Introduction Throughout the years, there have been numerous debates on the necessity of regulation of accounting standards. The two opposing views to setting these standards are one that is based on regulations and the other based on market forces. In this report, we will discuss the supporting views and arguments of both methods and further justify the method that I personally favor. Over the years there have been many arguments and debates over the necessity for regulation.
Those who believe in the efficacy of markets argue that regulation is not necessary as market forces will operate to best serve society and optimise the allocation of resources. However, there are many who point out that markets do not always operate in the best interests of societies so some form of intervention in the form of regulation is necessary. This is obvious in many aspects of society.
For example, if there were no road rules for drivers chaos would result on the roads. If there were no restrictions on some “economic” activities then there would not be any need of drug smugglers as the market would indicate the need (demand) for drugs which would subsequently be supplied. These are obviously extreme examples but it is not hard to realise that there are many instances were regulations protect societies from undesirable activities.
Pro-regulation approach The pro-regulation approach mainly argues based on the criticism of a free-market approach as many would likely agree that markets are not effectively efficient and do not always operate in the best interests of society. Therefore, intervention in the form of regulation is necessary to govern the preparation of accounting standards. Firstly, without proper regulations, the degree of credibility and completeness of information is unclear.
This would be due to information asymmetry which might lead to businesses not disclosing relevant information to users or maybe withholding some information unless disclosure benefits them and this causes a doubt on the extent on the reliability of the so-called voluntary disclosure. Furthermore. OpPapers Other than that, Free-market approach Arguments Conclusion In conclusion, Reference List: www. usq. edu. au/course/material/ACC3116/2002lectures/lecture… http://papers. ssrn. com/sol3/papers. cfm? abstract_id=1237738