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International Accounting Standards Board, as well as the Financial Accounting Standards Board (operating in the United States of America), are the main bodies for the establishment of standard setting. The main responsibilities of both of the authorities are to protect the interests of the stakeholders. However, it has been evidently known that the Boards have been involved with the act of lobbying. Therefore, in some cases, the standard setters can pursue the interests of those, who have been putting pressure towards the modification of the accounting regulations. As the result, the debate of fairness arises, since those who engage in lobbying and establishment of strong political connections with the setters may be more favoured than those who are not capable of lobbying engagement. 
The aim of the current paper is to provide a literature review, as well as the critical analysis on the topic of “The lobbying impact on the standard setting in accounting” with the use of real-life examples; In addition, with the help of several theories the explanation on the foundation of lobbying will be provided. Correspondingly, the literature review is going to critically discuss the possible factors that influence companies to engage in lobbying. 

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Literature Review
What is lobbying?
According to Hoffman and Zulch (2014), the act of lobbying within the accounting field can be explained with the aid of several managerial and economic theories. For instance, the principal-agent theory implies the existence of biased parties within the regulatory bodies, who establish the regulation standards for the markets (Eisenhardt, 1989). In other words, the agencies who determine the standards include those who will be regulated by them; Which a priori exposes the conflict of interests between the parties engaged. 

On the other hand, Ahmad (2015) mentions another theory that could explain lobbying in accounting from the economic prospect, such as the public interest model, which acts as a contradicting point to the agency theory. The model itself suggests that the regulatory authorities operate for the representation of society’s best interest, whilst having conflicts of interest arising with the public (Gaffikin, 2005).

Additionally, the lobbying in accounting could be explained by the organisational theories, for example, the stakeholder theory (Ahmad, 2015). The theory implies that the parties’ connected to the organisation, such as consumers and attendants are considered to be the stakeholders, whose actions (including lobbying) are affected by those stakeholders who carry the most influence in the corporate structures (Miles, 2011). 
Altogether, despite some contradictory factors, the aforementioned theories provide a universal implication that lobbying is an activity in which the interested parties have a strong incentive towards influencing either those who are a part of a corporate network or regulatory agencies towards the achievement of certain targets. As the result of conflict of interests, the debate of either lobbying is beneficial or not for the parties arises (Figueiredo and Tiller, 2001)

What are the determinants of lobbying?
Due to the sensitive grounds of lobbying presence within the standard accounting settings, it is important to establish the main determinants, which influences such behaviour. Schultz and Hollister’s (2011) have mentioned that lobbying can take both forms, informal and formal; Therefore, it is challenging to assess the extent of lobbying due to the fact that it may not be documented, which leaves the researchers to rely only on the formal submissions from the respondents. 

Based on the study published by Emenyonu and Gray (2012), the International Accounting Standards Board has been trying to provide harmonisation within the accounting standards; however, the study also highlights the obstacles met by the Committee for harmonisation adaptation, i.e. legislative factors. 

The study has generated the need for a close investigation of the connection between harmonisation process and the appearance of lobbying in the accounting standards. Kenny and Larson (2006) have been inspecting the determinants of lobbying on the accounting setting during the period of harmonisation implementation with the use of content analysis. The research of aforementioned authors has taken into consideration large-sized firms, as well as trade organisations. As the result, the study concluded that the firms, which are big in size (market capitalisation) are most likely to lobby in order to protect themselves from any changes in the market; Trade institutions are most likely to engage in lobbying because of the influence of those who dwell in the structure, whilst backing the major part of their interests; The International Accounting Standards Committee itself tries to fulfil the needs of those involved via acclimating its locality in the favourable direction for lobbying engagers. 

Furthermore, the research, which was conducted by Koh in 2011, has demonstrated the other factors that might influence lobbying, which is the company’s affiliation with liability constraints, as well as executives’ option rewards. As a contrary to Kenny and Larson, Koh argued that companies in a smaller size also have an incentive to engage in lobbying, if those have connections with the lobbying firms in the industry; As well as those who carry a higher degree of cabinets’ autonomy. 
In addition, it has been highlighted by Cao (2017) that companies are most likely to engage in lobbying because of the benefits received afterwards. In this case, the strategic rewards obtained through lobbying are greater than the costs paid by the agency. Cao (2017) also mentioned that lobbying delivers some defined palpable benefits to the engaged party, with relation to the obtainment of government contracts. However, the study also argued that although the benefits obtained may be insignificant in value, it still remains beneficial for the companies, especially when the agreement has been made between the body, who holds the power and the firm (Ridge, Ingram and Hill, 2017). 

To complement the aforementioned studies, the research conducted by Johnston and Jones (Previts et al., 2008) identifies that corporations have economic incentives to lobby the Financial Accounting Standards Board, when there is a debt involved, as well to put a restraint or expand the scope of management’s abilities to deal with earnings reported. In other words, firms are lobbying the Board in order to amend the accounting standards for their own benefit.

What is the impact of lobbying on standard setting in accounting? The act of lobbying on the standard setting raises a debate of fairness since the decisions influencing the laws are ending up being biased in the favour of the party, who wishes to benefit from it, whilst disregarding those who may not. The debate follows the inability of those parties, who have less influencing power over the regulatory agencies than big in scope companies with greater capabilities and connections with the regulators.  There have been numerous formal cases documented on the occurrence of lobbying within the structures of International Accounting Standards Board and Financial Accounting Standards Board. For example, the empirical study conducted by Larson in 1997 (Ahmad, 2015) has demonstrated that the companies with greater market capitalisation have been writing letters to the International Accounting Standards Board in order to influence the regulations for their benefit; The companies were a part of Forbes Foreign 500 group. The findings also showed that the companies, who were engaging in lobbying were reporting higher costs in their financial statements of reported earnings; This demonstrated the likely reason for companies, which are smaller in size to not be involved with lobbying. However, based on the findings represented by Ahmad (2015), the level of lobbying still remained at a high level, despite smaller companies’ reluctance for participation.  According to Nobes and Parker (2008), there is another type of lobbying, which regards the political implications. For instance, in the late 1940s some major manufacturers, such as US Steel and Chrysler have appealed to the accounting setters that they wish to bill the depreciation expenses as a cost of replacement than at a historical cost for accounting principles. The reason for such appeal was the appearance of the post-war inflation and therefore the documented depreciation costs were affecting the companies’ earnings.  However, accounting the depreciation expense at a historical cost was primarily the standardised procedure under the Generally Accepted Accounting Principles. Which lead to the need for negotiation between the companies and the accounting standard setter, since the initial accounting depreciation has been negatively impacting the attractiveness of the companies for prospective investments. In addition, the difference between the new exchange rate of the US dollar and the existing rate has resulted in an overstatement of company’s earnings and therefore impact the demands of the shareholders, as well as labor unions to insist on higher wages for the workers in the industry.  Additionally, according to Zeff (1993), another reason for the lobbying in the late 1940s was due to the fact that firms thought that they were being taxed on their capital. This has led for the need to get an approval from the Congress for the replacement of traditional cost depreciation for the federal income tax.  In this case, the lobbying has impacted the modification of the standard setting in accounting in order to improve the financial attractiveness of the companies; Zeff (1993) has also stated that there was no documented pressure applied from the companies onto the standard-setter decision.  Another example of lobbying impacting the accounting standards has occurred from 1975 until 1981 (Nobes and Parker, 2008) during the settlement of dealings with petroleum exploration costs. This particular example demonstrates the preliminary conflict of interests between relatively small-sized companies versus the large corporations. In 1975 the Energy Policy and Conservation Act has instructed the Securities and Exchange Commission to establish a universal set of accounting regulations for the exploration of gas and oil. As prior to this event, large companies have been using the “successful methods costing” and companies smaller in size were applying “full costing” to their capital.  Whilst the Commission did establish accounting standards for this specific industry  (SFAS 19) with the aid of Financial Accounting Standards Board, it has been met with a negative response from smaller companies, as thus were against the elimination of “full costing” method; this has resulted in an appealing letter sent by those companies to the Congress. Despite the complaints received by the regulatory authorities, the “full costing” methods have been eradicated, whilst “successful methods costing” has been favoured. However, due to the disregard of the interests of smaller enterprises, the companies in such size have been faced with the fear of becoming less solvent and less attractive to the banks and other investment institutions, due to the earnings fluctuation. As a result of lobbying, the Committee has made a decision to modify the setting standards for the industry in a way that would have benefited all parties, which was to use the “reserve recognition accounting”.  Despite the modifications, the large companies also started to complain that the method proposed by the Committee is not going to be beneficial for them. In other words, if the “reserve recognition accounting’ method were to be used, the companies would receive a high exposure to criticisms from the public, since the OPEC was constantly raising the crude prices. This would have affected consumers and create an argument of the pricing abuse from the side of the oil companies.  Taking into consideration both points of view from the participants of the industry, it has been decided to give all companies in the market the authority to apply either “successful efforts” or “full costing”. Conclusion Although lobbying can be perceived as a beneficial act in order to improve firms’ financial stability, greater market share and receive higher returns, it can be argued that the influence put on the regulatory officials may distort those to act only in the interest of the engagers. The results of the research have provided a point to keep close attention towards when analysing the main factors contributing towards lobbying, as well as the impact of such onto the setting standards, which is the fact that the authorities can be biased in terms of the decision making.  Based on the examples provided, the Accounting Standards Boards have managed to successfully establish the set of regulations, which are currently used by the market participants for their accounting reporting. The main concern that is underlying the act of lobbying is the extent to which the pressure is used by the companies to the Committee members in order to achieve tangible benefits and goals set by the influencers. In other words, it can be concluded that the existence of lobbying in the accounting standards contributes to the quality of the regulations established, whilst helping the authorities to create a uniform grounds for reporting.