p.p1 than big in scope companies with greater

p.p1 {margin: 0.0px 0.0px 0.0px 0.0px; font: 13.0px Arial; color: #000000; -webkit-text-stroke: #000000} p.p2 {margin: 0.0px 0.0px 0.0px 0.0px; text-align: justify; font: 12.0px Arial; color: #000000; -webkit-text-stroke: #000000} p.p3 {margin: 0.0px 0.0px 0.0px 0.0px; text-align: justify; font: 12.0px Arial; color: #000000; -webkit-text-stroke: #000000; min-height: 14.0px} p.p4 {margin: 0.0px 0.0px 0.0px 0.0px; font: 12.0px Arial; color: #000000; -webkit-text-stroke: #000000} p.p5 {margin: 0.0px 0.0px 0.0px 0.0px; font: 12.0px Arial; color: #000000; -webkit-text-stroke: #000000; min-height: 14.0px} span.s1 {text-decoration: underline ; font-kerning: none} span.s2 {font-kerning: none} span.Apple-tab-span {white-space:pre}

What is the impact of lobbying on standard setting in accounting? The act of lobbying on the standard setting raises a debate of fairness since the decisions influencing the laws are ending up being biased in the favour of the party, who wishes to benefit from it, whilst disregarding those who may not. The debate follows the inability of those parties, who have less influencing power over the regulatory agencies than big in scope companies with greater capabilities and connections with the regulators.  There have been numerous formal cases documented on the occurrence of lobbying within the structures of International Accounting Standards Board and Financial Accounting Standards Board. For example, the empirical study conducted by Larson in 1997 (Ahmad, 2015) has demonstrated that the companies with greater market capitalisation have been writing letters to the International Accounting Standards Board in order to influence the regulations for their benefit; The companies were a part of Forbes Foreign 500 group. The findings also showed that the companies, who were engaging in lobbying were reporting higher costs in their financial statements of reported earnings; This demonstrated the likely reason for companies, which are smaller in size to not be involved with lobbying. However, based on the findings represented by Ahmad (2015), the level of lobbying still remained at a high level, despite smaller companies’ reluctance for participation.  According to Nobes and Parker (2008), there is another type of lobbying, which regards the political implications. For instance, in the late 1940s some major manufacturers, such as US Steel and Chrysler have appealed to the accounting setters that they wish to bill the depreciation expenses as a cost of replacement than at a historical cost for accounting principles. The reason for such appeal was the appearance of the post-war inflation and therefore the documented depreciation costs were affecting the companies’ earnings.  However, accounting the depreciation expense at a historical cost was primarily the standardised procedure under the Generally Accepted Accounting Principles. Which lead to the need for negotiation between the companies and the accounting standard setter, since the initial accounting depreciation has been negatively impacting the attractiveness of the companies for prospective investments. In addition, the difference between the new exchange rate of the US dollar and the existing rate has resulted in an overstatement of company’s earnings and therefore impact the demands of the shareholders, as well as labor unions to insist on higher wages for the workers in the industry.  Additionally, according to Zeff (1993), another reason for the lobbying in the late 1940s was due to the fact that firms thought that they were being taxed on their capital. This has led for the need to get an approval from the Congress for the replacement of traditional cost depreciation for the federal income tax.  In this case, the lobbying has impacted the modification of the standard setting in accounting in order to improve the financial attractiveness of the companies; Zeff (1993) has also stated that there was no documented pressure applied from the companies onto the standard-setter decision.  Another example of lobbying impacting the accounting standards has occurred from 1975 until 1981 (Nobes and Parker, 2008) during the settlement of dealings with petroleum exploration costs. This particular example demonstrates the preliminary conflict of interests between relatively small-sized companies versus the large corporations. In 1975 the Energy Policy and Conservation Act has instructed the Securities and Exchange Commission to establish a universal set of accounting regulations for the exploration of gas and oil. As prior to this event, large companies have been using the “successful methods costing” and companies smaller in size were applying “full costing” to their capital.  Whilst the Commission did establish accounting standards for this specific industry  (SFAS 19) with the aid of Financial Accounting Standards Board, it has been met with a negative response from smaller companies, as thus were against the elimination of “full costing” method; this has resulted in an appealing letter sent by those companies to the Congress. Despite the complaints received by the regulatory authorities, the “full costing” methods have been eradicated, whilst “successful methods costing” has been favoured. However, due to the disregard of the interests of smaller enterprises, the companies in such size have been faced with the fear of becoming less solvent and less attractive to the banks and other investment institutions, due to the earnings fluctuation. As a result of lobbying, the Committee has made a decision to modify the setting standards for the industry in a way that would have benefited all parties, which was to use the “reserve recognition accounting”.  Despite the modifications, the large companies also started to complain that the method proposed by the Committee is not going to be beneficial for them. In other words, if the “reserve recognition accounting’ method were to be used, the companies would receive a high exposure to criticisms from the public, since the OPEC was constantly raising the crude prices. This would have affected consumers and create an argument of the pricing abuse from the side of the oil companies. 

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!

order now

p.p1 {margin: 0.0px 0.0px 0.0px 0.0px; font: 13.0px Arial; color: #000000; -webkit-text-stroke: #000000}
p.p2 {margin: 0.0px 0.0px 0.0px 0.0px; text-align: justify; font: 12.0px Arial; color: #000000; -webkit-text-stroke: #000000}
p.p3 {margin: 0.0px 0.0px 0.0px 0.0px; text-align: justify; font: 12.0px Arial; color: #000000; -webkit-text-stroke: #000000; min-height: 14.0px}
p.p4 {margin: 0.0px 0.0px 0.0px 0.0px; line-height: 14.0px; font: 12.0px Times; color: #000000; -webkit-text-stroke: #000000; min-height: 14.0px}
span.s1 {font-kerning: none}
span.Apple-tab-span {white-space:pre}

Taking into consideration both points of view from the participants of the industry, it has been decided to give all companies in the market the authority to apply either “successful efforts” or “full costing”.