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 fared against competitors, and how effectively they attracted investors. Traditionally, national financial disclosure rules varied so widely that a substantial profit under one country’s rules could be a substantial loss under another’s.

International standards developed gradually over a generation. In 1973, a committee of private-sector accountants from nine countries formed the International Accounting Standards Committee and began issuing proposed international accounting standards. The committee, one of several competing efforts in the 1970s and 1980s, initially skirted thorny political issues by proposing standards that left companies and national regulators wide latitude in interpretation. 219

In the 1990s and early 2000s, rapidly integrating markets and international financial crises increased companies’, stock exchanges’, and national regulators’ interest in more rigorous international disclosure rules. The Asian financial crisis of the mid-1990s created calls for greater corporate transparency, even though corporate reporting flaws were not among its main causes. Accounting scandals in the United States and Europe in 2001–2004 alerted international investors to hidden risks and highlighted major weaknesses in national disclosure rules.

Company executives, stock exchange managers, accountants, investors, and other market participants each had somewhat different reasons for supporting harmonization of corporate financial reporting. Multinational companies, seeking to diversify their shareholder base and lower their cost of capital by listing on stock exchanges outside their home countries, found duplicate reporting not only burdensome but also sometimes embarrassing. Managers of large stock exchanges, seeking to gain listings from foreign companies, found their national reporting rules created a competitive disadvantage. The accounting profession, dominated by five international firms through most of the 1990s, feared that conflicting statements of profits and losses under different national rules could impair accountants’ credibility. Investors, seeking higher returns in foreign markets, found variable results a new source of uncertainty.

In order to gain public legitimacy, the harmonization effort started by a small committee of accountants – the IASB – reformed its structure and improved procedural fairness in 2000 and 2001. The board’s new structure emphasized expertise rather than national representation, paralleled that of the U.S. and British accounting standard setters, and was dominated by members from countries with Anglo-American accounting traditions. 220 The reformed board consisted of twelve full-time and two part-time members who served a maximum of two five-year terms and were appointed for their technical expertise as auditors, preparers, and users of financial statements. To coordinate the board’s rule making with that of national standard setters, seven board members were given formal liaison responsibilities with specific countries, the United States, Britain, France, Germany, Japan, Canada, and Australia, giving those countries an elite status. The board also drew on the expertise of a geographically diverse advisory council and interpretations committee. By early 2005, the board had issued forty-one accounting standards, including controversial requirements for expensing of stock options and accounting for derivatives. 221

The board aimed to produce international standards “under principles of transparency, open meetings, and full due process.” 222 Board meetings were open to the public. Agendas of board and committee meetings were posted in advance on the board’s Web site, and summaries ofdecisions were posted afterward. Draft standards and interpretations were subject to public notice and comment (usually 120 days for standards and 60 days for interpretations), and sometimes to public hearings. The publication