Political Influences in Changes To Setting Australian Accounting Standards

Critical Perspectives on Accounting (2000) 11, 713740
doi:10.1006/cpac.2000.0410
Available online at http://www.idealibrary.com on
POLITICAL INFLUENCES IN CHANGES TO

SETTING AUSTRALIAN ACCOUNTING
STANDARDS
E LLEN K. S TODDART
School of Business, Swinburne University of Technology, John St.
Hawthorn, Victoria, Australia 3122
The process of establishing regulatory arrangements for setting accounting

standards in most Western countries has frequently exposed conflict between
private-sector bodies, professional accounting organisations, and government
bodies, each attempting to dominate the process in order to gain favoured outcomes.
Recent changes by the Australian Federal Government in the structure of setting
accounting standards show a substantial shift in power from the two professional
accounting bodies (ICAA and ASCPA) to the government. The groups who believe
they will gain more influence in the new structure have supported the changes and
there has been little opposition from groups losing power for fear of ending up with
even less. The initial proposal to adopt IASC accounting standards was effectively
discarded in the reforming legislation, showing the governments sensitivity to
corporate reactions and reluctance to relinquish power to an international body.
Although some activities in the period preceding the change can be categorised
within the corporatism and inter-organisational domain conflict models of regulatory
processes, the actions of the government in initiating change do not fit with the role of
dispassionate arbiter in neo-corporatism and the muted reaction of the professional
accounting bodies is inconsistent with predictions of domain defence.
c 2000 Academic Press
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Introduction
The political nature of accounting standards has long been recognised (Zeff, 1972;
Moonitz, 1974; Fogarty, 1992) and there has been continued debate over the role
of government in the domain of setting accounting standards. It has also been
recognised that the lobbying of and actions by standard-setting bodies are part
of a much wider political process. Over these years, the accounting profession
has sought to control the regulatory process, as part of maintaining its authority
within the traditional boundaries of its discipline, but other interested parties and
professions have seen opportunities therein to expand their spheres of influence.
Address for correspondence: E-mail: [email protected]
Received 1 January 1999; revised 13 December 1999; accepted 20 January 2000
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E. K. Stoddart
In particular, governments have found wider benefits by granting, in the name of

consensus, privileged access to the policy-making process to certain interest groups
(Schmitter & Lehmbruck, 1979; Lehmbruck & Schmitter, 1982). Such benefits would
be substantially curtailed for any government that reduced the role of its national
standard-setting body by adopting the standards of the International Accounting
Standards Committee (IASC).
Recent modifications to the structure of setting accounting standards in Australia
provide an opportunity to observe lobbying groups in action at a time when changes
to the standard-setting body and to its scope (particularly in relation to the IASC)
seem likely to result in substantial re-distribution of power among the interested
organisations. To understand the dialectical tensions in and on the domain and
the motives of the participants, it is necessary to look beyond the domain itself
and see the wider context. To draw an analogy, if setting accounting standards
is Hamlet for your average academic accountant (and a focal point for critical
accounting Fogarty (1998, p. 72)), then it is less than Rosencrantz and Guildenstern
to more powerful players such as the government, who are less interested in the
intrinsic value of control than its value in exchange. The lobbying activities of the
participants, particularly the role taken by the government, do not seem to fit neatly
into models of the regulatory process such as corporatism or inter-organisational
domain conflict.
The changes cannot be justified as a logical response to correct perceived defects
in the current system, nor do they appear part of a conscious strategy by the
government to increase its regulatory role, since the current rhetoric extols minimal
intervention. The alterations were constructed mid-1997 at a time when the Liberal
Government1 was concerned it might lose the upcoming election. There was a need
for the party in power to be seen to be doing something positive for the business world,
and something achievable in a fairly short time frame. Other changes in the financial
sector had been received as minimal and the reform of the income tax legislation was
producing little progress. The Treasurer needed a radical proposal to demonstrate
credibility in the new territory of corporate law (acquired in March 1996) and to camouflage appropriation of earlier (Labor) proposals to simplify Corporations Law. The
structure of setting accounting standards provided an opportunity, being a relatively
small, but highly visible, technical area where major participants were dissatisfied
with the current arrangements. Restructuring could be accomplished fairly quickly at
minimal cost and, in such an arcane area, the Government may have expected little
opposition. Whilst the primary motive for initiating change may have been a reflex
reaction to electoral pressures, there were other advantages; increased control over
the domain could be used to reward the faithful and the reforms would serve to put
the imprimatur of the Liberal Government on the appropriation and renaming of the
former (Labor) Governments Corporations Law Simplification Program.
Once the government had decided to change the structure, the most significant
contenders for domination in the new arrangements were, in addition to the
Treasury , the Australian Stock Exchange (ASX), the Australian Institute of Company
Directors (AICD), the Investment and Financial Services Association (IFSA),
institutional investors (investment and superannuation fund managers), and the
professional accounting bodies (ICAA and ASCPA).
Political influences in changes to setting Australian accounting standards
715
The Government proposals2 represented a compromise between the aspirations

of the various lobby groups, commensurate with their political influence, with the
ASX achieving initially a commitment to adopt IAS, the AICD and institutional groups
being accorded a much greater consultative role (but likely to pay more), and the
accounting bodies likely to suffer a major loss of influence (probably out of proportion
to any reduction in cost). The main beneficiary appears to be the Government itself,
as it has increased its control over the domain, without an increase in cost or political
opprobrium, while simultaneously using action in this area to assist its objectives
in other domains. Realisation of the usefulness of influence in this domain and the
privileges to be bestowed may have influenced reduction of the original commitment
to adopt IASC standards to such a low level that the resultant legislation3 does not
specifically refer to the IASC.
The remainder of the paper begins by considering the relevance of several models
of the regulatory processes to recent events in Australia. To provide contextual
grounding, a brief outline is given of the current system of setting accounting
standards, its or the historical origins, and interrelated changes in Corporations
Law. The initial proposals of the Federal Government and amendments in the
ensuing legislation are described before analysing the goals and status of the major
stakeholders, linking the reform to their aims and relative lobbying power. The final
section summarises the arguments put forward and concludes with an observation
on the outcome in the context of an earlier construct of regulatory processes.
Modelling Regulatory Processes

Several models have been proposed in an attempt to place some order on the
multitude of activities involved in the regulatory process and, by the use of structured
analysis, explain why particular arrangements have become dominant or been
changed. Two of the more articulated models are corporatism (Schmitter, 1974)
and inter-organisational conflict within domain (Baysinger, 1984).
The corporatist model, as described by Schmitter in 1974 (p. 86), is not selforganising but is a construct of the state:
a system of interest representations in which constituent units are organised into a limited
number of singular, compulsory, non-competitive, hierarchically ordered and functionally
differentiated categories, recognised or licenced (if not created) by the state and granted
deliberate representational monopoly within their respective categories in exchange for
observing certain controls on the selection of leaders and articulation of demands and
supports.
Schmitters explanation for the emergence and persistence of such arrangements

is essentially based on economic rationalism: mutual benefit to the participants.
The state obtains the professional expertise that can be provided only by singular
hierarchically-ordered, consensually-led representative monopolies (Schmitter,
1977, 27) and in turn the monopolies, the professional associations, benefit from
their exclusive position. This describes well the situation in Australia up to the start
of the 1990s (Walker & Robinson, 1994, 36) but does not explain the increasing
involvement of the government in this decade, culminating in the recent changes
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E. K. Stoddart
disempowering the professional accounting bodies. In a later extension of the

model, neo-corporatism (Schmitter & Lehmbruck, 1979; Lehmbruck & Schmitter,
1982), the state is depicted somewhat in the role of umpire, who, in order to
secure consensus between competing organisations, grants privileged access to
the regulatory process to some of the interested parties. Considered in relation to
the events in this decade, this variation appears to provide a more fitting rationale as
it acknowledges the power of government and its central role in allocating access to
the setting of accounting standards. However, depicting the state as a dispassionate
arbiter striving for consensus fails to recognise the self-interest of the government
and would not explain initiation of change by government, as happened in this case.
Modelling the regulatory processes in terms of conflict between those who lay claim
to a domain, inter-organisational conflict, provides another focus for categorising the
dynamics of regulatory activity. It is to some degree a complementary subset to
corporatism, since it concentrates on the activities of representative monopolies in
managing, defending, or maintaining their domains (Baysinger, 1984). Possession of
a domain enables an organisation to operate in a certain sphere, claim support for
its activities and define proper practices within its realm (Benson, 1975). Challenges
to an organisations domain threaten that organisations authority and limit its
power for exclusiveness, autonomy and dominance (Benson, 1975). Threats to
an organisations domain may stimulate a range of strategies to combat intrusion.
Baysinger (1984) identifies three forms of action: domain management, domain
defence, and domain maintenance.
This topology of actions has provided a useful structure for categorising the
activities of protagonists in the struggles in the 1980s for dominance in the process
for setting Australian accounting standards (Walker & Robinson, 1994). However, the
model does not explicitly incorporate government, as player or umpire, and, since
it is primarily constructed to explain the activities of an established incumbent,it
does not categorise actions in gaining control of new territory, in this case, the
acquisition by Treasury of the regulatory functions previously the responsibility of
another department. Also, in order to explain the curious lack of domain defence or
maintenance by the incumbents, the professional accounting bodies, it is necessary
to look outside the domain.
Both corporatism and inter-organisational conflict are premised on the arguments
of economic rationalism and assume not only that organisations act in their own
self-interest but that they know what is in their best interests. Not all organisations
are teleologically competent. The corporatist model fails to acknowledge that
governments are run by political parties, whose short-term electoral horizons may
not coincide with a longer-term rational view. Whilst the inter-organisational conflict
approach can explain some of the actions of the participants in the last few years,
it does not provide sufficient complexity to address multi-domain interaction, which
may partly explain the inaction of the incumbents over the last two years. It may
also be that models providing insights into how a scheme of regulation operates are
less effective when confronted with paradigmatic change. The complexity of the web
of regulatory arrangements is evident in the history of the present system as well
as in the activities accompanying the development of the new structure for setting
accounting standards.
717
Present System, Its Origins and Current Environment

Accounting standards in Australia, set by the Australian Accounting Standards
Board (AASB), are legally enforceable through the Corporations Law. This Law
technically applies only to companies but is extended through its application to
dealings in securities to cover a limited number of other entities, such as unit trusts
that are traded on the Australian Stock Exchange (ASX). The second stream of
standards, Australian Accounting Standards (AASs), is primarily the responsibility of
the Public Sector Accounting Standards Board (PSASB), and covers public sector
and non-corporate reporting entities. The AASs are issued by the two professional
accounting bodies, the Institute of Chartered Accountants in Australia (ICAA) and
the Australian Society of Certified Practising Accountants (ASCPA), and both bodies
require their members to comply with both sets. Issues related to due process are
not considered here, since the process is unlikely to be affected by the changes.
Current Structure
The Australian Accounting Standards Board (AASB) was established by the
Australian Securities Commission Act 1989 and began operation in 1991. All
members are part time and appointed by the Treasurer (prior to March 1996, by
the Attorney-General) from nominations made by various groups, including the
ICAA, ASCPA, AAANZ, ASX, and Business Council of Australia. Although the
precise number of members is not specified in the legislation, membership has been
around 810 for the last few years.4 A simple majority is required to approve a
standard. The Board meets, usually for 2 days, about six times a year. The meetings
are attended by several observers, representing groups who have an official interest
in the outcomes, currently the Australian Securities and Investment Commission
(ASIC, formerly the Australian Securities Commission), the Business Law Division
of the Treasury, and the New Zealand equivalent of the AASB. Since October 1999,
the meetings have been open to the public.
The Public Sector Accounting Standards Board (PSASB) was established in 1983
by the two professional accounting bodies, to develop accounting standards for public
sector (government) reporting entities (Henderson & Peirson, 1998, 8). Members
are appointed by the ICAA and ASCPA and represent a range of Federal, State,
and local government interests. In recent years the work and pronouncements of the
PSASB have been closely co-ordinated with the AASB, to the extent that the Boards
frequently sit as a joint body.
The technical, secretarial, and administrative support for both the AASB and the
PSASB is provided by the Australian Accounting Research Foundation (AARF),
created by the two professional accounting bodies in 1966.5 AARF also supports the
Urgent Issues Group (UIG, created 1995), the Auditing Standards Board (AuSB),
and the Legislative Review Board (LRB), being other Boards established by
the professional bodies. All Chairmen are members of the Foundation Board of
Management (FBM), that oversees the operation of the various Boards, and is itself
directed by the Joint Standing Committee of the ICAA and ASCPA. The technical staff
is not attached exclusively to any board but tends to be allocated into accounting,
718
E. K. Stoddart
auditing, or legislation review. A diagram of the structure in 1999 is provided in

Appendix 2.
Funding for the operations of the AASB is provided by the ICAA, ASCPA, and
the Federal Government, the major contribution being from the first two. External
funding is received in respect of the PSASB, primarily from the State Governments.
In 1996, the Australian Stock Exchange (ASX) promised to contribute $1 million (over
two years, obtained from a levy on all listed companies) to assist the International
Harmonisation Program.6 The remainder of the financing of AARF is provided
by the ICAA and ASCPA and proceeds from sales and subscriptions. The two
accounting bodies have been the predominant contributors in terms of time, money,
and expertise and in return the structure has provided the bodies with a strong
influence in setting accounting standards.
Origins of Australian Accounting Standard Setting Structure
Statements of accounting standards were first issued in Australia in the early
1970s, jointly by the ASCPA and the ICAA. Initially each body had a separate
committee to develop standards but by 1978 these were amalgamated into the
Accounting Standards Board (AcSB), located within the Australian Accounting
Research Foundation (AARF). All members of both professional bodies were
required to comply with the standards of both Boards, but compliance by companies
(and directors) did not reach a high level, despite qualified audit reports. In the
early 1980s, the bodies decided to seek the support of the Federal Government in
enforcing standards.
In 1984, the Federal Government established its Accounting Standards Review
Board (ASRB) to approve those AAS standards applicable to companies, and
companies were required by law7 to comply with those standards (now prefixed with
ASRB) when preparing financial statements as long as this presented a true and fair
view. The involvement of two boards in setting standards for the private sector was
not efficient and the oversight function of the ASRB was seen by some to be rendered
ineffectual through regulatory capture by the accounting profession (Walker, 1987).
In 1988, the government board, the ASRB, became the sole board, the AcSB of AARF
ceased to function and primary responsibility for developing and maintaining the AAS
series was devolved to the PSASB, effectively widening its scope to include all noncorporate reporting entities. In 1990, the Peirson Report proposed the creation of
one independent standard setting board, incorporating the PSASB, structured and
funded in a manner similar to the Financial Accounting Standards Board (FASB)
of the United States. This was rejected by the Federal (then Labor) Government
and, in conjunction with other reforms to corporate law, the Australian Accounting
Standards Board, the present AASB, was established, replacing the ASRB as from
1991. Concurrent amendments in the new Corporations Law also removed the true
and fair override, as the capacity to use this end as justifying non-observance of
the standards had been abused by numerous companies. AARF continued to supply
technical staff to both the AASB and the PSASB.
The progression, from accounting standards being set solely by professional
accountants to a structure established by the Government, did not result in the AASB
719
being subject to strong direction from the Government in the nature and content of
the standards. Government involvement has been more significant in enforcement,
since a breach of a AASB standard became a breach of the Corporations Law.
Recent Developments in Corporate Law
The existing Corporations Law was created by a rather hurried amalgamation of the
Companies Code, the Securities Industries Act 1980 and the Futures Industry Act
1986, and since it became operative in 1991, there have been frequent amendments
designed to fix various problems. Such ad hoc amendments were seen as superficial
and not addressing the deeper structural and content problems, thus leading to a
climate of opinion supporting major reform.
In 1993, the Labor Government, at the instigation of the Attorney General, Michael
Lavarch, initiated the Corporate Law Simplification Program, based on widespread
consultation with the business community and structured to phase in change in
four steps. The reforms aimed to make Corporations Law easier to understand, so
as to reduce the cost and difficulty of compliance, without diminishing the quality
of information and protection for shareholders and creditors. The First Corporate
Law Simplification Act 1995 was passed in the second half of 1995, became
operative 9 December 1995, and was relatively well received by the business world.
It introduced significant changes to the financial reporting required of companies,
in that it effectively removed the need for small proprietary companies to prepare
and lodge audited financial statements, and substantially reduced that burden for
many large proprietary companies. The two accounting bodies opposed the change
to base reporting requirements on the small/large criteria, claiming the concept of
reporting entity provided a better basis for differentiation. Further amendments in
respect of financial reporting were included in the first draft Second Corporate Law
Simplification (CLS) Bill (issued June 1995), together with some more controversial
proposals: removing par value and facilitating reductions in subscribed capital. The
areas of fundraising (prospectuses), takeovers, and directors duties were to be
addressed in the Third Bill and the balance of major areas in the Fourth Stage.
When the Liberal Government gained office in March 1996, it announced its
support for the Simplification Program. Responsibility for the program was moved
from the Attorney-Generals Department to the Treasury, along with all matters
related to Corporations Law and securities regulation. A revised draft Second
CLS Bill was issued at the end of June 1996, and referred to the Parliamentary
Joint Committee (PJC) on Corporations and Securities for review. That Committee
held several public hearings and published its report on 18 November 1996. It
was expected that the Second CLS Bill would be presented to Parliament before
Christmas and be operative by 1 July 1997.
However, there were no further developments until March 1997, when the Liberal
Government announced its intention to make Simplification part of its new, wider
review, the Corporate Law Economic Reform Program (CLERP). The new program
was described as bringing a commercial focus to the law in order to encourage
business activity. Its designated areas8 included the topics planned for the Third
and Fourth Stages of Simplification but the first topic was new: reform of setting
720
E. K. Stoddart
accounting standards. The Simplification Task Force and its Consultative Group
were disbanded and, in May 1997, the Government announced the appointment of
its Business Regulation Advisory Group (BRAG).
Although the Treasury claimed wide consultation with business in developing the
CLERP proposals,9 the process was not very open. Only brief lists of proposals
were circulated to a limited audience. The role of the BRAG group was to advise,
not develop policy proposals,10 and minutes of their meetings were not available
through the usual channels. There was a perception11 that the Liberal Government
had been reluctant to progress the Second CLS Bill, for fear of giving the Opposition
(the Labor Party) the opportunity to claim credit for the major topics in that Bill and
in the CLERP programme. It needed a new issue to demonstrate its ownership of
the programme, and this was found in the domain of setting accounting standards.
The area was not associated with Labors Simplification Program, could be seen
to belong distinctively to the Liberal Government, and was therefore the topic of
the first of the CLERP papers, published in September 1997. Five CLERP papers
followed closely, with an extremely short period permitted for interested parties to
submit responses to the Treasury. The stated intention was to introduce legislation
on all six CLERP proposals early in 1998,12 so as to be operative as soon as
possible.
On 20 November, 1997, the Government issued its response to the PJC Report
(18 November 1996) and announced that the Second Corporate Law Simplification
Bill would be amended slightly and known as the Company Law Review Bill 1997.
The Bill was introduced into the House of Representatives on 3 December 1997,
passed by the upper house, the Senate, in the last week of June 1998, and
then, with uncommon speed, proclaimed on 29 June, operative on 1 July 1998.
On 2 July, the Corporate Law Economic Reform Bill 1998 (covering accounting
standards, fundraising, takeovers, and directors duties, the first four CLERP topics)
was introduced into the House of Representatives, but it lapsed following the
decision at the end of August 1998 to call an election on 3 October 1998. The
Liberal Government was returned to power with a bare majority (and loss of
control in the Senate), and the bill, virtually unchanged, was re-introduced in
early December 1998, renamed the Corporate Law Economic Reform Program Bill
1998. After passing in the House of Representatives in early June 1999, progress
through the Senate was slowed by opposition to the fundraising and takeover
provisions. The bill was passed in October 1999 and among the many amendments
were those relating to the structure of setting accounting standards. Although the
expected date of commencement was 13 March 2000,13 the changeover process
was already well advanced, the Treasurer having informally appointed the new
oversight body, the Financial Reporting Council, in September before the bill was
passed.
In its final version, the new structure differs little from that originally proposed by
the Treasury in 1997 and it is significant that the basic details were developed in mid1997 when the governing Liberal Party was facing substantial electoral pressure.
721
New Structure
Original Proposals
The nature of the new structure first became public in September 1997 when
the Federal Government released its proposals for significant alterations to the
structure for setting accounting standards in the first of the CLERP papers, entitled
Accounting Standards: Building International Opportunities for Australian Business.
It proposed the two existing boards that set accounting standards, the Australian
Accounting Standards Board (AASB) and the Public Sector Accounting Standards
Board (PSASB), be amalgamated to form a new body, the Australian Accounting
Standards Committee (AASC), and that the standards of the International Accounting
Standards Committee (IASC) should be adopted from 1 January 1999. The AASC
was to be removed from the Australian Accounting Research Foundation (AARF
being seen to be excessively influenced by the professional accounting bodies)
and given a new technical-support secretariat. It would be funded by (and more
representative of) a wider range of contributors, administered by a Financial
Reporting Council (FRC), and required to implement directives from the Treasurer, in
certain nominated areas. A more detailed description of key proposals is presented
in Appendix 1.
The Treasury proposals were accompanied by an Explanatory Memorandum
justifying the declared intentions. The Treasury stated that consultation was an
important part of its programme and requested interested parties to respond by
17 October 1997. However, by this stage, submissions were unlikely to have any
effect, since the accompanying Press Release stated that Treasury had already
consulted with peak bodies. Off the record, Treasury officials admitted that the
major decisions had been made and the probability of approval of any significant
deviation was remote.
Evaluation of Proposals
When the proposals are analysed, substantial deficiencies become apparent, some
so major that it is not possible to defend the proposals as logical or achieving the
stated aims of the Treasury. The following defects and the internal contradictions
were noted by respondents to the original proposals.
inefficiency
unconstitutional transfer of power to foreign body
constitutional limitations on amalgamation of AASB and PSASB
inadequate delineation of articulation between IASC and Australian standards
lack of cost/benefit justification
insufficient identification of sources of funding.
The proposals cannot be justified as providing a logical solution to perceived

deficiencies in the current system of setting accounting standards in Australia. Unlike
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E. K. Stoddart
previous alterations to the structure, the initiation of change was not in response to
an economic crisis or to perceived inaction on the part of the standard setting board.
There have not been systematic corporate collapses in Australia in the last five years
and the output of AASB has been considerable. Criticisms that the standards are
overly legalistic and prescriptive have not been founded on any rigorous analysis or
research and seem to be voiced mainly by those groups that regard most forms of
regulation as an unwarranted interference in their activities. The proposals are not
justifiable on theoretical, pragmatic, or economic grounds.
Subsequent Modification to Original Proposals
The draft legislation released in March 1998 repeated the proposals in CLERP 1
substantially unchanged, except for two items, the first being the name of the
standard setting body (reverting to Board, instead of Committee) and the second
being a very reduced commitment to the adoption of IASC standards. In subsequent
legislation presented to Parliament in July 1998, the Corporate Law Economic
Reform Bill 1998, the mandatory adoption of IASC standards had been downgraded
to a possible, less-specific, recommendation by the Treasurer. The Corporate Law
Economic Reform Program Bill 1998 reiterated the earlier bill but the Senate added
over 100 amendments, including six affecting the accounting standards provisions.
All explicit references to IASC were removed and replaced with more general
references to support for international standards, provided this was in the best
interests of Australian corporations. The Labor opposition succeeded in adding
provisions to restrict the Financial Reporting Council, preventing it from vetoing a
AASB standard or directing the AASB to make a standard. The final legislation did
not provide explicit reference to the sources of funding and was less than specific
in some other areas; for example, it did not state that the Chair is to be a full-time
position. It leaves much to be interpreted in the implementation by Treasury.
Since logic and theory do not appear to be the source for the reforms, explanations
for the initiation of the change and its content must be sought elsewhere. This
reinforces the need to examine the circumstances surrounding the reforms to identify
the stakeholders in the domain and their motives and relative power.
The Lobby Groups: Aims and Influences

Although the reforms will affect eventually a much wider range of groups, many of
these are disorganised and lack a cohesive structure to express their views. The
most significant groups of stakeholders were:
the Treasury and the Treasurer,
the Australian Stock Exchange (ASX),
the Australian Institute of Company Directors (AICD),
the Investment and Financial Services Association (IFSA), institutional investors
(investment and superannuation fund managers), and
723
the professional accounting bodies (ICAA and ASCPA).
Although lobby groups are generally described as those who make representations
to politicians and public servants, it is appropriate in this case to include the Treasury
and the Treasurer on the same basis as other groups, since it is believed that they
are also driven by self-interest. It is not accepted that politicians and their executive
are disinterested players, motivated solely by what they perceive to be in the best
interest of the community, and, in line with the views of Stigler (1971), it is a central
tenet of this paper that the primary reason for the re-shaping of standard setting
related to the needs of the Government, not the electorate.
The Treasury and the Treasurer
The Treasury is a key department in any government and it has been particularly
significant in the Australian context, several Treasurers having later become Prime
Ministers. The Liberal Government on gaining power in March 1996 increased
the powers of the Treasury, adding corporate law and related matters. It became
incumbent on the department and the Treasurer to demonstrate their capacity to
govern this new territory. After just over one year in power, there was little evidence
of this and activity in other more traditional territories had not produced politically
valuable results.14 The area of setting accounting standards was perhaps seen as
offering great potential because it was
not part of the Labor Governments Corporate Law Simplification Program,
little understood by the public at large,
not likely to cost much,
ostensible results could be achieved in a short time frame, and
major stakeholders were dissatisfied with current arrangements.
At the time of devising the proposals, there was growing electoral pressure on
the Liberal Government to be seen to be effective and therefore the Treasury was
strongly motivated to initiate any visible change, especially when that change would
fit well with stated policies urging increased business efficiency and globalisation
and facilitate presentation of the Corporate Law Simplification Program as their
own. Further, reform would advance the personal ambitions of the Treasurer,
Peter Costello, to progress to Prime Minister.15 In addition to a need to introduce
changes per se, the Treasury was not satisfied with current arrangements because
of concern that the professional accounting bodies had too much influence in the
content and direction of standards through AARF.16 There had been annoyance that
AARF staff did not always give an overriding priority to AASB work.17 The primary
reason for the creation of the AASB was to overcome the perceived dominance of its
predecessor, the ASRB, by the two accounting bodies18 but to the Treasury, and to
other stakeholders seeking greater influence, the continuing role of AARF appeared
to have perpetuated the dominant role of the professional accounting bodies.
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E. K. Stoddart
Faced with external pressures to initiate change and internal dissatisfaction within
the domain, the Treasurer, Peter Costello, took the opportunity to establish control
in the new territory, demonstrating the capability of his department and enhancing
his credibility for consideration as a future Prime Minister. The key proposals deliver
substantial benefits to the Treasury with the increase in control enabling a judicious
mix of rewards for stakeholders, the greatest gains going to the most politically
influential groups. The change in funding is unlikely to prove costly to the Government
as they can designate what will be contributed by each group. The amalgamation of
the AASB and PSASB extends the power of the Federal Government, at the expense
of State Governments, and consolidates its financial dominance.
The initial proposal to adopt IASC standards was presented as beneficial to
business and in line with the emphasis in other economic policies on globalisation.
It could also be described as a reward to the Australian Stock Exchange. The
interim diminution represented a response to the strength of the opposition among
respondents to the initial proposals and may be attributable in part to the realisation
that, as noted in several submissions, verbatim adoption of IASC standards would
render rather empty the newly established control over the domain, diminish the
power of patronage in relation to appointments, and make it more difficult to
elicit contributions from the other stakeholders. The ultimate turnaround reflects
the changed position of many of the original protagonists. During 1998, many
large companies began to realise that adoption of IASC standards did not offer
them an increase in permitted accounting methods but would decrease their
discretion, particularly in two significant areas: identifiable intangible assets and
the revaluation of non-current assets. In March 1999, the CEOs of seven leading
Australian companies19 wrote a letter to the Treasurer requesting a halt to the IAS
Harmonization Program until the IASC standards are endorsed by the International
Organisation of Securities Commissions (IOSCO) and the US Securities & Exchange
Commission. These concerns were shared by others (Sharpe, 1999, 72) and
amendments in the final legislation reduced the obligation of the new Board to
assisting the development of international standards (without explicit reference
to IASC) and adopting only when in the best interests of Australian companies
or directed by the Treasurer or FRC. Clearly, the reforms espoused by Treasury
do not emanate from a conceptual or theoretical approach endorsing independent
neutral financial reporting, but represent a source of political patronage. Unless
the government as arbiter in the neo-corporatist model is described as not merely
organizing regulatory arrangements to achieve consensus between competing
groups but as using it as an opportunity to reward its supporters, the neo-corporatist
model is not sufficiently explicatory of these events.
Australian Stock Exchange (ASX)
The second major lobby group is the Australian Stock Exchange, and its motives
for supporting change are examined first, before analysing why it was able to exert
significant influence on the content of the proposals.
The primary reasons for the ASXs initial advocacy of adopting the IASC standards
were the preceived advantage to its business and a reduction in the significance of
725
the AASB. Evidence of this can be seen in the activities and representations of
the ASX. With regard to the first, verbatim adoption of the standards produced by
the IASC to apply to all Australian companies was expected to benefit the ASX,
both encouraging the listing here of foreign companies and reducing incentives for
Australian companies to list on overseas exchanges.20 The ASX has ambitions to
be the primary financial centre in the Pacific Rim21 and facilitating more listings
is central to its strategy. Although foreign companies not carrying on business
in Australia can be listed without producing financial reports in accordance with
Australian standards,22 foreign companies operating in Australia must comply. It is
noted (Chartac, 30 Jan 1998) that Richard Humphrey, ASX chief executive, strongly
lobbied Federal Treasury late last year for the wholesale adoption of international
standards.23 The ASX has been a strong advocate of the re-introduction of the
true and fair override,24 whereby companies may choose not to apply accounting
standards on the grounds this may not present a true and fair view. Although rejected
in Australia, t & f is still part of IASC standards. However, the consequences of
adoption may not have been fully appreciated in 1997 when the IAS standards
were less rigorous. By 1999, new and reissued IAS standards were being less than
favourably received by many of the ASXs largest clients and it was becoming clear
that if Australia were to adopt a standard such as IAS 38 on accounting for intangible
assets, companies such as News Corp would no longer find it advantageous to retain
ASX as its home exchange.
The aim of reducing the role of the AASB could be achieved either by transforming
the Board into a rubber stamp for IASC standards or by increasing the ASX influence.
In recent years, the ASX has felt that its views were insufficiently regarded by
the Board and has disagreed with several AASB standards. This is evident in
several recent changes in the ASX Listing Rules, relating to goodwill disclosures25
and reduced filing requirements for mining exploration companies.26 In attempt
to move Australian standards closer to IASC standards (and increase influence),
the ASX was the primary instigator of the International Harmonisation Program
that began in 1995. The ASX committed itself to providing $1 million over two
years to AARF and the AASB towards funding the programme, the money being
raised by a levy on all listed companies. Since both the accounting bodies were in
process of reducing funding for AARF, this contribution was accepted and resulted in
significant progress, arguably to the detriment of other AASB projects (Miller & Leo,
1997). In December 1997, when the second payment of $250,000 was imminent,
the ASX threatened to halt funding for the international harmonisation project if
the AASB did not copy international standards verbatim.27 The last tranche was
not received until early 1999, and by this time the ASXs reduced commitment
was evident in the infrequency of the meetings of the subcommittee monitoring
progress.
The ASX has always had a strong political affinity with the Liberal Party and its
influence increased when that party gained power in 1996. In seeking to become
the primary financial centre in the region, the ASX cultivated close links with
the Government in order to gain a commercial advantage over the only other
major exchange in Australia, the Sydney Futures Exchange.28 The eagerness
of the ASX to innovate, adopt new technology, and expand fitted well with the
726
E. K. Stoddart
stated aims of the Liberal Government29 and thus its initiatives were favourably
regarded by the Government.30 The ASX was also in the process of demutualising
in order to become a company listed on its own exchange and, evidencing its
influence in government circles, the legislation to achieve this31 was presented to
Parliament in advance of other pending legislation (such as the Second Corporate
Law Simplification Bill). This move could be described as a parallel to the current
Government programme of privatising government instrumentalities.32 Privatisation,
in itself, has led to greater co-operation between the two, as the Government
sought to maximise its returns from floating public sector operations. In return the
ASX has provided some initiatives to assist non-listed companies obtain access to
equity funds. In particular, the ASX has moved to help the Governments stated
aims to assist small to medium size enterprises (SMEs) by attempting to set up
a matching service between such companies needing more capital and those
investors (business angels) who are seeking such prospects.33 Further, the ASX
was seen as representing the views of listed companies, those companies that
control a decisive proportion of the Australian economy and of electoral contributions.
The result of these activities and representations was to establish considerable
rapport between the ASX and the Treasurer, to the extent that the views of ASX
could be expected to be sought by the Treasurer and to be given high priority.
It is not surprising that the proposals provided the ASX with substantial benefits.
It gained an initial commitment to the IASC standards, without having to provide
any guarantee of contributing to funding the new body. When its clients became
dissatisfied with IASC adoption and it appeared this might result in a loss of listings,
the ASX reversed its position and this too was adopted by the Government. Among
the other changes, the amalgamation of the two boards has little impact on the ASX
but the structural change will be welcomed, as will the new secretariat, since both
will reduce the previous power of the professional accounting bodies. There may
be more groups involved in providing Board members in the future but the ASX is
likely to have increased dominance over smaller groups. Its most recent initiative
(November 1999) has been to offer, in lieu of funding, surplus office space in its
Melbourne building as the location for the new AASB and its secretariat and the
Government has accepted this offer.
Australian Institute of Company Directors (AICD)
The third organisation to be considered is the AICD, an organisation formed to
represent the interests of company directors. The reasons for the increased interest
of this group are explained before considering its activities as evidence of its political
influence.
In the area of accounting standards, the aims of the AICD, to protect the position of
company directors and reduce exposure to liability, translate into seeking to reduce
the amount that directors are required to disclose and in increasing their freedom
to present financial statements in any format. The groups interest in the setting of
accounting standards increased markedly in the late 1980s when observance of
the accounting standards became required by Corporations Law. Prior to that, noncompliance by directors, when carrying out their statutory requirement to prepare
727
financial statements, had few repercussions, since even a qualified audit report rarely
affected the financial rating of a company. However when non-compliance became
a breach of Corporations Law and litigation against directors was increasing, the
AICD began to take a much more pro-active role towards the setting of accounting
standards. They were united with the ASX in feeling that the current accounting
standards were overly legalistic and prescriptive34 and that the views of their
members were not receiving appropriate recognition.
In common with the ASX, this group strongly supported the return of the true and
fair override.35 In related areas of financial reporting, they opposed two of the 1996
recommendations of the Parliamentary Joint Committee36 : mandatory inclusion of a
Management Discussion and Analysis (MD&A) in annual reports and disclosure by
name of the remuneration of the top five directors. It is a measure of their influence
that both these recommendations of the PJC were rejected by the Government37
in the Company Law Review Bill 1997. It is a further indication of their power that
the Corporate Law Economic Reform Program Act 1999 introduces a Business
Judgement rule,38 a safe harbour for directors, and not the provision for automatic
disqualification for directors of phoenix companies proposed for the Third Stage of
the Corporate Law Simplification Program.
The influence of this group is partly attributable to the strong alliances that have
always existed between the Liberal Party and the top corporate levels. It is re-inforced
by the AICD support of Government initiatives to guide more investment funds into
the equity capital of small to medium enterprises (SMEs). It is supported by highly
visible, articulate spokespersons such as Professor Bob Baxt39 and Catherine Walter
(not only the Chairman of the new BRAG but also a director of ASX). In addition, the
Liberal Government would be likely to take heed of the views of the AICD since its
members would be most influential in providing funds for the 1998 election campaign.
In examining the proposed changes, the AICD has gained much and lost nothing.
It gains from downgrading the influence of the professional accounting bodies and
restricting the independence of the new Board/Committee. The intended role of
the AASC as subordinate to the FRC is evident in the original choice of name,
as committees are usually seen as lesser bodies than Boards or Councils.40 The
latter make the more important strategic decisions; committees tend to deal with the
detail, the how of implementation, not the what or why. The change from Board to
Committee, for these reasons, was proposed to Treasury in the AICD submission
on 3 June 1997 (the first of two submissions before CLERP 1 was published) and
adopted by Treasury in CLERP1. Although the name was changed back to Board in
the Corporate Law Economic Reform Bill 1997, there was no substantive change in
authority or independence.
The AICD believes membership on the FRC will be sufficient to achieve a significant
effect on the content of accounting standards, without having to provide funding or
a member (able to supply the significant and work commitment expected) for the
AASB. Unsurprisingly, they are well represented on the FRC appointed September
1999. The AICD did not endorse total adoption of the IASC standards41 (possibly
because it realised this would reduce the value of the influence it sought) and would
be well pleased with the subsequent diminution in the commitment.
In summary, it can be seen that were strong financial reasons for the AICD to
728
E. K. Stoddart
be dissatisfied with the status quo, prompting it to lobby as vigorously as it did to

increase its power in the domain. The importance to the Treasury of maintaining
the support of the AICD is reflected in the extent to which the proposed changes
benefit the AICD. Its actions would fit reasonably well with predictions derived from
the inter-organisational domain conflict model.
IFSA and Investment/Superannuation Groups
The fourth group (ranked by influence) to be examined comprises the investment
and superannuation entities, among which the Investment and Financial Services
Association (IFSA, formerly the Australian Investment Managers Association) is
probably the largest single representative body.42 Traditionally, members of this
group have not been deeply concerned about the setting of accounting standards
as insurance and superannuation entities were separately regulated, due to a
carve-out from the financial reporting requirements of Corporations Law. However,
the exemptions were removed in the Company Law Review Act 1998 and
separate legislation, to regulate the area of collective investments (non-corporate
entities previously termed prescribed interests), was progressed concurrently,
the Managed Investments Act 1998. This extends the Corporations Law to cover
managed funds and investments (to be known as registered schemes), combines
the traditional two-tier structure of manager and trustee (into one responsible
person), and prescribes accounting and reporting requirements almost identical
to those for companies.
In addition to this recent increase in interest from a preparers view, the group
is concerned as a user. There has been a substantial increase in funds under
management43 as a result of the Government policy to encourage people to provide
more funds for retirement and decrease reliance on the old-age pension. With this
has come an increase in financial sophistication and in the need to invest globally as
well as attract overseas funds. International accounting standards may be of benefit
to this group. However, its most common aim has been to increase the influence of
members on the content of accounting standards, as some sectors within the group
have strongly disagreed in the past with some provisions in standards. In particular,
the introduction of market value accounting in AASB 1023 Accounting for General
Insurance was challenged in Court in 1992.44
The views of this group are important to the Government, not only because it
represents an area that the Government wishes to promote but also because it
controls substantial funds that could provide equity capital to another sector favoured
by the Government: small to medium size enterprises. An illustration of the high
regard accorded this group by the Government is the prominence of its views in the
Report of the Parliamentary Joint Committee on the draft Second Corporate Law
Simplification Bill (1996).
The primary objective of the Investment and Financial Services Association was to
gain a greater say in the content of accounting standards. In considering the options
as to who should set accounting standards, the Treasury paper rejected the first
two (the accounting profession and the Government) and adopted the third option,
greater stakeholder involvement in setting standards.45 Thus the major aim received
729
explicit recognition in the restructuring. However, if the presence of stakeholders in

the structure is perceived to be nominal and their effect minimal, then the constituents
of IFSA, investment advisers and insurance and superannuation associations, are
likely to become dissatisfied in the future.
Immediate adoption of IAS standards is unlikely to be favoured by this group, as
this would reduce the power they may expect to gain. However, they would benefit
from harmonisation and from adoption of the IAS by major capital markets. The
amalgamation of the PSASB and AASB may produce minor gains from consistency,
at both preparer and analyst levels. The group appeared to be satisfied with the
initial proposals, since none of the associations submitted a response to Treasury46
on CLERP 1. The group has much in common with the AICD and the lower level
of activity can be explained as resulting partly from diversity and lack of strong
organisation and partly from being able to benefit from the AICD campaign. The
nominated representative of IFSA on the new FRC is Mr. Leigh Hall, a prominent
company director.
Accounting Bodies, ASCPA and ICAA

The final significant group to be considered is the accounting profession, as
represented by the two professional accounting bodies, the ASCPA and ICAA. The
interest of this group in controlling the domain of setting accounting standards has
been examined extensively in earlier research, for example, Walker (1987) and
Walker & Robinson (1994). It is assumed that its motives are sufficiently understood
and so obvious as not to need re-iteration. However, what is of greater interest in the
circumstances is why the two bodies were interested in change, why their values had
so little influence, and why the less-than-favourable outcome seems to have been
accepted with so little criticism.
Both the professional accounting bodies have considered for some time that their
contribution to the setting of accounting standards has been excessive. No other
major beneficiary in the private sector had made a direct contribution until the recent
allocation by the ASX of $1M over two years. Both bodies were interested in reducing
funding to AARF, due to internal financial pressures, and representatives met with
the Liberal Government soon after it was elected in March 1996 to discuss alternative
funding arrangements. Significant savings could be achieved solely from combining
the PSASB with the AASB and amalgamating the two series of accounting standards
into one. One of the difficulties faced in earlier attempts by the accounting bodies
to widen the sources of funding was the perception in the business world that the
professional accountants had too great an influence in the setting of accounting
standards (Walker, 1987). Other groups were reluctant to contribute money without
an assured voice in the process and outcomes. In recent years, the AASB has
considered itself independent but this has not been appreciated by the public (who
still regard it as captured) or by the accounting bodies (who felt control was
weakening and resented being blamed for decisions they voted against).
The lack of influence by the profession on the Treasury is illustrated by the
comments made by Ruth Picker, Ernst & Young partner, who attended the public
730
E. K. Stoddart
hearing held in Melbourne, April 1997, by Senator Ian Campbell, Parliamentary

Secretary to the Treasurer:
I was watching to see who the Senator was actually listening to. He appeared to pay more
notice to the business community representatives at the meeting. He didnt seem to be
listening to the representatives from the profession.47
It is ironic that public perception of the influence of the accounting bodies may
have reduced their influence in the negotiations on change with the Treasury. If the
Treasury proposals did not provide a structure visibly diminishing the power of the
accounting bodies, then the business world would see the changes as superficial.
Therefore, despite the long and costly contribution of the accounting bodies to the
process of setting standards, they were likely to be among the least influential of all
the participants in the political environment in 1997.
Examining the reforms to assess the gains and losses to the accounting profession,
it appears that the losses exceed the gains. Widening the sources of funding for
the new standard setting body will reduce the direct costs to the two professional
accounting bodies but the new institutional arrangements will result in a significant
diminution in the current formal and informal powers to influence the content of
standards. Even without adoption of IAS standards, the former powers of the
bodies are substantially reduced by the increased powers of the Treasury and other
stakeholders. The two bodies are credited with one nomination each on the new FRC,
but one appointee is a company director (G. McGregor, BHP Ltd, for the ASCPA).
They are unlikely to receive more than one seat on the AASB (and the latter may be
one of their delegates to the IASC). The percentage funding they will be requested to
provide may exceed their expectations, as the Government seems to regard this as
a situation where the user should pay.48 The amalgamation of the PSASB and the
AASB can be considered a gain, in so far as it accords with earlier recommendations
in the Peirson Report (1990)49 and would benefit the two bodies by reducing costs
on several levels. However, it removes a source of authority within the domain that
was able to be controlled even more closely by the two professional bodies than
the AASB. Similarly, the Urgent Issues Group (UIG), created and controlled by the
bodies, will now taken over by the FRC.
In the long term, the greatest cost might well be the loss of AARF. Over the last
30 years, AARF has established a world-wide reputation for its role in the creation
of rigorous accounting standards, as is even acknowledged in the Treasury paper.50
When the AARF staff related to the AASB, PSASB, and UIG have been relocated
to the core secretariat for the new AASB,51 there will be few left, only a couple
for the AuSB and one for the LRB. Resources will be diminished and the informal
information networks will be severely disrupted. In the last two years, three of the
most senior accounting staff have resigned.52 The accounting bodies have indicated
they will continue to fund AARF (AuSB and LRB)53 but it is likely that more work
will be done independently by each organisation. The accounting bodies gained
greatly from the technical expertise of AARF, as this provided not only a cheaper
alternative than separate arrangements but also more public respect and the greater
strength of a unified voice. The severity of this loss is hard to predict, but it would
seem incontrovertible that it is a loss.54 The ICAA and ASCPA will have less of an
information base to help maintain their influence in the domain in the future and may
731
even have to spend more to employ sufficient technical staff to provide adequate
responses to the new AASB and briefing for their IASC representatives.
The lack of influence of this group in convincing the Government that it should
retain its power in the domain can be explained partly as a reaction to previous perceptions of undue influence but is probably due more to the relative power of other
stakeholders, who were in a position to provide the Treasury with greater support in
other areas and likely to assist the Liberal Government in a more tangible way with
electoral support. What is surprising is the lack of vigour in the defence of its domain.
One factor that may account for the rather lack-lustre campaign is developments
outside the domain. The reason the two accounting bodies did not lobby very strongly
may be that they agreed to accept the diminution as part of a trade-off extending
power in another domain traditionally seen to be within the discipline. Concurrently
with the changes in Corporations Law, proposals were being developed to change
the structure of the registration and regulation of auditors. The proposed changes
would greatly increase the role of the accounting bodies in this area, granting them
the power to self-regulate the audit profession.55 Both the ICAA and ASCPA lobbied
strongly in this area and it may be that the very favourable outcome here came at
the price of losing influence over the setting of accounting standards. This would
help explain why the responses of the accounting bodies have been rather muted
in this area,56 although it is unlikely this will ever be publicly acknowledged. Another
factor influencing the rather propitiatory response to CLERP 1 was probably the
desire to retain what little power was left and not suffer further loss. If these factors
are not taken into account, it is difficult to explain the reaction of the professional
accounting bodies as their actions are not consistent with predictions derived from
the inter-organisational conflict model.
Other Stakeholders?
There are many other groups affected by the changes but in general either they
can be broadly classified with the organisations examined above, or they have not
attempted to take a major part in the conflict over control in this domain. The multitude
of public sector and non-corporate entities appear to have been unaware of the
significance of the loss of the PSASB. Even though the total net cost to many of those
affected (for example, medium sized companies) is likely to exceed the total benefits
to the groups above, the individual impact will be small. Though their numbers are
greater, those disadvantaged are widely dispersed, badly organised, and unlikely to
be able to co-ordinate an effective response.
Conclusions
At the time of writing, legislation enacting the proposals has been passed but the
date of commencement of the Corporate Law Economic Reform Program Act 1999
is uncertain.3 Although debate over the major aspects of the new structure is now
closed, there is much in the fine detail that remains to be negotiated. The recent
activities remain interesting, as providing a more direct window into the political
732
E. K. Stoddart
nature of the process surrounding setting accounting standards, giving a clearer

view of the protagonists and their powers than can be obtained from examining
submissions to standards boards. Analysis of the original proposals to change the
structure of setting accounting standards shows they cannot be justified on a logical
basis or understood in isolation. Both cause and content of the change appear to
result from political pressures and can only be understood by looking beyond the
narrow domain to other forces concurrently affecting the participants.
The Federal Government, especially the Treasury, has been a crucial participant
in the move to reform the setting of accounting standards. The major beneficiary
from the project would appear to be the Treasury (and the Treasurer). The
project provided a device to facilitate the presentation of the Corporate Law
Simplification reforms as initiatives of the Liberal Government, and this appears
to have succeeded in enhancing its credibility in the corporate sphere. The
content of the reforms substantially reduces the previous influence of the
professional accounting bodies and shifts this power to the Treasury, where,
potentially, the setting of accounting standards could be controlled like economic
policy. The Treasurer has demonstrated his control over the new territory by
disempowering the previous incumbents and rewarding those stakeholders whose
support was needed or who have supported other policy measures of the Liberal
Government.
While none of the lobby groups achieved all their goals, most appear to have gained
significantly with the exception of the accounting bodies (and AARF), as the gains
of others within the domain are primarily at their expense. The goals of the ASX
and the AICD have been achieved in the main, reflecting the fact that the Treasury
has received and continues to need substantial support from these groups. This
is particularly evident in the initial commitment to the adoption of IASC Standards
and the subsequent reversal. There are also inherent advantages to the Treasury
from the reversal, as adoption would have substantially weakened its new power
in the domain. The apparent gains of other groups, in access to influencing the
setting of accounting standards, may prove superficial since increased control by
the Treasury may vitiate these gains. The level of dissatisfaction of most participants
is likely to increase in a few years, if it becomes seen that the increased costs are not
accompanied by a commensurate increase in power to affect the setting of standards.
The non-participants (in the political lobbying) who will be affected by the changes
are unlikely to become aware of the impact until after legislation has been passed.
There has been no formal channel to co-ordinate a response from this disparate
sector. Although it would have been in the interests of the accounting bodies, as the
least powerful of the participants, to solicit their support, there were no initiatives in
this direction. The response of the accounting bodies has not been opposition but
rather conciliation,57 for fear that they may lose even more.
In the recent interaction between the government, the accounting profession, and
other stakeholders, many players have attempted to gain control of the domain not
as an end in itself but to advance their interests in some other domain. Although the
events can be explained to some extent by conceptualisations of the regulatory
processes such as corporatism and inter-organisational domain conflict, these
models do not fully encompass the dynamics of change, particularly in this case
733
the central and self-interested role of the Government in initiating change and
the conciliatory position of the previous incumbents. The process in this instance
may be illuminated by reference to an earlier explanation of political activities and
strategies, likely to be of enduring relevance even if given new names such as
economic rationalism. In his political pragmatism, Machiavelli could be described
an early precursor of Milton Freedman. It may be stretching the point to compare
the Treasurer, Peter Costello, with Cesare Borgia, but his method of conquering the
new territory would surely have been approved by Machiavelli, since, to quote from
The Prince, he has brought about a situation where
. . . those who are injured, remaining poor and scattered, can never do any harm to him,
and all the others are on the one hand not injured and therefore easily pacified; and on
the other are fearful of offending lest they should be treated like those who have been
dispossessed.58
Appendix 1. Key Proposals CLERP 1

Treasury, 1997
Accounting Standards. Building international opportunities for Australian business
Corporate Law Economic Reform Program Proposals for Reform, Paper No. 1, Canberra,
8 Sept. 1997
Key Proposals
Financial Reporting Council
An advisory body, the Financial Reporting Council (FRC), would be established
to oversee setting accounting standards. Membership would be drawn from key
interest groups, such as the accounting profession, preparers and users of
financial statements, governments, and regulators. The Treasurer would appoint
the chairman, and, on the basis of nominations from the bodies he identifies, the
members of the Council. The Treasury would supply secretarial support to the FRC.
The new institutional arrangements are shown in Diagram 2 (Appendix 2).
The functions of the FRC would include the following:
setting the broad strategic direction for the proposed Australian Accounting
Standards Committee (AASC) and providing feedback on the general policies
it should be pursuing;
approving priorities and the business plan of the AASC and monitoring
compliance with them;
overseeing the provision of administrative, research and technical support for the
AASC; and
overseeing the funding arrangements of the AASC and approving its budget.
734
E. K. Stoddart
Australian Accounting Standards Committee

The new body, the Australian Accounting Standards Committee (AASC), would
replace the existing AASB and the Public Sector Accounting Standards
Board (PSASB). The Treasurer would appoint the Chairman (a full-time position), and the seven other members (part time) would be appointed by the FRC. The
other members would be chosen on the basis of their ability and relevant experience
and, to ensure the independence of the AASC, would not sit as representatives of
any particular group. The function of the AASC would be to prepare, approve, and
issue accounting standards for private and public sector entities that are required to
prepare financial statements in accordance with accounting standards.
AASC secretariat
A full-time secretariat, engaged by and directly accountable to the AASC, would be
established to provide core administrative and research support. The Treasury paper
favoured a small technical core group combined with outside contracting (in line with
the current trends encouraging sub-contracting).
Funding: $10M over the next 3 years
To provide certainty regarding funding of the accounting standard setting process,
the Government proposed that $10 million be provided over the next three years by
all stakeholders in the Federal, state, and private sectors. The paper did not identify
how the allocation between sectors would be decided, or whether the contribution
would be linked to seats on the FRC.
Accounting standards
The Treasury paper proposed the AASC should establish the objectives of
accounting, and that standards should be designed to elicit relevant, reliable,
neutral, and comparable financial information. Presumably, this will not conflict with
the economic focus of CLERP. The principle of legal backing for standards was
supported, and re-introduction of the true and fair override rejected. Each new
and amended standard would require a cost/benefit analysis, though precisely what
would be considered acceptable was not identified (nor did the paper justify the
additional cost of analysisor provide a cost/benefit analysis for its own proposals).
Adoption of international accounting standards from 1 Jan 1999
The Treasury Press Release (no. 105, 1997) accompanying CLERP 1 stated that
from 1 January 1999 the AASC would commence issuing public exposure drafts of
standards that are identical to those issued by the IASC. Subject to any modifications
that may be required to ensure compliance with Australians laws, the final standards
issued by the AASC would also be the same as those issued by the IASC. It further
stated that this move would depend upon the Government being satisfied that IASC
standards had gained a satisfactory level of acceptance in major overseas capital
markets. It would not depend on the Government gaining representation on the
IASC (which was then comprised solely of representatives of national professional
accounting bodies).
735
Directives
The last section in the Treasury paper stated that the AASC should be directed to
addressing the outstanding issues in the conceptual framework and promoting the
introduction of market value accounting and risk accounting.
Appendix 2. Institutional Structures
Figure 1. Outline of Institutional Structure in 1999.
Notes
1. For ease of reference, the term Liberal Government is used to refer to the Liberal-National Party
Coalition Government, since the Liberal Party dominates the Coalition. The Liberal Government
gained power in March 1996, and was returned in October 1998 with a bare majority in the House of
Representatives and no absolute majority in the upper house, the Senate.
2. Treasury 1997, Accounting Standards. Building international opportunities for Australian business
Corporate Law Economic Reform Program Proposals to Reform, Paper No. 1, Canberra, 8 September
1997 (short ref: CLERP 1).
3. Corporate Law Economic Reform Program Act 1999, passed October 1999, due to commence 13
March 2000. In December 1999, the part of the Act affecting accounting standards was proclaimed
by the Governor-General to commence on 1 January 2000.
736
E. K. Stoddart
Figure 2. Outline of New Institutional Structure.
4. Membership was 10 in Sept. 1997, with the 3 year term due to expire on 31 March 1998. Since the
creation of a new body appeared imminent in early 1998, the terms of the eight remaining members
were extended to 31 March 1999, and, subsequently, to 31 December 1999.
5. Initially the joint organisation was known as the Accountancy Research Foundation, a company
limited by guarantee. Burrows, G. The Foundation. A History of the Australian Accounting Research
Foundation 19661991, AARF, Melbourne, 1996, p. 21.
6. The ASX contribution was structured in four tranches of $250,000, but took several years to make:
the third was received in July 1998 and the last in early 1999.
7. Companies and Securities Legislation (Miscellaneous Amendments) Act 1983.
8. Nominated areas, 1. Accounting Standards 2. Fundraising (3CLS), 3 Directors Duties & Corporate
Governance (3CLS), 4. Takeovers (3CLS) 5 Electronic Commerce (new), 6. Futures and Securities
(4CLS). Treasury Press Release, 4 March 1997.
9. For example, in Treasury Press Release, 8 September 1997.
10. Law Council of Australia, Business Law Newsletter, November 1997, p. 2.
11. Conversations with lawyer, at seminar, Law School University of Melbourne, July 1997.
12. Scheduled for debate in Federal Parliament in May 1998. Chartac Accountancy News, 30 Jan 1998,
p. 2.
13. See footnote 3.
14. The Financial System Inquiry (Wallis) had not provided radical change (see Hogan, 1997) and there
had been widespread criticism of the Tax Law Improvement Program.
15. Skeffington, R. Fix-it Reith, a man who knows where he is going, Business Review Weekly, 24
November 1997, p. 72.
16. Treasury, CLERP 1, op. cit. 2, p. 11 & p. 38.
17. AARF staff may be simultaneously working on projects for UIG, PSASB, or AASB, or even LRB.
Generally, the audit staff for the AuSB are less diversified.
18. Godfrey, J., Hodgson, A., Holmes, S., Kam, V., Accounting Theory 2nd Edn, p. 311 New York,
Wiley, 1994. Also, Walker, R. G. Australias ASRB, A Case Study of Political Activity and Regulatory
Capture, Journal of Accounting and Business Research, Vol. 17, No. 67, 1987, pp. 26986.
19. Commonwealth Bank, National Australia Bank, Pioneer International, Southcorp, Pacific Dunlop,
737
Wesfarmers, and PBL (Publishing & Broadcasting Ltd, a Packer company).

20. In the ASXs submissions to the Australian Competition and Consumer Commission (ACCC, 1998, p.
30), it was stated that stock changes no longer attract custom exclusively from within their national
boundaries. Companies seeking to raise capital do not necessarily list in the country in which they are
incorporated, but instead look to the market which offers the best prospects of raising the capital they
require. This is illustrated by the Australian company Ozemail listing on NASDAQ instead of ASX. . . .
In addition, a number of Australian companies have sought joint listing on Canadian stock exchanges
because of their reputation for enabling small to medium sized exploration and mining companies to
raise capital. . . . the top 20 listed companies on ASX account for approximately 60% of its turnover.
All but two of these companies are listed on other overseas exchanges. Investors, particularly large
institutional investors, are therefore able to buy or sell the securities of these companies on other
exchanges.
21. ASX Directors Report, in Annual Report, 1997, Australian Stock Exchange Ltd.
22. ASX Listing Rule 19.11A (b) permits use of IASC standards or any other approved by ASX.
23. Chartac Accountancy News, 30 Jan 1998.
24. ASX Backs Re-Introduction of True and Fair Override in Fiery Public Brawl, Chartac, 24 Oct 1997,
p. 1.
25. In the preliminary financial information that listed companies must lodge annually and half-yearly with
the ASX, the Extract for the Market announcement (highlighting the most significant indicators of
financial performance), disclosure is required of the operating profit before amortisation of goodwill,
showing a considerable disregard for AASB 1013, the standard on goodwill. ASX Listing Rules,
Effective 1 July 1997
26. The ASX has exempted mining exploration companies from lodging half-yearly profit and loss
statements, requiring only a balance sheet and cash flow statement. This really only affects overseasincorporated companies, since Australian companies would be still required to lodge with ASIC
financial reports complying with Australian accounting standards, particularly AASB 1022 Accounting
for the Extractive Industries. The classification mining exploration company is created by the ASX.
Any change to the Listing Rules does not affect the Corporations Law requirements for listed Australian
companies to lodge half-yearly financial statements. The justification given (p. 12) is that the profit and
loss information in Appendix 4B is not meaningful for mining exploration entities, unlike the cash flow
report and the balance sheet. Removal would encourage listing by foreign exploration companies, in
line with the ASZ ambition to be the leading exchange for junior miners.
ASX Exposure Draft, Proposed Amendments to Listing Rules, ASX October 1997, subsequently
adopted, effective 1 July 1998.
27. ASX Holds Off on Funding Cut, Chartac Accountancy News, 30 Jan 1988, p. 3.
28. For example, arranging legislation to approve the trading of derivatives (Share Ratios) on ASX.
29. Peter Costello, Treasurer, 1997, Speech, Australian Chamber of Commerce, 12 November 1997.
30. To the extent that Francis Cox, Special Projects Manager, Sydney Futures Exchange remarked, in
May 1997, that he wished the SFE had the same access to the ear of the Treasurer.
31. ASX demutualisation, announced, Treasury Press Release, 17 April 1997, effected by Corporations
Law Amendment (ASX) Act 1997, passed November 1997.
32. Major Government instrumentalities, such as Telstra (the Federal telecommunications entity), the
Commonwealth Bank, and Qantas, have been partially privatised and are now listed on the ASX.
33. e.m Enterprise Market, Capital Market for Non-listed Businesses, to be operational early 1998, ASX
Web site: http://www.asx.com.au (as in November 1997).
34. AICD Submission to Treasury, 3 June 1997, p. 23, and CLERP 1 op. cit. 2, p. 11.
35. AICD Submissions to Treasury on CLERP 1, 3 June 1997 and 25 July 1997. Also in AICD submissions
to Corporate Law Simplification Task Force, September, 1996.
36. Parliamentary Joint Committee on Corporations and Securities, Report on the draft Second Corporate
Law Simplification Bill, Canberra, 18 November 1996.
37. Treasury, Government Response to the Report of the Parliamentary Joint Committee on the Draft
Second Corporate Law Simplification Bill, Treasury, Canberra, 20 November 1997, p. 13 (para. 47)
and p. 12 (para. 44) respectively.
38. Recommendation 1 in Directors Duties and Corporate Governance CLERP Paper 4, Treasury,
October 1997, included in final Act despite opposition from the Law of Council of Australia.
39. Partner, Arthur Robinson & Hedderwick; Professorial Associate, Law School, University of Melbourne;
ex-Chairman, Trade Practices Commission.
40. To make a clear distinction between the role of the Peak Council, the AASB should be described
738
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
56.
57.
58.
E. K. Stoddart
as a commission or committee. This would recognise that the work of the AASB is very detailed. . . ,
AICD (1997a) Submission to Treasury, 3 June 1997, p. 6. This suggestion of the AICD appears to
have been implemented, together with other suggestions in the Background Paper (issued to selected
recipients 1 July 1997) as the next references are to AASC (not AASB) in the response to Treasury,
AICD (1997b), 25 July 1997.
AICD (1997c) Submission to Treasury, 20 October 1997
In January 1998, the Investment and Financial Services Association (IFSA) was formed, merging
the Australian Investment Managers Association (AIMA), the Investment Funds Associations of
Australia (IFAA), and the Life, Investment and Superannuation Association (LISA). Hoyle, S. Financial
Managers Unite to Tackle Issues, Australian Financial Review, 27 January 1998, p. 15.
Financial System Inquiry, Final Report, (also referred to as the Wallis Report) Australian Government
Publishing Service, Canberra, March 1997, p. 480.
QBE Insurance Group Ltd. and ors v. Australian Securities Commission and Anor (1992, 8, ACSR
631).
Treasury, CLERP 1 op. cit. 2, p. 30.
List of submissions on CLERP 1, Dec. 1997, supplied by Les Pascoe, Business Law Division, Treasury.
The only submission that might be described as from this group came from the Australian Mutual
Provident Society (AMP).
Chartac, Vol. 20, No. 244, 25 April 1997, p. 5.
In the discussion of funding in the proposals, the professional accounting bodies are identified as a
large contributor particularly because of their direct and continuing interest in accounting standards
in relation to their members obligations as a profession, Treasury, CLERP 1, op. cit. 2, p. 44.
The Peirson Report (1990) was commissioned by AARF, and prepared by Professor Graham Peirson
of Monash University, a long-serving member of various AARF Boards. Both ASCPA and ICAA
endorsed its recommendations.
AARF has evolved into a highly regarded technical research organisation which is on a par with
those existing in leading overseas accounting standard setting jurisdictions, Treasury, CLERP 1 op.
cit. 2, p. 38.
Relocation was expected in January 2000, possibly on an informal basis prior to the commencement
of the CLERP Act 1999.
Frank Micallef, Senior Project Manager, in 1998 (to Norths Ltd), Jan McCahey, Deputy Director, 1998
(now Chief Accountant, ASIC) and Warren McGregor, Executive Director for the last 10 years, in 1999
(to private consulting).
Rob Ward, President, ICAA, inteviewed, Chartac, Vol. 20, No. 258, 7 November 1997, p. 4.
This claim is supported by the comments of Prof. Terry Heazlewood (Charles Sturt University), The
Australian Accounting Research Foundation should not be dismantled. We should look at some way
of preserving the current AARF structure so the intellectual capital doesnt go walking, quoted in
article Academics Blast Campbell, p. 7, Chartac, Vol. 20, No. 257, 24 October 1997.
Rob Ward, President, ICAA, interviewed, Chartac, Vol. 20, No. 258, 7 November 1997, p. 4.
The Legislation Review Board of AARF made a submission (on behalf of ICAA and ASCPA) on five
of the six CLERP position papers, but not on CLERP1. On this issue, the two bodies did submit a
response to Treasury but it came from their technical departments and was conciliatory rather than
critical.
Parker, C. (Technical Director, ASCPA), A New Era in Financial Reporting? The CLERP Reforms,
Butterworths Corporation Law Bulletin, No. 19, 24 Sept 1997, p. 57.
Machiavelli, N. Il Principe [The Prince] (first published circa 1532) revised translation by L. Ricci, 1935,
by arrangement with Oxford University Press, published as Mentor Classic, New American Library,
New York, 1952, p. 37.
References
ACCC, Determination on Applications for Authorisation by ASX Settlement & Transfer Corporation
Ltd., ASX Ltd, and Australian Payments Clearing Association Ltd. in relation to the Clearing House
Subregister System (CHESS) arrangements, Australian Competition and Consumer Commission,
Canberra, 5 August 1998.
739
Australian Institute of Company Directors: Submissions to Treasury on CLERP 1 AICD 1997a, 3

June; 1997b, 25 July; 1997c, 20 October 1997.
Australian Stock Exchange, ASX 1997a, Annual Report, 1997; 1997b; Listing Rules, Effective 1 July 1997;
1997c, Exposure Draft, Proposed Amendments to Listing Rules, ASX October 1997.
Baysinger, B. D., Domain Maintenance as an Objective of Business Political Activity: An Expanded
Typology, Academy of Management Review, April 1984.
Benson, J. K., The Interorganizational Network as Political Economy, Administrative Science Quarterly,
June, 1975.
Burrows, G., The Foundation. A History of the Australian Accounting Research Foundation 19661991
(Melbourne: AARF, 1996).
Chartac Accountancy News, Information Australia, Melbourne: 30 January 1998.
Chartac, Vol. 20, No. 257 (Melbourne: Information Australia, 24 October 1997); Vol. 20 No. 258,
7 November 1997; Vol. 20, No. 244, 25 April 1997.
Chatov, R., Corporate Financial Reporting, Public or Private Control? (New York: Free Press, 1975).
Costello Peter, (Treasurer), Speech to Australian Chamber of Commerce, 12 November 1997.
Financial System Inquiry, Final Report (also referred to as the Wallis Report) Canberra, Australian
Government Publishing, March, 1997.
Fogarty, T., Financial Accounting Standard Setting as an Institutionalized Action Field: Constraints,
Opportunities and Dilemmas, Journal of Accounting and Public Policy, 1992, pp. 331355.
Fogarty, T., Accounting Standard Setting: A Challenge for Critical Accounting Researchers, Critical
Perspectives on Accounting, Vol. 5, October 1998, pp. 515523.
Godfrey, J., Hodgson, A., Holmes, S. & Kam, V., Accounting Theory, 2nd Edn (Australia: Wiley, 1994).
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Hogan, W., What Directions from Wallis? Australian Accounting Review, Vol. 7, No. 2, pp. 4044.
Hoyle, S., Financial Managers Unite to Tackle Issues, Australian Financial Review, 27 January 1998,
p. 5.
Lehmbruck, G. & Schmitter, P. C., Patterns of Corporatist Policy Making (London: Sage, 1982).
Law Council of Australia, Business Law Newsletter , November 1997.
Machiavelli, N., Il Principe, The Prince, (first published circa 1532) revised translation by L. Ricci, 1935
by arrangement with Oxford University Press, published as Mentor Classic, New American Library, New
York, 1952.
Miller, M. & Leo, K., The Downside of Harmonisation Haste. The Equity Accounting Experience, paper
presented at AAANZ Standards Seminar, Hobart Jul, 1997, published, Australian Accounting Review,
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Moonitz, M., Obtaining Agreement on Standards, Studies in Accounting Research No. 8 (Sarasota, FL:
American Accounting Association, 1974).
Parker Colin, A New Era in Financial Reporting? The CLERP Reforms, Butterworths Corporation Law
Bulletin, Vol. 19, 24 September 1997, pp. 57.
Parliamentary Joint Committee on Corporations and Securities, Report on the draft Second Corporate
Law Simplification Bill, Canberra, 18 November 1996.
Peirson, G., A Report on Institutional Arrangements for Accounting Standard Setting in Australia
(Melbourne: AARF, 1990).
Schmitter, P. C., Still the Century of Corporatism, The Review of Politics, Vol. 36, 1974.
Schmitter, P. C., Modes of Interest Intermediaries and Models of Societal Change in Western Europe,
Comparative Political Studies, Vol. 10, No. 1, 1977.
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Critical Perspectives on Accounting (2000) 11, 713740

POLITICAL INFLUENCES IN CHANGES TO

The process of establishing regulatory arrangements for setting accounting

c 2000 Academic Press

In particular, governments have found wider benefits by granting, in the name of

Political influences in changes to setting Australian accounting standards

The Government proposals2 represented a compromise between the aspirations

Modelling Regulatory Processes

Schmitters explanation for the emergence and persistence of such arrangements

disempowering the professional accounting bodies. In a later extension of the

Political influences in changes to setting Australian accounting standards

Present System, Its Origins and Current Environment

auditing, or legislation review. A diagram of the structure in 1999 is provided in

Political influences in changes to setting Australian accounting standards

Political influences in changes to setting Australian accounting standards

unconstitutional transfer of power to foreign body

constitutional limitations on amalgamation of AASB and PSASB

inadequate delineation of articulation between IASC and Australian standards

lack of cost/benefit justification

insufficient identification of sources of funding.

The proposals cannot be justified as providing a logical solution to perceived

The Lobby Groups: Aims and Influences

Political influences in changes to setting Australian accounting standards

the professional accounting bodies (ICAA and ASCPA).

Political influences in changes to setting Australian accounting standards

Political influences in changes to setting Australian accounting standards

be dissatisfied with the status quo, prompting it to lobby as vigorously as it did to

Political influences in changes to setting Australian accounting standards

explicit recognition in the restructuring. However, if the presence of stakeholders in

Accounting Bodies, ASCPA and ICAA

hearing held in Melbourne, April 1997, by Senator Ian Campbell, Parliamentary

Political influences in changes to setting Australian accounting standards

nature of the process surrounding setting accounting standards, giving a clearer

Political influences in changes to setting Australian accounting standards

Appendix 1. Key Proposals CLERP 1

Australian Accounting Standards Committee

Political influences in changes to setting Australian accounting standards

Appendix 2. Institutional Structures

Figure 1. Outline of Institutional Structure in 1999.

Figure 2. Outline of New Institutional Structure.

Political influences in changes to setting Australian accounting standards

Wesfarmers, and PBL (Publishing & Broadcasting Ltd, a Packer company).

Political influences in changes to setting Australian accounting standards

Australian Institute of Company Directors: Submissions to Treasury on CLERP 1 AICD 1997a, 3

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