International Financial Governance under Stress: Global Structures versus National Imperatives

By Geoffrey R.D Underhill; Xiaoke Zhang | Go to book overview

13

Governance, markets and power:
the political economy of accounting
reform in Indonesia

Over the past two and a half decades, increases in the international mobility of financial capital have generated pressures for the international harmonisation of financial sector regulations and practices. As finance capital has become increasingly mobile, controllers of financial capital have sought harmonisation of these regulations and practices in order to facilitate access to and exit from foreign markets and thereby reduce the risk and increase the profits associated with foreign investments. With enhanced mobility, controllers of financial capital have been able to threaten states that they will relocate their capital to alternative jurisdictions if they do not comply with demands for harmonisation. States have thus been severely constrained in terms of their policy options: if they do not pursue harmonisation they risk reduced access to international financial markets and the economic benefits that go with it.

One area in which these pressures have produced change has been accounting. Since its establishment in 1973, the International Accounting Standards Committee (IASC), a private sector policy-making body that is backed by a range of financial market players and other multinational corporations, has issued forty international accounting standards (IASs). Whilst this organisation does not have the formal authority to require countries to adopt its standards, it has had considerable success in persuading them to do so, especially in the developing world. Although the extent to which developing countries have adopted IASs has varied from country to country, there has nevertheless been a broad shift towards harmonisation throughout the developing world.1 Some developing countries have also introduced changes to company and capital market laws which have given these standards legal backing and provided mechanisms by which minority shareholders can seek damages from public companies if they produce misleading financial information, further measures that are consistent with harmonisation.

At the same time, however, widespread concern has continued to be expressed about the quality of financial reporting in many developing countries. Rahman, for instance, has described accounting disclosure in many east Asian countries

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