A case study of accounting firm lobbying: Advice or consent

Abstract

There is a rather long-standing supposition that clients' preferences for proposed accounting standards or rules have a degree of influence on accounting firms' positions in support or opposition to adoption of those standards or rules. Previous tests of this supposition, labelled the “client effect” in this paper, have produced inconclusive results. This paper reports the results of a test of a more refined measure of client effect in the context of a single instance of accounting firm lobbying: that on SFAS No. 86. Results indicate a very strong association between positions advocated by clients and their respective accounting firms when the client positions are weighted by a measure of lobbying effort. Analysis of client and accounting firm comment letters did not reveal that an association existed in the structure of their respective arguments. Analysis of post-lobbying behaviour by clients suggests that the direction of influence is from client to accountant, which raises serious ethical questions given the auditor's obligation to be objective particularly with respect to intellectual honesty.