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    “Twisting words”? A study of the construction and rec...
    research summary posted July 27, 2015 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.02 Changes in Audit Standards 
    “Twisting words”? A study of the construction and reconstruction of reliability in financial reporting standard-setting.
    Practical Implications:

    First, the authors present a long-term case study of the development of the idea of reliability in accounting literature and standard-setting which adds to histories of conceptual thinking in financial reporting. Hence, by following the decision-making of the standard setting bodies regarding the qualitative characteristics of their framework, this paper contributes to the scarce empirical literature on actual processes of standard-setting in accounting.


    Erb, C., & Pelger, C. (2015). “Twisting words”? A study of the construction and reconstruction of reliability in financial reporting standard-setting. Accounting, Organizations & Society 40: 13-40.

    standard setting, reliability, representational faithfulness
    Purpose of the Study:

    Qualitative characteristics serve to operationalize the objective of financial reporting and aim at shaping accounting discourses of standard-setters and their constituents. In the recent revision of their conceptual frameworks, the IASB and FASB decided to replace reliability”, arguably one of the most important properties of accounting, with ‘”representational faithfulness”. Although the boards considered the move to representational faithfulness to be a change in terms rather than in substance, simply reflecting a better terminology of the boards’ understanding, the boards’ constituents were heavily opposed to this alteration. The aim of the present paper is to shed light on the boards’ decision through a historical analysis of how reliability appeared in standard-setting and by tracing its abandonment in detail. In this paper the authors show that the construction and reconstruction of reliability followed from the standard-setters’ aim to extend the boundaries of appropriate financial reporting by changing conceptual language.

    Design/Method/ Approach:

    For this historical study, the authors examined official pronouncements, studies and other publications by professional institutions (AICPA) and research committees (AAA) in the US. They also carried out a thorough manual search of accounting journals for articles and other contributions concerning qualitative characteristics. The latter task was independently performed by both authors. The journals examined were Journal of Accountancy [19601985], Journal of Accounting Research [19631980] and The Accounting Review [19601980], the leading professional and academic accounting journals during that time. In total, the authors identified 36 relevant articles, seven monographs, two contributions from a collected edition and one statement from an institution formally in charge of standard-setting.


    Reliability was constructed in stand setters’ previous frameworks as a compromise between the traditional (evolutionary) practitioner idea embodied in the concept of verifiability and more recent academic notions of faithful representation. As constituents continuously ignored the faithful representation part of reliability and repeatedly used their understanding along the lines of verifiability to dismiss fair value accounting, the standard-setters reconstructed reliability to establish a single focus on faithful representation. However, the standard-setters’ attempt to alter traditional practical understandings by using ever higher levels of abstraction led to very different views among constituents and board members about what “faithful representation” means and what it implies. Hence, the standard-setters ‘construction and reconstruction of “reliability” against traditional understandings of verifiability by employing ever higher (more academic) levels of abstraction appears to be a permanently failing project.

    More specifically, the authors reveal that some board and staff members pressed the change towards faithful representation to eliminate a major hindrance to the expansion of fair value accounting. These actors’ ultimate success was due to confusion amongst and indifference by other board members as well as the strong position of the staff in pushing the change. The intensive public consultation carried out by the boards paradoxically served to decouple the standard-setters’ world from everyday accounting practice.

    Standard Setting
    Changes in Audit Standards