Essays on Views Regarding the Regulation of Accounting Information Assignment

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The paper "Views Regarding the Regulation of Accounting Information" is an outstanding example of a finance and accounting assignment. The fundamentals of the free-market economy are basically defined by a system in which the costs of purchasing goods and services and services are freely set by the consent of the sellers and buyers. Similarly, the regulations that govern supply and demand have limited or no government control. The free-market accounting perspective regards accounting information as other goods. This implies that the accounting information is viewed as an economic good and optimal production whereby the demand and supply are the determining factors in the marketplace.

In other words, such market forces are perceived to have the potential of ensuring optimal disclosure. These aspects raise questions over the need for accounting regulations. Gaffikin (2006) argues that the rationale behind the free-market accounting perspective is that there are private economics-based, on incentives that can provide organizations with platforms that which enhance the provision of credible information about its operations and performance to external parties even without regulatory systems. In this perspective, regulations are only considered restrictive to the employed accounting methods.

In this instance, it is argued that regulations restrict or bar the organization from using the accounting methods which they believe reflect a given position or performance efficiently. Generally, accounting tries to provide a theoretical framework that aims at resolving issues regarding recording and reporting of information (Ma 1997). Essentially, it is often perceived that financial statement must represent a true and fair view of the information and be congruent with the generally accepted principles of accounting. According to Rudzioniene (2010), true and fairness is a concept in which truly implies that the information that is presented in the financial accounting has been quantified and communicated in a way that tallies with the events, transactions and activities on the market which it intends to represent. The aspect of fairness, on the other hand, implies that the information has been measured and disclosed in a way that is objective and not marred by prejudice to any specific sectional parties that have the interest in the company.

The objective of financial reporting is essential to avail information about the financial position and the financial performance of the reporting company which is useful to various users in making economic decisions.

The Institute of Chartered Financial Accountants (2011) points out that a complete financial statement contains information regarding the financial position of a company s recorded on the balance sheets, a financial performance which is also the income statement, statement of changes in equity, statement of changes in a financial position which basically regards the statements of cash flow and finally the notes on financial statements. The free-market perspective is based on agency theory.

The agency advances the relationship between the agents and principles whereby the principles entrust their wealth to be managed by the agents. The information is therefore supplied by the agents who mainly constitute the management of the principles who are the stakeholders. The accounting information is provided to serve two common purposes which include the supervising the behaviors of the agents and to compel the agents to act in the best interest of the agents. This perception is however challenged by the fact that firms enjoy a monopolistic supply of the information about themselves.

As a result, they are likely to under-produce and sell at high prices.

References

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