Person:

Allen, Abigail

We examine how Big N auditors’ changing incentives impact their comment-letter lobbying on U.S. GAAP over the first thirty-four years of the FASB (1973–2006). We examine the influence of auditors’ lobbying incentives arising from three basic factors: managing expected litigation and regulatory costs; catering to clients’ preferences for flexibility in GAAP; and being conceptually aligned with the FASB, particularly on the use of fair values in accounting. We find evidence that auditor lobbying is driven by prevailing standards of litigation and regulatory scrutiny and by support for fair-value accounting. But we find no evidence that catering to clients’ preferences for flexibility in GAAP drives auditor lobbying. Broadly, our paper offers the first large-sample descriptive analysis of the role of Big N auditors in the accounting standard-setting process.

We investigate the effect of standard setters in standard setting: we examine how certain professional and political characteristics of FASB members and SEC commissioners predict the accounting "reliability" and "relevance" of proposed standards. Notably, we find FASB members with backgrounds in financial services are more likely to propose standards that decrease "reliability" and increase "relevance," partly due to their tendency to propose fair-value methods. We find opposite results for FASB members affiliated with the Democratic Party, although only when excluding a financial-services background as an independent variable. Jackknife procedures show that results are robust to omitting any individual standard setter.