Ideological Diversity in Standard Setting

Abstract

I explore whether the level of ideological diversity among Financial Accounting Standards Board (FASB) members has declined since the emergence of their conceptual framework. I analyze votes made by FASB members on Statements of Financial Accounting Standards and compare them to comment letters submitted by constituent sponsoring organizations. I demonstrate that, relative to the Pre-CF regime (1973–1986), FASB members’ voting positions in the CF regime (1987–2007) are (i) less like their constituent sponsors and (ii) more like one another. The former result is primarily attributable to differences between FASB members with auditor and preparer backgrounds and those groups’ sponsors. Both of these shifts are associated with standards increasing accounting relevance; in the CF regime, standards that increase relevance likely do so because of the framework’s broad focus on decision usefulness. I document a significant increase in sponsors’ dissent in the CF regime, and regression analysis indicates that variation in standards’ authoritative references to the conceptual framework accounts for all of this increase. Lastly, from 1996–2007, all but one dissenting vote by FASB members on fair value standards explicitly argues for an even greater use of fair values, while none argue for less use. To the extent FASB members’ individual ideologies influence their voting positions, the evidence is consistent with a decline in the level of ideological diversity among FASB members in the CF regime.