Accounting Standard Setting
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ATPB 313 / ACTB 423
Accounting Theory & Practice
TOPIC 5: ACCOUNTING STANDARD SETTING
Chapter 7 SHD
Learning Outcomes
At the At the end of this lecture, students should be able to explain:
✓ The three theories proposed to understand the process of regulation – public interest, regulatory capture and private-interest theory ✓ a comparison of the free market and regulatory approaches to standard setting ✓ International standard setting ✓ Standard setting in Malaysia
Introduction
• Since 1960s, accounting profession has been criticized for its weakness. Failures to solve problem faced by practitioners accountant remains unresolved and lack of independence of financial information. • This has led the profession to seek a legitimizing procedure for standard setting process (standard back up by regulatory bodies) • Q: Should accounting standards be formulated mainly by authoritative bodies or left to the free market? • Q: Why do we need government intervention in developing the standards
Nature of Accounting Standards
• Provide practical and handy rules for the conduct of accountant’s work • Standards dominate the accountant’s work • Constantly changed, deleted, and/or added • Generally accepted as firm rules, backed by sanctions for nonconformity (peculiarity) • Generally consist of three parts: - A description of the problem to be tackled - A reasoned discussion (possibly exploring fundamental theory) or ways of solving problem - Then, in line of decision or theory, the prescribed solutions
• Some reasons to establish standards: - Provide users of accounting information with information about the financial position, performance, and conduct of a firm. This information is assumed to be clear, consistent, reliable, and comparable - Provide public accountants with guidelines and rules of action to enable them to exercise due care and independence in selling their expertise and integrity in auditing
ATPB 313 / ACTB 423
Accounting Theory & Practice
TOPIC 5: ACCOUNTING STANDARD SETTING
Chapter 7 SHD
Learning Outcomes
At the At the end of this lecture, students should be able to explain:
✓ The three theories proposed to understand the process of regulation – public interest, regulatory capture and private-interest theory ✓ a comparison of the free market and regulatory approaches to standard setting ✓ International standard setting ✓ Standard setting in Malaysia
Introduction
• Since 1960s, accounting profession has been criticized for its weakness. Failures to solve problem faced by practitioners accountant remains unresolved and lack of independence of financial information. • This has led the profession to seek a legitimizing procedure for standard setting process (standard back up by regulatory bodies) • Q: Should accounting standards be formulated mainly by authoritative bodies or left to the free market? • Q: Why do we need government intervention in developing the standards
Nature of Accounting Standards
• Provide practical and handy rules for the conduct of accountant’s work • Standards dominate the accountant’s work • Constantly changed, deleted, and/or added • Generally accepted as firm rules, backed by sanctions for nonconformity (peculiarity) • Generally consist of three parts: - A description of the problem to be tackled - A reasoned discussion (possibly exploring fundamental theory) or ways of solving problem - Then, in line of decision or theory, the prescribed solutions
• Some reasons to establish standards: - Provide users of accounting information with information about the financial position, performance, and conduct of a firm. This information is assumed to be clear, consistent, reliable, and comparable - Provide public accountants with guidelines and rules of action to enable them to exercise due care and independence in selling their expertise and integrity in auditing