Accounting standard setting: due process in the shadow of political interference

Stakeholders in accounting standard setting have two generic ways of influencing the outcome of the standard setting process. They can either attempt to influence the standard setter directly, by sending comment letters or otherwise participating in the due process, or they can attempt to involve political entities that have ultimate say over accounting regulation. I argue that the involvement of political actors is costly for the standard setter which loses legitimacy but also for the stakeholder who is generally in favor of keeping accounting rulemaking in the private sector and who additionally may signal a lack of commitment to transparency by engaging in political lobbying activities on accounting standards. Building on this intuition, I propose and analyze a model to determine conditions under which such political lobbying takes place, nevertheless. I identify conditions under which the standard setter acts upon information received via its due process and when it ignores it. I furthermore find that stakeholders engaging in political lobbying are those most satisfied with the status quo. If the standard setter takes due process feedback into accounting, political lobbying may occur when the new standard proposal is relatively close to the status quo (but not close enough). There will be no political lobbying when the standard setter proposes a relatively large change in such cases.