why do preparers participate in the development of the

ElsaWachtmeister MartinStrömland BUSN69

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WhydopreparersparticipateinthedevelopmentoftheaccountingstandardIFRS15?

-Astudyontheaspectsofregion,industry,opinionandargumentation

Authors:

ElsaWachtmeister

MartinStrömland

BUSN69

Supervisor: June2016

KristinaArtsberg MScinAccountingandAuditing


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AbstractTitle WhydopreparersparticipateinthedevelopmentoftheaccountingstandardIFRS15?

–Astudyontheaspectsofregion,industry,opinionandargumentation

SeminarDate 2016-06-01

Course BUSN69DegreeProject–AccountingandAuditing,15ECTScredits

Authors ElsaWachtmeisterMartinStrömland

Supervisor KristinaArtsberg

Keywords IFRS 15, preparer lobbying, due process influence, accounting economic theory,sociologicaltheory

Purpose The aim of this study is to identify to what extent different preparers vary inparticipation among industries and regions and further examine what types ofargumentation that is being used. The purpose is to improve and broaden theunderstandingofwhypreparerschoosetoparticipateinthedueprocessandhowthisrelatestopreviousresearchwiththeintentiontoprovidecontributiontotheresearchlandscape.

Method Aquantitativeresearchstrategywithadeductiveapproachwasapplied.Toexaminethecommentletters,thecontentanalysismethodwasused.Inaddition,statisticalX2-testswasconducted.

Theoreticalperspective Thetheoreticalframeworkwasbasedoneconomictheoryandsociologicaltheoryin

order to identify thepreparers arguments. In addition, previous researchhasbeentakenintoconsiderationwhendiscussingtheresults.

Empiricalfoundation Allof thecomment letters sent frompreparerson thediscussionpaperof thedue

processofIFRS15constitutetheempiricalfoundation.Conclusion Thestudyshowedthattherewerenosignificantdifferencesinopinionwhetherthe

regions or industries agree with one single revenue recognition standard IFRS 15.Furthermore, there were no significant differences between the argumentationamong regions. However, there were significant differences in the use ofargumentationamong the industries. Ingeneral,allof the industrieshadapositiveapproach towards the introduction of one single revenue recognition standard.Regarding the argumentation, the objections of some industries were morecategorised as economic thanothers. Those industries thatwere themost evidentwerethetechnologyandthetelecomindustries.Theindustriesthatarguedmoreinsociologicaltermswerethefinancialindustryaswellasindustrials&transport.


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Acknowledgements

WewouldliketoexpressourgreatestgratitudetooursupervisorKristinaArtsbergforherdevotedguidanceandsupportthroughoutthethesisdevelopmentprocess.WewouldalsoliketoshowourappreciationtoLarsWahlgrenforprovidingassistanceinstatisticalissues.

________________________ ________________________

ElsaWachtmeister MartinStrömland

Lund–June2016


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Tableofcontents1Introduction................................................................................................................................6

1.1Background..................................................................................................................................61.2Problemformulation....................................................................................................................7

1.2.1Researchquestions...............................................................................................................91.2.2Researchhypotheses............................................................................................................91.2.2Purpose...............................................................................................................................10

2Theoreticalframework..............................................................................................................112.1Innovativeprocess(Hussein,1981)............................................................................................112.2Aspectsspecifictotheinnovation(Kelly-Newton,1980)...........................................................11

2.2.1Relativeadvantage.............................................................................................................122.2.2Compatibilitywithnorms...................................................................................................122.2.3Complexityinuse...............................................................................................................122.2.4Trialabilityofthechange....................................................................................................122.2.5Observabilityofperceivedbenefits....................................................................................12

2.3Sociologicalman(Davisetal.,1997).........................................................................................132.4Economicman(Davisetal.,1997).............................................................................................13

2.4.1Positiveaccountingtheory(Watts&Zimmerman(1978,1979&1990)............................142.5Theoreticalframeworksummary...............................................................................................14

3Institutionalcontext..................................................................................................................153.1FinancialAccountingStandardsBoard–FASB...........................................................................153.2InternationalAccountingStandardsBoard–IASB.....................................................................153.3IFRS15........................................................................................................................................153.4ThedueprocessofIASBaccountingstandardsetting...............................................................16

3.4.1TheIASBDiscussionPaper(DP)ofthedueprocessofIFRS15...........................................184Methodology.............................................................................................................................19

4.1Researchstrategyanddesign....................................................................................................194.2Literaturesearch........................................................................................................................194.3Researchmethod–Contentanalysis.........................................................................................20

4.3.1Preparationphase..............................................................................................................204.3.2Organisingphase................................................................................................................214.3.3Reportingphase..................................................................................................................24

4.4Empiricalsample........................................................................................................................254.5Evaluationofmethod.................................................................................................................264.6Ethicalconsiderations................................................................................................................27

5.Empirics....................................................................................................................................285.1Region........................................................................................................................................285.2Industry......................................................................................................................................285.3Preparers’opinionregardingthedevelopmentofIFRS15.........................................................29

5.3.1Whichregionsagreewiththeproposedsinglerevenuestandard?...................................305.3.2Whichindustriesagreewiththeproposedsinglerevenuestandard?...............................30

5.4Typeofargumentationusedbypreparers.................................................................................315.4.1Whattypeofargumentsareusedindifferentregions?....................................................315.4.2Whattypeofargumentsareusedbydifferentindustries?................................................32

5.5Otherfindings............................................................................................................................345.5.1PATcontradictions..............................................................................................................345.5.2ComplexityofcurrentstandardsinUSGAAP.....................................................................355.5.3Notinmybackyard(NIMBY)..............................................................................................36


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6.Discussion................................................................................................................................376.1Discussionoftheresultsoftheregions......................................................................................376.2Discussionoftheresultsoftheindustries..................................................................................386.3Generaldiscussionoftheresults................................................................................................39

7.Conclusion................................................................................................................................417.1Reflectionandfutureresearchsuggestion.................................................................................41

References...................................................................................................................................43

Appendix1–Thecodingmanual..................................................................................................47

Appendix2–X2-testRegionandopinion......................................................................................48

Appendix3–X2-testRegionandargument...................................................................................49Appendix4–X2-testIndustryandargument................................................................................50

Appendix5...................................................................................................................................51ListofpreparersinDP(1/3).............................................................................................................51ListofpreparersinDP(2/3).............................................................................................................52

Appendix6...................................................................................................................................53QuestionsoftheDPinthedueprocessofIFRS15(1/3)..................................................................53QuestionsoftheDPinthedueprocessofIFRS15(2/3)..................................................................54QuestionsoftheDPinthedueprocessofIFRS15(3/3)..................................................................55


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1Introduction1.1Background

Intodaysworld,boardersarebeingmoreblurredasmarketsblendduetoincreasingglobalisationandinternationalisation. This implies thatoccurrences thatbefore couldbeen seenas isolatedevents,nowadaysaffectneighbouringcountriesandmarketsinagreatermanner.Regardingaccounting,thesettingisnodifferent.Associatedwiththeincreasedinternationaltrade,thereisaviewheldbymanythatstandardisationoffinancialreportingenablesinvestorstounderstandandachieveareasonablebasistocomparethefinancialaccountingofcompaniesfromdifferentcountries(Deegan&Unerman,2011). By converging accounting standards, financial reports can become more comparable. Theprocess of convergence is not an easy process, rather coupledwith challenges (Satin&Huffman,2015). Today, there are two main international accounting standard setters, the InternationalAccountingStandardsBoard(IASB)andtheFinancialAccountingStandardsBoard(FASB).FASBoriginsfromtheUnitedStates,withitsregulatoryframeworkGenerallyAcceptedAccountingPrinciples(USGAAP).IASBwithitsequivalentregulatoryframeworkofInternationalFinancialReportingStandards(IFRS) is considered as a wider spread international organization. Since 2002 and the NorwalkAgreementwasenteredbetweenFASBand IASB, the agendaof theboards is dominatedby theireffortstoachievegreaterconvergencebetweenIFRSandUSGAAP(Holzmann&Munter,2015).Onetopic of the convergenceproject is thedevelopmentof a standard regarding revenue recognition(Garmong,2012).Thestandardisdevelopedjointlybythetworegulatorswiththepurposetoclarifytheuseofprincipleswhenrecognisingrevenue(IFRS,2015b).Themaindifferencebetweenthetworegulatoryframeworks IFRSandUSGAAPisthat IFRS isconsideredtobeprinciple-based,whereasFASBisrule-based.FASBaimstoanticipatepotentialproblemsanddeliversolutions,whiletheIASBpresents objectives consisting of principles that enables interpretation (Hlaciuc et al. 2014). Theaccountingstandardsaretogetherthetwomostacknowledgedoffinancialreportingworldwide.

The two accounting standard setting bodies work together with the purpose to increase thecomparability of financial reports (Garmong, 2012). An essential element of a new standarddevelopmentisthesocalleddueprocess,whichrelyonthethreeprinciples;transparency,fullandfairconsultationandaccountability(IFRS,2013).

Differentstakeholderswithvaryingperspectivescanleadtodisagreementsandconflictsofinterestduringthedevelopmentofnewaccountingstandards.Howthesequestionsaretreatedisadelicatebalance of how to handle influence. On one hand, external input is needed in order to createsuccessfulandlegitimateaccountingstandards,ontheotherhanditcouldleadtodoubtfulinfluencedue to lobbying. Additionally, the standards should be based on and alignedwith the conceptualframework.Theconceptualframeworkdescribestheobjectiveandthepurposeoffinancialreporting,itassiststheIASBtodevelopIFRSandarebasedonconsistentconcepts.TheobjectiveoffinancialreportingandthequalitativecharacteristicsoffinancialinformationwasrevisedbytheIASBin2010asaresultoftheconvergenceprojectwithFASB(IFRS,2015a).Thesecorevaluesoftheconceptualframeworkaswellasthedueprocessmightbechallengedduetotheexternalexposure.

Cheney(2006)presentedtheincreasingnumberofrestatementsthatoccurredintheUS,whichwereexplainedbythemis-recognitionscausedbythemany,andsometimesunclearstandardsofFASB.Therevelations of aggressive earnings accounting, by fraudulently capitalise revenue expenditure ascapitalexpenditureinthecaseofWorldComledtooneoftheworld'slargestcompanybankruptcybecauseofmisleadingaccounting(Unerman&O'Dwyer,2004).Unerman&O'Dwyer(2004)explainedthatintheaftermathoftheWorldComaccountingfailure,manyaccountingregulators,practitionersandpoliticians inEuropeancountriesstated that theaccountingmethod's that led toWorldCom’sfailure would not have been effective in Europe.Moreover, Nobes & Parker (2004) undertook acomparisonofacompany'sresultwhichaccounted inaccordanceto IFRSandUSGAAPandfoundsignificantdifferencesinnetincomeandinshareholderequity.Hence,amoreconvergedandquality


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standardsettingbetweenthetwomainregulatorybodieshasbecomemorerelevantfollowingsuchtypesofaccountingdifferences.

Revenue has an effect on key financial indicators in all financial reporting and it is therefore ofimportancetoachieveacorrectandcomparablerevenuerecognitionaccountingstandard.Itcanbeassumed to be vital to stakeholders in order to understand the value of a company. Hence,collaborationbetweenIASBandFASBwiththepurposetoensurecomparableandqualityaccountingiswelcomed.Thedevelopmentofrevenuerecognitionregulation isconsideredbyNobes&Parker(2012)tobeamajorandcomplexissue.Sincetheprocessstartedin2004,ithastakenseveralyearsoffarreachingconsultationanddeliberationstojointlyissueconvergedaccountingstandardsontherecognitionofrevenuefromcontractswithcustomers. It isknownastheIASB'sstandard; IFRS15-RevenuefromContactswithCustomers.Theprocessconstitutedofover650meetingsandinvolvedparticipationofnumerouskindsofstakeholders,suchas;academics,accountancybodies,auditors&accounting firms, governments, individuals, industry groups, investors, preparers, regulators andstandard-settingbodies (IFRS,2014).The final convergedaccounting standardwas issued in2014,withthegoalofimplementationin2017.Theeffectivedatewaslaterdeferred,whichalsopointsoutthescaleofcomplexityofthestandard(IFRS,2014).WhatfurtherhighlightsthecomplexityofthedevelopmentoftheIFRS15isthefactthatthedueprocess,whichisfurtherexplainedinChapter3,goesbeyondthenormalrequirementsbytheissuingofanadditionalrevisedexposuredraft.Intotalforthewholedueprocess,1500commentletterswerereceivedfromvariousstakeholders.

ThestandardistobeappliedontheannualreportingperiodsaccordingtoIFRSbeginningafterJanuary2018.EntitiesreportingtheirannualreportsaccordingtoUSGAAPwiththeequivalentstandardcalledASC606,willberequiredtobeapplythenewstandardinperiodsbeginningafter15December2017(IFRS,2015c).TheissuanceofIFRS15isanimportantmilestoneinfinancialreporting.CompanieswhoeitherreportinaccordancetoIFRSorUSGAAPwillreportusingtothesameprinciplesregardlessofwhichcapitalmarketthecompanyoperatesin(McConnel,2014).ThepurposeofthedevelopmentofIFRS15isanincreasedalignmentbetweenacompany'srevenueandperformance.

Accountants of financial reports highlights that IFRS 15 will affect some entities with significantchangesfromcurrentstandards.Tocomplywiththestandardwillnotsolelybeconsideredtobeofaccountingcharacter,butalsoofabroaderbusinesschallenge.Thesechallengesincludechangesinprocesses and systems, the control environment, investor relations, tax planning, managementinformationandbusinessoperations.TheaccountingfirmsEY(2014)andKPMG(2014)arguedthatduetonewextensivedisclosurerequirements,anumberofaspectsoftheorganisationwillneedtobeconsidered.Bothoftheaccountingfirmsstressedtheimportanceofhavingaholisticviewwhenimplementing the standard, consideringdifferentaspects inorder toensure that revenue isbeingaccountedforcorrectly.ThereasonforthisisaccordingtoEY(2014)andKPMG(2014)explainedbythe connection between revenue and the valuation of the company,which is seen in various keyfinancialindicators.Sincethestandardhasnotyetbeenimplemented,KPMG(2014)statedthattheimpactofthenewstandardisuncertainregardingwhetherrevenuerecognitionistobeacceleratedordeferred.Thechangesrequiredinordertomeetnewdemandsarethoughexpectedtobecoupledwithcost,atleastinitially.

1.2Problemformulation

Thedevelopmentofsufficientinternationalaccountingstandardsiscoupledwithopportunitiesandchallenges,thebalanceofexternalinfluenceonthestandardsettingprocessshouldbenoted.Thereareseveralpreviousempiricalstudiesofthecommentletterssenttothestandardsetters,whichhavefoundanumberofregularities.Onesignificantpreviousfindingisthatpreparersarepredominantinthedueprocess.


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Forgroupsandindividualswhowantstoaffecttheaccountingstandardsetting,lobbyingthroughthedueprocess isoneapproachtosucceed influence.Sutton(1984)examinedthecharacteristicsofalobbyist, which is argued to be those who expect large financial benefits from the activity. Thepreparersofthefinancialstatementspotentialeconomicbenefitsofsecuringitsfavouredproposalarelikelytobegreaterinabsolutetermsthanfortheuser.Thetypeofindividualororganizationwhoismorelikelytofindlobbyingworthwhilearepreparersoffinancialstatements,largeproducersandundiversifiedproducers.Thereasonwhylargeandundiversifiedproducersareconcernedofindividualstandards is that the effect is often concentrated on certain industries, while users of financialstatementstendtobediversifiedandthereforelessconcernedbytheeffectsofindividualstandards.Sutton(1984)issupportedbyDeakin(1989)andSantos&Santos(2014)researches,whichshowedthatlargeoilcompanies,consideredtobeundiversified,aremorelikelytolobbystandardsettersonaccountingregulationtoobtainstandardsthatmeettheirneeds.Larson(1997)foundsimilarresultsinhisstudyofcorporatelobbyistoftheIASC,wherelobbyingisexertedbyalimitednumberoflargecompanies.AnotherempiricalstudyoncommentlettersisJorissenetal.(2012)researchaboutthelevelofdifferentgroupsactiveparticipation in thedueprocess.Theyalso foundthatparticipatingpreparersintheIASBdueprocessarelargerandmoreprofitablethannon-participatingpreparers.FurtherempiricalresearchonthecorporatelobbyingactivitiesintheconstituentparticipationinonesignificantpartoftheIASB,theInternationalFinancialReportingInterpretationsCommittee(IFRIC)showed that the EU provided a majority of the comment letters, while the US, Canada and thedevelopingcountriesgeneratedfewercomments(Larson,2007).Althoughitshouldbenotedthattheresearchisnotbasedonaconvergenceproject.Atthattime,theUSstillhadinterestintheseissuessince the SEC still required foreign companies listed on US exchanges to reconcile IFRS financialstatementstoUSGAAP.

Zeff (1978) drew attention to the challenges of considering the different interests of differentstakeholdersduringthestandardssettingprocess,bothfromatheoreticalperspectivewithadherencetoprincipleandwhereconsistenceimplementationisheldupassuperior,andapracticalperspectivewhereeconomicconsequencesisconsideredtobemostessential.Theauthorcalledthisadelicatebalanceofaccountingandnon-accountingvariablesthatthestandardsetterischallengedwith.Zeff(1978) highlighted that the American accounting profession and FASB has been exposed of anincreasedexternalinfluenceinthestandardsettingprocess.Zeff(2012citedinNobes&Parker2012)furthertestifiedofhowthesameinfluencehadbeenoccurringtowardsIASB.Thestakeholdershaveemphasized economic consequences,which arguably could result in that these interests could bedetrimental to the interestsofotheraffectedparties. Theauthor stated that accounting standardsettersmusttakethisintoconsiderationwhendealingwithaccountingissues.Furthermore,Bamber&McMeeking(2012)pointedouttheimportanceofthatIASBduringthedueprocessremainshighlyimpartial and independent in their treatment of the comment letters in order to be perceived aslegitimate.Theirempiricalresearchfoundacertainamountofbias inthestatisticalanalysisoftheconsultationresponsestoIFRS7FinancialInstruments-Disclosures.

Watts&Zimmerman(1978)havealsoanalysedtheparticipationofthedueprocess,highlightingthepreparer'spositionoftheeconomiceffectsofproposedstandards.Theyassumethatindividualsacttoinordertomaximizetheirownutility.Hence,theyassumethatmanagementlobbiesonaccountingstandardsbasedonself-interest.

Sutton(1984)researchstatedthatlobbyingandtoexertinfluenceisthemostproductiveinanearlystageofthestandardsettingprocesswhentherulemakersarestillunderconsiderationonhowtomoveforwardtowardsafinalaccountingstandard.Inregardstoatwhatpointpreparerslobbythemost, Sutton’s research is supported by Giner & Arse (2012) study results, which showed thatpreparersaremoreactiveinsendingcommentlettersinthebeginningofthedueprocess.

Stenka&Taylor(2010)investigatedaccountingstandardsettingintheUK.Theresearchwasbasedoncommentletterresponsesondifferentrelatedexposuredraftswheretheydividedthepreparersinto


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twocategories,corporateandnon-corporate.Thestudyresultshowedhowthepreparersarguefortheir interests.Preparersandnonpreparersare foundtouseconceptuallybasedargumentsmoreoften than economic based arguments. However, economic based arguments are solely used bycorporate preparers. Another research which examined preparers and non-preparers positiontowardsnewaccountingstandardsandhowtheyargueincommentletterswasHartwig(2012).Hisstudyfoundthatinregardstotheprohibitionofgoodwillamortization,corporatepreparerssupportnon-amortizationofgoodwilltoahigherextendthannon-preparersduetoeconomicconsequences.Thestudyalsoshowedthatbothcategoriesuseconceptualbasedargumentsinahigherextentthaneconomicconsequencesbasedarguments.

Previousempiricalresearcheshaveemphasisedallthedifferentcommentletters,whicharesentfrompreparers, academics, individuals, accountants, users of financial statement, professional bodies,industryorganisations,standardsetters,regulatorsandconsultantsetcetera.Aspresentedinpreviousstudies,thelargestgroupofstakeholderswhichaimtoinfluencethedueprocessarethepreparersoffinancialstatements.However,therearelimitedresearchesthatfocusonpreparersonly.Chircop&Kiosse (2015)examined the characteristicsof firms that lobbiedon theexposuredraftof IAS19 -Employee benefits, and their position on two important proposals in the ED. Nevertheless, theresearchdoesnottakeanygeographicalaspectsorcomparisonsintotheirconclusions.

Asthepreparerisacentralactorandaninfluentialpartofthedueprocess,wefinditimportanttoinvestigatewhattheopinionsof thepreparersof financialstatementsareandhowtheyargueforthem.Wefindthis informationessentialsincethestandardsetters IASBandFASBdealwithheavyexposuresofdifferentpreparersthatwantsinfluenceinthestandardsettingprocessandfurthermoreremain impartial regardless and take different geographical regions in consideration in order tomaintainitslegitimacyasaccountingstandardsetters.

A new revenue recognition standard has been long waited. The standard of one single revenuestandardforallindustriesisdescribedasacomplexstandardwhichwillhavegreatimpactandleadtosignificantchangesinsomeindustries.Thereisanuncertaintywhetherthestandardwillimpactthepreparersfinancialstatementsinapositiveornegativemanner.Theremaybedifferencesofopinionbetweenthevariousindustriesthestandardwillimpact.Thereforitwouldbeinterestingtoinvestigatewhetherindustrieshavedifferentapproachestowardsthestandardandthetypeofargumentsthatisexpressedtohighlighttheirstandpoint.

DuetothefactthatIFRS15isastandardcreatedjointlybyIASBandFASBasapartoftheconvergenceproject, it is likely thatpreparersdiffer in theiropinions since theirpreviousaccounting standardsregarding revenue recognition have considerably different characteristics. Therefor it would beinteresting to investigatewhether thereare significantdifferences inwhetherpreparersacceptorobjectthenewstandard,andfurtherifandhowopinionsarebeingarguedfor.

1.2.1Researchquestions

- Howarethecommentletterssentbypreparersdistributedamongregionsandindustries?

- Is it possible to see any differences in opinions and arguments used by preparers fromdifferentregionsandindustries?

1.2.2Researchhypotheses

Thefirstresearchquestionisnotsubjecttostatisticaltestsinthisstudy.However,thesecondquestioncanbeansweredthroughoutstatisticalX2-tests.


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Nobes&Parker (2004) andUnerman&O'Dwyer (2004) researches illustratedmajor internationaldifferencesintheadoptionofeitherIFRSorUSGAAPinthefinancialstatements.Hence,theopinionstowardstheconvergenceprojectmightdifferbetweenpreparersfromdifferentregions.Thereof,thefollowinghypothesisistestedforpotentialsignificantdifferences.Ifthetestissignificant,therearedifferencesintheregionsopinion.

1. (H0): There are no differences in regionswhether they agreewith the single

revenuerecognitionstandard.

Zeff (1978)andWatts&Zimmerman(1978,79,90)arguedthatpreparershaveeconomic interests.Hence, some preparers might have more economic based arguments than others. In order toinvestigate the second research question; Is it possible to see any differences in opinions andarguments used by preparers fromdifferent industries and regions?The following hypotheses aretested for potential significant differences. If the tests are significant, there aredifferences in theregionsandindustriesargumentation.

2. (H0):Therearenodifferencesinregionsinhowtheyargue.

3. (H0):Therearenodifferencesinindustriesinhowtheyargue.1

1.2.2Purpose

ThisstudyexaminesthepreparersoffinancialstatementsandtheirparticipationintheinitialphaseofthedueprocessoftheaccountingstandardIFRS15–Revenuefromcontractswithcustomers.Theaimofthisstudyistoidentifytowhatextentdifferentpreparersvaryinparticipationamongindustriesandregionsandfurtherexaminewhattypesofargumentationthatisbeingused.Thepurposeistoimproveandbroadentheunderstandingofwhypreparerschoosetoparticipateinthedueprocessandhowthisrelatestopreviousresearchwiththeintentiontoprovidecontributiontotheresearchlandscape.Inordertounderstandwhypreparers,participateinthedueprocess,weassumethattheargumentsputforwardinthecommentlettersrepresentsthemainreasonsofwhyapreparerchosetoagreeordisagreewiththeproposedstandard.Hence,byansweringtheresearchquestionsthepurposeofthestudywillbeachieved.

1Additionalhypothesesandstatisticaltestscouldnotbeconductedbecauseofmethodologicalconsiderations,seechapter4.3.3.1


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2TheoreticalframeworkInthetheoreticalframeworksection,economicandsociologicaltheoriesthatseekstoexplainwhypreparerswillreactinacertainwaytodifferentaccountingcharacteristicswillbepresented.ThisisdiscussedbyHussein(1981),Kelly-Newton(1980),Davisetal.(1997),andWatts&Zimmerman(1978,1990).ThetheoriesinthischapteriscomplementedbythepreviousresearchpresentedinChapter1.

2.1Innovativeprocess(Hussein,1981)

Hussein presented in his study how the Innovation process is affected by sociological aspects inaddition to traditional economic aspects when setting accounting standards. By addressing theprocessinaquitebroadmanner,Hussein(1981)suitsasanintroductionofthetheoreticalchapter.Among other thoughts, Hussein (1981) identified that stakeholders will interfere with accountingregulation only if management finds a performance gap. Whether or whether not stakeholdersidentifyaperformancegapdependsonifthereisadiscrepancybetweenadesiredandexperiencedlevelofsatisfactionintheaccountinginnovation.

Hussein(1981)developedamodelbasedonZaltmanetal.(1972citedinHussein,1981)intheareaof standard setting accounting norms. Themodel identified a discrepancy between a desired andexperiencedlevelofsatisfactionreferredtoasaperformancegap.Theperformancegapaffectstheregulationprocesswheredifferentactorsandavarietyoffactorshasanimpactonthefinalaccountingsolution.Theresultisbasedonacollectivedecisionbyseveraldifferentactors’participationinthestandardsettingprocess.

Inanearlystage,thestudyshowedtheimportancetoobservethedifferentattitudesofanaccountinginnovation which can result in motivations to consider a change. The actors' perception of theaccountinginnovationisdependentonthecharacteristics,thesameinnovationmaybeperceivedtohave different characteristics and degree of importance by different actors. According to Hussein(1981),therearesixcharacteristicsthataffectstheperceptionofanaccountinginnovation;relativeadvantage,relevance,reliability,compatibility,communicabilityandradicalness.

Aftertheformationofattitudes,thereisaphasewheretheaccountinginnovationmustberegardedas legitimate in order to be accepted. The phase is characterized with implicit bargains betweendifferentgroupswithdifferentinterests’.Husseincalleditimplicitbargainingbecauseofthatsmallergroupsmaynotbeinfluentialenoughalonetoabletoaffecttheaccountinginnovation.Therefore,acompromise is created through implicit bargaining, which means that the relative influence ofdifferentgroupswilldeterminethefinalresult.Differentactorscanalsocreatecoalitionstoincreaseitsrelativeinfluenceintheprocess(Hussein,1981).

2.2Aspectsspecifictotheinnovation(Kelly-Newton,1980)

As a continuation on the theory of Hussein (1982), Kelly-Newton (1980) focuses on the factorsinfluencing managements' reaction to new accounting standards. One of the categories sheconsideredto influencetheacceptanceor therejectionsbycorporatemanagementofaproposedchangeinaccountingpractices istheaspectsspecifictotheinnovation.Theseaspectsare;relativeadvantage,compatibilitywithnorms,complexityinuse,trialabilityofthechange,andobservabilityofperceivedbenefits.Asthecharacteristicsarediscussed,itisofimportancetohaveinmindthatitisthe perception of the attributes that is essential, since these understandings will determine theaccountinginnovations'acceptability.


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2.2.1Relativeadvantage

Therelativeadvantage,orthebenefitsoftheaccountingchangemanagementbelieveswillaccruefromadopting the accountingmethod is primary along the characteristics. The benefits are oftenmeasuredineconomictermsandmayincludeexpectationsofeconomicprofitability,implementationcosts,relatedrisksandtimesavings.Kelly-Newton(1980)referstoWatts&Zimmermans'studiesasexamplesofpositiveaccountingtheory,wheremanagers'goalistomaximizeitsownwealththroughstaypositiveoropposeanaccountinginnovation.Furthermore,theimpactofincreasedaccountingcosts is also central in assessing the relative advantage of an accounting change. These costs caninclude expenses to engage outsiders in the implementation phase and opportunity costs fromdivertingemployeesintoincreasedaccountingtasks.

2.2.2Compatibilitywithnorms

Thesecondcharacteristicwhichinfluencetheadoptionofanaccountinginnovationistheperceivedconsistencyofaproposedchangewithmanagement’snorms,values,attitudes,pastexperiencesandneeds.Thevariableofcompatibilitywithnormsinvolvestheculturalandsociologicalattributesofthebusinesscommunity.Thegreaterthesimilaritywithexistingnorms,thelesschangetheinnovationrepresents. The value schememust be clearly distinguished from the accounting profession. Theaccountingprofessionisuser-orientedconcerningthefinancialstatementreports,stressingdecision-usefulinformationtotheuser.Managementadoptsauserperspectiveonlytotheextentnecessaryformaintainingitsequitymarket.Managementfindsitlessimportantforfinancialstatementstohavequalitiessuchas relevance, timeliness,consistency, lackofbias,uniformityandcomparability.Thebusinesscommunitythusstressesvaluessuchasobjectivity,accuracy,reliabilityandverifiability.

2.2.3Complexityinuse

Theperceiveddifficultyinimplementingandunderstandingtheaccountinginnovationrepresentsthecomplexityfactor.Thisaspectwillbedeterminedbythepreparersexistingtechnicalskills,education,knowledge,priorexperiences,expected learningcurve,availabilitytooutsideconsultantsetcetera.Predictedimplementationcostsarenotdirectlyinvolvedinthisparticularaspectastheyimpacttheperceivedrelativeadvantages,see2.2.1.

2.2.4Trialabilityofthechange

Afourthaspectistrialabilityordivisibility,meaningastowhichextentanaccountinginnovationcanbeimplementedonapartialbasis.Selectiveimplementationmaybeseenasbeneficialifmanagementperceives frompartial adoption, and is thus encouraged to experiment. Furthermore, the gradualapproachreliesononebasicassumption,thesmallertheamountofchange,thegreaterthechanceofacceptancebymanagement.

2.2.5Observabilityofperceivedbenefits

Finally,thedegreeofvisibleresultsfromadoptingtheaccountingchangeandhowitiscommunicatedtomanagementisanaspectoftheaccountinginnovation.Ifpositivebenefitsareclearlystatedintheaccounting proposal, it enhances the accounting innovations acceptability with management. Ingeneral,managementplace lowervalue in controversialdisclosuresbuthighervalueonbasicandcommonly disclosed information items. The observability of perceived benefits can be improvedthroughappropriateuseofstrategy.Persuasionprogramscanheightenthevisibilityoftheadvantages


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tothepreparersoftheaccountingchange.Educationstrategieswhichmayinvolveexperimentationofthenewaccountingmethodcanreduceinitialresistancebymanagement.

2.3Sociologicalman(Davisetal.,1997)

Davisetal.(1997),statedthatthestewardshiptheoryissprungoutofsociologicalandpsychologicalapproaches of governance. Since the theories of Kelly-Newton (1980) involved aspects bothconsideredtobeeconomicandsociological,acontinuationonthesociologicalframeworkissuitable.Davisetal.brieflydescribedthetheoryasawaytohighlighthow“stewardsaremotivatedtoactinthebestinterestoftheirprincipals”(1997,p.24).SomecharacteristicswillbefurtherexaminedwithinspirationofDavis et al. (1997) framework, focusingonmotivation, identification and theuseofpowerastheycanbeseentobepsychologicalmechanismsaffectinghowtheagentisassumedtoact.

When investigating what tends to motivate individuals that is more aligned with the theories ofstewardshipgovernance, the intrinsicvaluesareofutmost importance. Intrinsicvaluescanbe thepossibilitytogrow,achievegoalsandbeabletoself-actualise.Eventhoughtheintrinsicvaluesaredifficulttoquantify,thesevaluesarekeysofmotivation.Asteward’sgoal istobealignedwiththeorganisation,sincegoalcongruencyistobenefittheorganisation.ThevaluesmotivatingastewardareexplainedtobeofhighorderputintocontextinMaslow’shierarchyofneeds(1970citedinDavisetal.,1997).

The observation of how an individual’s identification with an organisation can lead to positiveoutcomesisnotexceptional.Davisetal.(1997)statedhowidentificationenablesindividualstostriveforaltruisticbehaviourandcontinuousimprovement,thusit'snotbeingrewardedinfinancialterms.Continuousimprovementsarethoughcoupledwiththeself-actualisationwhichinitselfisrewarding.

Withgovernancecomespower.Davisetal.(1997)usedthesimplifiedtypologyofGibsonetal.(1991cited inDavis et al., 1997) dividingpower into the categories of institutional andpersonal power.Stewardshipischaracterisedbypersonalpower.Personalpowerisnotinheritedinthestructureofanorganisationasan institutionalpower,nor is it legitimateby law,butby interpersonalexperiencecreatedandtendedforovertime.Personalpowerisinthissensethemainsourceofinfluenceinanorganisationpermeatedbystewardshipvalues.

2.4Economicman(Davisetal.,1997)

Davisetal.(1997)presentedhowthetraditionalviewofeconomicgovernanceandagencytheoryisaffiliatedwiththeassumptionsofindividualistic,opportunisticandself-servingbehaviours.Inotherwords,it iscalled:theassumptionsofhomoeconomicus.Moreover,theeconomicmanconstitutesthebaseofagencytheory,assumingtheagenttobeanactorcharacterisedasarationalandself-maximising individual. Theeconomicman is thereforassumed toact in self interestwhenmakingdecisions.Thesamepsychologicalmechanismsaspresentedinthechapterofsociologicalmanaretobetreatedinthelightoftheeconomicman.Thesearemotivation,identificationandtheuseofpower.Additionally,Watts&Zimmermans'theoryofpositiveaccountingispresented.

Davisetal.(1997)explainedtheeconomicmantobemotivatedbylowordereconomicneeds.Theauthors draw parallels to Maslow (1970), who describes lower order needs as physiological andsecurityneeds. Theauthorsproposed that individualswithextrinsicmotivations tend to inhigherdegreebeactinginselfinterest,andisfurthercharacterisedinaccordancetoeconomicman(Davisetal.,1997).


14

Kelman andMael& Ashforth, (1958, 1992 cited in Davis et al., 1997) define towhich extent themanagerisidentifyingitselfwithanorganisationaswhen“acceptingtheorganisation’smission,goalandobjectives”(1997,p.29).Individualsthatarenotacceptingandidentifyingthemselveswiththeorganisationareproposedtobemorelikelytoactinlinewiththeeconomicman.Furthermore,Davisetal.(1997)statedthatanindividualwhodoesnotidentifywiththeorganisationcouldactuallybeharmfulduetotheriskofnotacceptingresponsibilityandnotactintheorganisation'sbestinterest.

Davisetal.(1997)statedthatinstitutionalpoweriscommonintheuseofcontrollinganagentastheagent isassumedtoactself-servingandoropportunistic.Theuseof legitimatepoweroftentakesformasrulesandregulationandcouldforexamplebecoerciveor legitimate,oftenhierarchalandcentralised.

2.4.1Positiveaccountingtheory(Watts&Zimmerman(1978,1979&1990)

Watts & Zimmerman (1978, 1979, 1990) are the founders of positive accounting theory. Positivetheories try to explain andpredictwhich accounting policies firmswill choose andhow firmswillrespond to newly proposed accounting standards. The theory recognized that economicconsequencesintakenintoconsiderationwhencompaniesmakesitsdecisionofaccountingpolicies.This is an explanationwhymanagerswant flexibility in choosing accountingpolicies,whichbringsforward theproblemofopportunisticbehaviour.Thisoccurswhenmanagementacts in theirownpersonalinterests.Positiveaccountingtheoryhasthreehypothesesfromwhichitisorganized(Watts&Zimmerman,1990).Thefirsttwofollowinghypothesesaremostrelevantforthethesis.

Thebonusplanhypothesisrelatedtofirmswithbonusplansforthemanagers.Theywillbemorelikelytochooseaccountingpoliciesthatshiftreportedearningsfromfutureperiodstothecurrentperiodtoreceivehigherbonuses.

Thedebt/equityhypothesispredictedthatthehigherthedept/equityratiois,thelikelihoodincreasesthatmanagementmoveearningsfromthefuturetocurrentperiod.Itisthenlesslikelytodisruptdebtcovenantsandmanagementhasreduceditsconstraintsinrunningthefirm.

Politicalcosttheorypredictedthatitismorelikelyforthemanagementtomovecurrentearningstothefuturetopreventthegreaterthepoliticalcostsfacedbythefirm.Increasedpoliticalpressurecanderivefromhighprofitabilityandresultinhighertaxesorregulations,especiallyforlargercompanieswhichisoftenheldtohigherreportingstandards.

2.5Theoreticalframeworksummary

Thetheoriespresentedisabasisfortheunderstandingofthecharacteristicsoftheinnovationprocessaswellasthemanagerialtraits.Thetheoriesarethebaseofthecategorisationoftheregionsandindustriesopinionandargumentation.ArgumentationthatcanberelatedtoDavisetal.(1997),Watts&Zimmerman(1978,1979,1990)andKelly-Newton's(1980)firsttopic,relativeadvantages,whicharecategorised as economic arguments. Argumentation that can be related to Kelly-Newton (1980)headlines about compatibility with norms, complexity in use and trialability of the change arecategorised as sociological arguments. Further explanation of our categorisation is explained inchapter4.3.2.3.


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3InstitutionalcontextIn this chapter, overall information is provided about themain actors that develops internationalaccountingstandards.Moreover,generalinformationaboutIFRS15andtheprocessofthestandarddevelopmentwillbepresented.

3.1FinancialAccountingStandardsBoard–FASB

FASBisestablishingstandardsforfinancialaccountingthatgovernthepreparationoffinancialreportsbynongovernmentalentitiesintheUS.ThestandardsarerecognizedasrespectedbytheSecuritiesandExchangeCommission(SEC)andtheAmericanInstituteofCertifiedPublicAccountants(AICPA).

Themission of FASB is to create and improve financial accounting standards reports that providedecision-useful information to investors and other users of the financial reports. The mission isaccomplishedoveranindependentandcomprehensiveprocessthatencouragesbroadparticipationthatobjectivelyconsidersallstakeholdersview(FASB,n.d.).

3.2InternationalAccountingStandardsBoard–IASB

IASB is a non-profit public interest organisation which mission is to develop IFRS that bringsaccountability,transparencyandefficiencytotheworld'sfinancialmarkets.Theorganisation'sworkservesthepublic interest in theglobaleconomyby fosteringgrowth, trustand long-termfinancialstability.

IFRSbringstransparencybyimprovinginternationalqualityandcomparabilityoffinancialinformation,supportinginvestorsandotherparticipantstomakeinformedeconomicdecisions.

IFRS strengthens accountability by reducing the information gap between companies and theirinvestors.Thestandardsaimtoprovidethenecessaryinformationtoholdmanagementintoaccount.Also,IFRSaimtocontributetotheglobaleconomicefficiencybyhelpinginvestorsaroundtheworldtoidentifyrisksandopportunities.Theuseofasingletrustedaccountingstandardlowersthecostofcapitalandinternationalreportingcostsforbusinesses(IFRS,n.d.,e).

In2002,theEuropeanParliamentdecidedthataccordingtoECnr.1606/2002art.4,listedcompaniesof every member state of the European Union should apply from January 2005 its consolidatedfinancialstatementsaccordingtoIFRS(EuropeanParliament,2002).Altogether,120countriesaroundtheworldhaverequiredorpermittedtheuseofIFRS(IFRS,2015f).

IFRSaredevelopedthroughaninternationalconsultationprocess,whichinvolvesstakeholdersfromaroundtheworldwhichiscalledthedueprocess.

3.3IFRS15

ThegoalofthejointlyconductedrevenueprojectbyIASBandFASBwastoclarifyandtheprinciplesofrecognisingrevenuefromcontractswithcustomers.ThefinalissuedversionofIFRS15appliestoallcontractsexceptforfinancialinstruments,insurancecontractsandleases2.

2Inthediscussionpaper,financialinstruments,insurancecontractsandleaseshadnotyetbeenexcludedfromthescope.


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Themainobjectivesoftheprojectweretoprovideclearprinciplesforrevenuerecognitioninarobustframework to remove weaknesses and inconsistencies in existing revenue recognition standards.Furthermore,toprovideasinglerevenuerecognitionmodelinordertoincreasecomparabilityoverarangeofcompanies,industriesandgeographicalregions.

Thecurrentrevenuerecognitionstandards inUSGAAPhasbroadconceptsofrevenuerecognitionwhichnumerousindustryandtransactionspecificrequirementsexiststohandlewithdifferenttypesofcontracts.IFRSconsistsoffewerstandards,howevertheycanbedifficulttoapplyincomplicatedtransactionsduetolimitedrulesandguidelines(IFRS,n.d.,m).

IFRS15replacesallpreviouslyissuedstandardsandinterpretationsrelatingtorevenuerecognition,whichincludeIAS11–ConstructioncontractsandIAS18–Revenueamongotherrelevantstandards(Anjou,2014). IAS11andIAS18havebeentheapplicableregulationsince1995(DeloitteIASplus,n.d.,a)(DeloitteIASplus,n.d.,b).

Thestandardwillapplytoannualperiodsbeginningonorafter1January2018forcompaniesapplyingwithIFRS.ForUSGAAP,theeffectivedatestartsthe15December2017.EarlyadoptionisacceptableinIFRSbutnotforpublicentitiesreportingunderUSGAAP.(IFRS,2015c)Entitieswillshiftfollowingeitherafullretrospectiveapproachoramodifiedretrospectiveapproach(EY,2014).

Thestandard’sprincipleswillbeappliedbyusingafivestepmodel,seeFigure3.3.Theentitieswillhavetoexercisejudgementwhenconsideringthetermsofthecontractandallrelevantcircumstancesandfacts.Therequirementswillhavetobeappliesconsistentlytocontractswithcomparablefeaturesandinsimilarcircumstances(EY,2014).

Figure3.3–Fivestepmodel(EY,2014).

3.4ThedueprocessofIASBaccountingstandardsetting

Inorder tobe able to reach IASB's objectiveof developinghighquality accounting standards, theorganisationstartsfirststagewithananalysisofwhatisofvaluetotheusersoffinancialstatements.Highqualityinformationistheprimarygoal,whichaswellisakeyaspectofotherstakeholders,suchas preparers.When initiating the standard setting process and setting the agenda, the followingaspectsareconsidered;therelevancetousers,whetherexistingguidanceisavailable,thepossibilityof increasing convergence, thequality of standard to bedeveloped, and finally; possible resourceconstraints(IFRS,n.d.,g).SeeFigure3.4forvisualisationofthedueprocess.

Step1•Identifythecontract

Step2•Identify

performanceobligations

Step3•Detirminethetransactionprice

Step4•Allocatethe

transactionprice

Step5•Recognise revenue


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Inthesecondstage,whenfurtherplanningtheproject,theIASBconsiderwhetherthestandardsettingprocessistobeconductedaloneorwiththehelpofanotherstandardsettingbody.InthecaseofIFRS15, thestandard isdeveloped jointlywithFASB.During thecaseofplanning,possibleconsultativegroupsarecreatedtoassisttheproject(IFRS,n.d.,h).

The third stage is not a mandatory process, although a discussion paper is often published. Thepurpose of the discussion paper is to collect solicit opinions at an early stage. In the case of thedevelopmentof IFRS15, adiscussionpaperwaspubliclypublished in2008containingpreliminaryviewsofthenewstandard(IFRS,n.d.,i).

Infourthstage,anexposuredraftispublished.Thiscontainsaconcretestandardproposalandhandlesearlier research made by staff and further comments obtained internally from IASB consultativegroups(IFRS,n.d.,j).

In stage five, a consideration whether a second exposure draft, a so called, re-exposure draft isneeded.Thedecisionofwhetherornottore-publishadraftistakenonanIASB-meetingandifchosen,thedueprocessisthesameasbefore.Ifandwhenthestandardhasbeenre-published,theresultisputtogetherinordertocreatethefinaldraft.Usually,itisreviewedexternallybytheInterpretationCommittee(IFRIC)(IFRS,n.d.,k).

Asinstagesix,thestandardhasbeenissuedandnewobjectivescanarise.IASBfacilitateeducationandhandlespossibleeventualities.IASBalsoconductstudiesintheeffectsduetotheimplementationofanewstandardandhowitmighthaveaffectedtheinformationenvironmentanditsquality(IFRS,n.d.,l).

InthedueprocessofIFRS15,thepossibilitytosendcommentlettersweregivenat4times.Thefirstpossibility was given in the discussion paper. Further, there were two exposure drafts open forcomments on the standard specifications. In addition, because of the complex and extensiveimplementationconsequencesofthestandard,anexposuredraftoftheeffectivedateofIFRS15wasissued.Hence,thestandarddevelopmentofIFRS15hasbeenmoreextensivethanthedueprocessdescribedabove.

Figure3.4–Thedueprocess(IFRS,2015d)

1.Settingtheagenda 2. Planningtheproject

3.DevelopingandpublishingtheDiscussionPaper,includingpublic

consultation

4.DevelopingandpublishingtheExposureDraft,includingpublic

consultation

5.DevelopingandpublishingtheStandard

6. ProceduresafteranIFRSisissued


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3.4.1TheIASBDiscussionPaper(DP)ofthedueprocessofIFRS15

InDecember2008, the firstdiscussionpaperregarding IFRS15waspublished.Thepurposeof thepublication was to create a basis for discussion and enabling every stakeholder which believesthemselves to experience any affects of the new revenue standard to be able to influence thedevelopment.Thediscussionpaperconsistsoffivechapterswhichtogetherholdsatotalofthirteenquestions(IASB,2008).AllofthequestionsarepresentedinAppendix6.


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4Methodology4.1Researchstrategyanddesign

Thepurposeofthethesisistoidentifytowhatextentdifferentpreparersvaryinparticipationamongindustries and regions and further examine what types of argumentation that is being used. AsintroducedinChapter1,IFRS15isaninterestingstandardtofocusonsinceitisacurrentsubjectintheareaofaccountingandastandardthathasrecentlybeendeveloped.InMay2014thestandardwas finally issued. The thesis is basedonquantitative research tobroaden theperspectiveof thepreparer's role in the standard setting process. This has been achieved by collecting informationqualitativelyincommentletters.

Thehypothesesbasedonthethesisresearchquestionsarededucedfromtheoryandissubsequentlytested.Itisoneofthemaincharacteristicsofaquantitativeresearch(Bryman&Bell,2007).Althoughthethesisisbasedonadeductiveapproach,westillhadaninductiveapproachwherewetriedtoseekotherobservationswhichwerenotbasedonparticulartheory.Thequantitativeresearchhasbeenfocusingononeexposuredraftof thediscussionpaperof IFRS15.Thechoiceof investigatingoneparticular standard could be seen as a limitation, since alternative standard developments werediscarded.

Theresearchwasbasedonacomparativedesign.Wecomparedpreparersfromdifferentindustriesandregionsandtheirrespectivelyopinionsandargumentations.Thedatawascollectedbytheuseofacross-sectionaldesign,seeAppendix1.Thecross-sectionaldesign involvedthecollectionofdatafrommorethanonecaseatacertaintimeinordertocomeupwithasetofquantitativedatarelatingto two or more variables. These were further examined in order to detect patterns of differentrelationships (Bryman&Bell,2007).Wehavecollectedthedatabyexaminingpreparerscommentlettersfromthediscussionpaperandfurthersearchedfordifferencesandrelationshipsbetweentheiropinionandargumentation.

4.2Literaturesearch

Whentheresearchquestionhadstartedtotakeform,oursearchforexistingliteraturebegan.It isaccordingtoBryman&Bell(2007)ofimportancetoinvestigatewhatsubjectsandwhatperspectivesthat has been examined in previous research. Ourmain source of literaturewas the database ofreferencesLUBSearchwhichhasbeencomplementedbythedatabaseofGoogleScholar.LUBSearchis LundUniversity's libraries shared referencedatabasewhichprovidesabroad rangeof research,includingregardingthefieldofaccounting.

Thesearchinginthedatabasesstartedwiththeuseofgeneralaccountingtermsregardingaccountingstandardssettingsuchas;standardsetting,standardsettingprocess,dueprocessandlobbying.Whenthescopefurtherwasnarrowed,keywordssuchas;corporatelobbying,preparerlobbying,decisionprocess, lobbying in thedueprocess, IFRS15etceterawereused.Furthermore,while investigatingearlierempiricalstudiesof thesubject,keywordssuchas;empiricalstudiesdueprocess,corporatelobbyingempiricalstudyandpreparerlobbyingempiricalstudy.Themajorityofthetheorieswhichthestudyreliesonwerealsofoundinthedatabases,usingkeywordssuchaseconomicman,sociologicalman,innovationprocessandpositiveaccountingtheory.Thesekeywordsprovideduswithaninitialinsightofthepreviousresearchbutalsowithadditionalreferences.Wealsotookvaluableadvicefromour supervisor regarding additional relevant literature in order to broaden our perspective ofaccountingtheory.


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4.3Researchmethod–Contentanalysis

When aiming to understand, analyse and draw conclusion from the primary source of commentletters,contentanalysisapproachwaschosenasasuitablemethod.Contentanalysisisanappropriatemethodwhensystematicallyandinareplicablemanneranalysedocumentsandtextsthatseekstoqualifyandquantifycontentbycategoriesthathasbeendesignedinadvance.Thepositiveaspectsofacontentanalysisarethatitisanopenresearchmethodthatmakesiteasytodescribethesamplepopulationandthedesignofthecodingmanual,whichmakesfuturestudiessimplertoreplicateandfollowup(Bryman&Bell,2007).Krippendorff(2013)arguedthatthetraitofcontentanalysisasbeingreplicableincreasesthechancesofareliablestudy.Thelimitationsofthecontentanalysisarethatitrelies on the quality of the documents which it is based on. One should assess the documentsaccordingtoScott(1990,citedinBryman&Bell,2007)onthefollowingthreecriteria:authenticity,thatthedocumentiswhatitispurportstobe,credibility;whethertherearereasonstobelievethatthe documents have been or are distorted, representativeness; whether or not the documentsexaminedarerepresentativeofallpossiblerelevantdocuments.AlltheoriginalcommentletterssentarepubliclypublishedontheIASBandtheFASBwebpages.Furthermore,thecommentletterscontactpersonisclearlystatedineachofthedocuments.Hence,thethreecriteriawereconsideredtobemetandthecommentletterswereconsideredtobeahighqualitysourceofdocumentsanalysedinthecontentanalysis.

Thisstudywasconductedwithadeductiveandaninductiveapproach.Ittookpreviousresearchintoconsiderationwhenformulatingmethodandpurposebutwestill triedtohaveacuriousapproachandsearchfornewfindings.Thedeductiveapproachrepresentsthemostcommonperceptionoftherelationship between theory and practice (Bryman & Bell, 2007). Other authors have a differentopinion.Polit&Beck(2004citedinElo&Kyngäs,2008)statedthatthemethodofcontentanalysisisto bemoredifficult than amoreordinary quantitativemethod since it is less standardised. Elo&Kyngässtatedthatoneof themainchallenges lies inchoosinghowtoconstruct theframeworkofanalysis since it is very flexible, meaning that there is "no simple 'right' way" (2008, p. 113) ofconductingsuchastudy.Wethereforealsoappliedaninductiveapproachinordertoseekiftherewereanynewobservedpatternsinargumentationsandopinionsofthepreparerscommentletters.

ThecontentanalysiscanbeconductedthroughaprocessaccordingtothedescriptionofElo&Kyngäs(2008),seeFigure4.3.

Figure4.3–Theprocessofthecontentanalysis(Simplified)(Elo&Kyngäs,2008)

4.3.1Preparationphase

Theprocessstartswiththepreparationphasewherethematerialisbeingreviewedandthekeyfigureis to classify larger amounts of information into more manageable content categories. Withbackground of our research question, we categorised basic information of region and industry.Moreover, the primary focus lied in the opinions and the types of argumentation communicatedthrough the comment letters. When we investigated the characteristics of actors that chose toinfluence the standard setting process and further understand their standpoint, various research

1. Preparationphase 2.Organisingphase 3. Reportingphase


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methodscouldhavebeenused.Inordertoachieveasimplifiedunderstandingandtogetanoverviewof the due process, a useful basis was to read comment letter summaries published by IFRS. AcommentlettersummaryisconsideredtobeasecondarydatasourcesinceitisananalysisconductedbythestaffofIFRSoftheprimarysourceoftheoriginalcommentletters(Bryman&Bell,2007).Thiswastherefornotusedasthemainsourceofinformation,merelyasanintroductionofthesubject.

4.3.2Organisingphase

4.3.2.1Codingschedule

Tobeabletoextractdesiredinformationoftheempiricalmaterial,thenextstepwastoorganisethecontent analysis. By constraining the structure of the coding schedule, the research structurefacilitatedtheinformationthatwasdesired,leavingoutanswerstoquestionsthatwerenotofinterestofourparticularstudy(Elo&Kyngäs,2008).Thiswasachievedbyfocusingontherespondents'region,industry,whethertheyagreeordisagreewiththepropositionandifandhowitisbeingarguedfor.

The structure of the coding process is visualized in Figure 4.3.2.1. The codingmanual is found inAppendix1,whereamoredetailedstructureandcategorizationisfound.

Whenwecategorisedtheoriginofthepreparer,majorregionswereused inorderto improvethecomparability.Bymajorregions,wedividedthoseinNorthAmerica,Europe,AsiaandAfrica.Somecountrieshadveryfew,ifanyrespondents,andwerethereforcompoundedintolargerregions.Sincethe revenue recognition standard affect various type of preparers, it was difficult to take everyperspectiveintoconsiderationandwerethereforcompoundedintoindustries,seecategorisationofregionandindustryinAppendix5.TheindustrycategorisationwasinspiredbythesamecategorisationasIFRSuseswhenpresentingcommentlettersummaries(IFRS,2011).

Figure4.3.2.1–Thecodingschedule

Commentletterby preparer

Geographicalregion Industry

Position onthequestionof asinglerevenuestandard?

Position

Agree withEDQ1

Supportingarguments

Economicarguments

Botheconomicandsociological

arguments

Sociologicalarguments

Nosupportingarguments

DoesnotagreewithEDQ1

Supportingarguments

Economicarguments

Botheconomicandsociological

arguments

Sociologicalarguments

Nosupportingarguments

Noposition


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4.3.2.2 Categorisation whether the respondents agree or not agree with the one single revenuerecognitionstandard

Whencodingthecommentletters,wewantedtoinvestigatewhethertheprepareracceptsoropposeswiththeonesinglerevenuerecognitionstandard.Question1oftheDiscussionPaper(IASB,2008)sentoutinthedueprocessaimstoinvestigatethismatter.Thequestionis:

“Doyouagreewiththeboards’proposaltobaseasinglerevenuerecognitionprincipleonchangesinanentity’scontractassetorcontract liability?Whyorwhynot?Ifnot,howwould you address the inconsistency in existing standards that arises from havingdifferentrevenuerecognitionprinciples?”IASB(2008,p.14)

The decision to categorise whether the preparer agree or disagree with the one single revenuerecognitionstandardwasnotalwaysasimpletask.Somerespondentsansweredwithclaritywhichmadethecategorisationeasy.Apositiveapproachcouldbecodedbyaquotesuchas:

“We fully support the boards’ intention to develop a single principle for revenuerecognitionandhenceeliminatetheinconsistenciesbetweencurrentIAS11ConstructionContractsandIAS18Revenue.”-DeutscheTelekomAG(2009,p.2)

Anevidentnegativeresponsecouldbe:

“No.Historically,revenuesarerecognizedwhentheyarerealizedorrealizable,andareearned(whengoodsand/orservicesaretransferredorrendered.).Underthematchingprinciple expenses are recognized when goods and/ or services are transferred orrendered and offset against revenues generated from those expenses. Applying theboards’proposedmodelwouldviolatetheseprinciples,causingmismatchingofcostsvs.revenuesforlong-termcontracts.“-DeeBrownInc.(2009,p.1)

Sometimes the responseswhether theprepareragreeordisagreeneededdeeperdeliberations. Itcouldsometimesbetimeconsumingforustoconcludeawellthoughtcategorization.Anexampleofamoreproblematiccommentlettertodeciphercouldbe:

“TheSwatchGroupwelcomestheworkoftheboardstoissueacomprehensivediscussionpaperthataddressespossibleshortcomingsofIAS11andIAS18.Suchastandardshouldincrease the transparency of the recognition of revenue for the users and result inrequirements that are practicable for the preparers.We therefore view the discussionpaper as a positive first step. Nevertheless, after having analysed the impact of thediscussion paper on the financial statements of Swatch Group, we established thefollowingconcerns:”-TheSwatchGroupLtd(2009,p.2)

Afterdeliberationwe chose tobelieve this answer corresponds to anegative attitude to thenewstandard proposal and therefore categorised as "do not agree". We found too many negativeargumentsinthecommentlettertobelievethecompanyactuallyisinfavouroftheonesinglerevenuerecognitionstandard.


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4.3.2.3Examplephrasesofeconomic&sociologicalarguments

To categorise the argumentationsof the respondentsby their standpoint, the argumentationwasbasedon chosen theories inChapter2 (Kelly-Newton, 1980;Hussein, 1981;Watts&Zimmerman,1978,1990andDavisetal.1997)whichprovideduswithaframeworkofwhypreparersreacttonewtypesofaccountinginnovations,eitherbasedoneconomic,sociologicalorbothtypesofarguments.Inaddition,weaimedforaninductiveapproachandidentifiednewtypesofargumentationpatternswhichhavebeennotedinthecodingunderOtherthoughts,seeAppendix1.

Examplequoteswhichwecategorisedassociologicalargumentsarerelatedtothepreparersnorms,complexityinapplyingthenewstandardandresistancetobeinthescopeofthenewstandard.

Examplequotesregardingthattheaccountinginnovationcontrarytonorms:

"Inrelationtoourindustry,webelievethatcurrentstandardsinSOP81-1,SAB101andSAB 104 provide decision-useful information to the users of financial statements forengineeringandconstructionindustry,butwhicharenotevidentintheproposedmodel.”-URS(2009,p.8)

"Inthiscaserevenueisdelayedtotheendoftheproject.Inthiscaserevenuewillnotbeagoodmeasureoftheworkthatthesupplierhasbeendoingandtheuserofthefinancialstatementswouldgainanincompletepictureofthecompanyactivities."-Fujitsu(2009,p.2)

Examplequotesregardingargumentsforthecomplexityinapplyingthestandard:

"The application of the proposed revenue allocation model as it relates to... may bedifficult to implement... the proposals in the discussion paper need to be explainedfurther..."-Telstra(2009,p.1)

“Developing a single revenue recognition model is difficult due to the complexity ofrevenuetransactionswithvaryingcontractualrightsand...."-IntelCorporation(2009,p.1)

Examplequotesregardingargumentsforbeingscopedoutofthestandard:

"Wewouldotherwisebeinfavourofallowingforanexceptiontothegeneralprinciplesforthesespecificsituations"

-SyngentaInternationalAG(2009,p.2)

“Webelieveallfinancial instrumentsshouldbescopedoutoftheproposedmodel/newrevenue recognition standard as the nature of financial instrument contracts arefundamentallydifferentfromthecontractdescribedintheDP…”-DeutscheBankAG(2009,p.1)

Examplequoteswethathavebeencategorisedaseconomicargumentsarerelatedtowhethertheaccounting innovationwill result in financialburdenfor thepreparer,or if thepreparerargues forflexibilityintheapplicationoftheaccountingstandard.

"ThenecessitytoimplementnewITsystemsandtherecognitionofassetsandliabilitiesonacontract-by-contractbasiswouldsignificantlyincreasethelevelofinternalcontrolsnecessarytoensurecompliancewiththeproposedmodelinourfinancialstatements.Weacknowledgethattheseadditionalcostsareonlyindirectlylinkedtotheproposedmodelbutwebelievethattheyshouldbetakenintoaccountinanycost/benefit-analysisoftheproposedmodel."-DeutscheTelekomAG(2009,p.6)


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"anyrevenuerecognitionconceptneedstobeflexible"-SiemensAG(2009,p.1)

InFigure4.3.2.3, inthecontextofcodingacommentletter,wehavehighlightedquoteswhicharealignedwitheconomicandsociologicalarguments.

Figure4.3.2.3–Exampleofconductedcoding

4.3.3Reportingphase

Whenthedatahasbeencollected,thereportingprocessstarts.Inordertodososuccessfullythedatahastobesimplified,analysedandputintocategories(Elo&Kyngäs,2008).Inthisstudy,thepreparerrespondentswerecategorisedintogroupsasgeographicalregion,industry,opinionandwhattypeofargumentationcommunicated.Furthermore,thedatawasusedtocreatevarioustablesandpiechartsin Excel and X2-tests that was conducted in SPSS in order to present the information in anunderstandableandoverallmanner.

4.3.3.1TheX2-method

TheX2-method testsweremade inorder to complement thevarious tablesandpie chartson thedifferencesbetweenregionsandindustriesintheiropinionsandarguments.AX2-testisastatisticaltestonappliedsetofcategoricaldatatoestimatethepossibilitythatanyobserveddifferencebetweenthe sets occurred by chance. By observing our tables, it might look like there are differences inopinions and arguments between regions and industries.Hence, in order to confirmwhether ourresultsarestatisticallysignificantorbasedonchancewaspossiblebymakingX2-tests.Thetestmethodinvolves a comparison between the observed class frequencies with corresponding expectedfrequencies,whicharecalculatedontheassumptionthatthenullhypothesis(H0)youwanttotryis


25

correct(Körner,1985).TheX2-testsanswerwhethertheresultswehaveinthesamplevaluationdiffersfromthevaluationofthenullhypothesis.Itisestimatedbythep-value.Thesignificancelevelisatap-valueat0,05,meaningthatifthecorrelationsshowap-value≤0,05,werejectthenullhypothesis.Ifthecorrelationshowsap-value>0,05,thenullhypothesiscannotberejectedandthatthereisnostatisticsignificance(Körner&Wahlgren,2015).

InordertoperformtheX2-testswehadtomakesomelimitations.Inordertoperformanadequateapproximation, itusually setsasageneral rule that all expected frequenciesmustbeat least five(Körner,1985).Inothercases,amergeroftwoormoreclassescantakeplaceinordertomeetthecondition.Inourrathersmallsampleof81commentletterswehadtomakesomemergesinordertoperformtheX2-tests.When testing if therewasacorrelationbetweenhow industriesargueswitheconomic, both economic & sociological and sociological arguments, wemerged solely economicarguments with economic & sociological arguments to raise the frequency of the group to thedesirableminimum.Inaddition,the"nonarguments"wereexcluded.Wedidnotbelievethiswouldmake poorer results, because it is relevant to distinguish between those industries who argueeconomicandthosewhodonot.

We also had to exclude preparers from Africa and Asia from the statistical testing because theycontributedwithmuchlesscommentlettersthanNorthAmericaandEurope.Itwouldhavebeentoosmall frequencies and subsequently contributed to a misleading result. Moreover, the industrieswhich sent a small number of comment letters; consumer goods, consulting, Medical & pharmachemicalsandenergy&utilities,hadtobeexcludedinordertoconductaX2-test.

Thenullhypothesiscannotberejectedifthetestfunctionvalue,X2-sum,fallsbelowacertaincriticalvalue.Theapproximationrequiresthattheexpectedfrequenciesarenotoverlytoosmall.Thegeneralrulesarethatnoexpectedfrequencyistobelessthan1,andthatmaximumof20%oftheexpectedfrequenciesistobelessthan5(Körner&Wahlgren,2015).

4.4Empiricalsample

Whenwemadethedecisiontomakeacontentanalysisonthecommentlettersentbypreparers,wehadtomakeachoicewhichstageinthedueprocessweshouldfocuson.ThedueprocessofIFRS15havefourdifferentstageswherethepossibilitytosendcomment letterweregiven. Inthe lightofwhatSutton(1984)stated,whichisfurtherstrengthenbyGiner&Arse(2012),isthatpreparerstendto try to affectpolicymakers in early stages in theaccounting standard settingprocess since it isassumedtohavegreateraffectduetothatdifferentalternativesarestillunderconsideration.IntheprocessofsettingthestandardofIFRS15,thediscussionpaperisthefirstdocumentwhichisbeingopen for comments. Hence, we chose to investigate the comment letters to that document.Furthermore,weconsideredthedocumentofthediscussionpapertocontainquestionsconcerningthe main principles and objectives of the new revenue recognition standard rather in the latterdocumentsinthestandardsettingprocess,suchastheexposuredraftswheremorespecifictechnicaldetailsarepresent.

Based on the questions in the discussion paper, we observed the preparers opinion and theirargumentswhethertheyacceptoropposestheproposedstandard.Someofthepreparerrespondentshavefollowedeachandeveryquestionofthediscussionpaper,andansweredtoitsspecificissue,butthemajorityhavewrittenageneralanswerwithoutaclearstructure.TheanswertoQuestion1 isalmostalwaysincludedwithinthegeneralsectionorunderQuestion2.Question2referstowhetherthestandardwillprovidedecision-useful information,wheremanypreparersarguesprosandconsabouttheimplementationofthestandard,seeAppendix6.Therefore,wewereoftenrequiredtoreadthe whole comment letter since the opinions and arguments towards Question 1 could existthroughoutthedocument.


26

Outof a total of 211 respondentsof thediscussionpaper, 81of themwere sent frompreparers,constitutingthelargestgroupofrespondentsatapercentageof38%.Allofthe211originalcommentletters are published on IASB's and FASB's webpages, where the preparers were identified anddownloaded.

Whenweidentifiedthetestingsampleselectionwehadtomakesomelimitationstogetasareliableandrepresentablepictureoftheproportionofthepreparersaspossible.Thisstudyfocusonsinglepreparers, meaning that trade associations representing dozens or hundreds of companies wereexcludedfromthetestingsample.Webelievedthecommentlettersfromtradeassociationscouldnotbecoupledtoalloftheindividualcompanies'specificopinionsandarguments.Thesamedecisionwasmaderegardingcommentletterssentfromasmalleramountofcompanies,whichwedecidedtobeamaximumof5units,wherearepresentativefromonlyonecompanyrefersto"onthecompany’sbehalf..."andonlythatcompanyrepresentativesignatureispresent.However,ifasmalleramountofcompanieshadwrittenacommentletterjointly,referringto"we"andthepresenceofsignaturesbyrepresentatives fromallof thecompaniesexisted,weacceptedthecomment lettertooursamplereferringtheopinionsandargumentstoeachindividualcompany.

4.5Evaluationofmethod

Replicability, reliability and validity is usual aspects and important subjects in an assessment of abusinessresearch.

Reliabilityisdefinedastowhethertheinvestigationresultwouldbethesameifthestudywouldbeconductedagainoriftheresultisbasedonrandomoroccasionalconditions.AsBryman&Bell(2007)state,itisalmostimpossibletoconductacontentanalysisthatiscompletelyfreefrominterpretationandhavingasubjectiveapproachfromtheencoders'side.Wehaveinourstudyputalotofefforttoget familiarwith the comment letters thatwe laterworked onwhen conducting the analysis. Byreadingseveralcommentletterstogetherbeforewestartedthecoding,webelievedthatwetothegreatest extent as possible designed a coding manual that could provide us a generalizableimplementation.Sincewedoaquantitativeanalysisbasedonqualitativedata,wehaveconductedthecodingofeverycommentlettertogethertoincreasethereliability.Bymanuallyconductingthecoding,Krippendorff(2013)explainshowhumanscananalysecontentinawaythatcomputersfinddifficult,creatingabetterunderstandingofthematerial.Thisiswhywecodedmanually,inordertoensurethateverycommentlettergotthesameprocess.Further,alloftheimportantquestionsthatoccurredduringtheworkprocessweresolvedtogetherafterdiscussingthemandreachinga jointconclusion.

Bryman& Bell (2007), describes replicability as the possibility to reproduce or repeat a study. Asmentioned,contentanalysisisaveryopenresearchmethodwherethesampleselectionandcodingisdescribedconcretely.Sincethedocuments,thecommentlettersareavailableatIASB'sandFASB’swebsites; there are no obstacles to repeat our study. We have aimed to be as descriptive andtransparentof the conductedmethod throughout thewhole chapter to increase thepossibility tomakeareplicablestudy.Thisisaprerequisitetoaccessthepossibilitytoreplicateacomparativeandcross-sectionaldesignstudy(Bryman&Bell,2007).

Validityistoassesswhetherthechosenmethodactuallyprovidesavalidgroundtodrawarelevantconclusion.Twovariouskindsofvalidityareinternalandexternalvalidity.Internalvalidityisbasedoncausality,meaningthatwhichisintendedtobemeasuredisactuallymeasured(Bryman&Bell,2007).The study investigated the opinions and arguments used by preparers fromdifferent regions andindustrialsectors.Thiswasfeasiblebyreviewingtheiraccessibleoriginalcommentletters,whichasmentioned in Chapter 4.3 is perceived as a reliable, since is it a primary source and can arguablyincrease the research’s internal validity. Sending comment letters is a way for the preparers to


27

influencetheaccountingstandardsetting.Hence,manyofthepreparersopinionsandargumentsareoftenclearlystatedinorderforthepreparertobeunderstoodandevaluatedbythestandardsetter.Ifnot,wehavehadguidelineswhichareaddressedinChapters4.3.2.2&4.3.2.3inordertocollectconsistent information in thecodingprocess. Inaddition,wehavegonethroughseveralcommentletterstwiceinordertoensureconsistency.Nevertheless,researchesbasedonacomparativedesignusuallyhaslowinternalvalidity.Basedonthecollectedinformationandresults,itishardtoexplainthereasonsfortheoutcome(Bryman&Bell,2007).However,thestudywasbasedontheassumptionthatthedifferenttypesofargumentationrepresentsthereasonwhyapreparerwanttoparticipateinthedueprocess.Wethinkitisavalidassumption,sincewedonotbelieveapreparerwithoutanyobjectionswithsubsequentargumentationwouldparticipateatall.

Externalvalidityisbasedontheextenttowhichthestudycanbegeneralisedbeyondthespecificstudycontext.Sincewedidnotmakearandomselectionofthepopulation,theexternalvalidityisdoubtful(Bryman&Bell,2007).Thus,thestudyresultscannotbeperceivedasgeneral.Nevertheless,ourstudyisbasedonthecommentlettersonthediscussionpaperdocumentofthedueprocessofIFRS15,andourpurposeistocontributetotheresearchlandscapefocusingontheprepareraspectofaccountingstandardsetting.Hence,ourstudyontherecentlypublishedandlongwaitedstandardofIFRS15canbroadentheunderstandingofwhypreparerschoosetoparticipateinthedueprocess.

4.6Ethicalconsiderations

Ethicalconsiderationshavebeentakenintoaccountduringthewholeworkprocess.Ethicalprincipleshavebeenbrokendowntofourmainareas(Diener&Crandall,1978citedinBryman&Bell,2007)thesearewhether there is;harm to theparticipant,a lackof consent, an invasionofprivacyor ifdeceptionisinvolvedintheresearch.Thedocuments,thecommentletters,thathasbeenexaminedinordertoconductthecontentanalysisarepubliclypublishedonIFRSwebpageandareonlywithheldfromthepublicand thewebsite if theremightbeanyharmfor thesubmittingparty (IFRS,2013).Hence,thismeanswedidnothavetodealwiththeissueofdataanonymityandconfidentialitywhichaccordingtoBryman&Bell(2007)raisesparticularproblemsformanymethodsofqualitativestudies.Thepreparerswhichsentcommentlettersareawarethatthecommentlettersarepublishedpublicly,whichmadenolackofconsentinusingthecommentlettersasempiricaldata.Deceptionmeansthatthe researchers present their research to something other than it is (Bryman & Bell, 2007). Ourambitionhasbeentobeasconsistentandunbiasedaspossiblewhilereadingandinterpretingthecontentofthecommentletters,aimingforhighlevelofobjectivity.Nevertheless,weacknowledgetherewereprobablysomeextentofsubjectiveapproacheswhichmightaffecttheconclusions.


28

5.EmpiricsThischapterdescribestheresultsofthestudyofthecommentlettersonthefirstdiscussionpaperinthedueprocessofIFRS15.Asthecodingmanualinthemethodologychapterexplains,andasseeninAppendix1,thecodingprocesshasprovidedthethesiswithinformationregardingnumerousaspects.Thesewillbefurtherpresentedintheorderofthecodingmanual.

5.1Region

Thecountriesarecategorisedaccordingtoregion,theresultis;37preparersfromNorthAmerica,33from Europe, 9 fromAsia and 2 fromAfrica. North America and Europe is almost singlehandedlyrepresentinghalfofthetotalcommentletters,resultinginAsiaandAfricaasundisputedlyminorities.Givingatotalof81commentlettersprovidedbypreparers.

Figure5.1

5.2Industry

Theresultshowsthatrespondentsfromsomeindustriesaremoreactiveintheprocessofdevelopingthe accounting standard. As the most frequent participating preparers, construction, technology,financials and utilities & transport industries appear as themost active. Even if preparers in theconsumergoods-andconsulting industriesareseentoberelatively lessactive,oneshouldbare inmindthatthere isat leastsomeactivity,thereare industrieswhichdonotparticipateatall inthisprocess.

46%

41%

11%

2%

Regionalcommentletterfrequency

NorthAmerica(37)

Europe(33)

Asia(9)

Africa(2)


29

Figure5.2

5.3Preparers’opinionregardingthedevelopmentofIFRS15

Asforwhetherthepreparerofthecommentletterhasaclearopinionregardingwhethertheyagreeordisagreewiththedraftedproposalsofthediscussionpaper,theconductedcontentanalysisfindseverysinglepreparertohaveaposition.Onthequestionofwhethertheprepareragreeswiththeproposalofasinglerevenuestandard,thecontentanalysisshowsthat55preparers(68%)agreesand26(32%)donotagree.AllofthepreparersopinionareaccountedforinFigure5.3.

Figure5.3

21%

2%

2%4%

18%15%

4%

20%

14%

Industrycommentletterfrequency

Construction(17)

Consultingfirm(2)

Consumergoods(2)

Energy&utilities(3)

Financials(15)

Industrialsandtransport(12)

Medical&pharmachemicals(3)

Technology(16)

Telecom(11)

68%

32%

Overallagreementwithsinglerevenuestandard

Yes No


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5.3.1Whichregionsagreewiththeproposedsinglerevenuestandard?

Table5.3.1showshowdifferentregionsagreeordonotagreewiththenewsinglerevenuestandard.Alloftheregionsareinmajoritypositivetothenewstandard.Lookingatthepercentage,Asia(78%)andAfrica(100%)aremostpositive,butshouldberecognizedassmallergroupsofrespondents.NorthAmerica(70%)andEurope(61%),whichtogetheranswer86%ofthetotalpreparersarepositivebutwithaslightlymoreevendistributionofopinions.

Agreeordisagreewithasinglerevenuestandard?Regions Yes No Total %Yes %No

NorthAmerica 26 11 37 70% 30%Europe 20 13 33 61% 39%Asia 7 2 9 78% 22%Africa 2 0 2 100% 0%

Allregions 55 26 81 68% 32%

Table5.3.1

TheobservationsinTable5.3.1.1aretestedwithaX2-test.Thetestshowsnosignificanceatap-valueat0,395(Appendix2).

(H0): There are no differences in regions whether they agree with the single revenuerecognitionstandard.

We can therefore not reject (H0), there are no statistically significant differences among regionswhethertheyagreewiththesinglerevenuestandard.

X2-test-Agreeordisagreewithasinglerevenuestandard?Regions Yes No Total %Yes %No

NorthAmerica 26 11 37 70% 30%Europe 20 13 33 61% 39%

Allregions 46 24 70 66% 34%

Table5.3.1.1

5.3.2Whichindustriesagreewiththeproposedsinglerevenuestandard?

InTable5.3.2,onecanreadthedistributionofthepreparersoverindustries.Theindustrieswiththemostfrequentlyoccurringpositiveopiniontowardsthesinglerevenuestandardareconsultingfirms(100%),technology(81%),construction(76%),industrials&transport(75%)andtelecom(73%).One


31

shouldbareinmind,thatsomeindustrieshasalownumberofrespondents,whichpossiblyaffectsthe result.When looking at the number of preparerswhodonot agreewith the proposed singlerevenuestandard,theindustriesofconsumergoodsandenergy&utilitiesstandsoutwhereallofthepreparersareopposing(100%).Asmentionedabove,someindustriescontributewithalowernumberofcommentletters,thisisthecaseforthebothindustriesjustmentioned,asconsumergoodsandenergy&utilitiesonlycontributeswithtworespectivelythreecommentletters.

Agreewithsinglerevenuerecognitionstandard?Industry Numberof"Yes" Numberof"No" Total %Yes %No

Construction 13 4 17 76% 24%

Consultingfirm 2 0 2 100% 0%Consumergoods 0 2 2 0% 100%Energy&utilities 0 3 3 0% 100%

Financials 8 7 15 53% 47%Industrials&transport 9 3 12 75% 25%Medical&pharmachemicals 2 1 3 67% 33%Technology 13 3 16 81% 19%Telecom 8 3 11 73% 27%

Total 55 26 81 68% 32%

Table5.3.2

Duetothelimitednumberofrespondents,aX2-testisnotallowedtobeconductedduethecriticalcriteriaofthemodel,whichispresentedinChapter4.3.3.1.Therefor,wecannotdeterminewhethertheseobservationsregardingindustryandopinionaresignificantornot.

5.4Typeofargumentationusedbypreparers

Aspresentedinchapter5.3,allofthepreparerswhocontributewithcommentlettershaveaposition.Whether they present economic or sociological arguments is further examined. Amajority of therespondentsarguetheirpositionaseconomicorsociological,althoughfivepreparers(6%)donotuseargumentscharacterisedasneither,seeexamplesofargumentin2.3.2.2andfurther.

5.4.1Whattypeofargumentsareusedindifferentregions?

InTable5.4.1,thenumberofcommentlettersthatcontainsargumentationconsideredaseconomic,botheconomic& sociological and sociological arepresented. TheheadlineDistributionprovides asimplifiedallocationofthearguments.

AsthenumberofcommentletterssentbytheregionsNorthAmericaandEuropeprovidesthelargestsamples, they are relevant to compare. The results show that the two regions also in type ofargumentationarequitelike.WhatseparatesthemisthatthreeEuropeanpreparersarguesolelyonthebasisofeconomicgrounds.Ontheotherhand,NorthAmericanpreparersusesbotheconomicandsociologicalargumentstoahigherextent.Lookingattheresultsofthetworemainingregions,Asia


32

and Africa, the number of comment letters published is relatively low. Themajority of the AsianpreparersusessociologicalargumentswhereasthetwoAfricanprepares'argumentationareequal.

%oftotal Region OfEco OfBoth OfSoc OfNon Total

NorthAmerica 3% 35% 57% 5% 100,00%Europe 9% 21% 64% 6% 100,00%Asia 11% 0% 78% 11% 100,00%Africa 50% 0% 50% 0% 100,00%

Table5.4.1

Theobservations inTable5.4.1.1are testedwithaX2-test. TheX2-test is conductedwithonly thelargest regions, North America and Europe. Economic arguments and both types of argumentscompoundandputintocomparisonwithsociologicalarguments.Thetestshowsnosignificanceatap-valueat0,514(Appendix3).

(H0):Therearenodifferencesinregionsinhowtheyargue.

Wecanthereforenotreject (H0), therearenostatisticallysignificantdifferencesamongregions inhowtheyargue.

Table5.4.1.1

5.4.2Whattypeofargumentsareusedbydifferentindustries?

AspresentedinTable5.3.1,theparticipationinthedueprocessbyindustriesvary.Themostactivegroupofpreparers,constructioncompaniesarepredominantlyusingsociologicalarguments.Lookingat the second largest group of preparers, technology companies, the arguments aremore evenlydistributed,althoughthesociologicalargumentsareslightlymoredominant.Thethirdandthefourth


33

mostactivepreparers,financialcompaniesandindustrials&transportcompanies,usesamajorityofsociologicalarguments.Twogroupsofpreparerswhichareseeminglyunited in theiropinionsare;energy&utilitiesandmedical&pharmachemicals,asallofthemusessociologicalargumentsolely.Therelativelylownumberofparticipatingpreparersinthesetwoindustriesshouldbenotedthough.

%oftotal Industry OfEco OfBoth OfSoc OfNon Total Total

Construction 0% 18% 76% 6% 100,00% 17Consultingfirm 0% 0% 50% 50% 100,00% 2Consumergoods 0% 50% 50% 0% 100,00% 2Energy&utilities 0% 0% 100% 0% 100,00% 3Financials 13% 0% 80% 7% 100,00% 15Industrialsandtransport 0% 17% 75% 8% 100,00% 12Medical&pharmachemicals 0% 0% 100% 0% 100,00% 3Technology 13% 44% 38% 6% 100,00% 16Telecom 18% 64% 18% 0% 100,00% 11

81Table5.4.2

Theobservations inTable5.4.2.1are testedwithaX2-test.TheX2-test is conductedwithonly thelargest industries,excludingconsulting, consumergoods,energy&utilitiesandmedical&pharmachemicals.Thetestshowsastrongsignificancelevelatap-valueat0,001.

(H0):Therearenodifferencesinindustriesinhowtheyargue.

Wethereforereject(H0),therearestatisticallysignificantdifferencesamongindustriesinhowtheyargue.


34

Table5.4.2.1

5.5Otherfindings

Theresultsof thepreparerseconomicandsociologicalargumentsarepresented. Iaddition to theargumentation,wepresentadditionalspecificobservations inthecomment lettersbysomeoftherespondents.Duetothelimitednumberofrespondentsinthesectionofotherfindings,aX2-testisnotallowedtobeconductedduethecriticalcriteriaofthemodel.Therefor,wecannotdeterminewhethertheseobservationsaresignificantornot.

5.5.1PATcontradictions

Severalcommentletterscontainwarningstothestandardsettersthatthenewrevenuerecognitionmodel may increase the risk for management to be able to manipulate revenue in the financialstatements.Somepreparerscounteractthepositiveaccountingbehaviourbywarningtheboardsofhowproposedaccountingstandardscanleadtounwantedaffectsduetoa"tooflexible"regulation.Thesewarningscanresultinregulationwhichmaylimitmanagementspossibilityofshiftingrevenuein time in order to obtain certain benefits, associatedwith for example earnings', bonuses or taxplanning.

The results are presented in table 5.5.1. North American and European preparers represent themajority of comment letters that contradicts PAT. North American preparers give slightly morecontradictionstoPAT intheircomment lettersthanEuropeanpreparers.TheconstructionandthetelecomindustryrepresentsthelargestindustrygroupswhichcontributemostcontradictionstoPAT.

Twoexamplesofsuchstatementsare:

"Moreover,itwouldincreasethesusceptibilityoffinancialstatementstomanipulationbytimingthefinaldeliveryofanassettothecustomer"-UnitedTechnology(2009,p.8)

“...thiswouldleadtoamoreaggressiveprofileofrevenuerecognition"-BAESystemsplc(2009,p.3)


35

ContradictionPAT

Industry Frequency Region FrequencyConstruction 3 NorthAmerica 6Energy&utilities 1 Europe 5Financial 1 Other 1Industrialandtransport 1 Technology 2 Telecom 4

Total 12 1215%outoftotal81commentletters

Table5.5.1

5.5.2ComplexityofcurrentstandardsinUSGAAP

Another observation of the preparers comment letters is how they emphasize that the currentstandards inUSGAAParecomplexanddifficultand furthermoreencourage theboards’efforts tosimplifytheaccountingtreatmentofrevenue.

NorthAmericanandEuropeanpreparersrepresent themajorityofcomment letters thatmediatesthatUSGAAPiscomplex.EuropeanpreparershighlightthecomplexityofUSGAAPslightlymorethanNorthAmericanpreparers.Whatstandsoutintheindustrycolumnisthetechnologyindustry,whichrepresents30%ofthetotalcommentlettershighlightingthisissue,seetable5.5.2.Examplesofsuchargumentcouldbe:

"UBSbelievesthattheDPoffersasignificantimprovementovercurrentUSGAAP"-UBS(2009,p.1)

“WeacknowledgetheremaybetoomanyrevenuerecognitionconceptsunderUSGAAP"-Raytheon(2009,p.1)

ComplexityofUSGAAP

Industry Frequency Region FrequencyConstruction 1 NorthAmerica 5Consumergoods 1 Europe 6Energy&utilities 1 Other 1Financial 2 Industrialandtransport 1 Medical 1 Technology 4 Telecom 1 Total 12 Total 12

15%outoftotal81commentlettersTable5.5.2


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5.5.3Notinmybackyard(NIMBY)

Regardless of that amajority of the preparers have a positive attitude towards a single revenuerecognition standard, many of the preparers argue in their comment letters that because of thetechnical and complex transactions within their business, they communicate that they should beconsideredtobeanexception.Asthestandardduringthediscussionpaperphaseisinanearlystageofthedevelopment,industrieswhichdonotexperiencebenefitsofthenewregulationorconsiderstobeasubjectofgreatdisadvantageswanttobescopedout.Inaddition,manyindustriesarewellestablishedincurrentaccountingpractiseswhichhasbeenconsideredviableforlongperiodsoftime,aslongasseveraldecades.Theseestablishedaccountingpracticesarewellimplementedinenterpriseresourceplanningsystems.Hence,thismightleadtore-regulationandthecreationofexceptions.

Thepreparersurgethattheyeithershouldnotbeobligedtofully implementthenewstandardorshouldbescopedout.Examplesofsuchargumentcouldbe:

"Allinsurancecontractswillbeexcludedfromthescopeofthisprojectandouranswersmightchangeifthatwerenottobethecase."-FirstRand(2009,p.1)

"AMPbelieve that thedevelopmentof aworkable, decision-useful insurance standardshould not be constrained by any conclusionsmade as part of the Customer ContractRevenue standard…All of the above would contribute to the over-complication of arelatively straightforward arrangement. AMP recommends that initial and trialcommissionsearnedbyDealerGroupsbeexcludedfromtheCustomerContractRevenuestandard."-AMPLimited(2009,p.3)

NIMBY Industry Frequency Region FrequencyConstruction 4 NorthAmerica 10Consulting 1 Europe 10Energy&utilities 1 Other 2Financial 7 Industrialandtransport 3 Technology 4 Telecom 2

Total 22 Total 2227%outoftotal81commentletters

Table5.5.3

A total of 27 % of the preparers do not want their business to be obliged to the new revenuerecognitionstandard.Theindustrythatstandsout,isthefinancialindustrywhere46%ofthetotalfinancialpreparersurgethattheyshouldnotbeobligedtofullyimplementthestandardorshouldbescopedout.TheNorthAmericanandEuropeanpreparersrepresentthevastmajorityofthecommentlettersthatmediatesNIMBY.


37

6.DiscussionThischapteraimtoexplaintheresultsofthestudybyreferringtoeconomicandsociologicaltheoriesand aswell take previous research in to consideration, focusing on the preparer aspect and theirattemptstoinfluencetheaccountingstandardsetter.

6.1Discussionoftheresultsoftheregions

Aspresentedintheempiricalchapter,thegeographicaldistributionofthepreparersdiffers.AclearmajorityoftherespondentpreparersbelongstoeithertheEuropeanortheNorthAmericanregion.ThearticlebyLarsson(2007),presentshowEuropeancompaniesdominatesthe influencingof theconstituent participation of the IFRIC, as American and developing countries are less inclined toparticipate.Putintocomparisontothisstudy,theEuropeangroupofpreparersasthesecondlargestgrouprepresentsasubstantialpartbutarenotinmajority.Asthestudyfocusesonlyononestandarddevelopment due process, the sample is limited and makes it difficult to draw generalizableconclusions. This issue is apparent when testing the significance of the result of the relationshipbetweenregionandopinion intheX2-model. Itcannotbedeniedthatwithadifferentora largersample, it could possibly provide more significant results which might either support or opposepreviousresearchbyLarsson(2007).However,itshouldbenotedthatbasedonthisparticularstudy,the result opposes the perception of dominating comment letters from European companies.Moreover,thiscouldarguablydependonthatthedevelopmentofIFRS15isaconvergenceproject,andissuesregardingIFRICisnot.

TheIFRSstandardsettingprocessistobebasedontheprincipleoffullandfairconsultation,amongothercriteria(IFRS,2013).Hence,itisofimportancetoobtainknowledgeandexpertiseofhowthesuggestedstandardisperceivedandhowitisexpectedtoaffectfutureaccounting.Preparersfromthe regions of Asia and Africa are undisputedly underrepresented in the participation of the dueprocessofIFRS15.Alackofparticipationamongdifferentregionsmaythreatenimportantsourceofinformation and possibly also the main goal of IFRS and FASB, which is; developing high qualityaccountingstandards(IFRSg,n.d.).

Overall, theattitudetowards thestandard isgreetedpositivelybyallparticipatingregions.Even ifdifferencesinopinionareapparentinthisparticularstudy,thedivergencebetweenregionscannotbesaidtobeofsignificantcharacter.

Kelly-Newton(1980)referstothequestionofcomplexityaswhetherthepractitionerholdstherighttypeofknowledgeandexperienceor if there isapossibility tousurp itexternally inorder to facefuturecomplexaccountingchallenges.Asnoted,theregionsdonotdiffersubstantially intermsofacceptancetowardsasinglerevenuerecognitionstandardandcouldthereforbeassumedtopossesthesameopportunityfacingthenewregulation.Thefactthatmanyofthepreparersoperatesonaglobal market, being part of consolidated groups, might create a greater understanding ininternationalaccountingstandardsandtherebyabetterknowledgeandexpertiseofitscomplexity.

NorthAmericanpreparersareattimesfoundtowelcometheIFRSasitprovidesalesscomplexanddetailed framework thanUSGAAP, but sometimes alsoon the contrary, rejecting IFRS as it couldprovideroomforinterpretation.AboutasmanyEuropeanpreparersarguesforthecomplexityinUSGAAPasNorthAmericanpreparers.Thiscouldalsobeexplainedbytheglobalcharacterseveraloftherespondentpreparershave.ManyofthesampleofEuropeancompanieshavesubsidiariesthatareobligedtoUSGAAPstandardsandclaimthatIFRSarelesscomplexandmoreuserfriendly.Hence,aconvergence towards a more principle based accounting standard is positively received by someextentoftheEuropeanparentcompanies.


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Thedifferenttypesofargumentsusedbetweendifferentregionsdonotdiffernotably,whichisalsoconfirmedbytheX2-testasitisnotsignificant.Apossibleexplanationcouldbethatconsideringtheglobalised business community that prevails todaywith subsequent harmonisation of accounting,regionaldifferencesinopinionsandargumentationisindecline.Theperformancegapwhichmayarisebyanewaccountingproposalthatenablesapreparertolobbytheaccountingstandardsettingbodies,isaccordingtoourstudyresultsdependingonindustryratherthanregionaldifferences.However,theresultsshowthatpreparersfromNorthAmericahavearelativelargerpercentageofcommentletterscontainingeconomicargumentsand combinedeconomic& sociological arguments thanEuropeanrespondents.Itmighthavebeensignificantdifferenceswithalargersamplebetweentheregions,aspositive theory derives from the US where bonus-plans (Watts & Zimmerman, 1990) and otherfinancialincentivestomanagementaremorecommonthaninEurope.

6.2Discussionoftheresultsoftheindustries

Ourresultsshowthatfive industries,theconstruction, financial, industrial&transport,technologyand telecom dominate the sent comment letters of the discussion paper. The remaining fourindustrieshavefarfewercommentletterresponses.Itmaybedependingonthattheseindustriesareconsideredtobemoreundiversifiedcomparedto,forexampleconsultingfirms,whichrepresentsadiversified industry that have significantly fewer comment letters sent. The effects of IFRS 15willaffectindustrieswhichmanagesincomefromlongterm-contracts,whichalloftheoverrepresentedindustries deal with. Moreover, it is worth mentioning that the majority of the respondents aremanagementrepresentativesofwellknownlargeglobalcompanies,seeAppendix5.Thisresearchshowsnootherresultsthanpreviousresearch,butratherconfirmstheargumentsofSutton(1984),Jorissen et al. (2012), Deakin (1989) and Santos & Santos (2014) who all characterises corporatelobbyistsaslargeandundiversified.

In general, all of the industries have a positive attitude towards IFRS 15 rather than negative.Nevertheless, there is a lot of additions as; “We agree with the one single revenue recognitionstandard, however…” and subsequent objections to many parts of the standard. The followingarguments towards the standard are quite different between the industries. The majority usesociologicalargumentstoagreaterextentthaneconomicarguments.Although,thetechnologyandthetelecomindustriesstandsoutandarguestoagreaterextentineconomictermscomparedtotheothers.Thereareoccurringeconomicbasedargumentsfromthepreparersofthelargestindustries,whichgoesinlinewiththeeconomictheoriesofDavisetal.(1997)andWatts&Zimmerman(1978,1979,1990).ThefactthatsociologicalargumentsarefoundtobemorefrequentlyusedthaneconomicopposesthestudybyZeff(1978),whoarguesthatthelatterisontherise.Itshouldbenotedthough,thatthestudybyZeffwasconductedin1978,andthatchangesinargumentationmighthaveoccurred.Hencethisfurtherenhancestherelevanceofacontemporarystudy.Nevertheless,itwashighlightedbyStenka&Taylor(2013)thateconomicconsequencesbasedargumentsmightbeseenasselfservingandthereforbelesslikelytobeconsideredbyaregulator.Stenka&Taylor(2013)foundintheirstudythat corporate actors are more likely to use conceptual arguments rather than economic basedarguments.Ourstudyresultshavethesametendencies,andthesameconclusionscanbedrawn,thatpreparersaremorelikelytofavourothertypesofargumentsastheybelievesuchargumentswillbemoreefficientininfluencingaregulator.

Wealsofindthat15%ofthetotalsentcommentlettersincludedwarningstothestandardsetterthattheIFRS15proposalistooflexibleandcouldleadtomanagementearningsmanipulation.AccordingtoZeff(1978)andWatts&Zimmerman(1978,1979,1990),managementactintheirowninterestastheyareassumedtohaveself-maximizingintentions.EvenifthestudyresultsshowthateconomicargumentsaremorefrequentlyusedintheregionofNorthAmericacomparedtoEurope(sometimesincombinationwithsociologicalarguments),contradictionsofPATareseentobemoreoccurringin


39

theaforementionedregion.AsCheney(2006)presentedinhisstudy,complicatedandthesometimesunclear regulation in US GAAP might be the cause of misrecognition of revenue. Moreover,complicatedandunclearregulationinUSGAAPcouldincreasethepossibilityofpreparerstoexploitstandardsintheirobjectiveofself-maximization.However,theresultofthisstudypointstowardsawillingnessamong theNorthAmericanpreparers to 'do the right thing' and strive forhighqualityaccountingbyinformingonpossiblevulnerabilities.

ThecommentletterrespondentsfromthefinancialsectordominatesthecommentlettersthatwanttobescopedoutandexcludedfromIFRS15.Inthediscussionpaper,thefinancialindustrywasgiventhealternativetobescopedoutbythestandardsettingbodies.Closetohalfoftherespondentsfromthe financial industrywere reluctant to change current revenue recognition accounting. As Kelly-Newton(1980)theorystated,managementtendtobemoreinfavourofanaccountingstandardwhichallowspartialbasisadoption.Thegradualapproachbytheauthorisbasedontheassumptionthatthesmalleramountofchange,thegreaterthechanceofacceptancebymanagement.Theunwillingnessofbeingapartofthestandardscopetestifiesthattheremightbealackofperformancegap(Hussein,1981)intheaccountinginnovation.Thelackofperformancegapcanbeassumedbeexperiencedbybothofthestandardsettingbodiesaswellasthefinancialindustry.Bothpartiesmaynotexperiencediscrepancybetweendesiredandexperiencedlevelofsatisfactionintheareaofrevenueaccountinginthefinancialindustry.Moreover,ofalltheindustries,atotalof27%wishtobescopedoutofthesingle revenue standard, which further can confirm preparers general reluctance to change.Furthermore,wenotedthatthelargestrespondentindustrygroup,constructioncompanies,drewalotoftheirattentiontothepossibleeliminationofthepercentageofcompletionaccountingmethod.IFRS 15 would mean a significant change in the norms and past experiences of accounting forconstructioncompanies.Thegreaterthesimilaritywithexistingnorms,thelesschangetheinnovationrepresents(Kelly-Newton,1980).Hence,thiscouldexplainthatmostoftherespondentsbelongtotheconstructionindustry.

6.3Generaldiscussionoftheresults

ThepsychologicalmechanismspresentedbyDavisetal.(1997),whichdescribestheeconomicman,couldbeputintocontextofhowpreparerschosetoargue.Itisshowninthisstudyhowaminorityuse economic arguments in order to influence the standard setting bodies. The self-maximizingargumentssuchashighlightingimplementationcostreferringtoreorganisationorupdatingenterprisesystems are not predominant. Rather the contrary, sociological arguments are more common.Sociologicalarguments,suchasemphasisingcurrentsufficientandunderstandableaccountingnorms,arearguedbypreparersbecauseitisbelievedtorepresentmorehighqualityaccountinganddecisionusefulnessthanthenewaccountinginnovation.ThiscanrelatetoKelly-Newton's(1980)accountingtheoryregardingmanagement'scomplexityinunderstandingnewaccountingstandardproposalsandtheir reluctance to change norms.Whether the preparer can be perceived as an un-selfish actorbecauseoftheconcernofprovidingdecisionusefulnessfortheusersoffinancialstatements,orifitissimplyastrategyinordertogaininfluencebythestandardsettercouldbequestioned.

AsDaviset al. (1997)describedhow identificationaffect theway individualsact in regards to theoverallorganisations,thesamerelationcouldbedrawnbetweenapreparerandthestandardsetters,IASBandFASB.Inthisstudy,theargumentationbypreparersismorecharacterisedassociological,expressedasaimingforhighqualityaccountingstandards inordertomaintainandimproveawellfunctioningcapitalmarket.ThiscouldbeputinthelightofDavisetal.(1997)sincethesociologicalview ismore collectively-serving inopposite to theeconomic viewwhich is considered tobe self-serving.ThepreparersofthisstudycouldtherebybeconsideredtoinalargerextentservetheoverallobjectiveofIFRSandFASBratherthanperusingtheirownself-maximisingagenda.


40

Theparticipationinthedevelopmentofanewaccountingstandardisvoluntary,meaningnopreparerholdsanycoerciveorinstitutionalpowerinthedueprocess.Hence,thismighthavehadanaffectonthetypeofargumentationwhichisnotedintheresults.TheparticipatingpreparersinthedueprocessofIFRS15appeartoidentifythemselvesmorewithsociologicaltraits.AsDavisetal.(1997)observed,an individual's identification with an organisation can lead to consensus and positive outcomes.Hence, argumentation aligned with IASB's and FASB's values and objectives can be assumed toenhancethechanceofacquiringinfluence.


41

7.ConclusionThisstudyexaminespreparersoffinancialstatementsandtheirparticipationintheinitialphaseofthedueprocessoftheaccountingstandardIFRS15-revenuefromcontractswithcustomers.Theaimofthestudyhasbeentoidentifytowhatextentdifferentpreparersvaryinparticipationamongregionsandindustriesandfurtherexaminewhattypesofargumentationthatisbeingused.Theresearchisbasedonacomparativestudydesigninvestigatingthesepotentialdifferencesincommentletterssentin regards to the discussion paper of the development of IFRS 15. The potential differences aredependentonwhethertheyagreeordisagreewiththeproposalandwhethertheargumentationisbasedoneconomicorsociologicalarguments.Thestudy isbasedonacontentanalysisofpubliclypublishedcommentletters.

Some regions have more active preparers in the due process than others. The majority of thepreparersareeitherfromNorthAmericaorEurope,whileasmallnumberofparticipantsarefromAsiaandAfrica.

The five largest participating industries, which are relatively equally divided are; construction,technology,financial, industrial&transportandtelecom.Theremainingfoursmallerindustriesareenergy&utilities,medical&pharmachemicals,consumergoodsandconsultingfirms.

Overall,ourstudyshowsthattheall regionshaveapositiveapproachtowardsonesinglerevenuerecognitionstandard.Theresultshowsthattherearenosignificantdifferencesbetweentheopinionsof preparers categorised as regions, whether they agree or not agree with the single revenuerecognitionstandard.Thesameresultisevidentregardingtheuseofdifferenttypesofargumentation.Theresultsshowindicationofdifferencesinourparticularsamplebutitmaynotbeconsideredassignificant,consideringthescopeofthesampleandnotedfrequencies.

In general, all of the industries have a positive approach towards the introduction of one singlerevenue recognition standard. The study shows no significant differences in opinionwhether theindustries agreewith the one single revenue recognition standard.However, there are significantdifferencesintheuseofargumentation.Theargumentsofsomeindustriesaremorecategorisedaseconomicthanothers.Thoseindustriesthatarethemostevidentisthetechnologyandthetelecomindustry.The industriesthatarguesmore insociological termsarethefinancial industryaswellasindustrials&transport.

Moreover,wefindadditionalinformationofcertaincontentofthecommentletters.SomepreparerscontradictPATbywarningthestandardsetterthattheproposedrevenuerecognitionstandardmightincreasetheriskofaccountingmanipulation.Furthermore,wefindseveraltendenciesofpreparersthatwanttobescopedoutofthestandardbecauseofthecomplexnatureoftheirindustry.Finally,somepreparershighlightthecomplexityofcurrentUSGAAPaccountingandwelcomesasimplifiedandprinciplebasedrevenuerecognitionstandard.

7.1Reflectionandfutureresearchsuggestion

Thisthesisprovidesresultsthatindicatesthattherearedifferencesinhowpreparersfromdifferentregionsandindustriesopinionandargumentationdiffer.However,itshouldbenotedthatthestudyisbasedonacomparativestudy,focusingonpreparerscommentlettersfromthediscussionpaperofthedueprocessofIFRS15.Thediscussionofonlyonestepinthedueprocessrepresentsalimitationofpossibilities togeneralize the research results.The interest fromdifferentpreparersmightvarydependingonwhichaccountingareaitcovers.IFRS15affectsmanyindustries,althoughtodifferentextentswhereassomeindustriesmightbeunderrepresented.


42

Nevertheless,thethesisgiveriseforfutureresearchasthecontentanalysiscanbeconductedonthewholedueprocessof IFRS15orofotherstandardsandexposuredraftsaswell,andconsequentlydistinguishgeneraltrends.Alimitationofthestudyistherelativelysmallsampleofcommentlettersfrompreparersfromonlyonedueprocessdocument.Whilethischoiceismadebasedonresourceconstraints,amoregeneralizableresultandcompletepictureinregardstothepreparersviewofIFRS15couldhavebeenachievedbyexaminingthewholedueprocess.

Afutureresearchsuggestionistoexaminealargerandbroadersamplewhethertheseargumentationsandopinionshaveanyinfluenceinthestandardsettingandtowhichextent,forIFRS15andotheraccountingstandards.Itwouldbepossibletomapifonetypeofargumentationhasmoreimpactthantheother.Asacritiquetoour thesis,anothercategorisationof thepreparersperhapswouldhavebeenmore interesting to examine and could further be conducted by future research. Instead ofdividingthepreparersintoregions,itwouldbeinterestingtodoacomparativeexaminationofIFRSadopters and US GAAP adopters. This topic is relevant due to the current convergence projectbetweenIASBandFASB.

WealsorecommendfutureresearchonthegeneralapproachtowardsUSGAAPstandards,sinceaconsiderablepartofthethesissamplewelcomealesscomplexandmoreprinciplebasedaccountingframeworkthancurrentUSGAAP.

Moreover,futureresearchrecommendationscouldbetomakeaninvestigationbasedonourresearchfindingsthatapartofthepreparerscontradictsthepositiveaccountingtheory.Itwouldbeofinterestto examine if it is a trend that has emerged over the past years, perhaps as a result of historicalcorporatefraudulentaccountingmanipulationevents.

Byconductinga studyofonedueprocessdocumentof thestandarddevelopmentof IFRS15, thethesiscontributestotheresearchlandscapebyprovidinganimprovedandbroadenedunderstandingof why preparers choose to participate. The study research and method can be replicated andextendedinordertofurtherexaminethepreparerinthestandardsettingprocessofnewaccountingregulation.


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Appendix1–Thecodingmanual

1. Introduction1.1. Group1.2. Commentletternumber1.3. Affiliation1.4. Country1.5. Region

Regionarecodedasfollowing:• NorthAmerica(1) • Europe(2) • Asia(3) • Africa(4)

1.6. Industry• Construction(1) • Consultingfirm(2) • Consumergoods(3) • Energy&Utilities(4) • Financials(5) • Industrialsandtransport(6) • Medical&PharmaChemicals(7) • Technology(8) • Telecom(9)

2. IsthereapositionregardingofagreeingornotagreeingwiththeBoards’proposalofasinglerevenuestandard?2.1. Yes(1)2.2. No(2)2.3None(3)

3. Whatisthepotentialposition?3.1. Agreewithsinglerevenuestandard(1)3.2. Donotagreewiththenewstandard(2)3.3None(3)

4.Isthereargumentationforposition?4.1. Yes(1)4.2. No(2)

5. Whattypeofargumentisbeingused?5.1. Economicarguments(1)5.2. Botheconomic-andsociologicalarguments(2)5.3. Sociologicalarguments(3)5.4None(4)

6.Otherthoughts


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Appendix2–X2-testRegionandopinion


49

Appendix3–X2-testRegionandargument


50

Appendix4–X2-testIndustryandargument


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Appendix5ListofpreparersinDP(1/3)

PreparerswithcommentlettersondueprocessofIFRS15

NrCommentletternr Affiliation/Company Country Region Industry

1 3 DeeBrown,Inc. US NorthAmerica Construction2 18 GeneralDynamics US NorthAmerica Industrialsandtransport3 20 Fujitsu Japan Asia Technology4 24 DeutscheTelekomAG Germany Europe Telecom5 27 Roche Switzerland Europe Medical&pharmachemicals6 30 Raytheon US NorthAmerica Technology7 31 Verizon US NorthAmerica Telecom8 33 TDS US NorthAmerica Telecom9 33 USCellular US NorthAmerica Telecom10 34 UnitedTechnologies US NorthAmerica Technology11 35 Intel US NorthAmerica Technology12 36 Dell US NorthAmerica Technology13 44 MorganStanley UK Europe Financials14 46 Telstra Australia Asia Telecom15 53 Cobham UK Europe Industrialsandtransport16 54 TelecomItaly Italy Europe Telecom17 56 AMP Australia Asia Financials18 57 Vodafone UK Europe Telecom19 62 Nokia Finland Europe Technology20 64 Hewlett&Packard US NorthAmerica Technology21 67 KBR US NorthAmerica Construction22 69 IBM US NorthAmerica Technology23 71 Apple US NorthAmerica Technology24 74 AirProductsandChemicals US NorthAmerica Industrialsandtransport25 75 McDermott US NorthAmerica Construction26 78 L&T India Asia Construction27 79 Orange France Europe Telecom28 83 URS US NorthAmerica Construction29 85 TransCanada Canada NorthAmerica Industrialsandtransport30 88 BrookfieldMultiplex Australia Asia Construction31 91 FirstRand SouthAfrica Asia Financials32 91 ANZ Australia Africa Financials33 94 LeightonHoldings Australia Asia Construction34 100 Novartis Switzerland Europe Medical&pharmachemicals35 104 DHL Germany Europe Industrialsandtransport36 106 BP UK Europe Energy&utilities37 107 Nestlé Switzerland Europe Consumergoods38 109 Sappi SouthAfrica Africa Industrialsandtransport39 111 SAP Germany Europe Technology40 116 HSBC UK/Switzerland Europe Financials41 118 BAESystems UK Europe Industrialsandtransport


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ListofpreparersinDP(2/3)42 120 Syngenta Switzerland Europe Industrialsandtransport43 122 DeutscheBank UK/Germany Europe Financials44 126 TycoInternational Bermuda NorthAmerica Technology45 128 FosterWheeler US NorthAmerica Construction46 129 LockheedMartin US NorthAmerica Industrialsandtransport

47 130 Pfizer US NorthAmerica Medical&pharmachemicals

48 131 Shaw US NorthAmerica Construction49 132 Boeing US NorthAmerica Industrialsandtransport50 133 MBIA US NorthAmerica Financials51 137 PKS US NorthAmerica Construction52 142 Lane US NorthAmerica Construction53 144 LibertyMutual US NorthAmerica Financials54 145 NorthropGrumman US NorthAmerica Industrialsandtransport55 146 Flour US NorthAmerica Construction56 147 Nationwide US NorthAmerica Financials57 152 AIB Ireland Europe Financials58 153 Allianz Germany Europe Financials59 155 Telefonica Spain Europe Telecom60 158 UBS Switzerland Europe Financials61 163 FletcherBuilding NewZealand Asia Construction62 164 Alcatel France Europe Telecom63 165 Honeywell US NorthAmerica Technology64 166 CreditSuisse Switzerland Europe Financials65 167 HuronConsultingGroup US NorthAmerica Consultingfirm66 174 JohnKimmerTC UK Europe Construction67 175 RWE Germany Europe Energy&utilities68 176 TheHartford US NorthAmerica Financials69 177 Cisco US NorthAmerica Technology70 183 Emerson US NorthAmerica Technology71 191 JM Sweden Europe Construction72 191 NCC Sweden Europe Construction73 191 Peab Sweden Europe Construction74 191 Skanska Sweden Europe Construction75 195 Qantas Australia Asia Industrialandtransport76 198 BT UK Europe Telecom77 203 GDFSvez France Europe Energy&utilities78 205 Siemens Germany Europe Technology79 220 SalesForce US NorthAmerica Technology80 223 TheSwatchGroup Switzerland Europe Consumergoods81 226 InscoInsurance US NorthAmerica Financials


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Appendix6QuestionsoftheDPinthedueprocessofIFRS15(1/3)

(IASB,2008)


54

QuestionsoftheDPinthedueprocessofIFRS15(2/3)

(IASB,2008)


55

QuestionsoftheDPinthedueprocessofIFRS15(3/3)

(IASB,2008)