"Unreliable accounts: How regulators fabricate conceptual narratives to diffuse criticism" by Karthik Ramanna: A comment on ideological capture

The paper "Unreliable accounts: How regulators fabricate conceptual narratives to diffuse criticism" by Karthik Ramanna provides an important contribution to the debate on the accounting standards-setting governance. A key element of the study is the development of the notion of conceptual veiling, wherein accounting regulators seeking to diffuse criticism manufacture costly conceptual narratives for their actions. Conceptual veiling is well-illustrated by the revision of the Financial Accounting Standard Board's (FASB) conceptual framework which, in a convergence process with the IASB, led to the removal of "reliability" as a fundamental accounting characteristic. Based on primary archival evidence and field interviews with regulators, Ramanna shows there is significant support for the hypothesis that purging reliability was motivated by the desire to neutralise concerns about subjectivity in fair value measurements, which had been increasingly adopted in financial reporting under the influence of the financial industry (Ramanna, 2015). As Ramanna points out, conceptual veiling is strictly related to regulatory capture, which is a pervasive phenomenon in the financial regulatory process (Carpenter & Moss, 2013). The purpose of this comment is to elaborate on Ramanna’s well-documented notion of regulatory capture to develop a few more considerations that can inform further discussion and policymaking. In doing so, the comment focuses on the European Union (EU), where a significant clash emerges between financial reporting rules, captured by the IASB’s view of business and society, and the EU’s core values, which are embedded in its institutional framework and should drive lawmaking, including financial regulation. This inevitably calls for a thorough rethinking of the whole accounting standards-setting process, aimed at solving the conflict between “financialized” techniques and calculation methods, and the societal objectives that the EU has set at its foundations.