Participation in the FASB's standard-setting process and the Big-4 accounting firms' extent and motivations for lobbying using textual analysis

The abundance of accounting standards issued since the FASB’s inception is staggering. There is an enduring controversy surrounding the FASB’s standard-setting process. Critics suggest that the multitude of accounting standards has made financial reporting more complex and a compliance exercise for preparers (Lev and Rajgopal 2016, Miller & Redding 1988). Others believe the increase in the number of accounting standards enhances the reporting model and eliminates ambiguity and opportunities for manipulation. My dissertation examines the FASB’s standard-setting process and how lobbying by constituents has changed over time. Overall, I find the relative participation has declined for preparers and accounting firms compared to their participation on the first 100 FASB Statements (Tandy and Wilburn 1992). The second part of my research focuses on the extent and motivations of the Big-4 to lobby in the standard-setting process. Using textual analysis, I measure the negative, uncertainty and risk-related language in the Big-4’s comment letters. Based on the notion that auditors prefer well-specified rules to minimize judgment to ultimately reduce audit risk (Miller and Redding 1986, Buckmaster 1988), I develop a proxy for audit risk using a modified rules-based continuum (“RBC”) score (Mergenthaler 2009). I find the Big-4 are generally less negative for more rules-based proposed standards. However, I find the Big-4 generally express increasing uncertainty as proposed standards become more rules-based. Given this, I evaluate the Big-4’s motivation to lobby on behalf of their clients, who may prefer more principles-based standards that allow for flexibility and judgment. I find the Big-4’s negative and uncertainty languages are positively associated to their clients, suggesting that their lobbying efforts are influenced by client preference. Finally, I evaluate whether the Big-4 influence the standard-setting process given the extent and language used in their comment letters. I develop a RBC change score to measure how much more (or less) rules-based a Final Standard is compared to the Exposure Draft. I find as the Big-4’s uncertainty language increases, the changes in rules-based attributes ultimately reflected in the Final Standards increase. I also find that more extensive comment letters are associated to increases in the rules-based attributes of the Final Standard. My results suggest the Big-4’s comment letters may influence the FASB’s decision to include more rules-based attributes in Final Standards.Ph.D.Includes bibliographical referencesby Amy K. Lysa