Prepared by Arabella Volkov University of Southern Queensland

1. Prepared by Arabella Volkov University of Southern Queensland

2. References • Text – Chapter 12 Standard setting ina political environment

3. Learning Objectives At the conclusion of this lecture, you should have an appreciation of: • The development of the Australian accounting standard-setting process, considering the involvement of the professional accounting bodies and independent standard-setting boards • The background to the adoption of international accounting standards in Australia and the process of setting international accounting standards

4. Learning Objectives At the conclusion of this lecture, you should have an appreciation of: • The regulation debate in Australia and three theories proposed to understand the process of regulation – public interest, regulatory capture and private-interest theory • a comparison of the free market and regulatory approaches to standard setting and the role of ethics in setting accounting standards

5. Development of the Australian standard-setting process • ICAA 1928 • 1946 • 1960s • CPA Australia 1952 • Australian Accounting Research Foundation – AARF • 1965

6. Development of the Australian standard-setting process • NSW Corporate Affairs Commissioner • Ensure compliance • 1976 • ICAA and CPA Australia • Joint submission

7. Development of the Australian standard-setting process • 1984 • Accounting Standards Review Board (ASRB) • Public Sector Accounting Standards Board (PSASB)

8. Development of the Australian standard-setting process • 1991 Australian Securities Commission Act established • Australian Accounting Standards Board (AASB) • Functions • Powers

9. Development of the Australian standard-setting process • Late 1990s • Corporate Law Economic Reform Program (CLERP) • Preliminary draft • Extremely controversial • Reasons

10. Development of the Australian standard-setting process • Final CLERP • AASB to Australian Accounting Standards Committee • Recommendation • Australia adopt IAS • User perspective • Established a new standard-setting structure

11. Development of the Australian standard-setting process • 2002 • New body oversee AASB • 2005 • Cease development of domestic standards for private sector • Adopt IFRS • Supported by Australian Stock Exchange

12. Adoption of international accounting standards in Australia • Australia adopted international accounting standards on 1 January 2005 • Decision reflected support for harmonisation from: • Companies • Professional bodies • ASX • government

13. Adoption of international accounting standards in Australia Setting international accounting standards • IASC 1973 • IASB 2001 • 14 full-time members • Dedicated technical staff • IASC Foundation • ‘stable platform’ • Adoption of international accounting standards in Europe

14. Adoption of international accounting standards in Australia The IASB & national standard setters • Decision to adopt will have significant impact on standard-setting process in Australia • Influence of Australia on this process? • AASB directed to work closely with IASB • AASB will endeveour to work closely with IASB

15. Regulation debate in Australia • government intervention • political interests • due process • gaining a mandate • how to establish standards thatare not misinterpreted

16. Theories of regulation Three views of regulatory activity • Public interest theory • Agents seek to protect public through regulation • Assumption of potential market failures • protect consumer interests • Application to accounting standard setting

17. Theories of regulation Regulatory capture theory • All members of society economically rational/self interested • Government has no independent role in regulatory process • Redistribution of wealth • Regulatee comes to control regulator • Application to accounting standard setting

18. Theories of regulation Private-interest theory • Regulatory activity reflects relative power of interest groups • the power to coerce • Politicians are not neutral arbiters • Regulation sought by ‘producer’ private interest groups • Application to accounting standard setting

19. Theories of regulation Why is accounting regulated? • Three theory frameworks • Public-interest theorists • Capture theorists • Private-interest theorists • Help us to understand the emergence of different approaches to regulation in different countries

20. Standard setting approaches Free or regulated market? • should accounting standards be formulated by authoritative bodiesor left to the free market? • should accounting standards be formulated in the public or private sector?

21. Standard setting approaches • Free-market approach • demand and supply of accounting information • Regulatory approach • market mechanisms will not be able to achieve a socially optimal equilibrium price for accounting information

22. Ethics of standard setting • economic consequences of decisions • Collett • sacrifice of qualitative criteria • users may be misled • imposition of costs on preparers of information

23. Key terms and concepts • Standard setting • Measurement • Economic consequences • Ethics • Market mechanisms

24. Summary • 1960s criticisms of the accounting profession have attracted increasing public attention • Legitimising procedure of standard-setting process • Political environment • Alternative interest groups

25. Where to get more information • Other courses • List books • Articles • Electronic sources