The Accounting Profession's Engagement with Accounting Standards: Conceptualizing Accounting Complexity through Big 4 Comment Letters

Abstract

This is the accepted version of the paper.This version of the publication may differ from the final published version. Permanent repository link Acknowledgements:This paper reflects an effort to collaborate across paradigms. We extend our gratitude to the coeditors in their consideration of our paper. We thank the participants in the audit-reading group at the University of Central Florida for their early ideas and encouragement. We also appreciate the editorial assistance of Wioleta Olczak.1 The Accounting Profession's Engagement with Accounting Standards: Conceptualizing Accounting Complexity through Big 4 Comment Letters ABSTRACTRegulators, standard setters, and the accounting profession maintain that complexity in accounting standards is a significant issue. However, it is unclear what complexity means in the context of accounting standards. This study examines, via comment letter submissions, the accounting profession's engagement with complexity in accounting standards. We analyze comment letters submitted to the Financial Accounting Standards Board over a 12-year period and find the profession characterizes complexity through three dimensions -multiplicity, diversity, and interrelatedness. We examine the Big 4's discourse on these dimensions and observe consistency between audit firms in their discourse on several features. For instance, we find that firms primarily oppose proposed FASB changes when firms perceive those changes to increase rather than decrease complexity. Additionally, firms perceive proposed changes to affect financial statement preparers more often than other stakeholders. However, the Big 4 do not hold universal opinions as to the root causes of complexity. At the cross-firm level, we find inconsistencies that imply heterogeneity in the Big 4's discourse on root causes. Such inconsistency may, in and of itself, construct accounting complexity. Ultimately, we maintain that the Big 4's engagement with accounting standards has consequences for how complexity is thought and acted upon in accounting standards.

Are changes in international accounting standards making them more complex?

“…This paper investigates the relation between the amendments and revisions to the IFRS and IAS and explores whether the standards are becoming more complex over time. There is no formal definition of complexity within the accounting academic literature and previous studies investigate complexity through different proxies (Baudot, Demek, & Huang, 2018). In this paper, rules and principles reflect extremes in a continuum of complexity about the content of accounting standards.…”

The expected impact of the implementation of International Financial Reporting Standard (IFRS) 16 – Leases

“…It should be noted that not all comments received were negative. The document, however, is often used as a platform for users to express their opinion, which tends to dissent or differ from those of the IASB (Baudot, Demek & Huang 2018).…”

Neither takers nor makers: The Big-4 auditing firms as regulatory intermediaries

“…Lobbying through letters was found to be extensive and largely similar in terms of firms’ opposition to proposed changes yet differed with regard to the root causes emphasized by the different auditors. These results, however, address issues beyond the scope of IFRS (Baudot et al, 2018).…”

“… 14. Baudot et al (2018) find nuanced results regarding collusive activity in terms of Big-4 lobby of the Financial Accounting Standards Board (FASB). Lobbying through letters was found to be extensive and largely similar in terms of firms’ opposition to proposed changes yet differed with regard to the root causes emphasized by the different auditors.…”