Accounting Regulation And Conceptual Frameworks
Accounting Regulation and Conceptual Frameworks,
Traditional Arguments for Accounting Regulation – 1) Prevention of fraud – Enron 2) Comparability 3) Asymmetrical information – big institutional investors have more information than small retail investors. Beaver (1981), strongly believes in pro market lobby, market solutions are always the best, we should never regulate. – Very influential academic – Highly reputable
Traditional Arguments against accounting regulation 1) Capture theory – person who is meant to be regulating is really on the side of the company they should be regulating. Leads to industries regulating themselves. 2) Public interest – Accounting is not just a purely economic metric it deals with people and therefore should be a political process. 3) Self Interest – Regulators, politicians should in the interest of the public good but in practice other influences may reduce or prevent this.
Economic Arguments For Accounting Regulation – 1) Particularly applicable during ‘free market’ breakdown, when certain individuals receive the ‘benefit’ and others receive the ‘cost’individuals can receive the good without paying, thus price system cannot function, ‘Public good’ arises when there is an externality, an instance of market failure, in public goods – 3 consequences arise during externalities, 1 Free riders, the people who use the information but have not necessarily paid for the information. 2 Moral Hazard, people not fully disclosing the true amount of information you need or someone who says they need all the information. Producing information is expensive so an economic argument for accounting regulation. 3 Too much or too little information may lead to incorrect investments which results in an inefficient solution to economic gross across the market. So where we don’t have markets working efficiently a solution to that is regulation. Beaver understood and accepted they were economic reasons for accounting regulation.
Economic Reasons against
Traditional Arguments for Accounting Regulation – 1) Prevention of fraud – Enron 2) Comparability 3) Asymmetrical information – big institutional investors have more information than small retail investors. Beaver (1981), strongly believes in pro market lobby, market solutions are always the best, we should never regulate. – Very influential academic – Highly reputable
Traditional Arguments against accounting regulation 1) Capture theory – person who is meant to be regulating is really on the side of the company they should be regulating. Leads to industries regulating themselves. 2) Public interest – Accounting is not just a purely economic metric it deals with people and therefore should be a political process. 3) Self Interest – Regulators, politicians should in the interest of the public good but in practice other influences may reduce or prevent this.
Economic Arguments For Accounting Regulation – 1) Particularly applicable during ‘free market’ breakdown, when certain individuals receive the ‘benefit’ and others receive the ‘cost’individuals can receive the good without paying, thus price system cannot function, ‘Public good’ arises when there is an externality, an instance of market failure, in public goods – 3 consequences arise during externalities, 1 Free riders, the people who use the information but have not necessarily paid for the information. 2 Moral Hazard, people not fully disclosing the true amount of information you need or someone who says they need all the information. Producing information is expensive so an economic argument for accounting regulation. 3 Too much or too little information may lead to incorrect investments which results in an inefficient solution to economic gross across the market. So where we don’t have markets working efficiently a solution to that is regulation. Beaver understood and accepted they were economic reasons for accounting regulation.
Economic Reasons against