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Accounting, Organizations, and Institutions$

Christopher S. Chapman, David J. Cooper, and Peter Miller

Print publication date: 2009

Print ISBN-13: 9780199546350

Published to Oxford Scholarship Online: February 2010

DOI: 10.1093/acprof:oso/9780199546350.001.0001

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Financial Accounting without a State *

Financial Accounting without a State *

(p.324) 15 Financial Accounting without a State*
Accounting, Organizations, and Institutions

Michael Power (Contributor Webpage)

Oxford University Press

Abstract and Keywords

This chapter argues that financial accounting has been frequently mischaracterized as a field of different national practices which have become increasingly and rapidly international in recent years. Rather, accounting norms have evolved over centuries in trans-regional commercial spaces between states, and are more loosely coupled to national ‘cultures’ than is commonly imagined. It is suggested that the rise of so-called ‘national’ level accounting standard setters in the late 20th century marks the origin of self-validating and increasingly autonomous ‘global accounting actors’ of which the International Accounting Standards Board (IASB) is only one example. Its emergence is largely mis-described as the result of a conflict between ‘national’ and ‘international’ standards, and is better understood as the outcome of a distinctive accounting sub-politics involving small numbers of policy actors operating within and constituting an ‘accounting culture’ which has always been more global than national in character.

Keywords:   accounting culture, financial accounting, financialization, IASB, nationhood, transnational actors

The analysis of accounting difference and specificity has been a guiding theme for Anthony Hopwood's many contributions to accounting scholarship, providing an influential counterpoint to pedagogic representations of accounting as a technical craft of little cultural significance. In the field of financial accounting and reporting, these insights and sensitivities have informed key debates about the changing nature of national and international accounting regulatory systems. Hopwood's subtle and sensitive understanding of the complex position and legitimacy of standard setters, and of the role of law, professional associations and interest groups in shaping accounting policy, has stimulated and inspired explorations of the politics and cultures of financial reporting (Bromwich and Hopwood 1983; Hopwood 1988a, 1988b, 1989, 1994, 1997, 2000).

Underlying this body of work is a scepticism about the prospects of accounting convergence programmes aimed at eliminating the ‘constraints’ of the local, and comparative analysis of cross‐national differences reveals the culturally and institutionally embedded factors which are likely to restrict convergence (e.g. Puxty et al. 1987). And yet, this critical framing of a comparative financial accounting research agenda shares an epistemic commitment with the policy domain which is its target, namely that national financial accounting systems are the primary analytical units and starting points for comparative accounting research. Hopwood is acutely aware of these epistemic commitments rooted in simplistic notions of national difference. He calls for studies which might better explain the rapidity of the apparent internationalization of accounting in recent years (Hopwood 2000: 764), a fact which challenges ‘critical orthodoxies’ of accounting diversity and embeddedness.

(p.325) The rapidity of accounting internationalization becomes less puzzling if we reflect on a remarkable but considerably under‐remarked fact, namely the overwhelming similarity between financial accounting statements produced in different national jurisdictions over many decades. Moreover, if we look closely at the surface level of the structure and form of financial statements it can be argued that there is much more similarity than difference. Indeed, this must be the case for philosophical reasons: Comparative studies of financial accounting only make sense because of a more fundamental resemblance, a resemblance which is the condition of possibility for the meaningful exploration of difference. Yet, for all the reasons Hopwood has suggested about the restricted nature of financial accounting research agendas, the sources and implications of that financial accounting similarity have remained relatively unexplored, until recently.

The provocation of this chapter is a simple one: The key conceptual structures of financial accounting (income, expenses, assets, and liabilities) circulated, evolved, and became more highly rationalized at a non‐state and transnational level before they were ever an object of explicit ‘national’ interest. These key features give financial accounting statements in different jurisdictions their ‘family resemblance’ and may even be one of the major global accomplishments of the modern period grounded on centuries of diffusion, adaptation, and mobilization as part of empire building and commercial expansion. Indeed, it is this process of development at the non‐nation state level which has enabled and conditioned both the increased formal codification of accounting norms by states and recent discussions about sources of national variation. In short, before formal and explicit standardization institutions for accounting took shape from the mid‐twentieth century onwards, the key elements of financial accounting had been established as part of a practical and universalistic commercial culture (Meyer 1997; Arnold 2009).

The idea is an unsettling one. It demands that we cannot presume that financial accounting was ever a distinctively national affair and that we must rethink the very conception of the ‘internationalization’ of financial accounting. It also suggests that some of the most cherished and high profile debates in the history of accounting policy, for example about the merits of flow‐through or partial provision methods for deferred taxation or about the conditions for capitalizing research and development expenditure, are for all their cultural and national variability to be regarded as skirmishes within a story of staggeringly successful global diffusion. In short, we need to redefine the starting point, not only for the political economy of financial accounting policy (see Arnold 2009; Djelic and Sahlin 2009), but also for understanding the development of financial accounting practice.

(p.326) The arguments which develop these ideas are organized as follows. The first section draws on work in comparative law to suggest how the history of financial accounting might be plausibly conceptualized as a form of Lex Mercatoria, that is as norms of exchange formed at the level of trans‐regional commercial practices. Second, it will be argued that financial accounting may be more loosely coupled to national ‘culture’ than is commonly imagined, and that the rise of so‐called ‘national’ level accounting standard setters in the late twentieth century in fact marks the origin of self‐validating, and increasingly autonomous, ‘global actors’. Third, it will be suggested that the emergence of the International Accounting Standards Board (IASB), and its history of competition with other standard setting bodies, is largely mis‐described as a conflict between ‘national’ and ‘international’ standards. It may be more fruitful to regard such conflicts and settlements as the consequence of a distinctive sub‐politics involving small numbers of policy actors operating within, and constituting, a ‘globalised accounting culture’ characterized by competition over issue‐based expertise, rather than national interest.

These three sections suggest that contemporary financial accounting policy making is not so much juxtaposed to local or cultural norms. It is, in a sense which deserves more research attention, its own evolving culture and locality, a regulatory field in the sense understood by institutional theorists which has progressively rationalized and self‐embedded in its own norms. This is a process of self‐validation for which, as Bromwich and Hopwood (1983) noted many years ago, conceptual framework projects play a fundamental role in supplying the potential conditions of communicative closure of a global accounting system. Finally, the chapter draws together these arguments, which are necessarily preliminary, to suggest a possible research programme for financial accounting informed by a new understanding of the nature of accounting embeddedness, and by a political economy less focused on the minor ‘constraints’ of national context and more sensitive to the dynamics of specific financial accounting norms in a system which exhibits considerable durability.

Financial Accounting as ‘Global Law’

According to Guenther Teubner, a leading European legal scholar, comparative legal research has tended to be fixated on the nation state, an emphasis which leads to inflated cultural and relativist claims. He suggests that this emphasis should be supplanted by analyses more sensitive to the cross‐national interrelations between specialized and autonomous legal sub‐systems (p.327) (Teubner 1997). Such a proposed focus on discourses, and the internal dynamics of self‐reproducing world systems in Wallerstein's sense (2004), suggests a contrast between nationally based politics which is weakly transnational, and other social sub‐systems, like law and financial accounting, which have forged cross‐border and global knowledge and policy networks, via carriers such as the large accounting firms (Cooper et al. 1998). According to Teubner, the true source of global law is not the projection of indigenous norms onto the global level, since nation states are themselves constructs in a world system, but rather the development of a ‘proto law of specialized, organizational and functional networks which are forming a global, but sharply limited identity.’ From this point of view, conflict and competition must be understood in generic terms as an inter‐systemic dynamic between different sources of authority, rather than between ‘international’ and ‘national’ sources of standards. For Teubner, global law is not to be confused with ‘international’ law, which is a legal order in its own right.

The argument is illustrated by appeal to the idea of Lex Mercatoria as a strand of commercial law which has evolved outside and beyond states, notwithstanding varied national attempts at codification (Mertens 1997). This claim is controversial for legal scholars, not least because of the question as to whether Lex Mercatoria, as a set of global norms evolving beyond the nation state, is ‘really’ law. Whatever the answer to this question, the implications for financial accounting analysis are challenging. The case of Lex Mercatoria as described by Teubner and others suggests that formal rules, such as accounting standards, should be understood as the product of cumulative transnational processes of financial accounting communication, in which categories, norms and forms of representation are stabilized at the level of practice, and form the building blocks for specific acts of expansion and codification. This picture of the growth of accounting normativity ‘from below’, which reaches back to ancient times (Goody 1986), is hardly surprising and is consistent with broader analyses of the emergence of norms of coordination (Hechter 2008; Lounsbury 2008). However, as a more historically and epistemically sensitive starting point for thinking about financial accounting, it suggests that we must presume a much looser relationship between financial accounting and the state than may have been imagined hitherto.

Of course, we know that states draw on accounting technologies for their neoliberal regulatory properties (Miller 1990) and that professional accounting associations have, at various junctures in their development, depended closely on bargains with the state (Cooper et al. 1994). We also know that states have also appropriated financial accounting elements for the essential purposes of revenue collection, and for the design of norms of creditor (p.328) protection. And it is abundantly clear that accounting and accountants have been, and are, implicated in projects of commercial and political imperialism (Carnegie and Parker 1999; Annisette and Neu 2004). Yet, in all these cases, are not the agencies of state drawing upon, and adapting, concepts, principles and technical norms which have their origins in cross‐border mercantile patterns of trade and exchange at the very margins of national institutions and associated cultures (Hopwood 2000)? From this point of view, the specificities of recent norm adoption, translation, and export by states remains a most interesting research focus, but must now be recast as a feature of a larger and highly rationalized world accounting system.

This argument cannot be conclusive but is offered as an important and suggestive corrective for comparative accounting research, which might usefully redirect its attention away from the apparently contingent cultural environment of national accounting rule production systems towards an understanding that these systems are highly differentiated and evolving social sub‐systems, or organizational fields, in their own right (Arnold 2009). Teubner's analysis (1997) suggests that ‘national’ systems of accounting norms are misidentified as discrete and autonomous units because they are already connected to each other, both in historical development and in the dynamics of the contemporary regulatory field. In turn, this means that we must rethink the casual juxtaposition of international accounting and national culture.

Accounting Standards and National Culture

A quick look at the tangled history of relations between Germany and France immediately problematizes the ‘national’ nature of German and French accounting: elements of a commercial code exported by Napoleon, and adapted and reimported into France during the Second World War, suggest that ‘national’ financial accounting is a regional hybrid of elements, not an autonomous independent variable (Standish 1990). More generally, financial accounting as a system of evolving communicative elements is much less constrained in form and content than appeals to institutions and culture suggest (Hopwood 2000: 766). Accordingly, accounts of the history of the emergence and diffusion of financial accounting elements as a sub‐system of ‘world society’ need to be sensitive to the contingent effects of patterns of trade, wars, and colonial influences (Hopwood 2000: 764), while also attending to the dynamics of the wider global economic system, in which the early (p.329) industrializers play a leading role (Foreman‐Peck 1995; Arnold 2009). The material and institutional conditions under which financial accounting becomes a stake in specific preoccupations of nation states (e.g. the depression of the 1930s and the formation of the SEC) are undoubtedly varied, but the imagery should be more that of the mobilization of highly rationalized elements for specific programmatic needs, and less that of the creation of a national form of accounting.

Strangely, the concern with the cultural and institutional embeddedness of financial accounting norms is not replicated in the auditing field, despite the fact that auditing practice by accountancy firms in the nineteenth and twentieth centuries has been the main source of expansion of practical financial accounting norms. These firms have been critical carriers and standardizers via guidance and implementation of ‘best practice’. But in contrast to financial accounting, auditing methods have been successfully articulated as state‐independent, technically neutral norms of procedure which are widely diffused by world level organizations like International Federation of Accountants (IFAC) (Mennicken 2008; Humphrey and Loft 2009). However, this close historical link between the communicative discourses of audit and financial accounting, and the norms of auditability which they share, has recently been weakened and challenged by a distinctive development within what Arnold (2009) and others call the financialization of the international economic system, to be discussed further below.

The close relationship between financial accounting and auditing practice suggests that the contours of a political economy of financial accounting are not primarily to be found in an opposition between the forces of international accounting standardization and national institutional and cultural constraints. Rather, they are to be found in the strategic moves of actors within an increasingly specialized global sub‐system of accounting regulators, accounting firms, and world level organizations who are tightly coupled to each other in both competitive and cooperative ways (Djelic and Sahlin 2009). Regulatory tolerance for accounting difference in the past (e.g. ‘mutual recognition’ strategies at the European level) suggests the durability of highly specific forms of resistance within a small network of accounting policy bureaucrats, more than the intractability of something as grandiose as ‘national culture’. Politics and conflict of a certain kind reflect the complex interplay between bodies such as IASB, the Financial Accounting Standards Board (FASB), The International Organization of Securities Commissions (IOSCO), and many others, as well as ‘global national’ actors like the US Securities and Exchange Commission (SEC) (Botzem and Quack 2006). Not only is ‘international’ accounting more parochial and issue‐specific than is apparent from surface claims to universality, but ‘national’ accounting (p.330) systems have also emerged more as recent constructs of a transnational system of financial accounting elements with a long history.

Given the contemporary process of global accounting convergence, it is useful for researchers to remember that financial accounting norm production has always been a communicative system at an inter‐state level. The analytical problem is to understand and explain the internal transfers and conflicts within this system (Teubner 1997) without presuming that indigenous cultural factors are the principal axis of resistance. Such an agenda takes the study of financial accounting norm production and use much closer to the field of international political economy and international relations than hitherto, and it would be fair to say that this work has already begun (e.g. Perry and Nölke 2006). However, there are still a number of issues to digest before this agenda can acquire momentum, not least the question of labels and categories. Methodologically, we should be cautious of taking the categories of ‘International’ or ‘British’ as helpful starting points in accounting research. Indeed, while the confusion of the ‘Anglo‐American’ label in accounting studies is well recognized, the source of the muddle is less well articulated.

There are many examples of research papers and volumes dealing with ‘Accounting in X’, where X is usually the country of the authors. This body of work reinforces the idea that the nation state is the appropriate starting point for analysing the trajectory of accounting norms. But, to take an arbitrary example, the ‘Finnishness’ of Finnish accounting, or the ‘Britishness’ of British Accounting are largely myths referring, at best, to minor features of accounting difference which become big stakes for some actors. In addition, the very notion of the state and its institutions is also highly stylised and needs to be understood as hybrid of standardized units (Meyer 1997; Meyer et al. 1997; Wallerstein 2004). The point is even more obvious if we consider accounting at the periphery of the developed world economies.

Teubner suggests that global law of the kind represented by Lex Mercatoria has an ‘underdeveloped centre’ and a highly developed periphery, and it is the latter which provides an important and useful methodological counterpoint to assumptions about national embeddedness. For example, in developing and transitional economies, we are much more likely to avoid the temptation to begin with a coherent view of the nation state and to presume that financial accounting was ever national or indigenous before it was affected by international trade, foreign aid, large consulting firms, and banks. Imperialism trumps culture as an explanation of accounting change—obviously true in the case of Australia and other former British colonies (Carnegie and Parker 1999). There will be exceptions of course, but it is unlikely that Icelandic or Zimbabwean financial accounting, for example, can be sensibly analysed as (p.331) national and sui generis norms. They are more likely to be counterpoised to aboriginal culture (Annisette and Neu 2004). And as Meyer et al. (1997) have noted, the periphery is a more enthusiastic and frictionless adopter of formal systems than the core, something we observe in the history of the International Accounting Standards Committee (IASC)/IASB as states in transition have readily sought to align themselves with ‘modern’ and international accounting (Camfferman and Zeff 2007). In these settings, formalizations of the elements of financial accounting go hand in hand with state building and modernization processes. And the case of the IASB, to be discussed further below, is a perfect illustration of Teubner's (1997: 12) thesis that a new regulatory centre can emerge from key alliances with the periphery.

Even where the institutions of nationhood are well developed in many other respects, there is good reason to presume that a distinctively embedded national financial accounting system does not exist. As a system of communication, financial accounting is not uniquely connected to the totality of the social field but only to diverse fragments of it with often highly selective and contingent bonds. The lesson for the comparative accounting researcher are clear; she must proceed on a norm by norm basis to explore the nature and extent of pressures for change for there is no general cultural embeddedness of the system as such. Understood as a sub‐system which tends to close itself operationally and positivistically, financial accounting is problematically coupled to cultural variables (Teubner 1997). Indeed, such variables are an explanatory last resort, not a place to begin. Before we can begin to articulate for example, the ‘Britishness’ of British accounting, we need to understand the history and institutional shape of a changing structural coupling between world level financial accounting elements and the preoccupations of state agencies. National cultural elements cross‐cut such systems, if at all, in highly particularistic, and possibly minor, ways. Further, we may say that it is the dynamic of world‐level accounting norms ‘without a state’ which has been a necessary condition for the creation of nationally specific centres of norm codification. While the creation of the UK Accounting Standards Committee was a response to very specific issues and events by the profession, it also contributed to the very idea of British financial accounting as a thinkable object of policy discourse (Hopwood 2000).

The discussion so far only addresses the development of financial accounting rules and standard setting institutions, not the complex markets for the interpretation and implementation of rules. As studies in the problematic convergence of production regimes (Hall and Soskice 2001) and quality assurance programmes (Casper and Hancke 1999) have shown, at the level of implementation and enforcement institutional difference undoubtedly (p.332) persists and cultural and institutional variables have strong explanatory potential (Vogel 1986). Yet, as important as these sensitivities to locales of implementation are, there remains a fundamental, quasi‐philosophical question: ‘What is the same thing which is interpreted and implemented differently?’ And this question directs us to a difficulty in recent approaches to the internationalization of accounting which emphasize institutions. While such studies rightly emphasize the variety of transnational actors competing for precedence, they may pay insufficient attention to the way in which minor accounting issues become big stakes. The problematization of accounting differences by different policy makers is also a magnification of their significance relative to a massive background consensus and family resemblance.

In conclusion, we are now in a position to offer a preliminary explanation of the rapidity of the internationalization of accounting identified by Hopwood (2000) and explained by Arnold in terms of financialization. Put very simply, the problem is perhaps a false one because the cultural embeddedness of accounting has been overstated. The internationalization of financial accounting, in the broad sense of the widespread diffusion of common norms for representing financial performance and position, has not in fact been recent. And the rapidity is somewhat illusory because the IASB has been overstated as the pre‐eminent global accounting actor.

Accounting without a State

The IASB, and its predecessor the IASC, has become an object of research fascination because of its highly successful project of self‐legitimation over the course of three decades (Tamm Hallstroem 2004; Camfferman and Zeff 2007). This is a feature that it shares with the rise of many other non‐governmental, not‐state organizations at the world level, making the IASB a distinctive case study and exemplar for scholars in political science and international relations. Indeed, transnational governance is coming to be defined as the network of relations and memberships which define and span a global polity more confident of its authority to act and populated by technical experts. For many observers (e.g. Botzem and Quack 2006) the rise of the IASB, and it progressive disentanglement from its founding sponsors, shows how accounting regulation has shifted away from the nation state level, and from its dependence on professional accounting institutes, to regional and global levels, and how consensus building and national representation has given way to world‐level ideas of due process.

(p.333) The necessary, if not sufficient, conditions of possibility for the institutionalization of a body claiming to represent ‘international’ accounting were always inherent in the elements of financial accounting practice. In addition, the creation of the IASC as a new actor in the early 1970s simultaneously constructed a centre of opposition to ‘national’ accounting systems, an opposition which informed the early rhetoric of competition between IASC and standard setters such as the Financial Accounting Standards Board (FASB) in the United States. To understand this competition, it may be methodologically more helpful to regard all standard setting organizations as emergent generalized actors in a world system of accounting elements which has been under construction for centuries rather than decades, and which compete for priority and authority despite, and because of, the striking lack of substantive differences in the content of the rules and norms they promote. From this point of view the FASB should not even be categorized as ‘American’ or Anglo‐American, although an institutionalized memory stretching back to the great crash has shaped its agenda, but as a significant element of a world system in which there has emerged a standardized model of what it is to be a proper accounting regulatory body. The creation of such bodies by France and Germany in the late 1990s reflects the perceived need to create recognizable ‘due process’ actors in the world accounting system (e.g. Volmer et al. 2007). Once created these bodies begin to have their own momentum and reference points. Axes of dispute and blame attribution are constructed in this world accounting game, such as the principles‐rules debate. The surfacing of explicitly national interests, such as the French political interventions around International Accounting Standard 39, is relatively rare, although at the time of writing the IASB and FASB are under significant pressure from leading regulatory bodies to suspend or modify fair value accounting for the sake of global financial stability.

Accounting standards setters as generalized actors at the world level lend themselves to analysis as ‘discourse coalitions’ (Singer 1990) in broader fields (Arnold 2009). Rather than being ambassadors of national interest, the identity of members of standard setting bodies is increasingly determined by shared general beliefs and ideas about accounting and the definition of an accounting issue—a ‘logic of appropriateness’ as Young (1994) has described it. Such belief systems may still leave policy outcomes underdetermined (Singer 1990: 437), but in aggregate the policy field consists of individuals who share a belief system and display a non‐trivial degree of coordinated activity over time (Singer 1990: 440). At the heart of these belief systems are the core normative elements of financial accounting around which differences of opinion may be constructed. There is a background of shared beliefs which is very great relative to the problematization of specific issues. This helps to (p.334) dispel Botzem and Quack's puzzle (2006) about the stability of financial accounting despite the recent big debates; the debates are simply not that big relative to the background consensus.

From this point of view, conceptual frameworks for financial accounting have been under construction for centuries, only recently becoming formally codified, debated, and disputed. As Bromwich and Hopwood (1983) note, conceptual frameworks and due process provide a basis for the self‐validating authority of accounting and a barrier to sectional efforts at influence. Since the early 1970s, the FASB conceptual framework and its successors have created a body of formalized norms which contrast with more pragmatic images of accounting as a set of ‘lobbied’ rules. Lobbying exists of course, but it may well become increasingly cost ineffective and voiceless without a defined institutional pathway. The recent commitment of IASB to a conceptual framework marks the creation of a kind of global law which, together with new structural and financial independencies, announces the arrival of an autonomous and confident world actor which is less responsive to sectional interests than its predecessors and more explicitly committed to its own ideas of ‘good accounting’. Real users do not play much of a role in this unfolding conceptual logic of financial reporting. As Young (2006) shows, the analysis of the debate about user relevance, which reaches back to the 1930s, suggests that the ‘user’ has been constructed as a near mythical point of reference for actors in the financial accounting field in search of a specific kind of capital market relevance.

Arnold (2009) suggests that ‘a fundamental reorientation is needed in international accounting research, away from globalization, and toward a focus on…how accounting has been shaped by the financialization of the world‐state at the end of the 20th century’. This is important. The long history of financial accounting elements suggests how they have represented norms of financialization rooted in values of stewardship and propriety until the ideas of use value and relevance for investors came to prominence from the 1930s onwards. Indeed, it would be fair to say that the logic of financial reporting has been historically legalistic in form, creating an inherently problematic relation between accounting and capital markets. Over time accounting policy makers have found a new logic of market relevance for financial reporting in the methods and ideas of financial economics. This financialization of financial reporting developed over many years, beginning slowly with the introduction of discounting methods into specific accounting valuation issues, for example, leasing and pensions, to become a potentially dominant accounting and organizing discourse.

Recent debates about the expansion of mark to market and fair value measurement methods suggest an important axis of change within the (p.335) world‐level system of financial accounting, a change in logic from legalization to financialization which, as Arnold rightly notes, is misdescribed in terms of ‘rapidity of internationalization’. While the variable relationship between accounting and economics has been discussed in different national settings,1 the rise of fair value suggests a new and distinctive episode in this relationship—what might be described as the ‘financialization of the accounting standard setting process’. An important factor in this process is the increasing validation of elements of financial economics both generally (Whitley 1986) and within key areas of accounting academia (Hopwood 2008), coupled to a decline of accounting pragmatism. Relatedly, the study of financial accounting has come to be defined by leading academics and journals in North America and elsewhere as a sub‐branch of economics. This configuration of the academic terrain is not decoupled from the practical domain, although the relationship is a complex one (Hopwood 1988a). Despite doubt and resistance from many quarters about the practical effects of fair value accounting on the functioning of capital requirements and on the contracting process, the fair value programme had considerable momentum until the events of autumn 2008.

While many commentators on the unintended consequences of fair value accounting rightly debate its effects on capital adequacy and pension regimes, another important feature is much less discussed. If accounting is generally a cultural symbol of modernity (Hopwood 2000: 763), fair value accounting is specifically a symbol of financial market relevance and significance, something which accounting policy makers have sought for many years. In this respect, financial accounting has had a somewhat ambivalent position within the neoliberal consensus of the last twenty years. On the one hand it is central to the legitimization of neoliberal modes of discipline and governance for public and private entities (Harvey 2007). On the other hand, it has been in an almost constant state of reform and fair value measurement norms, as articulated by their proponents, represent a new and distinctive chapter in the aspiration for a market relevant accounting policy process. This process evolved from the debates about derivative accounting in the 1990s and new actors knowledgeable in financial economics were enrolled in policy and gave a distinctive flavour to ideas of ‘good’ accounting. Until the financial crisis of late 2008, this process seemed to be immune from the clamour of protest which surrounded it.

In conclusion, the expansion of fair value accounting suggests an intriguing hypothesis, namely that the articulation of fair value measurement norms has played a central role in defining a professional identity for standard setters (p.336) close to the heart of the neoliberal project, contributing to the ‘professionalization’ of accounting standard setters as a phenomenon distinct from that of the accountants in the accounting profession. Such a hypothesis could explain the apparent decreased responsiveness of IASB to lobbying, at least until late 2008. Fair value accounting positions accounting standards setters as modernizers and as legitimate agents in a system of world neoliberal governance, a global governance club. They are less sensitive to specific private interests, and more engaged with associations and other ‘organizations which organize’ (e.g. G4 + 1; IOSCO; Ahrne and Brunsson 2006).

Conclusions and Implications for Research

The arguments above suggest a potentially fruitful shift in the focus of financial accounting research and a change in the framing of comparativist agendas of analysis. This change is already happening as non‐accounting scholars take an interest in accounting as an institutional field (Botzem and Quack 2006; Jang 2006; Perry and Nölke 2006). Yet even these scholars often unconsciously assume a developmental dynamic from the national to the international level, and this body of work tends to lack close attention to the way that a variety of actual accounting norms and problems are vehicles for this dynamic. For example, it is likely that the problematization of accounting for derivative financial instruments in the mid‐1980s created a gateway for a distinctive financialization of financial accounting policy‐making, culminating in the expanded significance of fair value measurement.

The core argument of this chapter is that financial accounting has been, in a number of non‐trivial respects, a highly rationalized practice at the world level before ‘international accounting’ and problems of diversity became an explicit research and policy theme. Financial accounting norms have emerged as a form of transnational Lex Mercatoria, a distinctive pre‐standardization of accounting practice which makes possible contemporary debates. Deep and fundamental similarities across jurisdictions mean that small surface differences are magnified by political processes at the world level. This conception of the space of financial accounting change and development has two potential implications for research.

First, more attention needs to be given to the sources of normativity which make explicit standardization projects possible. This means that the surface features and variety of the standard setting process may be less interesting than the systemic processes which support standard setting. As Loya and Boli (1999) put it, ‘varied facades attract much more attention, but underneath (p.337) they are hardly distinguishable.’ Rather than being normatively concerned by, for example, how to translate Italian financial reporting into, say, UK GAAP or to study the implementation of the 4th European Directive in ‘country X’, researchers need to explore how and why accounting in different places ever looked similar in the first place. This would require attention to the processes of institutional transfer and diffusion which must have taken place in order for the problem of differences in financial accounting systems to be thinkable at the policy level. Accordingly, ‘international accounting’ can no longer be discussed as if it were a self‐evident category, but only in terms of the dynamics by which the globalized norms of accounting do and do not crystallize as preoccupations of states. The very notion of national difference with which many researchers operate is itself an emergent product of other forces, such as the role of European Directives in advancing broader ideas of European identity (Bromwich and Hopwood 1983). Similarly, the very idea of a national accounting system of rules is a product of communicative strategies within a global system of financial accounting elements, a system in which multinational organizations in general (Robe 1997) and the large firms in particular (Cooper and Robson 2006) play a critical role.

Second, it could be useful to build on analyses of the problematic accountability of bodies like IASB (Kerwer 2008) in order to develop the idea of financial accounting as a system of communicative elements which is increasingly self‐referential. From this point of view, conceptual framework projects and fair value accounting suggest a distinctive vector of closure as financial accounting is framed with the tools of financial economics. Rather than seeing this as a story of functional progress towards better accounting, it could be fruitful to conceptualize fair value as a resource for standard setters engaged in a distinctive process of professionalization and construction as world actors. Such actors both depoliticize financial accounting and are emblematic of a larger political economy of transnational regulation. Interestingly, as I write in late 2008, at just the point when financial accounting has positioned itself closest to market and near market valuation processes, those processes have been largely discredited. The implications of the dependency of fair value accounting on well‐functioning liquid markets have yet to be fully digested.

Finally, the arguments above are entirely consistent with Hopwood's insight (1988b: 215) that there is a ‘complex relationship between specific practices and more generalised notions of their form and functionality, if not a more open admission of the ambiguous coupling of the two’. These generalized notions of financial accounting form have evolved over centuries as a kind of implicit ‘world culture’ of accounting communicative elements, only to become more explicitly juxtaposed to practice by conceptual frameworks in recent reform agendas. As Hopwood (2000: 765) puts it, there is a difference (p.338) ‘between accounting in Britain and the more abstract notions of British accounting’ (emphasis added). So while it is true to say that the conceptual framework project is demanding that accounting become ‘what it is not’, it is also true that this project of reform is only possible and thinkable because of the underlying rationalization of accounting practice. All this means that studies of accounting diversity are not dead—far from it. Rather, we must be mindful of the historical and institutional conditions under which that diversity is constructed and abstracted as an issue for policy makers and scholars alike.


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The author is grateful for the financial support of the Institute of Chartered Accountants in England and Wales.

(1) See the special issue of the European Accounting Review, 1996, 5(3), on this topic.