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“Twisting words”? A study of the construction and reconstruction of reliability in financial reporting standard-setting

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  • Erb, Carsten
  • Pelger, Christoph

Abstract

Qualitative characteristics serve to operationalise the objective of financial reporting and aim at shaping accounting discourses of standard-setters and their constituents. In the recent revision of their conceptual frameworks, the IASB and FASB decided to replace “reliability”, arguably one of the most important properties of accounting, with “representational faithfulness”. The aim of the present paper is to shed light on the boards’ decision through a historical analysis of how reliability appeared in standard-setting and by tracing its abandonment in detail. Our study reveals that the standard-setters’ construction and reconstruction of reliability attempted to undermine traditional practitioner understandings along the lines of objectivity/verifiability in order to extend the boundaries of appropriate financial reporting in the direction of current/fair values. However, as the introduction of more abstract concepts raised difficulties in reconciling the new terminology with everyday accounting practice, this turn created confusion among constituents and board members. Our paper also contributes to further our understanding about decision-making processes in standard-setting. In particular, we show how a group of board and staff members was able to establish the replacement of reliability in spite of (and partly taking advantage of) constituents’ concerns and widespread confusion about the terms.

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  • Erb, Carsten & Pelger, Christoph, 2015. "“Twisting words”? A study of the construction and reconstruction of reliability in financial reporting standard-setting," Accounting, Organizations and Society, Elsevier, vol. 40(C), pages 13-40.
    • Handle: RePEc:eee:aosoci:v:40:y:2015:i:c:p:13-40
    DOI: 10.1016/j.aos.2014.11.001
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    2. Christian Blecher, 2019. "The influence of uncertainty on the standard-setting decision between fair value and historical cost accounting under asymmetric information," Review of Quantitative Finance and Accounting, Springer, vol. 53(1), pages 47-72, July.
    3. Durocher, Sylvain & Georgiou, Omiros, 2022. "Framing accounting for goodwill: Intractable controversies between users and standard setters," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 89(C).
    4. Pantic, B., 2016. "Comparability of financial reports: A literature review of most recent studies," Working Papers 6451, Graduate School of Management, St. Petersburg State University.
    5. Pucci, Richard & Skærbæk, Peter, 2020. "The co-performation of financial economics in accounting standard-setting: A study of the translation of the expected credit loss model in IFRS 9," Accounting, Organizations and Society, Elsevier, vol. 81(C).
    6. Jérémy Eydieux & Stéphanie Tillement & Benoît Journé, 2017. "A pragmatist approach of audit practices : safety demonstration and safety assessment through technical dialogue," Post-Print hal-01558978, HAL.
    7. Mantzari, Elisavet & Georgiou, Omiros, 2019. "Ideological hegemony and consent to IFRS: Insights from practitioners in Greece," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 59(C), pages 70-93.
    8. Stenka, Renata & Jaworska, Sylvia, 2019. "The use of made-up users," Accounting, Organizations and Society, Elsevier, vol. 78(C).
    9. Ugochukwu J. Nwoye & Emma I. Okoye, 2018. "Integrity Trend Assessment of Pre and Post IFRS financial disclosures in Nigeria," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 4(3), pages 177-186, September.
    10. Spears, Taylor C., 2018. "The Price of an Uncertain Promise: Fair Value Accounting and the Shaping of Bank Counterparty Risk Valuation Practices," SocArXiv kcja3, Center for Open Science.
    11. Huikku, Jari & Mouritsen, Jan & Silvola, Hanna, 2017. "Relative reliability and the recognisable firm: Calculating goodwill impairment value," Accounting, Organizations and Society, Elsevier, vol. 56(C), pages 68-83.
    12. Christoph Pelger & Nicole Spieß, 2017. "On the IASB’s construction of legitimacy – the case of the agenda consultation project," Accounting and Business Research, Taylor & Francis Journals, vol. 47(1), pages 64-90, January.
    13. Zhang, Ying & Andrew, Jane, 2022. "Financialisation and the Conceptual Framework: An update," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 88(C).
    14. Roberts, John & Wang, Timothy, 2019. "Faithful representation as an ‘objective mirage’: A Saussurean analysis of accounting and its participation in the financial crisis," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 65(C).
    15. Jérémy Eydieux & Stéphanie Tillement & Benoît Journé, 2020. "A pragmatist approach to audit practices: two cases of technical dialog from nuclear risk governance in France," Post-Print halshs-03721410, HAL.
    16. Kettunen, Jaana, 2017. "Interlingual translation of the International Financial Reporting Standards as institutional work," Accounting, Organizations and Society, Elsevier, vol. 56(C), pages 38-54.
    17. Cascino, Stefano & Clatworthy, Mark A. & Osma, Beatriz Garcia & Gassen, Joachim & Imam, Shahed, 2021. "The usefulness of financial accounting information: evidence from the field," LSE Research Online Documents on Economics 107569, London School of Economics and Political Science, LSE Library.
    18. Christoph Kuhner & Christoph Pelger, 2015. "On the Relationship of Stewardship and Valuation—An Analytical Viewpoint," Abacus, Accounting Foundation, University of Sydney, vol. 51(3), pages 379-411, September.

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