ACCO 340 Lecture Notes - Lecture 6: Standard Accounting Practice, Moral Hazard, Supermajority
2 Feb 2017
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Document Summary
Standard setters must engineer a consensus sufficiently strong that even a constituency that does not like a new standard will nevertheless go along with it. Thus, the structure and due process of standard-setting bodies is designed to encourage such a consensus. However, if constituency conflict is severe, even due process cannot always bring up such consensus. For example in 1993, the exposure draft to expense esos met with such resistance that it had to be withdrawn. While careful attention to due process may be time-consuming, such attention seems essential if costly retractions are to be minimized. Conclusion of chapter: accounting standard setters can be guided by decision usefulness and reduction of information asymmetry, however, while these criteria are necessary, they are not sufficient to ensure successful standard setting. It is also necessary to consider the legitimate interests of management and other constituencies and to pay careful attention to due process.
