The corporate accounting system has been captured by special interests at the expense of the public interest.

That’s according to a new book — Political Standards: Corporate Interest, Ideology and Leadership in the Shaping of Accounting Rules for the Market Economy by Karthik Ramanna (University of Chicago Press, 2016).

Ramanna is an associate professor of business administration at Harvard University.

“The evidence suggests special-interest capture of the accounting rule-making process,” Ramanna writes.

And the capture took place in large part because it occurred in what Ramanna calls a “thin political market.”

“Accounting rules cannot be determined without the substantive expertise and experience of special-interest groups that, by definition, also have strong commercial interests in the outcome and enjoy little political opposition from the general interest because of the abstruse nature of the subject matter,” he writes. “The challenge of such a thin political market is producing regulatory policy that is in the general interest.”

Ramanna finds that with the financialization of the U.S. economy, “we are seeing a growing impact of investment banks and asset-management firms in accounting rule-making.”

“These groups are more likely to propose rules that accelerate financial-statement recognition of anticipated economic gains — that is, fair-value accounting rules,” he writes. “Under certain circumstances, this can result in higher compensation to executives in these firms.”

Ramanna says that these rules can be difficult to audit because they require verification of conjectural profits.

“Large audit firms have responded by lobbying for more check-the-box-style rules — in contrast to rules that require subjective judgment,” he writes. “Check-the-box-style rules can lower auditors’ legal and political liability in case the conjectural profits do not materialize — such rules can also lower auditors’ overall accountability in the system.”

Ramanna also finds that members of the Financial Accounting Standards Board generally propose rules consistent with the interests of the industries from which they hail — in particular, members from investment banking and asset management generally propose fair-value accounting rules.

Ramanna says that corporate accounting rule-making is largely determined by a few specialist individuals — mostly corporate executives, bankers and auditors — with strong economic interests in the outcome.

And the outcome is skewed toward the interests of the specialists in ways that compromise accounting’s role in corporate performance evaluation, corporate accountability, and asset allocation.

“Put differently, there is evidence suggesting that the accounting system has been ‘captured’ by special-interest groups — although this capture is sometimes of a distinct nature better referred to as ideological capture,” he writes.

Ramanna says that the evidence does not point to systematic and sustained capture by any one special-interest group.

“There is no single extractive institution, no unequivocal villain in the story,” he writes. “The capture in accounting rule-making appears to be ad hoc and driven by those with the strongest economic incentives in any particular case.”