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The Politics of Accounting Standard-Setting:

A Review of Empirical Research*

Brandon Gipper, Brett Lombardi, and Douglas J. Skinner

Booth School of Business

University of Chicago

Preliminary draft: June 2013

Not for quotation

Abstract:

We review the empirical literature on the politics of accounting standard-setting, focusing

on the U.S. Financial Accounting Standards Board (FASB). Although it is clear from

casual observation of the standard-setting process that politics sometimes plays a firstorder role in the determination of accounting standards, we argue that more can be done

to improve our understanding of this important topic. Based on our review, we outline

what we see to be a number of potentially fruitful directions for future research.

Key words: Accounting standards, FASB, Politics, Lobbying, Economic consequences.

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*This is an invited review paper prepared for the Australian Journal of Management

conference at the University of Melbourne in July 2013. This is a preliminary draft and

as such may omit references to some important papers on this topic. Send correspondence

to Skinner at dskinner@chicagobooth.edu.

1. Introduction

Accounting researchers have long been interested in the extent to which politics

affects accounting standard-setting.

Even casual observation of the standard-setting

process suggests that politics can have a first order effect on how accounting standards

are set. Beginning with Watts (1977) and Watts and Zimmerman (1978), researchers

have sought to develop and test economics-based theories of standard-setting that capture

these political forces. Our goal is to synthesize extant empirical research on the politics

of standard-setting at the U.S. Financial Accounting Standards Board (FASB). 1

Although some important questions have been answered, our current understanding of the

politics of standard-setting is relatively modest...