How Theories of Regulation Apply to Accounting and Auditing Practice?

LO 2 HOW THEORIES OF REGULATION APPLY TO ACCOUNTING AND AUDITING PRACTICE

In this section, we explored the extent to which public interest, capture and private interest theories can be applied accounting and auditing in practice. We observed that governments in many countries have intervened in the process of setting accounting and auditing standards. Although standards were initially under the control of the private sector, a sucession of events led to government control in many countries for example in australia accounting standards were developed by the accounting profession. The government intervened in the accounting standard setting process from the 1980s by setting up bodies with the responsibility for promulgating accounting standards. We discussed the extent to which such bodies were captured by the parties for whom they were creating regulation. We also considered the role of private interest groups in obtaining regulation favorable to their own interest.

The final part of this section expanded on the theme of the plotical nature of standard settingb and the regulation. Noted us academic stephen zeff has described standard setting as an in escapably political process. This view applies not just to the US, but equally in other countries as well. We observed that the adoption of IASB standards in the european union has taken the politicisation of accounting standard setting to a new level. Zeff explain that there are a raneg of parties involved, with different objective and cultural preferences, which has rezsulted in a lengthy endorsement process subsequent to the IASB's standards setting process (already a highly political process). We reviewed the adoption of IAS 39 in europe to ilustrated some of the issues involved.

LO 3 THE REGULATORY FRAMEWORK FOR FINANCIAL REPORTING

Financial reporting does not accur in a vaccum. There are many factory which influence the process of producing financial information. In this section we described a number of key elements which may be observed in a number of countries financial reporting framework. Our aim was to provide a 'proforma' of the regulatory framework and to show the elements affect the production of financial reports. First, we discussed statutory requirements, that is, the laws which require preparation and auditing of financial reports. Such laws may be contained in company, securities market and taxation law. Common requirements which affect preparation of financial reports are the duty to prepare accounts (in accordance with accounting standards and other legal requirements), to have the audited by an external auditor and to lodge them with a government body. Next we reffered to corporate governance practices follow requirements of law, while others reflect 'best practice' recommendations developed by the private sector. Examples of the former include the EU directives on corporate governance