Reporting in Accounting Field - Research Paper Example

Over the years debates and arguments have taken place regarding the manner in which accounting reporting should be looked at. There have been proponents supporting free market regulation along with pro-regulations in the market especially for developed countries that has a well established security market. Those proponents believing that efficacy of markets will be realized only when left free to itself be against regulation. This is due to the fact that market forces will optimize the use and allocation of resources and will craft a path through which the needs and requirements of the society are better served. There are proponents also having a different opinion and stating that free markets always doesn’t act in the best interest of the society and at times results in the society to face serious risk and actions which requires the need of proper regulations (Walker, 2007). This is true considering the fact that having proper regulations would help to put a check and restriction on undesirable activities and would thereby provide a mechanism through which the society will be served better. The issue of regulation in accounting gained prominence and was looked by many as an area to save the economy after the economic crash of 1920-30s which led towards the finding of different accounting principles and theories. The objective of accounting is to provide information to people searching for the same so that asymmetry of information which is present is reduced and the decisions which are taken are better. Regulating the accounting needs also provides the different professionals and regulators with an opportunity to monitor the financial needs and provide better and superior results based on it. The different governing bodies in all economies have framed different rules and regulations which are developed with the objective of having a wide range of regulation on accounts and accountants. Regulations have made it mandatory to work on the principle of full disclosure which ensures that the users of the financial information are provided complete information. Regulations is thereby one of the most important aspect for a developed economy that have a fully developed security market where free market works along with a form of regulation so that better information flows through the market there is lack of asymmetry among people. This paper thereby supports the need and importance of having a pro-regulation which acts as a force and guidance for the free markets and ensures that regulations ensures that the daily business proceedings are carried out in the most effective manner. Views of Regulation Many people see regulation as a sustained and focus control exercise which is exercised to have better control over the different dealings and to ensure that the community on large gains, while there are others with a different view point as well. Regulations are seen by many as a specific set of commands which needs to be followed so that the professional code of conduct and requirements of the different legislative needs are properly ascertained (Baker, 2005). This makes it important that regulations are not perceived in a negative form because it facilitates and enables to carry out other activities. This thereby ensures better control and directs and develops a path through which the different resources are properly tested and witnessed so that better reforms can be formulated. Reasons for Regulation There are many reasons which have been identified for the development of regulations and one of the most prominent was to stop the growth of monopolies which was witnessed in the US in the twentieth century. In case of situation of monopolies are not controlled will result in market failure. Thus, regulation at this juncture acts as a process of preserving competition and ensuring that the policies which are framed help the society over a longer period of time (Johnstone, Gregory, Pratt and Watts, 2000). Centrally controlled economies witness a period where monopolies grow but other forms of market aim towards reducing the level of competition so that fair trading can be ensured. Regulations helps to achieve this in a developed market as the security market is thereby able to witness the required change and is able to frame a model through which business gains are multiplied. Regulations in a developed economy where the security market is developed will help to reduce the chances of windfall gains. Since, the degree of competition is already high in a developed economy it will ensure that the competitors imitate the strategies which is adopted by another (Johnstone, Gregory, Pratt and Watts, 2000). This will ensure that the customers and the society on a large is not charged a price which is higher than the normal price and will help to exercise better control over the daily business affairs. This will thereby help to deal with the cost of externalities and will ensure that the different cost associated with different regulations are better controlled Regulations will also solve the problem of asymmetry of information as it will tend towards ensuring that all people needing the required information pertaining to the organization is provided with it. This will ensure that the decisions which are taken will be better and will help to bring a check and control decision making (Johnstone, Gregory, Pratt and Watts, 2000). Having proper symmetry of information will ensure that no one even the insiders uses the information for their personal gain and the society on a large is able to gain the different benefits from it. The process of trading in the security market will improve and will ensure that clear transparency and the different fundamentals which has a role in decision making is identified clearly communicated to all within and outside the organization. The process of regulation in the developed economies will have to put a ban on profit skimming. There can be situation where the security market provides information only to their concerned people so that super normal profits can be achieved. Having regulations will ensure stronger and better monitoring. This will reduce the chances using the different information for their own gains (Johnstone, Gregory, Pratt and Watts, 2000). The result will be so strong that will lead towards a development of a culture where profit skimming is marginalized and anti-competitive and predatory pricing policy can be checked and the overall business prospect will multiply and the larger section of the society will be able to gain through it. Regulations also help to deal with the free rider effect which is prominent in developed economies where the security market is strong. Having regulations in place will help to deal with the issue of free rider as people who pay for the services will be able to benefit from it. This will ensure that people are not able to gain at the expense of other and will thereby deal with the issue of moral hazard which is prevalent in markets. The functioning will be developed and directed in such a manner that people will be able to take advantage from a service only when they pay for it and will ensure that people who have taken different services are able to gain from it (Johnstone, Gregory, Pratt and Watts, 2000). The consumers through the process of regulations will be able to save themselves from the principles of moral hazards as the different requirements through which decisions which are taken helps the person who pays for it will gain maximum advantage and provide the required areas through which strengths will be ascertained. Regulation further helps to rationalize and coordinate the different activities so that the entire industry behaves in a proper and efficient manner. The impact will be seen in the direction of environmental cost as well as people pollute the environment and others have to pay for it. Regulations will enforce a binding on such activities and will create an environment where decisions and other factors will be based and decided in a manner through which business gains maximizes. This will lead towards a more fairer and equitable distribution of wealth which will thereby help the society to gain from it and will be able to use the same the betterment of different people. Theorising Regulation The different approach to regulations has been based on the different approaches which has been adopted by European & United States of America based on the different ideologies and philosophies that they follow. The prime purpose for the enforcement and development of regulation is the need to ensure that market failures doesn’t arise and the security market is able to work on the different business dynamics (Zeff, 2005). The fact that public ownership is considered as one of the main domain based on which economic regulations are passed on industries are nationalized. Regulations have helped to stimulate economic development and have brought about the required changes through which the market has been able to perform better. Having different regulations for the developed economies where the security market is developed has helped to bring a check and garner the required interest. Regulations have helped to foster a culture where the public interest is kept high and is protected. Regulations ensure that the chances of market failure reduce as markets which are not efficient have to deal with the issue of failures. This has helped to deal with the issue of Pareto Effect as has provided the required business model through which the resources are allocated in such a manner that it makes people better off rather than making someone worse off. This ensures that the different section of the society is able to get the required benefits and is able to accrue the different long term benefits. Regulations have further provides the required distinction between positive accounting theory and normative accounting theory and has thereby determined and developed the boundaries based on which things are evaluated. The overall perspective thereby relies on being developing the security market in such a manner that it maximizes the maximum gains and helps to ensure that the business based on it is able to gain maximum benefits. The Case for Mandatory Disclosure The question of regulation through the process of complete and mandatory disclosure is an aspect which catches the attention especially while considering the security market. The public interest theory has helped to provide intellectual support and help in regulating the markets and is prevalent in the present century. This theory advocates the fact that unregulated markets results in failure due to the fact that externalities and other benevolent factors have an impact on the behaviour and thereby hinders the overall process of market growth. The theory advocates the fact that competition and mitigation through the process of regulation helps to deal with the different issues associated with market failures and government regulations reduces the chances of such an incident in the future. The government further remains benevolent and competent to the fact that they act in the public interest and thereby ensure better regulations and competencies for being able to deal with the different issues which are present (Watts and Zimmerman, 2008). This helps to strengthen the overall potential of working and provides the dimensions through which long term growth and maximum productivity based on market based solutions. This brings about a complete change in working style and ensures that the overall process of carrying out activities improves and the chances of market failures are reduced. Interest Group Theories An extension of the public interest theory is the interest group theory where regulation is considered as relationship between different groups and the state. This theory states and deals with the issue of ensuring that competition ensures power rather than for public interest. This helps to create an environment through which political power ensures better management of resources and development of a strategy through which rules are framed and chances of market failure reduces (Tinker, 2004). This will thereby help to bring a change through which business effectiveness will be gained and will help to bring a change in the manner in which the security market works. The overall process will thereby maximize the gains and ensures that the market is able to perform in a better way. The overall phenomenon will thereby create an instance through which market will be able to respond positively and will thereby increase the working style and reduce the chances of failure. The Economic Theory of Regulation This theory is an extension of other theory and propagates the fact that regulatory agencies are utility maximisers and through their power they look at securing power and ensuring that better reforms are in place. This thereby looks to work on the fundamental of public choice theory and looks towards monitoring and controlling the governmental behaviour so that welfare gets maximized for most people. This method of regulation is a help for developed countries as it provides a framework through which better monitoring becomes possible and the public interest is kept above all (Mitchell, Sikka, Arnold, Cooper and Willmott, 2001). This helps to reduce and control the private interest and helps in the enactment of policies through which market failure reduces and the market is able to perform freely. The different economic theories which include both positive and normative theories should be used as complimentary to each other rather than using them exclusively as it will tend to provide the required direction and framework through which overall gains will be multiplied and public interest will be always captured. The different theories thereby provide a framework through which operational effectiveness is achieved. This will act as a framework and provide the required scope through which proper management of resources becomes possible and the chances of market failure is reduced. Institutional Theories The different institutional structure and arrangements have an impact on the process and shape of regulation and is an area which needs to be understood so that important points pertaining to the style of working in a developed economy can be ascertained. This helps to ensure that regulation emerges from organizational and social settings and is more than individual preference (Clarke, Dean and Oliver, 2003). Regulations are thus determined by the notion of public and competitive bargain and determine the different institutional rules and arrangements which impact the regulation policies. Institutional theorist has been developed from different discipline and a range of political and social predilection which has helped individual forces to develop methods through which better regulations are being framed. One of the institutional theory have been based and drawn on agency theory which highlights the importance of having agents so that all decisions which are taken are based on the long term prospect of the society and helps to develop a framework through which better monitoring becomes possible. This has acted as a regulation and has helped to frame ways and methodology through which better control over finances have been established (Solomons, 2008). This has helped to reduce the chances of market failure and has multiplied the opportunity through which the markets have been better regulated and controlled. The fact that differences between public and private authority is established through the process of regulations it helps to undermine the preference and creates the interrelationship through which better relationship is developed. The overall process fosters a culture where better regulations take place and the entire process of monitoring and chances of failure is reduced. This helps to maximize the performance of the market and ensures that a mechanism which will help the market to grow and prosper is generated. Regulatory Strategies Choosing the correct regulatory strategies by regulators will have to put a cap and reduce debates over the need of regulation and will create the relevant objectives which will help the business process to be monitored and controlled. The importance of these increases in a developed economy as strong markets requires proper reforms to govern them so that the safety of the investment of people can be ensured. To ensure that the developed economies are able to correctly identify the required regulations it is important that some planning and appropriate steps are developed. Some of the process which will help to accomplish the required objectives are Command & Control: To reduce market failures and to ensure that the market forces determine the manner in which the market will perform the regulators need to clearly identify the activities which are acceptable and activities which will result in penalties and fines. This requires having proper reforms which strictly determine and helps to understand the different standards which need to be complied. The overall framework should be aimed towards achieving a balanced framework where anti-competitive behaviour is curbed (Baldwin & Cave, 2009). This will thereby ensure that the different regulations which are developed will be aimed at improving the overall working style and will reflect on the market performance where market failures will reduce. This aspect has to be matched by a policy of enforcement so that the different regulations which have been developed are enforced and helps to develop a balance through which market performance is controlled and monitored. Self Regulation: This is a process of regulation which is less stringent than command and control and looks towards ensuring that the different regulatory and professional bodies develop a code of conduct through which self regulation of the members becomes possible (Baldwin & Cave, 2009). This thereby acts as a check and restricts people to use the insider information for their own benefit. This is an aspect which is quite relevant and pertinent in developed economies and markets as it helps to exercise control over the different proceedings. One such example is the development of Generally Accepted Accounting Principles (GAAP) which helps to ensure that members fall under its purview and restricts people from using information incorrectly. This method helps developed economies to ensure that accountability along with responsibility is passed on to the different members and helps to maximize the manner in which market decisions are taken. This aspect ensures that the overall strategies are framed towards preserving the market from failures and providing a path through which growth becomes possible. Incentive based Regulation: Developed economies to protect their market also aim at incentive based regulations where people are provided certain benefits in the form of taxes. Taxes are always considered as an expense for the business but incentive based regulations helps to save on taxes as people complying with the certain guidelines are provided tax incentive (Baldwin & Cave, 2009). For example the expenses made on research and development is omitted from taxes and helps the business t save on taxes. This form of regulation has an advantage as enforcement is not difficult and organizations aim to save on taxes. This helps the developed economies to be able to ensure that the different regulations are easily enforced and helps to create a culture through which development of the market increases and chances of market failure is reduced. The positives is felt by the market over a long period of time and helps to facilitate a process through which different aspect of regulations are properly determined. Disclosure Regulation: Developed economies and market look towards having a principle or regulation which is aimed at complete disclosure. This is done with the incentive to ensure that people are provided with all information which could have an impact on their decision making. This helps the market to reflect the actual mechanism and dimensions through which decisions are taken and helps people to understand the financial situation better (Baldwin & Cave, 2009). The overall impact of having a disclosure regulation helps to evaluate the behaviour of different groups and ensures that a process of regulation is developed which will reduce the chances of failure. This will thereby multiply the opportunity to be able to work on the different dimensions and will be able to develop efficiency in market performance. This helps to bring a check on market failures and ensures that the developed economies are able to take advantage of the different dimensions which have been presented ensuring fair and proper competition. Accounting & Regulations The importance of regulations has multiplied with evolving times and is an aspect which has found its importance in the field of accounting as well. It was considered over years that accounting is value neutral and is concerned with the reporting of economic facts but in reality it is an aspect which helps to understand the manner in which different regulations have been followed. The importance of regulations is being seen in the field of accounting as different market failures and financial crisis has highlighted the need and importance of having stringent and better reforms which will be aimed at determining the manner in which regulations are taken. The overall impact of such a decision will be based on multiplying the effectiveness of decision making and will help to bring about a change and transformation in the process of carrying activities. Regulations in the field of accounting has helped to ensure that better representation of facts becomes possible and has helped to develop a framework through which the different decisions which are taken reduces the chances of market failure. Having different regulations for the developed economies where the security market is developed has helped to bring a check and garner the required interest. Regulations have helped to foster a culture where the public interest is kept high and is protected (Majone, 2006). Regulations ensure that the chances of market failure reduce as markets which are not efficient have to deal with the issue of failures. This has helped to deal with the issue of Pareto Effect as has provided the required business model through which the resources are allocated in such a manner that it makes people better off rather than making someone worse off. This ensures that the different section of the society is able to get the required benefits and is able to accrue the different long term benefits. This thereby raises the importance of having proper accounting regulations and ensuring that the developed economies is able to take decisions through which maximum productivity and better growth opportunity will be achieved. Conclusion Regulations is thereby one of the most important aspect for a developed economy that have a fully developed security market where free market works along with a form of regulation so that better information flows through the market there is lack of asymmetry among people. This paper shows the importance of having proper regulations especially for developed countries so that the markets are able to gain efficiency and perform in a manner which will ensure proper use of resources and decision making. This will help to ensure that the chances of market failures are reduced and the market is able to gain from the different decisions which are taken pertaining to different areas. This will help to achieve the required transparency and will create the required framework through which the different decisions which will be taken will multiply the effectiveness and ensure better working parameters and conditions. The overall aspect will help to ensure better and stronger markets and will develop the required dimensions through which maximum productivity will be achieved. References Baker, C R 2005. What is the meaning of ‘the public interest’ Examining the ideology of the American accounting profession. Accounting, Auditing and Accountability Journal, 18, 690-703 Baldwin, R & Cave, M. 2009. Understanding Regulation, Theory, Strategy and Practice, Oxford, Oxford University Press. Clarke, F., Dean, G. and Oliver, K. 2003. Corporate Collapse, Accounting, Regulatory and Ethical Failure, 2 ed, Cambridge, CUP. Johnstone, R., Gregory, D., Pratt, G. and Watts, M. 2000. The Dictionary of Human Geography, 4 ed, Oxford, Blackwell Publishers Ltd. Majone, G. 2006. Regulating Europe, London, Routledge. Mitchell, A., Sikka, P., Arnold, P., Cooper, C. and Willmott, H. 2001. The BCCI Cover –up, Basildon, Essex, Association for Accountancy and Business Affairs Solomons, D. 2008. 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