“Unreliable Accounts: How Regulators Fabricate Conceptual Narratives to Diffuse Criticism” by Karthik Ramanna: A Comment on Ideological Capture

Karthik Ramanna in ‘Unreliable accounts: How regulators fabricate conceptual narratives to diffuse criticism’ considers how the Financial Accounting Standards Board (FASB) justified a conjunctural break from historic cost accounting (HCA) to Fair Value Accounting (FVA). Karthik’s paper explores how the US Financial Accounting Standards Board (FASB) legitimized the introduction of fair value accounting (FVA). This fundamental reorientation of financial reporting practice can, he argues, be understood within a framing device: conceptual veiling. Firstly, the FASB is (suspected to be) captured by the interests of investors and capital market actors. Secondly, the FASB needed to construct new narratives to enable this reorientation in accounting practice and this was achieved with changes to the governing conceptual framework. An alternative framing device is offered in this review, that of the financialization of company financial reporting and implications for company viability as opposed to a capital market efficiency perspective. Financialized accounting facilitates the valuation of a range of asset classes to a market value. These asset valuations are speculative in nature. FVA accounting imports speculative capital market risk onto company balance sheets and this can threaten company financial stability and viability for a going concern.

Accounting for Pandemic: Better Numbers for Management and Policy

Infection, hospitalization and mortality statistics have played a pivotal role in forming social attitudes and support for policy decisions about the 2020-21 SARS-CoV-2 (COVID-19) pandemic. This article raises some questions on some of the most widely-used indicators, such as the case fatality rate, derived from these statistics, recommending replacing them with information based on regular stratified statistical sampling, coupled with diagnostic assessment. Some implications for public health policies and pandemic management are developed, opposing individualistic and holistic approaches.

Too Much Technology and Too Little Regulation? The Spectacular Demise of P2P Lending in China

In this paper we trace the rapid growth and spectacular demise of online peer to peer lending in China. Drawing on a series of interviews conducted in China in 2017 and 2018, we follow the expansion of the sector from the establishment of the first major platform in 2007, through the introduction of limited regulation in 2015 in response to a series of platform failures to the final de facto closure of the whole sector by the regulator in 2019–20. However, contrary to claims that technology would reduce risk, the new platforms appear to have given rise to new risks by connecting dispersed borrowers and lenders whilst the regulator had decided to leave the sector to evolve without specific regulation. While there were hopes that P2P lending might increase flows of finance to the SMEs that are excluded from the formal banking system, ultimately too much of the activity on the P2P platforms was characterised by what we term ‘transactional ambiguity’ and ‘legal fluidity’: it occurred on the fringes of legality, often amounting to Ponzi schemes, fraud or unlicensed banking activity. In contrast to the banking sector, where their intermediation role ensures that banks are the focal point in the event of borrower default, and conventional moneylending, where moneylenders bear the risk of default, defaults and platform failures in the P2P sector distributed losses far and wide around the country, often to lenders who were not capable of bearing them. Whilst the central government did not formally stand behind the P2P sector (as it does with banks because of the systemic implications of their operations), the government could not help but become involved where P2P lending transmitted losses to lenders who were dispersed around the whole country. Ultimately, central government announced a wholesale reversal of policy that led to the sector effectively being closed down. The episode cautions against overly optimistic claims that technology can eradicate the risks of fraud and fundamental uncertainty inherent in lending, and reminds us that, without appropriate regulation and adequate internal controls, financial institutions will always operate in ways that result in instability.

Conceptualizing Epistemic Power: The Changing Relationship Between Economic Policy Paradigms and Academic Disciplines

The ways in which epistemic foundations of academic disciplines shape policy paradigms have been an understudied area. We illustrate such dynamics by focusing on paradigm shifts between economics and legal scholarship. Our case study focuses on the evolution of the Finnish corporate tax policy between 1991 and 2014 to illuminate complex policy diffusion through professions. First, in 1993, Finnish corporate tax policy was aligned with the neoclassical ideas of the time in a lawyer-driven process. Second, in the early 2000s, initiatives from the EU and the OECD provided these lawyers a new epistemic source for broadening their argumentation. Third, in the 2010s, the disciplinary base shifted from legal studies to economics, which coincided with administrative reforms emphasizing quantitative impact assessments. These transformations completed the shift from legal scholarship to economics in tax policy design, paving way to the entrance of economic theoretical arguments to tax policy discussions. Our findings highlight five overlapping and mutually reinforcing factors that shape knowledge production in expert groups that influence economic policy: (1) the extent to which politicians rely on expertise; (2) the balance of power between academic disciplines in evidence-based policy-making; (3) the disciplinary base to which the dominant expert groups rely on; (4) the shifts in the epistemological, ontological and methodological mainstream within particular disciplines; and, (5v) the extent to which international organizations are seen as epistemic versus policy-driven authorities.

Acknowledgments Networks in Accounting Scholarship: A Note

We explore social networks in accounting research. Our sample spans the 1996–2015 period and includes all research articles that were published in the Accounting Review, Journal of Accounting Research, Journal of Accounting and Economics, Accounting Organizations and Society, Review of Accounting Studies, and Contemporary Accounting Research. Employing social network analysis, we delineate and discuss the structure of scientific collaboration as it appears in the acknowledgments of published research articles. We identify the most central nodes in this nexus of intellectual partnership. Furthermore, we discover that acknowledgments constitute a small-world social network, with high average clustering coefficient and small average distance within a giant component which covers the biggest part of the acknowledgment network.

Transfer Pricing Audit Challenges and Dispute Resolution Effectiveness in Developing Countries with Specific Focus on Zimbabwe

Base erosion and profit shifting activities of multinational enterprises (MNEs) have been a hot issue globally. Topical among the strategies employed by MNEs has been the issue of transfer pricing (TP). Developing countries are argued to be significantly affected by TP manipulation resulting in substantial tax revenues being lost. As a response to curb the unfavourable impacts of transfer mispricing, most developing countries have adopted the OECD TP guidelines and enacted TP legislation to regulate TP activities. The arm’s length principle is the core of TP legislation, yet it has brought challenges for tax administrators and their auditors in enforcing and assessing compliance respectively leading to disputes. In view of the ever-changing business world and continuous efforts by MNEs to minimise their tax obligations through income shifting, it was imperative to assess the factors affecting the effectiveness of TP audits and dispute resolutions as measures to enhance compliance and enforcement in developing countries, with specific reference to Zimbabwe. Findings include the lack of clarity in TP legislation, resource constraints and complexity of transactions, lack of expertise as well as the shortage of comparable data. Developing countries are encouraged to formulate clear TP regulations and invest in the capacitation of revenue authorities.

The Symmetry and Asymmetry of Bidder and Target Termination Fees in Acquisitions

Termination fees have become a frequently employed non-price term in acquisition contracts. They allow the breaking party to walk-away from the transaction after paying a fee to the remaining party. While the inclusion of termination fees has been shown to increase contracting efficiency, the fee size has received only scant academic interest. This is surprising as termination fees are often asymmetric, i.e., of unequal magnitude for the bidder and the target. Based on an international dataset of 25,026 global acquisitions between 2012 and 2015, we find that bidder and target characteristics influence the structure of termination fees. More precisely, we show that target termination fees are higher if the target is insolvent. Bidder termination fees are higher, in contrast, if the bidder is an institutional investor. Our study thus contributes to understanding the influence of bargaining power on non-price terms by examining the structure of termination fees.

Unreliable Accounts: How Regulators Fabricate Conceptual Narratives to Diffuse Criticism

In 2010, the U.S. accounting rulemaker (FASB) updated its longstanding constitution to eliminate “reliability” as a fundamental accounting property. FASB argued that “reliability” was misunderstood in practice and that this amendment clarified its original intent. Drawing on primary archival resources and field interviews with regulators, I provide evidence that the change also sought to legitimize the rise of fair-value accounting. By eliminating the need for accounting to be “reliable,” the change attempted to neutralize concerns about the subjectivity in fair-value estimates. Such subjectivity can facilitate accounting manipulation, and some fair-value rules can be attributed to lobbying by managers who stand to benefit. The change illustrates “conceptual veiling,” wherein regulators, seeking to diffuse criticism, including suspicions of capture, manufacture costly conceptual narratives for justifying their actions.