...ACCOUNTING STANDARDS AND REGULATIONS ACCOUNTING STANDARDS & REGULATIONS During the year 2002, the accounting profession was subjected to a series of highly publicized scandals. For example, it was discovered that the prestigious Arthur Andersen firm had played a role in the fraudulent reporting practices that led to the bankruptcy of the Enron Corporation. Andersen accountants had helped the company hide its losses, and had shredded important documents that were relevant to the case. In June 2002, Andersen was found guilty of obstructing justice, was fined $500,000, and was sentenced to five years probation (Sachdev, n. p.). Also during 2002, the telecommunications firm WorldCom was found guilty of fraud as a result of having “improperly accounted for more than $3.8 billion of expenses” (Klein, 2002, p. 1). Other companies too, such as Tyco, Qwest, and Adelphia Communications, all became involved in accounting- related scandals. These various scandals had a negative impact on public views regarding the accounting profession. As stated in an article in the CPA Letter, the high-profile business failures of Enron and others “called into question the effectiveness of the profession’s self-regulatory process as well as the effectiveness of the audit to uphold the public trust in the capital market” (Landmark accounting reform, 2002, p. 1). Many people began arguing for stricter regulations in the accounting industry. The Securities and Exchange Commission (SEC), for...
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...Exercise 16-1 a) 2008 Debit Credit Salaries and Wages Expense $7,200 Salaries and Wages Payable $7,200 To accrue for vacation: 9 employees x 10 days x 8 hours x $10 = $7,200 Salaries and Wages Expense $4,320 Salaries and Wages Payable $4,320 To accrue for sick time: 9 employees x 6 days x 8 hours x $10 = $4,320 Salaries and Wages Expense $2,880 Cash $2,880 To record sick time: 9 employees x 4 days x 8 hours x $10 = $2,880 2009 Salaries and Wages Expense $7,920 Salaries and Wages Payable $7,920 To accrue for vacation: 9 employees x 10 days x 8 hours x $11 = $7,920 Salaries and Wages Expense $4,752 Salaries and Wages Payable $4,752 To accrue for sick time: 9 employees x 6 days x 8 hours x $11 = $4,752 Salaries and Wages Expense $720 Salaries and Wages Payable $7,200 Cash $7,920 To Record vacation, taken by employees (9 employees x 2 days x 8 hours x $10 = $7,200 9 employees x 3 days x 8 hours x $11 = $7,920) Salaries and Wages Expense $360 Salaries and Wages Payable $3,600 Cash $3,960 To Record sick time, taken by employees (9 employees x 2 days x 8 hours x $10 = $1,440 9 employees x 3 days x 8 hours x $11 = $2,160) 9 employees x 5 days x 8 hours x $11 = $3,960 b) | |2008 ...
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...QUESTION ONE-ACCOUNTING REGULATION 16 Three Theories of Regulation 1: Public interest theory The central economic rationale for origins of government intervention with public interest theory is that of market failure. Public interest theory assumes that economic markets are subject to a series of market imperfections or transaction failures, which if left uncorrected will result in both inefficient and inequitable outcomes. 2: Regulatory Capture Theory Capture theory assumes that all members of society are economically rational -and each will pursue his/her self interest to the point where marginal benefit from lobbying regulators just equals private marginal cost. Therefore people lobby for regulations that increase their wealth, or they lobby to ensure that regulations are ineffective in decreasing their wealth. 3: Private Interest Theory Stigler’s private interest theory – he argues that regulatory activity reflects the relative political power between interest groups. Interaction is with politicians who are not neutral arbiters but are like business executives or consumers - and are thus rationally self interested. Private interest theories favour producer groups as the most likely to become organised interest groups. Theorists believe that regulation does not arise as a result of a government‘s response to public demands – it is sought by the producer private interest group - and is designed and operated primarily for its benefit. QUESTION TWO –ACCOUNTING THEORY...
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...Corporate Scandals And Regulations February 18, 2014 Introduction In recent years there has been many different regulations that have been put into effect to avoid any more accounting scandals. Some scandals that has gotten worldwide attention would be scandals such as WorldCom, Enron and Avon. These regulations have been put in place to help investors and to prevent companies from being put in situations where a scandal could arise. Companies need to pay close attention and follow the regulations or there can be stiff penalties and consequences against both the employee and the company. There are debates on whether there should be more or less regulations regarding accounting and finance. Whether more or less regulations are put in place employees and companies need to make sure that the obey the regulations. Some of the regulations that have been put in place are the Securities Act of 1933 and 1934 and also the Foreign Corrupt Practices Act of 1977. Regulations I think that regulations need to be monitored and controlled better. I do not think that necessary more regulations need to be put in place. Just enacting more regulations does not do anything if they are not enforced and followed. I do not think that there is a need for more regulations but smarter regulations that are enforced. If there are too many regulations then some regulations can be overlooked which then defeats the purpose. Or if there are too many regulations people cannot keep track...
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...SUMMARY ACCOUNTING THEORY APPLYING THEORY TO ACCOUNTING REGULATION Chapter 3 Karunia Muliani – 1306395224 Silvia M. E. Nabut – 1306408630 Claudia Jusuf – 1306408681 Yovanka G. L. Sianipar - 1306453193 APPLYING THEORY TO ACCOUNTING REGULATION LO 1. THE THEORIES OF REGULATION THAT ARE RELEVANT TO ACCOUNTING AND AUDITING Ada beberapa teori yang relevan terhadap pemahaman lapoan keuangan. A. Teori Pasar Efisien Dalam teori pasar efisien, penganut pasar bebas menyatakan bahwa pasar akan berfungsi paling efisien ketika pasar bergerak atas mekanisme permintaan dan penawaran tanpa campur tangan dari pemerintah. Dalam akuntansi, dapat dikatakan informasi akuntansi adalah sebuah industri memproduksi informasi. Para pendukung teori ini mengatakan bahwa seperi halnya pada pasar bebas, pasar informasi akuntansi juga memiliki permintaan dan penawaranya sehingga terbetuk harga keseimbangan pasar untuk informasi akuntansi. Misalnya, ada sebuah informasi akuntansi dengan pemintaan tertentu dari pengguna dan ada pemasok yang bersedia menyediakan informasi akuntansi tersebut. Maka, ketika pemasok mendapat keuntungan dari memberikan informasi akuntansi tersebut dan pembeli merasa biaya yang dikeluarkan untuk mendapat informasi itu setimpal atau lebih murah, maka dapat terbentuk sebuah keseimbangan pasar. Jika hal tersebut tidak terpenuhi maka informasi akuntansi tidak disediakan. Namun, ada pula kelompok yang tidak mendukung teori ini karena dianggap tidak realistis. Hal ini disebabkan karena...
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...CHAPTER 2: REGULATION IN FINANCIAL ACCOUNTING Chapter 2 regulation in Financial accounting LEARNING OUTCOMES Upon completion of this chapter you should be able to understand: • The difference between management and financial accounting. • Why accounting regulations are important and required. • The need for and the structure of professional regulation, company law, stock exchange legislation and EU Directives. • How the different aspects of regulation work together and complement each other. • The process through which an accounting standard comes into being. REVISION RESOURCES EXAM QUESTIONS: Sample and Past papers are available from the website of Accounting Technicians Ireland and are essential aids when studying Advanced Financial Accounting topics. 7 Chapter 2 : Regulation in Financial Accounting 2.1 Advanced Financial Accounting the FunCtion oF FinanCial aCCounting and reporting The International Accounting Standards Board (IASB) in their Conceptual Framework for Financial Reporting state that ‘the objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity. Those decisions involve buying, selling or holding equity and debt instruments, and providing or settling loans and other forms of credit’. This Conceptual Framework...
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...1. Introduction Accounting standards establish the rules for accounting in a country and prescribe what should be reported in a company’s financial statements in that territory. Their purpose is to ensure that consistent approaches of accounting are adopted nationally. They minimize the risk of material misstatement in accounts and help investors make decisions by ensuring they can get comparable information. Accounting standards, as laid down by a country’s law, are applicable to all companies registered within its territory. But in order to ensure the success, the regulating process must be established. In Bangladesh BFRS and BAS are used as the accounting and reporting standards for the companies. Companies are obliged to follow those standards and laws and some are free from such restrictions. In this assignment, a theoretical analysis has been made regarding the accounting regulation and standard setting process in Bangladesh. 2. Accounting Regulation in Bangladesh All the companies in Bangladesh (both public limited companies and private limited companies) are regulated by The Companies Act of 1994 that provides the basic requirements for the companies. It includes the requirements about financial reporting and accounting practices. But most importantly, this act is silent about either Bangladesh Accounting Standards (BAS) or International Accounting Standards (IAS),. description about the laws and regulations for different types of entities in Bangladesh has been...
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...Running Head: GOVERNMENT REGULATION IN THE ACCOUNTING INDUSTRY Government Regulation in the Accounting Industry Rebecca Gregory Kaplan University Outline Introduction Securities Acts of 1933 and 1934 • Brief History of the Securities Act of 1933 • Objectives of the Securities Act of 1933 • Summary of the Securities Act of 1933 • Necessity of the Securities Act of 1934 • Summary of the Securities Act of 1934 • Peat Marwick Fraud/Scandal The Foreign Corrupt Practices Act of 1977 • Brief History of the Foreign Corrupt Practices Act of 1977 • Summary of the Foreign Corrupt Practices Act of 1977 • Kellogg Brown & Root LLC Fraud/Scandal Sarbanes Oxley Act (SOX) • The Purpose of SOX • Summary of SOX • US Bank of Seattle Fraud/Scandal Conclusion Government Regulation in the Accounting Industry The Great Depression and the Crash of 1929 led the United States into the beginning of new regulations. The first of these regulations was the Securities Act of 1933, which had a goal of prohibiting deceit, misrepresentation, and fraud in the sale of securities. The abusive practices of many banks and Wall Street firms resulted in the creation of the Securities and Exchange Commission (SEC) in 1934. It was established by The Securities Act of 1934 and gave the SEC power to monitor the sale of securities in the U.S. As a result of SEC investigations in the 1970's, it was discovered that many businesses were making payments to foreign officials for the purpose...
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...Chapter 3: The Regulation of financial accounting Why examine theories of regulation? Better placed to understand why some accounting prescriptions become part of legislation while others do not. Accounting standard – setting is a very political process While some proposed requirements may be technically sound and logical, they may not be mandated due to political ‘power’ or influence of some affected parties What is regulation? The Oxford Dictionary defines regulation in terms of a “prescribed rule” Macquarie Dictionary defined regulation as “a rule of order, as for conduct, prescribed by authority; a governing direction or law”. On the basis of these definitions can say that regulation is designed to control or govern conduct Hence, when we are discussing regulations relating to financial accounting, we are discussing rules that have been developed by an independent authoritative body that has been given the power to govern how we are to prepare financial statements, and the actions of the authoritative body will have the effect of restricting the accounting options that would otherwise be to an organisation. ‘Free Market’ perspective Accounting information should be treated like other goods, with demand and supply forces allowed to operate to generate an optimal supply. Arguments supporting ‘free – market’ perspective Private economic – based incentives ‘Market for managers’ ‘Market for corporate takeovers’ ‘Market for lemons’ Private economic – based...
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...Research Study Capital-Market Effects of Corporate Disclosures and Disclosure Regulation Christian Leuz Peter Wysocki June 26, 2006 Commissioned by the Task Force to Modernize Securities Legislation in Canada Christian Leuz Christian Leuz is currently the Professor of Accounting at the University of Chicago, Graduate School of Business. He is also the David G. Booth Faculty Fellow. Prior to this position, Professor Leuz was the Harold Stott Term Assistant Professor in Accounting at the Wharton School of the University of Pennsylvania and Fellow at Wharton’s Financial Institution Center. His research interests include transparency and corporate governance, financial disclosure and securities regulation, and the links between the institutions of market economies. Professor Leuz earned his doctoral degree and “Habilitation” at the Goethe University Frankfurt in Germany. His most recent publications have appeared in the Journal of Financial Economics, the Journal of Accounting and Economics and the Journal of Accounting Research. He is an Associate Editor of the Journal of Accounting and Economics and serves currently on the Editorial Board of The Accounting Review, the Journal of Accounting Research, the Journal of Business, Finance and Accounting, and the International Journal of Accounting. He has received several grants and honors, of which the Geewax Terker Prize is the latest. Peter Wysocki Professor Peter Wysocki is an associate professor of management at...
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...A single set of global accounting standards, rules to be followed by any public company as it reports annual operating results, has become the Holy Grail of Accounting. In today’s world, these rules are embodied in International Financial Reporting Standards. Unfortunately for many good but unwitting people, advocating the U.S. adoption of IFRS is a fool’s errand. To more fully understand the ramifications of this statement let’s turn to the dictionary for a basic frame of reference. Grail [greyl] –noun (from dictionary.com) Also called Holy Grail. a cup or chalice that in medieval legend was associated with unusual powers, esp. the regeneration of life and, later, Christian purity, and was much sought after by medieval knights: identified with the cup used at the Last Supper and given to Joseph of Arimathea. Informal. any greatly desired and sought-after objective; ultimate ideal or reward. Can we adapt the word’s definition to fit into the context of accounting? You beta. Holy Grail [greyl] of Accounting –noun (The Summa) Universally adopted set of global accounting standards that in modern urban legend is associated with unusual powers, esp. perfect transparency in corporate financial disclosure, universal comparability, ethical business purity, optimal investor returns, cross national and international economic stability, and is much sought after by various economists, politicians, governmental regulators, large audit firms and executives of...
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...Introduction There is an increasing trend that more timely and sophisticated financial information are required by the general public as well as owners and managers. There are two possible solutions to this increasing demand. Either let the market force decides what information to be supplied or through regulations. It is more than evident that accounting standard setting is becoming highly regulated all over the world. The question is whether a free-market approach to standard setting should be adapted? Free Market Approach Free market approach to standard setting basically means eliminating regulations and relying on the ‘invisible hands’ to guide the supply of financial information. This is based on the assumption that markets are efficient and there will be incentives to encourage the managers to disclose financial information, including bad news. One of the major incentives is to gain access to capital market. When investors don’t have a certain level of information to gain confidence in the entity, they require a higher rate of return to compensate the risk they are bearing. In order to avoid paying a higher price for capital, managers will have incentives to voluntary disclose financial information. Interestingly, advocates argue that manager also have incentives to disclose bad news. This can be explained in a in the used car market. Sellers of used cars tend to disclose as much as information as they can, including the existing problems of the car. Not like a...
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...composition and duties of firms' boards of directors and their compensation and nominating committees. Sarbanes-Oxley places new duties on audit committees and provides oversight and restraints on public accounting companies. Recent financial reporting scandals and the loss in market values weakened shareholder confidence in the financial accounting system. In response, the NYSE and the NASDAQ proposed increasingly stringent independence requirements, both for overall board membership and for the compensation and nominating committees. Congress passed the Sarbanes-Oxley Act, a group of amendments to existing securities laws intended to strengthen corporate governance and the financial reporting system. These proposals and laws augment existing exchange requirements for listed firms to have independent audit committees. When costly internal regulations that are not necessary for honest corporations are imposed on all corporations that are competitors, honest corporations do not gain a competitive advantage over those who have violated the law. In some situations these honest corporations could bear higher costs than do rogue corporations. Who then benefits from such rules? First, standardized rules make it easier for the regulators to supervise the corporate subjects of the regulation. Regulators include not only government regulators and examiners but also the internal police within large organizations-that is, compliance officers, comptrollers, and accountants. Second, generally...
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...will follow will include the reasons for the global financial crisis and what steps the government is taking to overcome or recover from the crisis. One of the main reasons emphasized in the following text for the crisis is lack of effective regulations. Moreover the most important financial alteration that various committee’s around the world are taking is strengthening the regulatory requirements on the financial institutions. Hereafter it could be settled that government intervention could have played a huge role in avoiding the crisis. Many countries around the world have to decide whether to regulate or not to regulate their accounting standards. Supporters of regulation usually state that the free market notion states that accounting information is like an economic good so it is best to leave the markets to decide what and how much information is needed. This will help achieve efficient market system, however this kind of a system exists only in theory and not in reality, and so then what is the point of a free market system when it cannot be efficient? (Y. Hong, 2007) The rewards of free market system are realized only when it is executed in isolation. But in reality, markets cannot be left completely on its own and some regulation or government intervention is required. Government intervention even at its minimum will not be able to achieve efficient markets and thus it is better to have a well regulated system. Free market system has led to market failures that have...
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...to create a commercial relationship that subordinates the auditor to the needs and demands of the client. Another theme is that he argues the selectiveness of the accounting firms are becoming minimal due to many mergers of the big players in this market. Is it really a "firm?" Or just a bunch of small offices working together for a main purpose which they share the same goal of profitability and retaining clients. The institution becomes more concerned with its own power and reproduction than actually facilitating the practices and internal goods of its members. The practice pits accounting firms against each other in which we compete for clients business and will do nearly anything to retain that client - especially if they pay us lots of money. Our worship of money may lead to this professions downfall and we need to focus on the virtue of accounting and our obligation to serve the public instead of pure greed and economic incentive. Gowthorpe: Gowthorpe states that preparers of financial statements are in a position to manipulate the view of economic reality presented in those statements to interested parties. This can be achieved by two principal categories of manipulative behaviors. The first term, 'macro-manipulation' is used to describe the lobbying of regulators to persuade them to produce regulation that is more favorable to the interests of preparers. The second term, "Micro-manipulation" describes the...
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