Accountability in an Independent Regulatory Setting: The Use of Impact Assessment in the Regulation of Financial Reporting in the UK

In a broad sense, accountability has been defined as a “relationship between an actor and a forum, in which the actor has an obligation to explain and to justify his or her conduct, the forum can pose questions and pass judgements, and the actor may face consequences” (Bovens 2007, p. 450). Over time the meaning of accountability has evolved beyond the emphasis on being called to account for one’s actions, with accountability instruments now involving not just tools to report to the upper-level principals (for example, for approval of annual reports or multiple-control arrangements) but also to a wider variety of stakeholders and the public at large (for example, through releasing minutes of board meetings, agency resolutions and open consultations) (Fernandez-i-Marin et al. 2015)). In this sense, accountability has been described as a problem “of many eyes”, involving complex considerations and related to a variety of fora that a given actor can be held accountable to (Lægreid and Neby 2016, p. 61).

Bovens (2007) argues that accountability is often equated with “good governance” which is “of high quality, at a low cost and […] performed in a courteous manner” (p. 450). Consequently, in a regulatory setting, poor accountability has been linked to shortfalls in regulatory performance and heightened risk of regulatory capture (May 2007). However, attempts to conceptualize accountability in such a setting have been relatively scarce. Among the notable exceptions is the recent volume edited by Jordana and colleagues (2015) which provides a comprehensive perspective on regulatory accountability. The authors adapt Bovens’s (2007) definition of accountability to a regulatory context as one that describes “a relationship between power-holders and those affected by their actions” (p. 3) and comprises two key components: answerability (“making power-holders explain and justify their actions”) and enforceability (“allowing the participants in the forum to judge [poor performance]”) (Jordana et al. 2015, p. 3). One means through which good accountability may be achieved is through the introduction of the formal procedures that specify a range of steps to be taken to ensure that the civil society can hold political elites and the regulatory institutions through which they operate answerable for their actions (Mulgan 2003; May 2007). Below, we refer to the existing literature on regulatory accountability and IA to argue that, as a tool of ex ante policy appraisal (Jacobs 2006; Radaelli 2010), IA represents an instrument to establish and maintain an effective accountability relationship between the regulator and forum members.

IA has been defined as a “process of problem definition, consultation, definition of alternative feasible options, economic analysis of the options, and a final choice that meets some criteria established ex ante, such as ‘the benefits justify the costs’ or ‘maximization of social welfare’ or, in simpler versions, ‘minimization of compliance costs’” (Coletti and Radaelli 2013, p. 1058). Hence, IA involves evaluation of various stages of regulatory development, from identifying policy alternatives and undertaking a comparative assessment of them to selecting the preferred option (Kirkpatrick and Parker 2007). Therefore, one of the contributions of IA is its potential to describe a process of rulemaking (Coletti and Radaelli 2013) and make more observable, accessible and assessable the regulator’s internal decision-making, which is normally hidden from the public eye. Having access to this information can thus enable a variety of stakeholders, from the political principal to policy recipients and the public at large, to make judgements as to the nature of the policy-making process and whether the policy outputs produced as a result of it are appropriate, credible and just (Radaelli 2010). Furthermore, IA relates to policy development which precedes regulatory action and can therefore be used as a dynamic tool for enhancing the dialogue between the regulator and its audiences (Radaelli 2010). This is in contrast to other policy appraisal tools that focus on ex post oversight, such as a Standard Cost Model (Coletti and Radaelli 2013).

The argument that we develop in this study is that IA has accountability-related properties that can enhance both the answerability of the regulator for its actions and enforceability that compels the regulator to justify these actions to its forum members (Jordana et al. 2015). The literature on IA (Radaelli 2010; Dunlop et al. 2012) provides support for this argument by reference to a range of aspects which highlight the potential role of IA as an accountability instrument. Firstly, prior studies of IA indicate that, in the context of delegated policy making, the instrument can promote greater and more dynamic forms of political control over the regulator’s decisions by the political principal, such as government, an upper-level executive or affiliated regulatory authority. Radaelli (2010) explains how IA may play an important role in “inserting some principles (e.g. the benefits must exceed the cost) and hurdles (e.g. “no new rules unless a market failure is fully documented”)” (Radaelli 2010, p. 92) to re-assure the political master that the broad political objectives are being served and to minimize the risk of deviation from those. IA may also contribute to the dynamism of the accountability relationship between the regulator and forum members through facilitating early-warning systems to detect politically dangerous or incongruent policy initiatives and allowing intervention before the final regulatory outputs are decided and endorsed (Radaelli 2010).

Secondly, IA can also contribute to downward accountability by improving a regulator’s answerability to the recipients of regulation and the general public through stakeholder participation (Jordana et al. 2015). IA guidance in many countries, including the UK, requires that an IA report be published as part of the formal public consultation process. Dunlop et al. (2012), for example, point to the communicative element of modern IA as particularly important, with open consultation and “notice-and-comment” arrangements facilitating “dialogic” encounters between regulators and stakeholders (p. 27). In this regard, IA has a capacity to promote a “pluralist logic” of accountability, where the public consultation attends to the information demands of the political principal but also of a wider range of stakeholders, such as businesses, social groups, judiciary institutions and others. That said, it is important to recognize the possibility of variation across regulatory contexts in terms of the types of actors and networks that IA mobilizes. Radaelli (2004), for example, points to the risks of over-emphasizing certain policy constituents, such as members of the business community, over others, such as the general public. That approach can create imbalances in the representational mechanisms of policy making and also undermine the procedural legitimacy of regulation by reinforcing the perception that regulators use IA to project a certain ‘desired’ image.

Lastly, IA can improve enforceability (Jordana et al. 2015) by not only facilitating substantive understanding “of the cause and effect mechanisms that underpin the policy issue” (Dunlop et al. 2012, p. 27) but also compelling regulators to justify that regulatory solutions were produced on the basis of that kind of understanding, particularly through an emphasis on explanation, reason-giving, and the general rationality of a legislative process (Froud et al. 1998; Radaelli 2010). Indeed, one of the key objectives of IA is to facilitate technically superior regulatory solutions, based on robust evidence, to support the assessment of policy alternatives and selection of a preferred option (Jacobs 2006; Kirkpatrick and Parker 2007; Radaelli 2010). From a technocratic point of view, procedures such as cost assessment that now form part of IA provide means to streamline and make uniform regulatory decision-making to the extent that the process “becomes a more technical and less intuitive operation, with the burden of proof firmly assigned to those who propose or promote the regulation” (Froud and Ogus 1996, p. 222). Radaelli 2010 and Froud and Ogus (1996) link the monetized assessment of policies that IA encourages with the ideas of rational policy analysis which mimic the decision-making culture in the private sector by placing an emphasis upon “the careful definition of goals, the exploration of alternative means of achieving these, including a rigorous analysis of the costs and benefits of each option” (Froud and Ogus 1996, p. 222). Froud and Ogus (1996) also recognize, however, that the implementation of “number-based” procedural steps is far from unproblematic as it is often the case that “knowledge of the consequences of each [policy] alternative is incomplete and the ability to appraise all possibilities systematically is limited” (p. 222).

The transfer of major policy-making remits to non-governmental regulatory agencies has brought to the fore some “fundamental issues concerning regulatory accountability” and related questions about “how accountability is achieved when non-governmental actors assume important roles in regulatory regimes” (May 2007, p. 9). Such concerns arise, to a significant degree, as a consequence of some of the characteristic features of the agencies themselves. Firstly, these agencies represent non-elected (through some form of a democratic process) institutions and, as a result, are vulnerable to a potential democratic legitimacy deficit. More specifically, independent regulators do not have the same degree of external credibility as state institutions because, as Maggetti (2010) argues, a transfer of policy-making authority from the state to independent regulators does not automatically lead to a similar transfer of legitimacy and, in fact, leads to what he calls a “net loss of legitimacy”. This legitimacy shortage engenders a heightened awareness of the need for regulating agencies to maintain a public perception of themselves as producers of fair and representative policy outputs. Secondly, independent regulators usually enjoy greater operational autonomy compared to government departments as they function outside the ministerial hierarchy. Growing public concerns over the relative political isolation that independent regulators enjoy coupled with their virtual autonomy in decision-making motivate them to seek ways to demonstrate that “they are more proficient in producing qualitatively better policy outputs than democratic institutions” and that “they operate more lawfully, transparently, openly, and fairly than ordinary bureaucracies can do” (Jordana et al. 2015, p. 3). Thirdly, IRAs find themselves exposed to accountability claims that are more pluralistic in nature in the sense that the maintenance of upward accountability (to the affiliated upper-level executive) is still a significant consideration but is supplemented by the greater perceived importance of downward accountability (e.g. to policy recipients). As Righettini and Grimaldi (2015, p. 145) argue, the rise of IRAs and the accompanying move from input-based to output-based democratic legitimacy has led to a fundamental shift in a “policy constituency” towards the recipients of regulation and other stakeholders affected by it.

The above constraints and considerations have had significant implications not only for the way in which IRAs organize the policy-making processes but also the accountability arrangements in relation to those processes and their outcomes. Specifically, prior studies have shown that IRAs often opt for accountability solutions that facilitate technocratic policy making (based on skills and performance assessment) and are helpful in effectively managing the relationship between the regulator and its wide-ranging audiences (Schrefler 2010, 2013; Righettini and Grimaldi 2015). Righettini and Grimaldi (2015, p. 148), for example, argue that IRAs often pursue accountability arrangements that rely on co-regulatory policy tools that “create mutual adjustments and compliance obligations” and are designed to address stakeholder demands for both information and justification. Importantly, they also point out that IA represents one such accountability tool. Indeed, one of the key accountability-related properties of IA which is particularly relevant for IRAs (as discussed in the previous section) has to do with its ability to maintain perceptions of a knowledge-intensive regulatory process which is informed by a substantive understanding of the policy issues at hand and, importantly, to help regulators justify any resulting policy solutions by feeding into such perceptions (Froud et al. 1998; Radaelli 2010; Dunlop et al. 2012). In this regard, Schrefler’s (2010) nuanced account of the underlying rationales behind the use of knowledge in the context of IRAs provides a useful reference point for our understanding of how exactly IA may help create and maintain the image that knowledge-intensity is an inherent property of independent policy making. Firstly, IA may help facilitate instrumental use of knowledge by IRAs by establishing a connection between research and policy decisions which ensures that “once policy problems are identified, knowledge is the means by which to select the best solution” (Schrefler 2010, p. 14) (for a similar view, see also Dunlop et al. 2012). In this regard, IA can help IRAs achieve their short-term objective to be seen as producing qualitatively better policy outputs as well as the long-term objective of increasing a general understanding of the issues at hand.

Secondly, the objective served by IA may also involve the strategic use of knowledge by IRAs, which may be both political and substantiating. More specifically, in the context of IRAs, the aforementioned properties of IA as a mechanism of political control may be mobilized by an independent agency as a means for “expanding its powers and resources and safeguarding its action from the potential opposition” of the oversight body or adjacent government department (Schrefler 2010, p. 14). The substantiating strategic usage of IA, on the other hand, may have more to do with the desire to “justify and support the predetermined/preferred policy solution” (Schrefler 2010, p. 10). In this case, IA is used effectively in an ex post fashion, that is, not as a tool for incorporating knowledge into the process of policy analysis and selection but as a means to support the pre-selected option and justify the subsequent policy decision to the accountability forum and weaken any possible challenges of that decision. Finally, organizations such as IRAs may use knowledge symbolically to gain legitimacy in the eyes of significant stakeholders or other policy actors and also to conform to the logic of appropriateness that encourages them to make an appropriate response to external pressures and expectations (Schrefler 2010). While, as we discussed earlier, IA can be used to project the image of rational policy making (Radaelli 2010), prior studies have also demonstrated that the ideas behind IA and the actual application of those are often decoupled, pointing to the widespread occurrence of what Dunlop et al. (2012) termed the ‘perfunctory’ use of the instrument. In this vein, Schrefler (2010) further argues that the reliance on knowledge instruments (such as IA) can have a protective function in certain policy sectors (for example, regulation of professional services) where there is strong isomorphic pressure on regulators to be seen to make reference to expertise and research findings. It is also plausible that the perfunctory use of IA is more common in the earlier stages of IA adoption as, according to Schrefler (2010), the symbolic use of knowledge is often a preliminary form of the other two types of knowledge uses.

The above rationales behind the use of IA in the context of IRAs are not mutually exclusive and may evolve and coexist simultaneously. Before analysing how these rationales may shape the use of IA within FRC, we first present a brief overview of FRC and its formal approach to IA.

The FRC was first established in 1990 as part of a major reform of the process for setting and overseeing compliance with accounting standards. In 2004, its role was changed significantly as a result of government reviews following the major corporate scandals of the early twenty first century (Turley 2008), and the responsibilities of the FRC were expanded to incorporate auditing as well as accounting rule making. The agency is an independent regulator separate from the accounting profession in the UK, and its responsibilities include some statutory or quasi statutory roles that are devolved by government. Up to July 2012, FRC activities were reflected in several operating boards which had authority for either issuing standards or monitoring compliance. Specifically, the Accounting Standards Board (ASB) issued accounting standards as prescribed by the Companies Act 2006 (section 464) while the Auditing Practices Board (APB) exercised delegated authority to set practice and ethical standards for auditing to meet the Act’s provisions requiring “appropriate independent arrangements” for regulation of auditing (section 1228 and Schedule 10, paragraphs 9, 10 and 22). A major reform of the structure was introduced from July 2012 and the names and responsibilities of the component parts of FRC were changed but the principal aspects of the approach to policy development remain the same. Currently, accounting and auditing standards, respectively, are considered and developed by the Corporate Reporting Council and the Audit and Assurance Council, as the constituent parts of FRC that have succeeded the ASB and APB. The standards are issued in the name of FRC itself rather than those of the separate units.

As an independent regulatory agency operating at arm’s length from government but exercising significant statutory responsibilities, FRC has been subject to a government requirement to undertake IA. Over the years, the nature of this requirement has been subject to change. Specifically, in 1998, the UK government introduced The Regulatory Appraisal Guide, a document considered to be the first formal guidance on IA (Cabinet Office 1998). Inter alia, this encouraged more detailed analysis of policy alternatives, including the so-called zero-option (leaving the existing regulation unchanged). Due to various initiatives and changes in government, the IA guidance has been subject to many revisions since it was first issued. A revised version of the guidance published two years later (Cabinet Office 2000) made it a formal requirement that IA reports accompany regulations produced by “all government departments and agencies where they exercise statutory powers and make rules with a general effect on others” (p. 5), which therefore applied to FRC. In subsequent years, the government’s Legislative and Regulatory Reform Act in 2006, published following the Hampton review (HMSO 2005), introduced some further changes by, inter alia, requiring that the activities of the regulators (irrespective of whether they were government or independent) comply with the principles of good regulation in that they ‘(a) should be carried out in a way which is transparent, accountable, proportionate and consistent and (b) should be targeted only at cases in which action is needed’ (Art. 19). The latest version of the guidance was published in 2015 (BIS 2015) and reaffirms the role of IA as a continuous process of policy appraisal. It requires that IA accompany any proposal—from either a domestic or international source, mandatory or voluntary, produced by a government department or a self-regulating institution—that may have an impact on public, private or civil society organizations.

In addition, a formal commitment to IA has been reflected in the FRC’s own policy statements. Following the reform of 2004, the then newly reorganized FRC published its first Regulatory Strategy document (FRC 2004) stating commitment to “making effective use of Regulatory Impact Assessment” (p. 3), and this has been updated a number of times in subsequent years. The latest version of the document (FRC 2014) reinforces FRC’s desire to be a regulator “driven by evidence, fairness and proportionality in deciding what action to take” and “to report openly on these activities and the reasons for them” (pp. 3–4). Importantly, it also restates the agency’s commitment to the conduct of IA as a means to ensure the observance of the principles of transparency, accountability, proportionality, consistency and targeted action.¹ The FRC’s current approach to IA is explained on its website where the agency states that it follows the latest government guidance on IA (BIS 2015) and also mentions three guiding principles it adheres to in producing impact assessments, namely:

where appropriate, we are particularly alert to the impact of proposals on small businesses.²

FRC activities in general and, in particular, the conduct of IA, are also subject to external oversight arrangements. In particular, FRC’s policy-making practices are scrutinized periodically by the Better Regulation Executive (BRE), a directorate established as a result of the Hampton review within the government’s Department for Business, Innovation and Skills (BIS) to lead the better regulation agendas. Interestingly, in 2010, BRE published results of a Hampton implementation review of FRC practices (BIS 2010), describing FRC’s governance practices as demonstrating “a positive approach to better regulation” (p. 3). Specifically, the procedures for public consultation were found to be particularly strong, but the reviewers warned of the dangers of “consultation overload” and suggested FRC should set clearer priorities on the volume and content of consultation (p. 12). The review also found that the FRC needed to develop a more comprehensive approach to the analysis of the costs and benefits of its proposals, and to monitor better the accuracy of forecasted estimates. In addition, as a regulator with a significant public interest remit, FRC falls within the broader democratic accountability process and may, in principle, be held to account by institutions such as the UK parliament, which has been aptly described as having ‘an appetite for scrutiny of regulatory reform’ (Radaelli 2010, p. 99). For example, a report by the House of Lords’ Select Committee (House of Lords 2007) stated that regulators “should commit to evaluating the impact of their work and monitoring the extent to which they are providing value for money” (p. 36).

We have reviewed the use of IA in all regulatory episodes in the fields of accounting and auditing completed by FRC over a ten-year period between January 2005 and December 2015 (see Appendix for a full list). We therefore focus on the time following the widening of the FRC’s responsibilities which led to the emergence of FRC as we know it now, as the UK’s independent regulator for both accounting and auditing. By a ‘regulatory episode’ we identify any consideration of policy-making or regulatory activity leading to the issuance of new or revised regulations for financial reporting or auditing. The total number of regulatory episodes reviewed is 43, including projects on the development and revision of auditing and accounting standards, and ethical standards for auditors. In each case, the publication of consultation papers, discussion papers, exposure drafts and standards are all taken as part of a single regulatory episode but each new consideration of a possible revision to existing standards is taken to constitute a new episode. One of the authors served as a member of one of the FRC’s Boards. As a result, we were able to construct a comprehensive database of documentary materials which serves as the main source of evidence for our analysis. Additionally, we also benefitted from the interviews with four individuals that held general responsibilities within FRC for the conduct and oversight of IA. The interviews represent secondary data source and were used mainly as a means to gain a general understanding of the organization of the IA process within FRC.

Our analytical framework for assessing the efficacy of IA as an accountability tool is presented in Fig. 1 and is based on the work of Bovens (2006, 2007) which address accountability as an object of inquiry. Specifically, in Bovens’s view, assessment of any accountability mechanism should comprise two considerations, namely: (1) an evaluation of the procedures through which this type of mechanism is enacted and (2) a systemic evaluation of the overall purpose that it serves as well as its overall appropriateness. For the purpose of this study, the following paragraphs will discuss how these two levels provide key dimensions for our assessment of the efficacy of IA as an accountability tool.

The procedural assessment, according to Bovens (2007, p. 467), involves questions about the manner in which the accountability mechanism supports the functionality of what he termed “accountability phases”, comprising: (1) an information phase (proper provision of information about an actor’s conduct); (2) a debating phase (proper discussion and debate); and (3) a judgement phase (a possibility for a proper judgement by the accountability forum about the nature of policy making and its outcomes). Bovens’s conceptualization of the accountability process closely relates to that developed by Jordana et al. (2015, p. 7) who mention answerability and enforceability as two key characteristics of accountability, where the former is “based on information [and] dialogue” between the regulator and the forum and the latter means judgements about the regulator’s conduct.

IA literature shows that an evaluation of the procedural quality of IA practices most commonly involves an assessment of compliance with IA guidelines (Vibert 2004; Renda 2006; Cecot et al. 2008; Dunlop et al. 2012). One of the common methods of assessment used in these studies has been a scorecard approach where a score is awarded when a specific quality criterion is met, such as the inclusion of estimated costs/benefits. While this form of approach enables a generalized, measured assessment of the use of IA and its overall quality, it often struggles to provide a more nuanced understanding of the application of particular IA procedures. In this study, we refer to the provisions of UK government guidance on IA as a standard of IA best practice with a particular focus on the provisions relating to the procedures that facilitate the three accountability phases (Bovens 2007). Rather than relying solely on scorecards, we first relate adherence to the provisions of IA guidance with the accountability enhancing elements of IA (see below); this is then followed (in “Analysis” section) by an assessment of the FRC regulatory episodes to demonstrate the degree to which those elements are executed and associated challenges (see Fraas and Lutter 2011, for a similar approach).

As mentioned earlier in the paper, the UK government guidance on IA that serves as a benchmark for our analysis has been subject to a number of revisions since its first publication in 1998 (Cabinet Office 1998, 2000, 2003; BIS 2011, 2015). While the content of those revisions has varied, applying increasingly more detailed and prescriptive recommendations, the general idea of what IA means has not changed significantly. Specifically, the general requirement has been that IA should involve a range of steps, including: (1) identifying the policy problem, (2) identifying desired policy objectives, (3) identifying viable policy options that will achieve those objectives, (4) identifying the impact of each of those options (both negative and positive), (5) valuing the costs and benefits related to each option and selecting the preferred option, and (6) evaluating implemented policy. Further, since 2003, the guidance has also required that regulators administer an open consultation which may occur at different points in the policy cycle (Cabinet Office 2003). Steps 1 and 2, to a large extent, are determined by the incidence of an accounting or auditing issue and by the general objectives of FRC, and so are of less importance to us. Step 6 is also outside the study’s scope because our analysis is concerned with the use of IA up to the point at which a regulatory outcome has been determined.

Thus, the primary focus of our assessment are steps 3, 4 and 5 as well as the public consultation element of IA, as these provisions relate most closely to the accountability-enhancing properties of IA discussed earlier. Specifically, steps 3 and 4 relate to the capacity of IA to facilitate the information phase of accountability (Bovens 2006, 2007) by providing the forum with relevant information about the policy options at hand, including the cost burden that each option imposes as against the quantified benefits of implementation and compliance. Further, the consultation requirement contained in IA guidance highlights the potential for IA to facilitate the debating phase of accountability by enabling a discussion and dialogue between the regulator and the forum to collect stakeholder views on the key assumptions, estimates and evidence used in policy making. And lastly, Step 5 may be seen as supporting the judgement phase of accountability as it demands that the regulator justifies the selection of a preferred option by demonstrating a documented assessment of whether the benefits associated with it outweigh the cost of implementation, so that the forum members are able to form judgements about the appropriateness of the regulator’s decision.

The second part of an accountability assessment, according to Bovens (2006, 2007), should consider the systemic effects and general purposes of a given accountability instrument. Applied to our case, such a systemic assessment involves questions about IA itself and the actual purpose it serves within FRC in light of the FRC’s publicly declared commitment to transparency and accountability. More specifically, Bovens (2007) suggests that such questions should focus on the functional aspects of the accountability arrangement and whether it yields relevant information about the regulator’s conduct. A key issue in this regard is whether IA provides policy stakeholders constituting the FRC’s accountability forum with a good understanding of the processes of rule formulation, and more importantly, yields opportunities to influence the regulator’s conduct and the direction of regulatory policy. Another set of questions, according to Bovens (2006, 2007), should seek to understand whether the instrument (in this case, IA) has the potential to prevent the abuse of power or situations where the regulator is able to push through predetermined regulatory decisions. And finally, questions should be asked about issues such as education and learning and whether the accountability arrangement involves effective feedback mechanisms to stimulate a degree of reflexivity and self-criticism (Bovens 2007).

As mentioned earlier, our analytical approach has revealed three categories of regulatory episode reflecting the degree to which they embed procedures that facilitate the three accountability phases, i.e. information, debate and judgement (Bovens 2006, 2007) (see Table 1).

The findings of the procedural evaluation of IA as an accountability instrument presented in the previous section point to a trend towards a more routine and also, at least in relation to some episodes, more sophisticated use of the instrument within FRC during the period analysed, which suggests a growing momentum for IA. However, the findings also give rise to a number of systemic issues and concerns. Specifically, we have not found evidence to establish conclusively that IA does indeed deliver on its objectives by producing better, more accountable and transparent governance practices. If anything, our findings seem to point to the opposite, that, in the words of Coletti and Radaelli (2013, p. 1065), IA is used to “change ends with the means” or, in other words, to create a perception of accountability by presenting a growing use of IA as a main objective. Our analysis reveals, for example, that, even where IA is formally embedded in the policy process (Groups 2 and 3 in the above analysis), a closer assessment of the extent of execution reveals partial application and what looks like a box-ticking exercise rather than a meaningful utilization of IA as an accountability instrument. Furthermore, another systemic feature of the IA process within FRC is its heavy reliance on public consultation (also noted in the review of the FRC’s IA practices by the UK’s regulatory oversight executive—BRE 2010). Consultation procedures may lead to greater accountability through enhanced answerability and observability of the process of policy making (Jordana et al. 2015; Bovens 2006, 2007; Mulgan 2003) and facilitate a dialogue between the regulator and forum actors. However, the manner in which consultation is administrated by FRC indicates a possibility that IA may be used to project a desired image rather than to enhance stakeholder participation. Jordana et al. (2015) argue that, to operate as meaningful accountability mechanisms, consultation processes “must go beyond sheer information and include debate, namely the possibility of posing questions by the respective accountability forum and providing responses” (p. 8). Our analysis indicates that FRC does see consultation as a formal means for collecting stakeholder feedback but makes limited attempt to show how those opinions collected have actually been addressed during policy deliberation and with what consequences for the content of policy outcomes. It is plausible that the low level of stakeholder participation during consultation evident in some regulatory episodes analysed (such as the Future of the UK GAAP) is a direct consequence of this approach by FRC.

The inconsistent content of information communicated to forum members through the use of IA presents another factor hindering the possibility of an effective dialogue between them and the regulator. Examples include the lack of consideration of alternative courses of action (policy options) and the difficulties with providing measured assessments of the economic impacts of regulation. Also, even where this type of cost-benefit analysis is present, it tends to focus predominantly on the consequences for particular members of the forum, most notably accounting practitioners, to the exclusion of other, possibly significant “second-order” impacts on, for example, the users of accounting/audit reports or indeed the broader economy. This approach seems to be in conflict with one of the central arguments for IA that by making costs and benefits explicit the interests of all entities subject to regulation are accounted for (Renda 2006).

Weaknesses in the information element of accountability (Bovens 2007) administered through IA limit significantly the capacity of IA to become an effective tool for enhancing forum members’ substantive understanding of the regulator’s conduct, its approach to policy formulation, and the likely consequences of its policies. These observations echo Bovens’s (2007) contention that the potential of an accountability instrument (such as IA) to enhance stakeholders’ judgements about the regulator’s conduct (the judgment phase of accountability) is directly and inextricably linked to the functionality of the other two (information and debating) phases. It has to be noted, however, that the extent to which IA provides a detailed “visualization” of the regulatory process so as to increase its transparency is not always solely a matter at the regulator’s discretion. The often significant (human) cost of carrying out IA may detract from using the instrument in a comprehensive manner, especially in cases considered to be dealing with relatively insignificant policy issues.

The procedural assessment of IA as an accountability instrument also casts doubt as to its effectiveness as a tool for preventing the abuse of (legislative) power that, as Bovens (2006) noted, should be one of the desired systemic objectives of any accountability arrangement. Instead, our assessment shows that FRC’s approach to IA may potentially indicate, at least in some cases, attempts to justify and provide a scientific underpinning to the predetermined policy decisions. These concerns echo those expressed by Schrefler (2010, 2013) (discussed earlier) which point to independent regulators often opting for what she terms “strategic substantiating” usage of knowledge and evidence (produced through IA) in support of the pre-selected policy options. While we do not discount the possibility that IA may also be utilized by FRC in a way which enhances the regulator’s and the forum members’ substantive understanding of the policy issues at hand (the instrumental use of IA described by Schrefler 2010, 2013), we also need to at least acknowledge other possible motivations, such as a focus on IA as an instrument to promote perceptions of the knowledge intensity of the regulatory process, critical for the legitimacy of independent regulatory actors.

Further, there is clearly scope for FRC to exercise much more reflection and self-criticism when applying IA so as to enable it to be a tool for “social learning” where policy makers as well as recipients of regulation “gain a clear sense of the options, and trade-offs” and understand and make judgements about the consequences of solutions (Jacobs 2006, p. 18). Our study may be taken as an empirical illustration of prior claims that an economic model of IA may potentially produce poor learning results (Coletti and Radaelli 2013). Nonetheless, it should be acknowledged that understanding, debating and judging the impact of policy measures in the area of financial reporting, which are themselves developed with a fair degree of abstraction, is a challenging task. This raises questions about the format of IA rules and, specifically, whether they should be designed in an abstract way which can address this complexity, irrespective of the policy context, actors, or issues at hand, or alternatively, contain carefully formulated definitions of preferred treatments to aid application. Resolving the principles vs. rules dilemma in the context of IA ultimately boils down to a balancing act between the risk of the assessment becoming a dull, overly-prescriptive and therefore artificial instrument and the need to gradually increase the usefulness of IA as a tool for making regulators answerable to their ultimate audiences by reducing the number of ‘unknowns’.