financial accounting theory （rmit university,craig deegan）--chapter3财务会计的政府管制

Financial Accounting TheoryCraig Deegan,Chapter 3The regulation of financial accountingSlides written by Michaela Rankin,Copyright 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan,3.2,Learning Objectives,In this chapter you will be introduced to some of the various theoretical arguments proposed in favour of reducing the extent of regulation of financial accountingsome of the various theoretical arguments for regulating the practice of financial accountingvarious theoretical perspectives that describe who is likely to gain the greatest advantage from the implementation of accounting regulation,Copyright 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan,3.3,Learning Objectives,The political nature of the accounting standard-setting process which seeks the views of a broad cross-section of account usersthe relevance of potential economic and social impacts to the accounting standard setting process,Copyright 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan,3.4,Why examine theories of regulation,Better placed to understand why some accounting prescriptions become part of legislation while others do notaccounting standard-setting is a very political processwhile some proposed requirements may be technically sound and logical, they may not be mandated due to political power or influence of some affected parties,Copyright 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan,3.5,Free market perspective,Accounting information should be treated like other goods, with demand and supply forces allowed to operate to generate an optimal supply,Copyright 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan,3.6,Arguments supporting free market perspective,Private economic based incentives market for managers market for corporate takeoversmarket for lemons,Copyright 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan,3.7,Private economic based incentives,assumed that managers will operate business for own benefit and this is expected by shareholders and debtholderstherefore in interests of management to enter contracts with shareholders and debtholders to constrain managers actionscontracts often based on accounting informationorganisations not producing information will be penalised by higher costs of capital,Copyright 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan,3.8,Private economic based incentives - continued,Organisations best placed to determine what information should be produceddependant on parties involved and assets in placeimposing regulation restricting available set of accounting methods decreases efficiency of contractingalso assumed auditing will take place in absence of regulation - reduces risk to external stakeholders,Copyright 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan,3.9,Problems in presence of many different parties,May be too many parties for contracting to be feasibleprohibitive cost of negotiation if different investors want different informationcostly to negotiate single contract with all investors as they need to agree information provided,Copyright 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan,3.10,Market for managers argument,Managers previous performance impacts on remuneration they can command in futurein absence of regulation assumed managers encouraged to adopt strategies to maximise value of firm (provides favourable view of own performance)includes providing optimal amount of accounting information,Copyright 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan,3.11,Assumptions underlying market for managers argument,Managerial labour market operates efficientlyinformation about past performance known by prospective employers and will be impounded in future salariescapital market is efficienteffective managerial strategies reflected in positive share price movements,Copyright 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan,3.12,Market for corporate takeovers argument,Under-performing organisations will be taken over by another entity with the existing management team subsequently replacedtherefore managers motivated to maximise firm valueinformation produced to minimise cost of capital thereby increasing firm valueassumes managers know marginal cost and marginal benefits of information,Copyright 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan,3.13,Market for lemons argument,No information viewed in the same light as bad informationmarket may make the assessment that silence implies the organisation has bad news to disclosetherefore managers motivated to disclose both good and bad news evidence that both good and bad news disclosed voluntarily - Skinner (1994),Copyright 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan,3.14,Market for lemons argument - continued,Assumes the market knows that managers have news to disclosemay not always be a realistic assumptionif knowledge of non-disclosure subsequently becomes available market expected to react at that stage,Copyright 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan,3.15,Pro-regulation perspective,Accounting information is a public or free goodin the presence of free-riders true demand is understatedpricing system does not function properlyleads to underproduction of informationregulation necessary to reduce impacts of market failure,Copyright 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan,3.16,Should supply of free goods be regulated?,Some argue free goods often overproduced as a result of regulationpublic, knowing they do not have to pay, will overstate their need for the good or serviceeg. investment analystscould lead to accounting standards overload,Copyright 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan,3.17,Role of Adam Smiths invisible hand,Invisible hand notion used as argument in favour of free marketwithout regulatory involvement, as if by an invisible hand, productive resources will find their way to most productive usessome went on to argue that leaving activities to the control of market mechanisms will protect market participants,Copyright 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan,3.18,Role of Adam Smiths invisible hand - continued,Free market argument ignores market failures and uneven distribution of powerSmith was concerned where monopolistic powers were created by government interventionBUT Smith advocated regulatory intervention in some instanceswhere in the public interest to protect the more vulnerable,Copyright 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan,3.19,Why was Smiths work misrepresented?,In the interests of many businesses that regulatory interference be reducedthe work of acclaimed economists used as propaganda to support their position,Copyright 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan,3.20,Theories to explain regulation,Public interest theoryCapture theoryEconomic interest group theory (private interest theory),Copyright 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan,3.21,Public interest theory,Regulation put in place to benefit society as a whole rather than vested interestsregulatory body considered to represent interests of the society in which it operates, rather than private interests of the regulatorsassumes that government is a neutral arbiter,Copyright 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan,3.22,Criticisms of public interest theory,Critics question assumptions that economic markets operate inefficiently if unregulatedquestion the assumption that regulation is virtually costlessothers question assumption of government neutralityargue that government will only legislate and groups will only lobby for regulation if it will increase their own wealth,Copyright 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan,3.23,Capture theory,The regulated seeks to take charge (capture) the regulatorseek to ensure rules subsequently released are advantageous to the parties subject to regulationalthough regulating initially in the public interest, difficult for regulator to remain independent,Copyright 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan,3.24,Capture of accounting standard-setting,Walker (1987) analysed capture of Australian standard-setting through the ASRB. Argued that:the accounting profession lobbied before the board established to ensure no independent research capability, no academic as chair, to receive admin officer not a research directorpriorities only set after consultation with AARFASRB fast-tracked AARF submissions but not othersmajority of board membership were members of the accounting profession,Copyright 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan,3.25,Criticisms of capture theory,No reason to suggest that regulated industry the only interest group able to influence the regulatorno reason why regulated industries only able to capture existing agencies rather than procure the creation of an agencyno reason why regulated couldnt prevent creation of the regulatory agency,Copyright 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan,3.26,Economic interest group theory,Assumes groups will form to protect particular economic interestsgroups are often in conflict with each other and will lobby government to put in place legislation which will benefit them at the expense of othersno notion of public interest inherent in the theoryregulators (and all other individuals) deemed to be motivated by self interest,Copyright 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan,3.27,Economic interest group theory - continued,The regulator is not a neutral arbiter but is seen as an interest group itselfregulator motivated to ensure re-election or maintenance of its position of powerregulation serves the private interests of politically effective groupsthose groups with insufficient power will not be able to effectively lobby for regulation to protect its own interests,Copyright 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan,3.28,Examples of application to accounting standard-setting,Industry groups may lobby to accept or reject a particular accounting standardeg. insurance industry and AASB 1023large politically sensitive firms found to lobby in favour of general price level accounting in US (led to reduced profits)accounting firms lobbying to protect their own interests,Copyright 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan,3.29,Accounting regulation as an output of a political process,The view that financial accounting should be objective, neutral and apolitical can be challengedwi