The European Parliament is due to formally adopt a cross-party report that is strongly critical of accounting standard-setting institutions, in particular the International Accounting Standards Board (IASB). This is an opportunity to reexamine the accounting rulemaking establishment in the United States as well.

Whatever your take on Donald Trump and Bernie Sanders, it’s difficult to ignore the anti-establishment sentiment that has fueled their rise. While both candidates are prone to embracing dangerous extremes, their support underscores a deep disenchantment among the American electorate for its ruling class. This election season therefore presents an unparalleled opportunity for genuine public leadershipthe kind that will stand up to the crony capitalism that brought us the 2008 financial crisis and that has resisted meaningful financial regulation since.

A place to start would be the accounting rulemaking infrastructure. As abstruse as it may sound, accounting rules are at the heart of a functioning capitalist economy. They define the standards by which firms and their managers are evaluated, and thereby they enable the allocation of capital to its most productive uses. But, of course, there are no natural laws of accounting – all accounting rules are social and political constructions. And, not surprisingly, the most powerful interests in business and finance often have the defining say in what these rules should look like.

In my recent book, Political Standards (Chicago, 2015), I outlined how our system of accounting rulemaking has been captured by the interests and ideologies of the auditing, investment banking, and asset management industries. Rules advanced by these interests—notably, the use of fair-value methodologies in accounting even in the absence of observable market transactions—enabled the conditions that precipitated the 2008 financial crisis. Something similar happened in the Enron debacle, but the lessons were never learned, and, quite miraculously, the accounting rulemaking establishment has largely escaped serious scrutiny since 2008.

All that may finally change, at least in Europe. Last month, the European Parliament’s Committee on Economic and Monetary Affairs released a draft report that is strongly critical of accounting standard-setting institutions, in particular the International Accounting Standards Board. The IASB establishes accounting rules that are largely used by over 100 jurisdictions worldwide, including notably the European Union member states. What’s remarkable is that this European parliamentary committee—which is often sharply divided on ideological grounds (from far left to far right, from Greens to neo-Fascists)—voted unanimously on the report. The report is expected to become the formal position of the European Parliament this week. 

Some highlights of the report: 

  • The committee recognizes “the dominance of private actors on the IASB; points out that medium-sized businesses are not represented at all; points out that the IFRS Foundation continues to rely on voluntary contributions, often from the private sector, which may give rise to a risk of conflicts of interests.” 

  • The committee recognizes the need “to enhance democratic legitimacy, transparency, accountability and integrity which, inter alia, concern public access to documents, open dialogue with diverse stakeholders, the establishment of mandatory transparency registers and rules on transparency of lobby meetings as well as internal rules, in particular prevention of conflict of interests.” 

  • The committee recognizes that international convergence of accounting rules “is not an objective in itself but only desirable if it results in better accounting standards reflecting an orientation towards the public good, prudence and reliability.” 

The report is remarkable for its candor and sharpness — a stark contrast to the genteel prose that is more common in accounting rulemaking circles. But this dose of directness may be just what’s needed to jostle the rulemaking establishment out of its cozy relations with corporations. Here is an opportunity to reexamine how we set the accounting rules that underpin our global capital markets. Here is an opportunity to fix some of the most blatant weaknesses in the accounting regulatory infrastructure.

And there’s no reason why we shouldn’t do this in the United States as well. The IASB is a partner to the Financial Accounting Standards Board, the private, not-for-profit authority charged with setting accounting rules for most U.S. companies. Several of the issues raised in the European Parliament report could well apply to the FASB. For instance, in my book, I’ve highlighted the remarkable lack of diversity (of thought and interests) in FASB rulemaking. In fact, the process is best characterized as a “thin political market” – where a handful of informed industry experts often cavort with ex-industry regulators to set the rules of the game for the rest of us.

“[T]o enhance democratic legitimacy, transparency, accountability” of our accounting rulemaking is a no-brainer. But we’ve often lacked the political will to take on the powerful financial interests that dominate the process. That can change. Getting our accounting rules to work in the public interest is an important step in restoring the confidence of the American people in our market system — a key issue this election season. Let’s hope this European Parliament report will encourage a similar examination of accounting rulemaking in the United States.