, 2007b, p. 19e20). It is
important to note that the SEC refers to ?nancial ?rms as users of
?nancial information. Given that classi?cation, it would appear that
users overwhelmingly supported the proposal.
In the ?nal ruling the SEC's language suggested that it has come
to accept the prevailing logic of the evolved ?nancial architecture,
at least as it relates to the market determination of standards. The
SEC relied on comments from E&Y and PwC (among others) in
support of the following statement “Many commenters believed
that market forces and demand for comparable information in
global capital markets will continue to provide suf?cient incentive
for further convergence …” (SEC, 2007b, p. 20). In a later comment
the SEC re?ects its own conversion to the power of the market logic
as follows: “We anticipate that the process towards convergence
will continue, because capital markets will provide an ongoing
incentive for a common set of high-quality globally accepted ac-
counting standards …” (SEC, 2007b, p. 21).
5.4. Phase three results: positions taken on SEC's future role
The SEC has historically held a powerful role in the area of ac-
counting standards regulation. That power came primarily from its
tight rein over the accounting standards to be used by companies
trading on the U.S. exchanges, rather than from its participation in
other standard setting arenas. Gravitation toward IFRS has
considerable likelihood of reducing the SEC's de facto power rela-
tive to other organizations. Accordingly, we analyze the comments
that related particularly to the SEC's role going forward.
Fifty two respondents (44%) commented on this issue. Of those,
transnational and foreign participants accounted for 69% and 17% of
responses, respectively. Most transnational responses came from
preparers and auditors. Most foreign responses came from the
regulatory agencies and trade associations. In absolute number,
highest response was from preparers and trade associations. All six
of the largest international accounting ?rms commented on this
issue. As illustrated below, a number of respondents expressed
fairly strong admonitions to the SEC regarding its forward-going
role.
The majority of comments on the SEC's role re?ected one of the
following three overlapping themes: (1) the SEC must not be
overbearing in its interaction with IASB and must recognize its
changed and lesser role; (2) the SEC should be discouraged from
issuing rules-based interpretations that con?ict with the
principles-based paradigmof IFRS; and relatedly (3) the SEC should
not issue interpretations effective only for U.S. companies as that
might effectively create yet another jurisdictional version of IFRS.
General cautions regarding the SEC's less powerful role going
forward were advanced by many types of respondents. One
transnational corporation offered the following advice:
In order to achieve the goal of a single set of high quality global
accounting standards, the SEC must recognize and accept that
its role is different and less direct than its oversight role with the
FASB and that it should act primarily through IOSCO (SEC,
2007a: Microsoft).
One of the strongest admonishments regarding the SECs role
came from an individual:
Since the IASB primarily serves two economic blocks, if the SEC
attempts to exert direct in?uence on the IASB, the EC will
respond by redoubling its effort to do the same. The result will
be a transatlantic soccer match, with the IASB being the ball
(SEC, 2007a: Mladek).
Similarly, international accounting ?rms, international profes-
sional associations, and international trade associations reminded
the SEC of its likely lesser role moving forward.
We therefore urge the SEC to show caution in managing its
relationship with the IASB and IFRIC as well as taking care about
the SEC's own impact on IFRS as a body of literature. It is
particularly important to ensure that the position of IFRIC as the
only formal issuer of interpretations of IFRS is not undermined
(SEC, 2007a: Institute of Chartered Accountants).
The SEC should be prepared to accept that it will naturally have a
different role with regard to an international body. This is
essential to the development of a truly international accounting
framework. The SEC's differing relationships with the IASB and
FASB are well understood in the market; indeed, it will be
important for the SEC to preserve the present bounds of that
relationship and manage its relationship with the IASB in such a
way as to maintain the independence and international legiti-
macy of the IASB, and robustness of its processes (SEC, 2007a:
Institute of International Finance).
As to concerns regarding the SEC providing its own IFRS in-
terpretations, three of Big 4 international accounting ?rms
cautioned the SEC against issuing separate guidance. The ac-
counting ?rms were joined by other types of respondents in con-
cerns about separate SEC guidance. The UBS, a transnational wealth
management ?rm, voiced the following concerns:
We are concerned that the SEC may become too involved in the
interpretation of IFRS. The SEC has interpreted and changed US
GAAP many times in the past. SEC speeches at annual SEC/AICPA
conferences and SEC staff accounting bulletins are examples of
that activity. The SEC must resist the urge to unilaterally inter-
pret IFRS (SEC, 2007a: UBS).
Deloitte took perhaps the most generous position on the SEC's
role as interpreter, in discussing circumstances where the IASB
A. Alon, P.D. Dwyer / Accounting, Organizations and Society 48 (2016) 1e16 11
might fail to provide resolution:
We also encourage regulators to communicate effectively with
the IASB and its staff on issues that may need resolution. Part of
this communication would be any necessary action by the IASB
or its interpretive body (International Financial Reporting In-
terpretations Committee dIFRIC) to address the issues raised. If
the IASB process were not to resolve or address the issue, then
we believe it would be necessary for regulators to consider
providing the appropriate guidance (SEC, 2007a: Deloitte).
A ?nal concern was that the SEC would in effect create yet
another variant of IFRS. The London Investment Banking Associa-
tion encouraged the SEC to resist any pressure to produce extensive
guidance at the risk of producing “a jurisdictionally distinct SEC
IFRS” (SEC, 2007a: London Investment Banking Association). This
concern was similarly expressed by Lloyds, who cautioned against
excessive SEC interpretation “…could lead to further jurisdictional
variants.” (SEC 2007a: Lloyds TSB).
6. Discussion
We examined an episode of regulatory change in which the U.S.
Securities Exchange Commission made a signi?cant move toward
accepting international ?nancial accounting standards for certain
foreign registrants. Theoretical insight for the study was provided
by elements of institutional theory, especially as it relates to change
mechanisms and to the construction of regulation. Documentary
empirical data were drawn from the comment letters provided to
the SEC in response to the proposed change, as well as from the
SEC's ?nal ruling document and from related 2000 and 2007
Concept Releases. This paper contributes to the study of incre-
mental institutional change by examining the role of the public
behavior of the regulator and of in?uential regulatees, in the
context of a change that had been previously adamantly resisted.
The multi-level examination allows for a deeper understanding of
institutional change through the views and actions of the agents
that are involved and the corresponding change mechanisms that
are adopted.
Our initial empirical analysis focused on the positions taken and
rhetoric used by respondents to the proposal. Respondents were
overwhelmingly in favor of the proposal. Proponents were pri-
marily transnationals and generally argued their support based on
pragmatics and ease of market operations. Opponents were pri-
marily individuals and investor surrogates that tended to argue
more normatively from the perspectives of ?nancial statements
users' needs.
The empirics revealed some interesting contradictions in re-
sponses from domestic academic and professional accounting as-
sociations. On the one hand, the national-level professional
accounting association, the AICPA, sided with the transnational
majority in supporting the proposal and the necessary concomitant
weakening of SEC's in?uence. In contrast, the largest state-level
professional accounting association, the NY State Society of CPAs
opposed the proposal. In prior literature, accounting scholars have
documented the AICPA's seeming acceptance of the global scope
and market logic in several instances, in particular their efforts
related to the AICPA Vision Project and the global Cognitor desig-
nation (e.g., Baker, 2008; Fogarty, Radcliffe, & Campbell, 2006;
Shafer & Gendron, 2005). Thus it may not be surprising that the
AICPA appears more ready than the NYSCPA to give up local stan-
dards in favor of standards that allegedly smooth market operations
and international capital ?ows. It may be that the AICPA is no longer
domestically allied, even though it is a domestic institution. In
contrast, the NYSSCPA appears to remain ideologically a domestic
institution that supports domestic standards when they believe
those standards to be normatively preferable.
Contradictory recommendations were received from two
different committees of the American Accounting Association. This
con?ict in a single domestic organization may further re?ect the
underlying friction, at the domestic level, related to the trans-
nationalization of the accounting standard setting. The AAA com-
mittee supporting the proposal is responsible for the coordination
of all activities related to ?nancial accounting standard setting and
was chaired at the time by a partner of the transnational accounting
?rm, Grant Thornton. Their response presented the bene?ts of the
global market where “regulatory completion would be bene?cial to
the development of good accounting standards” (SEC 2007a:
Financial Accounting Standards Committee of the AAA). The com-
mittee connected to the Financial Accounting and Reporting section
of the AAA, which opposed the proposal, was more focused on the
needs of U.S. investors.
The data contained some strong and sometimes emotional
comments on the SEC's role going forward. Transnational and
foreign participants expressed concern that the SEC would have too
much in?uence over the IASB in general. Further, participants were
concerned that the SEC would effectively create yet another juris-
dictional variant of IFRS if it issued too much guidance that applied
only to U.S. registrants. Although the Big 4 framed their views on
the SEC's role in a more positive way than many respondents, their
message was still generally one favoring limited SEC involvement.
6.1. Interpretations and implications
This episode has implications for further movement toward
accounting standard harmonization. Some respondents asserted
that this was a move toward ultimate harmonization. In contrast,
others noted that by agreeing to accept both U.S. GAAP and IFRS, the
SEC appears to have removed a fairly substantial incentive for
harmonization. Harmonization, in concept, occurs when the de-
cisions made by multiple nominally different regulators, each
having its own groups of challengers and supporters, move toward
each other. Theorizing merely about the self-interests of the
powerful transnational ?lers seems to suggest that for them
harmonization is a non-issue, because they are now able to ?le on
most major exchanges using unreconciled IFRS.
In this episode the SEC created an opportunity for foreign issuers
to ?le with either unreconciled IFRS statements or U.S. GAAP, while
continued to require U.S. ?rms to ?le using U.S. GAAP. This is
conceptualized as institutional layering, a mechanism of change
wherein a new set of rules is accepted alongside an existing set of
rules without replacing the older rules. Integrating theorizing from
Djelic and Quack (2003) and Mahoney and Thelen (2010), in the
environment of essentially absolute veto power by the regulator,
layering is more likely to occur when a suf?ciently powerful set of
transnational challengers come together in a coalition. Typically new
layers are expected to challenge the existing institutions but, given
segmentation that it provides, suchapproachcan actually slowdown
further change. The con?uence of national and transnational in-
stitutions contributes to hybrid solutions which lessen disturbances
for the existing institutions and shape institutional continuity.
It is beyond the scope of this paper to know exactly why, be-
tween 2000 and 2007, the Big 4 came to join the coalition of other
transnational challengers to U.S. GAAP for foreign SEC registrants. It
could be, as Oliver (1991) argues that when the current interests of
powerful stakeholders are in con?ict with maintaining an older
practice, they may reduce their support for the older practice. We
have demonstrated howthe ?nancial interests of the Big 4 ?rms are
related to increased use of IFRS. Additionally, it may be simply that
enough normative support for IFRS had developed by that time that
A. Alon, P.D. Dwyer / Accounting, Organizations and Society 48 (2016) 1e16 12
the Big 4 could publicly align with its supporters. It appears that the
public shift of allegiance of the Big 4 ?rms, and their inclusion in the
coalition of transnational challengers, is a factor in the timing of
this change. Our study demonstrates that coalitions of trans-
national players able to promote and justify change not fully sup-
ported by domestic audience. The episode highlights how Big 4
engage in institutional change. There was an incremental evolution
of their public position. The ?rms were not early proponents of the
change given the normative legitimacy of the domestic standards.
Once they came to support the removal of the reconciliation, Big 4
argued for choice in standards for foreign issuers but continued to
support a single standard requirement for domestic issuers. Aware
of the different transnational and domestic pressures, Big 4 are
cautious in promoting further change even when their current in-
terests seem in con?ict with maintaining existing practices.
The episode served to illustrate some of the complexities of
current theoretical thinking about endogeneity of regulation,
including the in?uence of transnational actors on allegedly do-
mestic regulation, as well as global moves towards privatization of
regulation. At the outset, the SEC appeared to have framed the
proposal in a way that it was very likely to be supported by major
transnational and foreign players. The ongoing role already played
by the Big 4 transnational accounting ?rms in IFRS development as
well as the substantial ?nancial opportunities in implementation
suggest that the ?rms would favor the plan. Thus, while there did
not appear to be much con?ict or dissent in the comment process,
the proposal itself was almost guaranteed based on known actions
and agendas of the likely major respondents. Even so the SEC did
not ignore dissenters and their arguments in its ?nal ruling,
creating at least an aura of having considered those arguments in
the construction of the ?nal ruling.
Several elements of the analysis suggests that the SEC, in its
public face, has succumbed to the evolved ideology favoring
transnational levels of regulation that are subject to market tests.
First we noted that, in contrast to the framing in prior research (e.g.,
Bozanic et al., 2012) the SEC's proposal was one that could create
more choice, and thus allow market preferences to prevail. Second,
we observed that the proposal was framed such that a proponent of
U.S. domestic standards would have to oppose the proposal to ex-
press that support. Third, we observed that by the time the pro-
posal developed, the Big 4 transnational accounting ?rms had
shifted their public stance from being supporters of U.S. GAAP in
the U.S. to joining the existing coalition of transnational challengers
who were already well committed to IFRS. Finally, we found that
the SEC chose to disproportionately rely on transnationals and
particularly on the Big 4 ?rms in supporting the details of its ?nal
ruling. The accounting literature has repeatedly documented the
Big 4's commitment to and dominant role in the new ?nancial ar-
chitecture; by allying itself strongly with these ?rms the SEC may or
may not be revealing genuine acceptance of the ideology but the
Commission is certainly demonstrating a pragmatic alignment with
some of the most powerful players.
Another implication of our analysis is that the SEC's public
statements of optimism regarding its own future role may not fully
re?ect the beliefs of respondents to its proposal. In its ?nal ruling,
the SEC chose not to reference any of the strong and relatively
speci?c comments advising it to limit its role going forward. Instead,
the Commission chose to reference more general comments of
support largely from the Big 4 ?rms. This may be an attempt to put
the best possible public face on loss of power in an attempt to
manage impressions as it reconstructs its own future role.
Our study contributes to understanding the impact of interna-
tionalization forces on national level regulators. Previously, other
authors have asserted that shifts being observed in accounting are
just part of a much larger trend which involves moving away from
sites of national level regulation toward a single global private
sector standard setting. They characterize the outcome of this trend
as “… simultaneous privatization and internationalization of
governance” (Büthe & Mattli, 2011, p. 5). In that regard, however,
the SEC of the 21 century faces a fragmented external environment.
On the one hand, transnational corporations and the transnational
audit ?rms favor internationalization of standards. These are
among the most powerful of the regulatees and have the docu-
mented willingness to in?uence Congress as needed to manage the
SEC. On the other hand, certain subsets of the U.S. public and
certain members of Congress are known for their unusually ex-
ceptionalist attitude toward international matters. The SEC through
the layering of the standards for some registrants may be pursuing
what Bealing et al. (1996) called a multiple strategy response to a
fragmented environment. The SEC has acquiesced from the
perspective of powerful transnational constituency, but for the
moment that acquiescence only applies to the transnational and
foreign registrants. Thus, at least for the time being the SEC has
satis?ed its most powerful constituents, and has made a move
consistent with the new transnational ?nancial architecture,
without ceding control over the standards used by its domestic
registrants and risking the wrath of U.S. exceptionalists.
Appendix 1. Classi?cation of participants
Name Individuals Institutional
users
Preparers Auditors/Prof
services
Trade
associations
Prof
associations
Regulatory
agencies
1 John C. Rader x
1
2 Lawrence A. Cunningham x
1
3 William Craven x
1
4 Marvin A. Frenkel x
1
5 Fairfax Financial Holding x
2
6 TransAtlantic Business Dialogue x
2
7 Financial Security Assurance Holdings x
3
8 Steven Balsam x
1
9 Robert Mladek x
1
10 Adebayo Agbejule and Ashley W. Burrowes x
1
11 Financial Reporting Standards Board, New
Zealand
x
3
12 Investors Technical Advisory Committee x
1
13 National Institute of Accountants, Australia x
2
14 Financial Accounting Standards Committee, AAA x
2
15 Novartis x
2
(continued on next page)
A. Alon, P.D. Dwyer / Accounting, Organizations and Society 48 (2016) 1e16 13
(continued)
Name Individuals Institutional
users
Preparers Auditors/Prof
services
Trade
associations
Prof
associations
Regulatory
agencies
16 Korea Actg Institute & Accounting Standards
Board
x
3
17 Daimler Chrysler x
3
18 London Investment Banking Association x
2
19 The Association of German Banks x
3
20 Delhaize Group x
2
21 European Insurance CFO forum x
2
22 Swish Federation of Industrial and Services
Groups
x
2
23 Canadian Accounting Standards Board x
2
24 New Zealand Securities Commission x
3
25 BP x
3
26 Institute of Public Auditors, Germany x
3
27 European-American Business Council x
2
28 The Hundred Group x
3
29 American Bankers Association x
2
30 AXA x
3
31 Deloitte Touche Tohmatsu x
3
32 NY State Society of CPA x
1
33 EALIC and UNIQUE x
3
34 Unilever x
2
35 Mitsubishi x
2
36 Lloyds x
3
37 Institute of Management Accountants x
2
38 Terry War?led x
1
39 Syngenta x
2
40 Financial Reporting Council, UK x
3
41 Cleary, Gottlieb, Steen & Hamilton, LLP x
3
42 Chartered Institute of Management Accountants x
3
43 Diageo x
3
44 Credit Suisse Group x
2
45 Mazars x
3
46 International Capital Markets Association x
3
47 Manulife Financial x
3
48 ING Group x
3
49 Swedish Export Credit Corporation x
2
50 BusinessEurope x
3
51 BT Group x
3
52 International Swaps and Derivatives Association x
2
53 Financial Services Roundtable x
2
54 Canadian Natural Resources Limited x
2
55 Corporate Reporting Users' Forum x
3
56 Nokia x
3
57 Royal Bank of Scotland x
3
58 HSBC x
2
59 Deutsche Bank x
3
60 Investment Management Association x
3
61 Jack Ciesielski x
1
62 Sullivan and Cromwell x
2
63 KPMG x
3
64 Shell x
3
65 Maverick Capital x
1
66 UBS x
2
67 Colgate-Palmolive x
1
68 Center for Captial Markets Competitiveness x
3
69 CalPers x
2
70 Citigroup x
2
71 Group of North American Insurance Enterprises x
2
72 Grant Thornton x
2
73 Ernst & Young x
3
74 Center for Audit Quality x
3
75 Institute of International Finance x
3
76 Standard & Poor's x
1
77 Council of Institutional Investors x
2
78 New York City Bar x
3
79 Institute of CA in England and Wales x
3
80 Securities Industry and Financial Markets
Association
x
2
81 AIG x
2
82 Financial Reporting Policy Committee, AAA x
1
83 Microsoft x
2
84 PricewaterhouseCoopers x
3
85 American Council of Life Insurers x
2
86 International Corporate Governance Network x
3
A. Alon, P.D. Dwyer / Accounting, Organizations and Society 48 (2016) 1e16 14
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(continued)
Name Individuals Institutional
users
Preparers Auditors/Prof
services
Trade
associations
Prof
associations
Regulatory
agencies
87 Prudential x
2
88 Confederation of British Industry x
3
89 BDO x
3
90 Fried, Frank, Harris, Shriver & Jacobson x
3
91 The Institute of Chartered Accountants of
Scotland
x
3
92 Fitch Ratings x
2
93 Federation of European Securities Exchanges x
3
94 Carl Olson x
1
95 George Merkl x
2
96 Financial Executives International x
2
97 International Bar Association x
3
98 Gaylen Hansen x
1
99 European Commission x
3
100 Siemens x
3
101 Goldman Sachs x
3
102 Galileo Global x
2
103 Merrill Lynch x
2
104 Allianz x
3
105 European Federation of Accountants x
3
106 ASCG, German standard setter x
3
107 Kurt Schulzke x
3
108 Group of 100 x
3
109 CFA Institute x
1
110 American Bar Association x
3
111 European Banking Federation x
3
112 British Bankers' Association x
3
113 American Academy of Actuaries x
1
114 Israel Accounting Standards Board x
3
115 NYSE Euronext x
2
116 Committee of European Securities Regulators x
3
117 Andrea Psoras x
1
118 Banking Committee, Congress x
1
where:
Position
1
¼ oppose allowing foreign issuers to ?le with SEC using IFRS without reconciliation to U.S. GAAP.
Position
2
¼ support as proposed by SEC.
Position
3
¼ call for a broader acceptance than proposed by SEC.
A. Alon, P.D. Dwyer / Accounting, Organizations and Society 48 (2016) 1e16 15
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