Practical expedients and theoretical flaws: the IASB's legitimacy strategy during the COVID-19 pandemic

Abstract

PurposeGrounded in the legitimacy theory and framed within the context of European Union’s (EU's) endorsement process, this paper analyses the International Accounting Standards Board’s (IASB's) response to the COVID-19 crisis and the impact of its practical expedient COVID-19-Related Rent Concession on the IASB's output legitimacy.Design/methodology/approachThis study uses a qualitative process-tracing approach and combines inductive historical narratives and deductive reasoning to draw theoretical implications concerning the COVID-19 crisis' impact on the standard-setting process.FindingsThe paper shows a growing reliance on practical expedients in International Financial Reporting Standards (IFRS) to maintain the IASB's output legitimacy. While introducing some theoretical flaws, practical expedients increase the standards' flexibility and strengthen the IASB's ability to respond to the European political bodies' concerns. Indeed, an analysis of the IASB's response to the COVID-19 outbreak reveals the role practical expedients might play not only in reducing (ex ante) new IFRS transition costs but also in dealing (ex-post) with the broader economic impact of unexpected systemic crises to limit criticisms and controversies surrounding IFRS.Originality/valueThis study reveals a causal relationship between the rise of the European public good criterion in the EU endorsement process and the wider use of practical expedients in IFRS. An analysis of the latest amendment to IFRS 16 in response to the COVID-19 crisis also confirms the role of practical expedients in strengthening the acceptance of IFRS in an increasingly complex economic reality and sheds some light on the new strategies adopted by the IASB to preserve its legitimacy in the EU.

Análisis de los criterios de revelación financiera por efectos de la pandemia por COVID-19 de empresas cotizadas chilenas y peruanas

“…Considerando la influencia institucional, las revelaciones resultan parciales, solo para algunas empresas y no se consideran las recomendaciones plasmadas en documentos de auditoría sobre mejora en la transparencia de información a revelar en los EEFF sobre las normas contables vigentes. Esto refleja más una influencia normativa que una coercitiva por parte de entes reguladores y una búsqueda de legitimidad ante sus inversionistas y acreedores en lugar de una efectiva rendición de cuentas, como se observa en la revelación de aspectos sobre impacto en ingresos, créditos, continuidad de negocio en marcha y de evaluación de riesgos (Hassan, Rankin y Lu, 2014;Pricope, 2016;Silva-Guerreiro et al, 2021;Moscariello y Pizzo, 2021;Neisen y Schulte-Mattler, 2021).…”

The International Sustainability Standards Board’s (ISSB) past, present, and future: critical reflections and a research agenda

“…These legitimacy challenges may appear to be the legacy of the longstanding IFRS Foundation’s and IASB’s legitimacy problems and criticisms due to, for example, the lack of national representatives of its diverse jurisdictions in their governance structure and due process procedures (Danjou and Walton, 2012; Wingard et al , 2016), the pressures from public authorities (Moscariello and Pizzo, 2022) or the lack of empirical evidence of the economic benefits coming from its accounting standards (Chua and Taylor, 2008). Yet, in the case of the ISSB, it is the ideology grounding its standards that reinforces and distinguishes the legitimacy challenge of the IFRS Foundation.…”

Stakeholder Engagement in the Development of the Sustainability Reporting Standards of the Global Reporting Initiative (GRI) and of the International Sustainability Standards Board (ISSB)

“…The other authors have also examined the question of the legitimacy of the IASB and its due process (e.g. Botzem 2014, Bamber & McMeeking 2016, in particular how this organization rebuilt its legitimacy after the harsh criticism due to the financial crisis (Kusano & Sanada, 2019), and what strategy the IASB followed to maintain its own legitimacy even during the COVID-19 pandemic (Moscariello & Pizzo, 2022). In the context of accounting standard-setting, the influence of the Big 4 accounting firms was also analyzed (Lysak 2020), as well as the lobbying for accounting standard-setting in the parliamentary environment (Hoffmann und Zülch 2014).…”