Question

Regulators may impose political costs on firms. However , there are ways that some firms practice to minimise such costs. Discuss with examples. (please provide examples also in order to cut)

Answer 1

During the past few years, there have been several studies indicating that the size of the company and the level of corporate profits in Iran had some impacts on the political views of those companies.However, it seems that the political cost is different in various industries and type of industry influences the political views and expenses (Wong, 1988).This is very crucial because the assumptions about the relations between type of industry and political costs can create motivation for managing earnings in various industries.

Political costs are associated with essentials for business continuity and life, according to legal requirements and customary and economic environment (Bushman & Piotroski, 2006). These costs will be imposed on firms through legal actions and regulatory approvals or by political pressure. For instance, tax, pension insurance, the expenses of grants to individuals, corporates and institutions, contribute to the sport, export customs duties, the expenses of environmental protection, space development training costs, payments to trade unions and other informal authorities are considered as political costs (Daley & Vigeland, 1983). Information about the cash flows of an entity is useful in providing users of financial statements with a basis to evaluate the capability of an entity to produce cash and cash equivalents and the necessity of the entity to utilize those cash flows. The economic decisions taken by users need an evaluation of the capability of an entity to produce cash and cash equivalents and the timing and certainty of their generation. The objective of such standard is the provision of information about the historical changes in cash and cash equivalents of an entity by tools of a statement of cash flow which classifies cash flows during the period from operating, investing and financing activities

There are Ways to reduce political costs

•Management might:–adopt income-reducing accounting techniques

–make voluntary social disclosures