Constructing Accounting as a Public Policy Issue: The Framing of Fair Value Accounting during the Global Financial Crisis of 2007–09

We analyze how accounting topics emerge as public policy issues. Drawing on framing theory, we understand accounting debates as frame contests, wherein different frames, that is, different versions of perceived reality, compete for policymakers’ acceptance. Based on a comprehensive review of the public debate on fair value accounting in Europe and the United States during the global financial crisis of 2007-09, we analyze how actors framed an accounting issue over time to construct a public policy issue. This process entailed a shift of the debate’s focus from contesting fair value accounting’s ability to meet traditional accounting objectives to contesting the accounting rule’s influence on financial stability. Our analysis points to a clash between standard setters’ and their constituents’ mindsets. While standard setters consistently emphasized that financial accounting merely acts as a mirror of economic reality, contextual factors during the financial crisis caused an increasing number of accounting constituents to foster the idea that accounting was itself constructing reality. This shift in the use of frames to challenge accounting regulations resulted in the emergence of a public policy issue where public policymakers adopted the radical view of accounting, according to which standard setters should consider their standards’ economic consequences as an accounting objective.