On the Politics of Accounting Disclosure and Measurement: An Analysis of Economic Incentives

Abstract

This paper examines the incentives faced by different groups of participants in the financial market to take opposing positions on various issues relating to accounting disclosure and measurement. The larger purpose of this undertaking is to begin the process of building a model that helps to explain (1) what many view as dismal progress, in relation to the resources expended, in our ability to reach agreement on a set of accounting principles and disclosure procedures, and (2) the increasing involvement of Congress and the SEC in the rule-making process. There is no pretense that a satisfactory result will be reached in one iteration. But as the Chinese proverb reminds us, every journey, no matter how long, has a first step. The notion that self-interest often causes different parties to take different positions on a given accounting proposal, and to back that selfinterest via political action, is of course not new. Instances of this type have been documented by a number of authors, including Zeff [1972], Gerboth [1973], Horngren [1973; 1977], Moonitz [1974], and Armstrong