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1. The role of standard setters in financial reporting
Book chapter

1. The role of standard setters in financial reporting

Christine Botosan, Derek Christensen, Michael Durney, Kurt Gee and Cassie Mongold
Handbook on the Financial Reporting Environment, pp.3-14
Research handbooks in accounting, Edward Elgar Publishing
2025
DOI: 10.4337/9781800888685.00011

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Abstract

Capital markets fulfill an essential economic role by matching investors with money to companies that need money. While various information frictions hinder this matching process, mandatory accounting standards help alleviate such frictions by requiring companies to communicate a set of financial information to investors. However, creating accounting standards is not an easy task, complicated by political pressure, cost-benefit analyses, changing economic conditions, and multiple investment domains (e.g., private vs. public company investment). Additionally, cultural and institutional differences around the globe affect the type, quality, and content of information investors find relevant. To cope with these challenges, most accounting standard setters lean on a judgment and decision-making framework, referred to as a “conceptual framework,” to help them consistently issue high-quality standards that foster decision-useful financial reports. This chapter explores standard setting and answers questions like “Why do we need accounting standards?”, “Who sets standards?”, and “How are standards established?”.
 Conceptual Framework FASB GAAP IASB IFRS Standard-setting

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