Abstract/Summary

“The continuing acceptance of accounting standard setting is a matter of managing legitimacy of the process of standard-setting in addition to, or perhaps, independently of, the technical characteristics of those standards” (Richardson and Eberlein, 2011, p.217) Legitimacy is imperative for any organisational existence, particularly for any standardssetter as accounting standards are inherently subjective. They are neither right or wrong but generally agreed upon. Therefore, legitimacy is a prerequisite for acceptance in accounting standards rule-making. This research builds upon the works of Suchman (1995) on legitimacy to explore and compare legitimacy dynamics between conventional and Islamic accounting standards, particularly in cognitive biases embedded in accounting professional expertise and in religious beliefs in the development of accounting standards. The reason for adopting Suchman’s (1995) work on legitimacy is his emphasis on the co-existence and inter-dependence of the evaluative and cognitive aspects of legitimation. Indonesia is selected as case study due to its unique accounting standards infrastructure, with the existence of dual and parallel standards setter for conventional and Islamic accounting standards development subordinated by the Indonesia Institute of Chartered Accountants (IAI), namely the Financial Accounting Standards Board (DSAK) and the Sharia Accounting Standards Board (DSAS). Conducting 34 semi-structure interviews and utilising thematic analysis, this research identifies three inter-linked bases for legitimacy, all of which are drawn from the interviewees’ perceptions: i) the historical factors including the political and legal context; ii) due process and procedure; and iii) biases embedded in accounting profession and in religious beliefs. This research contends that cognitive biases based on religious considerations are stronger than biases based on professional considerations, that is beliefs based on divine laws and the trust to Islamic actors are stronger than the trust to accounting profession in accounting standards development.