Amanda Convery, assistant professor in the department of accounting and MIS and a Women’s Leadership Fellow in the Alfred Lerner College of Business and Economics, received the 2023 Accounting Horizons Best Paper Award for the paper she co-authored entitled “Stakeholder Engagement and Effective Standard Setting” which was published in the June 2022 issue. The award was presented to Convery and her co-authors Matt Kaufman, associate professor of accounting and information systems at Portland State University and Terry Warfield, PwC chair in accounting and senior associate dean at the University of Wisconsin-Madison, on August 8 during the 2023 Annual Accounting Association Annual Meeting in Denver, Colo.
Convery sat down with Lerner to discuss the main points and takeaways of the research, and implications for future research.
Lerner: What are the high-level points of your research?
Convery: We wanted to update our understanding of how the Financial Accounting Standards Board (FASB) interacted with its stakeholders. To do that, we conducted an in-depth analysis to uncover where the FASB expanded the way they communicated with stakeholders and the timeline over which they communicated with those stakeholders.
Lerner: What are some key takeaways you want people to know?
Convery: The key takeaway was that by creating new advisory groups focused on a wider set of stakeholders such as investors, private companies, small public companies, and non-for-profits, all of which follow FASB standards – by doing this the FASB created a new communication channel where they were able to elevate individuals within those groups to be ambassadors. On one side, the FASB could communicate with these individuals on their advisory groups who really knew the issues of that stakeholder community. On the other, those individuals could go back and talk to their peers in that community and understand what really were the core concerns that the board members should consider for example a proposed standard. So we think by doing that, the FASB was really able to improve the communication it got back from its stakeholder groups.
The second finding was that the FASB extended its timeline for stakeholder outreach; in particular it extended beyond when a standard was passed. We observed that this allowed them to accumulate positive and negative feedback on the implementation of the standard, which we think may lead to more support for U.S. accounting standards as an institution in the future. So our paper concludes with some suggestions for future research which could use these takeaways as standards under this new system rollout to understand whether they impact the consequences and the acceptance of those standards in the broader accounting community.
Lerner: What is the role of due process institutions in this setup?
Convery: The Financial Accounting Standards Board creates what we think of as the accounting standards for the United States. Every time it comes up with a new proposal, it follows its own set of rules that guide the steps from idea phase to research phase, all the way to adopting the new standard. And on average, that takes years. FASB due process has specific points where it will reach out to the organizations that either create financial reports – companies and nonprofits. For example, CFOs of those companies will provide feedback on how hard it would be to implement the proposed standard. And then the FASB will also reach out to the people that use the reports – investors and creditors – to ask, “If we change the standard in this way, is this going to be useful for you?” And that’s the type of feedback that we’re talking about in the paper.
Lerner: How can advisory groups give a stronger voice to stakeholders?
Convery: The expanded advisory groups that we document in this paper did not exist before. And so previously, for example, if you were a nonprofit CFO, you would have to go to the FASB in Connecticut to attend meetings or do other things in-person, which takes away from your own job and work. And you’d have to engage with them in that way or write common letters during the due process part. But by creating these advisory groups, they’re now standing committees. It’s not in response to any one particular standard, there’s a regular time – maybe anywhere from twice a year, up to four times a year – where the board members are going to meet with people from these groups and say, “This is what we’re thinking about working on, even before the project had started. What are your thoughts?” You can get that feedback really early, and it’s already on the schedule, so it’s not something advisory board members have to do in addition. They just have that open, regular communication, instead of having to be putting their own extra time and effort into one single project. I think having it being a regular meeting, as well as having the advisory group focus just on their set of similar organizations, allows the FASB to hone in on the costs and benefits of any project or proposal specific to that group. For example, it sets standards for publicly traded companies such as Boeing, GE, etc., and then those same standards have to apply to nonprofit company organizations. And those are obviously two very different types of firms. So the nonprofit organizations previously didn’t have a specific advisory group, and this is one way to open up more communication with them.
Lerner: What are the implications for future research?
Convery: In the paper, we conclude with future research ideas. We’re suggesting, and working on it ourselves as well, looking at different standards and asking, “Are certain standards impacted by the creation of these advisory groups, or by having these extended timelines in ways that are positive or negative?” Positive outcomes would be: Does it take less time to have a standard get passed, for example, or are standards met with less pushback, because they’ve incorporated the feedback already in this process? Again, this due process often takes years. So from idea to end standard, there’s a lot of opportunities for feedback. But wouldn’t it be helpful to know whether having these types of groups and receiving the feedback happens earlier results in a more effective process? So we’re looking at to measure effectiveness and efficiency ourselves, and also hoping others do as well around these areas.
Lerner: How did you and your co-authors win this award?
Convery: This paper was published in Accounting Horizons, which is a U.S. journal in accounting, in 2022. The editors actually picked this award. We didn’t even know we were up for nomination until we went to vote, because as members of the American Accounting Association, we’re all asked to vote. The entire membership, which is an international organization, votes on who’s going to win the award. When I went to vote, I was surprised. I said to my co-authors, “Did you know we were nominated?” We were really happy to be nominated, honestly, and then shocked to win it because it is a competitive process. But we do think that it suggests – and this is what most of my research focuses on – that there’s a place for understanding how we set our standards and how that process impacts the usefulness of accounting information to society. With many technological changes impacting the entire business community, accounting standards will have to adapt, so I think it’s all the more important to know how we go about adapting to change. That’s really what this paper is focused on, and I am excited to continue examining how accounting standards change in the future.