The Ideological Homogenization of the FASB Open Access

Abstract

When the Financial Accounting Standards Board's (FASB) conceptual framework (CF) was initially developed, contemporaneous observers believed the CF incorporated conflicting elements and that it only slightly favored the asset-and-liability (A&L) view of accounting. Now, however, the FASB has made it clear that the CF endorses the A&L view. It is likely that a number of factors, operating together, have contributed to the movement to the A&L view. I contribute to the literature by exploring a novel explanation in path dependence. Specifically, I consider whether the completion of the primary stage of the CF in 1985 stimulated U.S. accounting standard-setting institutions along a path dependent process, driven by reinforcement around early interpretations of the framework.

I develop and test hypotheses based on this theory. I empirically demonstrate that, relative to members selected in the pre-CF period, members selected in the post-CF period take voting positions that are (i) less like their constituent sponsoring organizations and (ii) more like one another; and that these shifts are related to standards favoring the A&L view. Using an analysis of comment letters I find that, relative to a control group, FASB members selected in the post-CF period express a stronger ex ante preference for A&L standards. This pattern of evidence makes it appear "as if," in the post-CF period, the Financial Accounting Foundation systematically selects FASB members whose views are in-line with the A&L view. Finally, I demonstrate a significant reduction in voting dissent among post-CF members but an increase in members dissenting because standards do not go far enough to advance the A&L view. This suggests that the FASB has become ideologically homogeneous with respect to the A&L view of accounting. I conclude by exploring the setting and discussing some consequences of these changes for standard-setting.

The empirical results presented in this study are consistent with path dependence. However, since the data are also consistent with alternative explanations that I cannot reject, further work will be necessary to confirm whether path dependence has had a meaningful impact on U.S. standard-setting institutions in the post-CF period.

Table of Contents

Page

I. Introduction

1

II. Background and Theory Development

8

III. Hypotheses

13

IV. Empirical Design

18

V. Results

28

VI. Discussion and Conclusion

39

References

44

Appendix 1: Links between frequently-used concepts

48

Appendix 2: Relationship between the FASB, FAF, sponsoring organizations, and standard-setting constituent groups

49

Appendix 3: Excerpts from comment letters to SFAC 3 that reference the A&L view or the R&E view

52

Appendix 4: Detail on categorization of comment letters

58

Appendix 5: Partition of population into combinations of FASB members

62

Appendix 6: Detail on categorization of FASB members' dissenting arguments

64

Appendix 7: Text of dissenting arguments identified as post-CF "inside dissent"

67

Figure 1: Positions of FASB members and sponsoring organizations on a Statement

72

Figure 2: Illustration of inside dissent and outside dissent

73

Figure 3: FASB dissent, constituent dissent, and Statement type for matched sample

74

Table 1: FASB Statements of Financial Accounting Concepts

76

Table 2: Variable detail: Definitions, construction, and availability

77

Table 3: Summary of FASB voting data by member, chairperson, and voting requirement

80

Table 4: Descriptive statistics for Statement-level variables

84

Table 5: Analysis of FASB and constituent positions in the pre- and post-CF periods

86

Table 6: Effect of Statement type on Representativeness pre- and post-CF

89

Table 7: Effect of Statement type on FASB dissent pre- and post-CF

91

Table 8: Analysis of comment letter signatories selected onto the FASB pre- and post-CF

93

Table 9: List of dissenting argument types on fair value Statements

95

About this Dissertation

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School	Laney Graduate School
Department	Business
Degree	PhD
Submission	Dissertation
Language	English
Research Field	Business Administration, Accounting
Keyword	Institutional self-reinforcement Conceptual framework Ideology Accounting standards Path dependence Financial Accounting Standards Board (FASB)
Committee Chair / Thesis Advisor	Rajgopal, Shivaram, Emory University
Committee Members	Waymire, Gregory, Emory University Dichev, Ilia, Emory University Rider, Chris, Emory University

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