Accounting standards-setting in the U.S. An analysis of power and social exchange

The Metcalf Committee stated in The Accounting Establishment (U.S. Senate, 1976) that Big Eight public accounting firms dominate the Financial Accounting Standards Board (FASB). This paper argues that structural and rational constraints limit the ability of the Big Eight and big business to dominate the FASB. Conflict among independent public accountants, managers, investors, creditors, and others exists because of mutually irreconcilable goals. However, none of these political actors controls the standard setting process. Thus, the accounting rule making process is a "mixed power system" (Bonoma 1976, pp. 503-507). The FASB originated as a social contract among parties interested in the determination of accounting rules. The FASB acts to resolve conflicts among these groups, to promote cooperation among them, and to build consensus.