2) The process of setting accounting standards has been characterized as a political process. Evaluate this process, citing an example.

 

There are several groups that influence accounting standard setting process.

The accounting setting standard has been characterized as a political process that is affected by the effect of many groups including; the government, through the securities and exchange commission.

The securities and exchange commission has the authority to issue accounting standards but has assigned this responsibility to the private sector.

Step-by-step explanation

• There are several groups that influence accounting standard setting process.
• The accounting setting standard has been characterized as a political process that is affected by the effect of many groups including; the government, through the securities and exchange commission.
• The securities and exchange commission has the authority to issue accounting standards but has assigned this responsibility to the private sector.
• However, the securities and exchange commission exert pressure on the accounting standards board to issue accounting standards and veto the standards promulgated by the financial standard board.
• Auditing firms, the corporate sector, creditors, financial analysts, the financial community, accounting organizations, industry groups and investors can influence the accounting standards by written comments about exposure drafts and participation in public meetings and public roundtables regarding a proposed financial reporting standard.

Reasons for political intervention in accounting standard setting process.

1. Self-interested parties influencing the standard setting body that is the choice from conflicting interests.
2. Lobbying preferences based on accounting issues.
3. Political dimension of accounting emerging from totality of accounting rules.

An example explaining the contrast of accounting emerging from totality of accounting rules are the individuals and groups in a society uses accounting techniques to alter and improve their economic conditions, hence making the accounting activities work on capital and income breed economic results that have effects on welfare of a society and its members.

The accounting rules become political rules when there is political involvement in their formulation process.

However a single or a group of accounting rules cannot be called political because the economic condition of most of the people in a society does not change or Improve by any individual accounting method although that may be quite significant in terms of economic results, e.g. purchase method to account for business acquisitions, deferral method to calculate deferred taxes and accrual method to value pension reserves.

An example to explain the contrast of problem of choice from conflicting Interests, is that there is a room for intervention created when the UK ASB set out inter alia to "determine what should be incorporated in accounting standards based on research, public consultation and careful deliberation about the usefulness of the resulting information".

Example to explain the contrast of Lobbying preferences, is the study on development of standards in Canada revealed that the exposure draft on corporate Income taxes had almost treble number of responses from public corporations than from accountants and accounting firms.

This exposure draft got the highest overall response.