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Are crises one of the rationales used by international accounting standards board to gain global dominance?
This article aims to analyze the external factors that influence how regulators modify accounting regulations, after crises. External factors, meaning political or institutional pressures from countries not affected by the crises. Although International Accounting Standard Board (IASB) tries to emphasize that they do not have any legal power to impose the International Accounting Standard / International Financial Reporting Standard (IAS/IFRS) to any jurisdictions, the author of this study considers that the crises, from the end of twentieth century, are one of the rationales used by IASB to gain global dominance, with the International Monetary Fund (IMF) and World Bank (WB) as messengers. The analysis of this study will focus on Asian Crisis, from 1997, and will use archival and case study method.

Keywords: Asian Crisis, International Accounting Standards Board, International Monetary Fund, International Financial Reporting Standards, World Bank

Article Type:
Financial disclosure (Evaluation)
Accounting (Standards)
Accounting (Evaluation)
Marcus, Cristina M.
Pub Date:
Name: European Journal of Management Publisher: International Academy of Business and Economics Audience: Academic Format: Magazine/Journal Subject: Business, international Copyright: COPYRIGHT 2011 International Academy of Business and Economics ISSN: 1555-4015
Date: Winter, 2011 Source Volume: 11 Source Issue: 4
Event Code: 010 Forecasts, trends, outlooks Computer Subject: Market trend/market analysis
Product Code: 9108628 Financial Regulation & Reporting; 9915410 Reporting & Disclosure NAICS Code: 92615 Regulation, Licensing, and Inspection of Miscellaneous Commercial Sectors
Geographic Scope: Europe Geographic Code: 4E Europe
Accession Number:
Full Text:

Research studies on the evolution of accounting have a long tradition. Transformations in accounting knowledge and practice have been influenced by many factors, such as economic, social and political pressures, (Tomkins, 1798) ad hoc influences like wars, periods of economic decline and labour disputes (Miller et al., 1991). Also, Hans Hoogervorst, the incoming Chairman of the International Accounting Standard Board, claims that "it is a sad truth that most initiatives to strengthen the international financial architecture to reap the fruits from the on-going liberalization of capital movements have been taken under the pressure of some kind of crisis" (Address to the International Monetary and Financial Committee, 2002: 16). International accounting regulations (IAS and IFRS) is considered part of this international financial architecture, defined as a "set of measures that can help prevent crises and manage them better in the more integrated international financial environment" (World Bank webpage).

To illustrate such a relationship between the financial crisis and accounting, we build this study that aims to emphasis that crises are one of the factors that bring the National Accounting Regulations, from those countries affected by crises, into line with the International Accounting Regulations. The end of the twentieth century is characterized by depression periods which led to crises in different parts of the world, such as Asian and Scandinavian countries, Mexico, Russia and Argentina. All these crises, together with the US corporate crisis (2001-2002) led to changes in accounting regulations, of the aforementioned countries, bringing them into line with the International Accounting Standards (Bhimani, 2008; Lin, Chen, 2000; Mooskooki, 2002; Rahman, 1998).


The main purpose of this study is to prove that crises, from the end of twentieth century, are one of the rationales used by IASB to gain global dominance, with the International Monetary Fund (IMF) and World Bank (WB) as messengers, particularly with an emphasis on Asian Crisis, that led to changes in the Accounting Regulations, in Asian countries, bringing them into line with the International Accounting Regulations. Below is the hypothesis for this study:

Hypothesis 1: Crises are one of the rationales used by IASB to gain global dominance, with the International Monetary Fund (IMF) and World Bank (WB) as messengers.

The method that will be used here will be the explanatory case study because it will enable an analysis of the reasons influencing why accounting regulators modify accounting regulations after crises. There are few articles related to this topic in the literature, however there are several reports prepared by the IMF and World Bank that can be used in order to emphasis the purpose of this study.

The research method that is going to be used in this research is case studies. Ray et al. (2002: 142) points out that "in accounting research case studies are gaining acceptance as an appropriate research method, and an increasing number are appearing in the research literature". The following paragraphs aims to describe the case studies of this research and also the appropriate research methods that are going to be used.


Reflecting the magnitude of "financial crises" in 2008, some academics started examining causal relationships between accounting, accounting regulations and the crisis. In terms of "accounting crises (or scandals)" and accounting regulations, there has been significant amount of literature, but such literature is yet to be developed to illustrate the relationships between financial crises, accounting and accounting regulations. There is a trend that was evident in the 1990s, when the IMF imposed the adoption of international accounting standards as a condition for loans to Asian countries such as Korea, Indonesia, Japan, as well as in China's actions to revise its practices to conform with International Accounting Standards when it joined the World Trade Organization.

It is widely believed that the lack of proper use of International Accounting Standards in affected countries hindered "transparency" in the financial statements of corporations and banks. As a result of this, financial statements failed to provide useful information, on a timely basis, regarding various important factors that appear to have contributed to the triggering of financial crisis. (Zubaidur, 1998) The lack of transparent, reliable and comparable financial information did not cause the financial crisis in East Asia: a weak financial infrastructure, ill-conceived liberalization and speculation were all to blame. (Zubaidur, 1998)

Alan Greenspan, Chairperson of the United States Federal Reserve System, in his testimony on the Asian financial crisis before the Committee on Banking and Financial Services of the United States House of Representatives, on 30 January 1998, highlighted debt problems as follows: "a major improvement in transparency, including both accounting and public disclosure is essential The conclusion of his testimony is that Accounting Regulations, in the countries affected by crises, need to be put into line with the International Accounting Regulations in order to avoid future crises.

In the following paragraphs, in order to deepen the knowledge of this theme, we used the archival method, through rigorous analysis of the specialized literature. The case studies, that we built, aims to prove that Asian crisis is one of the rationales used by IASB to gain "accounting" dominance, in those Asian countries that were affected by crisis, with IMF and WB as messenger.


In February 1993, the Ministry of Finance of China started a three-year project to formulate detailed accounting standards. The project, funded by the World Bank, employed Deloitte Touche Tohmatsu International as an international consultant and also involved a number of accounting experts from China. (Bing, 1998) The Chinese Ministry of Finance was responsible for the promulgation of accounting standards. The revision of China's accounting standards and the upgrading of the accounting profession were supported by a $2.6 million World Bank loan. Deloitte Touche Tohmatsu is working with the Ministry of Finance to meet the 1995 target date (Bangsberg 1993, Xinbua 1993). The primary focus was to develop a set of national standards "in line with internationally accepted norms". (Gary, 1994)

In 1998 the Chinese government has realized the potential association between accounting and its reporting practices and financial crisis as experienced in other Asian countries, the inflated accounting numbers might play a part in building up a "bubble economy" and lead the subsequent financial crisis. The government has to introduce a series of preventive measures, including new accounting reforms, to curb financial turmoil in China. (Jun, Feng, 2000) The Chinese Government had place an emphasis on improving the reliability of accounting information and reconciling Chinese accounting to prevailing practices in the industrialized world, as one of the necessary steps to prevent China from financial crisis. (Jun, Feng, 2000)

Nine, out of twenty-five practical accounting standards, that are fairly similar to the IASs, have been promulgated by August 1999. This development could not only assist to prevent China from a "bubble economy," but also enhance the credibility and international comparability of Chinese accounting. (Jun, Feng, 2000)


Following the financial crisis in 1997, the Korean government, in consultation with the World Bank, embarked on a plan to improve financial reporting practices, taking IAS as their benchmark. A new independent private-sector Korea Accounting Standards Board (KASB) was created as of 1 September 1999. (IAS PLUS, Accounting Standards Updates by Jurisdiction, 2000)

Korean Accounting Standard Board's goal is to improve Korean accounting standards to a level consistent with international best practices. Since its establishment, the KASB has adopted a policy of harmonizing Korean Accounting Standards with IAS. (IAS PLUS, Accounting Standards Updates by Jurisdiction, 2000)


The economic crisis in the late 1990s highlighted the problem of a lack of adequate measurement and disclosure practices by Indonesian firms. (Hector and Nabil, 2007) A lack of accountability in business and government has been often mentioned as a major contributor to the crisis during which the need for a financial system that works with transparency and efficiency, and the importance of corporate governance became painfully clear. (Choi, 1998)

The United Nation report on the Asian financial crisis prepared for the 1999 meeting of the United Nation's accounting expert group concludes that "as a result of this non-compliance with IASs, users of financial statements failed to note the weakening condition and performance of the corporations and banks" (Cairns, 1998) The International Monetary Fund recommended solutions designed to rescue Indonesia and other countries in the region from the crisis. For example, Indonesia was offered a $43 billion rescue package. (The Economist, 1998).


One of the IMF paper work related to the Japanese Banking Crisis suggested that weak corporate governance can prevent banks from undertaking meaningful restructuring to arrest their deterioration. Effective corporate governance, which requires shareholder activism and is built around disclosure standards, effective internal and external audit arrangements, separation between board and management, and the accountability of board directors to shareholders and regulators, is critical to provide the necessary checks and balance between shareholders, bank board and management. (IMF Working Paper, 2000)

IMF also suggested that transparent accounting standards (such as pertaining to loan classification, accrual of interest and marking-to-market of assets) are an important tool in effective supervision. Accounting standards should be designed around the need to promote substance over form and to discourage manipulation. Consolidated accounting, especially when there are substantial transactions between financial institution and their affiliates and subsidiaries, facilitates consolidated supervision. Inclusion of qualification by accountants should be an integral part of the publicly disclosed audited financial statements. (IMF Working Paper, 2000)


Finally, the impact of crises on accounting regulations, and vice versa, has a long tradition in accounting literature. This research aims to determine the factors that led regulators to change accounting standards/norms, by analyzing all the major crises from history. Researchers believe that accounting standards are deeply implicated in the financial crises and in at the same time they consider that crises shaped the evolution of accounting.

The purpose of this study was achieved and the hypothesis was accepted, so we can conclude that Crises are one of the rationales used by IASB to gain global dominance, with the International Monetary Fund (IMF) and World Bank (WB) as messengers. The Asian Crisis led to changes in the Accounting Regulations, in the affected countries, bringing them into line with the International Accounting Regulations (IAS/IFRS).

What is argued have is that if reliable accounting information had been available, excessive financial exposures would have been detected earlier, allowing corrective action to be taken by the banks and corporations themselves, as well as by market participants and regulators, thus diminishing the magnitude of the crisis. Accounting disclosure should have provided useful and timely information--early warning signals--on the weakening financial condition of enterprises. The main recommendation of this article is therefore that concerted national and international efforts should be made to develop and implement international accounting and reporting standards, compliance with which should be monitored and enforced.

These shortcomings not only explain our failure to anticipate the current financial crisis, they also limit our ability to analyze, interpret, and response to the crisis as it continues to unfold. Economic scholars are uniquely positioned to use our knowledge of economic institutions, the intricacies of accounting rules, and the socially and politically contested nature of economic practices to identify and explain how seemingly neutral economic practices facilitated, and continue to facilitate, the massive wealth transfers that mark this extraordinary financial crisis. The crisis, thus, challenges us to re-evaluate our research agendas and perhaps also the institutional incentives and unexamined assumptions that drive them--so that economic research can contribute to a broader social and political analysis of the financial crisis.

Furthermore, stakeholders are the one that are considerable affected by crises and any changes in accounting regulations that will influence their welfare. There are limitations that need to be acknowledged and addressed regarding the present study. These limitations concerns the fact that there are few research studies and articles related to the crises, from the end of the twentieth century, written in English. But the author of this study welcomes any collaboration with other researchers that show interest to this topic, from those countries affected by crisis in 1990s.

Finally, it is important to recognize that economic rules and changes in them are shaped by political processes (like any other regulation). The role of the political forces further complicates the analysis. For instance, it is possible that changing the economic rules in a crisis as a result of political pressures leads to worse outcomes than sticking to a particular regime (e.g., Brunnermeier et al., 2009). In this regard, the intense lobbying and political interference with the standard setting process during the crises provide a fertile ground for further study.


Ph.D. scholarship, Project co-financed by the SECTORAL OPERATIONAL PROGRAM FOR HUMAN RESOURCES DEVELOPMENT 2007--2013. Priority Axis 1--"Education and training in support for growth and development of a knowledge based society". Key area of intervention 1.5: Doctoral and postdoctoral programs in support of research. Contract nr.: POSDRU/88/1.5/S/60185--"INNOVATIVE DOCTORAL STUDIES IN A KNOWLEDGE BASED SOCIETY", Babes-Bolyai University, Cluj-Napoca, Romania


Journal Articles & Books:

Alan, Greenspan, "The current Asia crisis and the dynamics of international finance", Testimony of Chairman Alan Greenspan, Before the Committee on Banking and Financial Services, U.S. House of Representatives, 1998

Andre, P., Cazavan-Jeny, A., Dick, W., Richard, C., Walton P. (2009), 'Fair Value Accounting and the Banking Crisis in 2008: Shooting the Messenger', Accounting in Europe, 6 (1), 3-24

Bhimani, A., 'The role of a crisis in reshaping the role of accounting', Journal of Accounting and Public Policy, 27, 444-454, 2008

Bing, Xiang, "Institutional Factors Influencing China's Accounting Reforms and Standards", Accounting Horizons, Volume 12, Number 2, 1998

Biondi, Y., Suzuki, T., 'Socio-economic impacts of international accounting standards: an introduction', Socio-Economic Review, 5, 585-602, 2007

Gary, Winkle, Fenwich, Huss, Chen, Xi-Zhu, "Accounting Standards in the People's Republic of China: Responding to Economic Reforms", Accounting Horizons, Volume 8, Number 3, Pages 48-571994

Hector, Perera and Nabil, Baydoun, "Convergence with International Reporting Standards: The Case of Indonesia", Advances in International Accounting, Volume 20, 201-224, 2007

Hoogervorst, H., 'Learning from the Asian Crisis', Address to the International Monetary Fund and Financial Committee, Washington, D. C., 2002

IMF Working Paper, The Japanese Banking Crisis of the 1990s: Sources and Lessons, 2000,

Lin, J., Chen F., 'Asian Financial Crisis and Accounting Reforms in China', Managerial Finance, 26 (5), 63-79, 2000

Littleton, A.C., Accounting Evolution to 1900, The University of Alabama Press, 1981

Miller, P., Hopper, T., Laughlin, R., 'The New Accounting History: an introduction', Accounting, Organizations and Society, 16 (5\6), 395-403, 1991

Rahman, M. Z., 'The role of accounting in the East Asian financial crisis: lessons learned', Transnational Corporations, 7 (3), 1-52, 1998

Ray, B., Scapens, R., Theobald, M. (2002), 'Research Method & Methodology in Finance & Accounting', Thomson, London

Zubaidur, Rahman, "The role of accounting in the East Asian financial crisis: lessons learned", United Nations, Transnational Corporations, Volume 7, Number 3, 1998


Economist, 20 June, 1998, pp. 82-87,

IAS PLUS, Accounting Standards Updates by Jurisdiction,

Cristina M. Marcus, Babes-Bolyai University, Cluj-Napoca, Romania

Mrs. Cristina M. Marcus is a PhD student at Faculty of Economics and Business Administration, Accounting and Audit Department, Babes-Bolyai University, Cluj-Napoca, Romania.
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