Unreliable Accounts: How Regulators Fabricate Conceptual Narratives to Diffuse Criticism

Author:

Ramanna Karthik1

Affiliation:

1. Blavatnik School of Government, University of Oxford , Oxford , UK

Abstract

Abstract 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.

Publisher

Walter de Gruyter GmbH

Subject

Law,Economics, Econometrics and Finance (miscellaneous),Accounting

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3. Mythmaking in audit regulation: the Canadian initiative on ‘enhancing audit quality’;Accounting and Business Research;2023-12-09

4. Fair Value and Corporate Taxation: Out through the Door, Back through the Window?;Accounting, Economics, and Law: A Convivium;2022-06-23

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