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The legitimacy of IFRS: An assessment of the influences on the due process of standard-setting

Christa Wingard (Department of Financial Accounting, University of South Africa, Pretoria, South Africa)
Jan Bosman (Department of Financial Accounting, University of South Africa, Pretoria, South Africa)
Bright Amisi (Department of Financial Accounting, University of South Africa, Pretoria, South Africa)

Meditari Accountancy Research

ISSN: 2049-372X

Article publication date: 11 April 2016

3185

Abstract

Purpose

The purpose of this paper is to assess the influences on the due process of standard-setting with reference to the legitimacy of the financial reporting “soft law” that is International Financial Reporting Standards (IFRS).

Design/methodology/approach

This study uses a literature review to analyse the governance structures, due process steps, staffing and funding of IFRS standard-setting activities. The study also uses descriptive statistics to analyse constituent participation during the development of two IFRS standards. The mean, median and standard deviation are used as measures of location and dispersion when analysing constituent participation.

Findings

IFRS governance structures are dominated by G20 countries. The International Accounting Standards Board (IASB) depends on international accounting firms, the European Commission and the G8 countries for its financial viability. Well-resourced national standard-setters, major international companies, international accounting firms and educational institutions are able to second their staff to the IASB thereby providing them with direct lobbying opportunities. The IFRS due process procedures provide opportunities for participation but actual participation is dominated by constituents from Europe with African and South American constituents the least active.

Practical Implications

IFRS are required or permitted in over 100 countries. The IASB, with no legal or formal mandate, is performing a task normally reserved for national standard-setters. The legitimacy of IFRS is questionable if the standard-setting due process is perceived as invalid.

Originality/value

The global financial crisis exposed weaknesses in the IFRS due process when the IASB amended IAS 39 without following the due process. African and South American standard-setters should take note that their lack of participation in IFRS standard-setting, coupled with the influence of powerful stakeholders on IFRS standard-setting, could result in standards not relevant for their regions.

Keywords

Citation

Wingard, C., Bosman, J. and Amisi, B. (2016), "The legitimacy of IFRS: An assessment of the influences on the due process of standard-setting", Meditari Accountancy Research, Vol. 24 No. 1, pp. 134-156. https://doi.org/10.1108/MEDAR-02-2014-0032

Publisher

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Emerald Group Publishing Limited

Copyright © 2016, Emerald Group Publishing Limited

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