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Thirteen years ago the largest-ever gathering of world leaders took place on 8 September 2000 at the United Nations (UN) General Assembly in New York, where the UN Millennium Declaration was made. The Declaration was the most supported, ambitious and specific list of global development goals agreed upon to date, and established a list of commitments to reduce extreme poverty by 2015 which became known as the Millennium Development Goals (MDGs).
The Millennium Development Goals set in 2000
Source: United Nations
The MDGs were significant for global development cooperation due to their ability to stimulate global support, specifically financial resources. Many aid agencies and donors used them to direct their funding projects, and several governments also largely founded their health strategies upon them to receive external funding, which could comprise over 50 per cent of the state’s health budget. The MDGs thereby created a specific global development agenda, which some critics however now argue was not entirely in tune with the real needs of development of low- and middle-income countries. For example, proponents of a greater focus on non-communicable diseases (NCD) criticise that despite NCDs are now the leading cause of death worldwide, they did not receive a single mention in the 2000 MDGs.
The idea of international financial reporting standards as a single global financial reporting language has come to stay. There is no doubt that developing accounting standards can be a difficult and expensive exercise. The substantial cost associated with the development of international accounting standards seems to be borne by only a handful of actors where as other actors (users of the standards) are free riding.
Who pays and who free rides?
The International Accounting Standard Setter i.e the IFRS Foundation thrives as a non-profit private organization who’s business is to commit its rather limited resources solely to the development and promotion of the use of high quality global financial reporting standards. These resources largely come from the generosity of member countries, international organizations, international accountancy firms, accounting regulators, capital market regulators, multinational firms, transnational and national accounting standard setting bodies, international banks and in rare cases governments. Given these rather limited sources of financing and the lack of obligation on the part of these sponsors, it is hard to say how much funding the IASB actually needs to enable it develop credible global accounting standards. However, a quick look through the financial statements of the IFRS Foundation suggests that majority of its funding turns to come from accountancy practicing firms, national accounting regulatory authorities and accountancy bodies that share the dream of a single global accounting standard. These sources of funding got me thinking about the wide usage of the standards as to the number of user countries and the limited funding the IASB currently has.
As many as 120+ countries currently use IFRS globally. However, very few of these countries actually contribute financially to the development of these standards. What is even more surprising is the number of developing countries (especially countries from Africa, Asia and South America) that continue to use the standards without any financial contribution to the development of the standards. Take Africa for a test case. There are 57 countries in the continent and out of this number; about 21 countries currently use IFRS in one form or another either as full scale adopters or users of modified versions of the standards. Nevertheless, only two of these countries have contributed very small amounts to the overall development of the standards. In 2010, South Africa became the only African country to have contributed 45,112 British pounds sterling representing only 0.27% of the income of the IASB. This example was followed by Nigeria in 2011 who contributed 62,445 British pounds sterling representing 0.30% of the annual income of the IASB. The table below indicates the sources of funding for the development of International Financial Reporting Standards.
The one who pays the piper calls the tune!
I have often wondered how non-paying users of International Financial Reporting Standards (IFRS) could have influence on the work of the International Accounting Standards Board (IASB). As more countries continue to apply IFRS without contributing to its development, their ability to influence the work of the IASB become weak. Neither can they communicate problems with specific standards nor can they determine the direction or pace of international accounting standards. Accounting standards by their nature are public goods i.e. the consumption of which by one party can not diminish the consumption of another party of the same good. Nevertheless, what constitutes how a public good is constructed is on the bases that a common contribution is made by consumers or potential consumers of the same good. But this contribution is only made by a cross-section of the consumers while the others only wait to enjoy the benefits. On this basis, economists define public goods to mean any good from whose enjoyment non-contributors cannot be excluded. Like many other public goods, the problem of free riding exists where some others pay to finance its construction while others do not pay but enjoy its use as much as those who paid for its construction.
IFRS has come along with such economic problem. IFRSs on this basis have equally come to represent public goods which only a handful of financial contributors make commitments towards the development of the standards while others only apply the standards without any contribution. As many developing countries look to enhance their financial informational needs, they turn to embrace the idea of IFRS and adopt these standards in some cases without the knowledge of the IASB.
The price for free riding the use of these standards is that, actors that contribute the development of these standards turn to dictate the direction of the standards. Non-paying actors will have no influence on how these standards are designed. With little or no voice on the IASB standard setting process by non-paying members, this group of users of the standards stands the chance of applying standards not designed to meet their needs.
Last week, I attended a very interesting conference organized by Jean-Christophe Graz, Christoph Hauert, Marc Audetat and Danielle Büschi at the University of Lausanne in Switzerland. At this conference, the prospects and limits of participation of civil society in international standardization were not only assessed by leading academics working in the field but also by members of various NGOs, including consumer and environmental organizations operating at the national and transnational level. The conference was part of a research programme at the University of Lausanne called “Living together under uncertainty” which has the aim to reinforce the relationship between academic knowledge and civil society. The INTERNORM project is trully transdisciplinary in the sense that Helga Nowotny understands the term: bringing together different types of knowledge from academics and practitioners for democratic problem-solving in the global sphere. The conference was one of the rare moments where academics and pratictioners engaged in really productive intellectual inquiry into how problems of standard-setting are framed, organized and managed in various national and transnational arenas. It also turned out to be a very cross-fertilizing event between the French and English-speaking communities in this field. Discussions revealed the many still persisting obstacles created by technical standard-setting organizations which make it difficult for civil society actors to participate on an equal footing. Yet, discussions also pointed to the strategic capacity of transnational and European NGOs to coordinate effectively across borders and to set their priorities in ways to enhance their leverage and influence. The presentations of the conferences are available on the INTERNORM project website.
Two summer schools will address problems of transnational research with a long term perspective:
The CENDARI Summer School “Historical Sources & Transnational Approaches to European History”, 22 -26 July 2013, in Florence, Italy, and the 3rd Doctoral Summer School “Between International, Transnational and Global History: Information Technologies at Borders, 19th-21st C.”, 23-25 September 2013, in Pleumeur-Bodou, France.
Sessions will apply the concept of ‘transnational moments’ to examine ways in which historical research is complicated by the nature of material records of the past. The Summer School will provide a context for the various collections-level challenges to transnational history, such as how to identify sources that have become ‘hidden’ or lost through accidents of history. (source)
Participants will have the chance to learn about the project CENDARI (Collaborative European Digital Archive Infrastructure) which is a collaboration of computer experts and historians integrating digital archives to facilitate science.
The summer school in Pleumeur-Bodou, on the other hand, attempts to overcome methodological nationalism in the study of the globalization of communications. Both summer schools offer opportunities to present one’s own research.
Deadlines for applications:
CENDARI Summer School, Florence: April 15, 2013
Doctoral Summer School, Pleumeur-Bodou: April 26, 2013
More than three years after I posted ‘Fair value accounting in retreat?’ on this blog, it seems appropriate to take stock of the results of reform initiatives undertaken after the financial crisis. Just as a brief reminder: In the course of the financial crisis, International Financial Reporting Standards were suspected to have exacerbated the collapse of financial markets. Particularly the use of “fair value accounting” for banks’ financial assets was scrutinized for its contribution to downwards spirals between devaluated market assets and banks’ rising capital requirements. Previously considered as a purely technical matter, accounting principles suddenly became a matter of international politics. The G20, the Financial Stability Board, IOSCO and the two leading standard setters, IASB and the US-American FASB, all got involved in what appeared a busy beehive of reform debates. Three-and-a-half years later, with the financial crisis followed and superseded by the European sovereign debt crisis, accounting principles seem to have returned to their status of “sleeping beauty”. Yet, this impression is misleading. Accounting principles continue to be a crucial link between the reporting of financial institutions and financial market regulation. All the more a reason for reviewing two recent publications which analyse international accounting standards reform and harmonisation.
Interdisciplinary workshops are always a good opportunity to discuss and exchange differences and shared perspectives on a common empirical research field. Such a workshop (“Transnational private regulation in the areas of environment, security, social and labor rights: theoretical approaches and empirical studies”) took place in Berlin, at the Freie University, at the end of January. Researchers of various backgrounds including sociology, international relations, industrial relations, organizational studies and political science came together to discuss global developments and its local implications of transnational private governance in various empirical fields (labor standards, environmental standards and security)
The role of transnational companies and private actors in governance beyond borders is approached and conceptualized from a variety of theoretical and empirical angles. A shared language and common understanding has not yet fully emerged. To start this interdisciplinary exchange across different governance fields three set of questions have been discussed at this workshop: Read the rest of this entry »