Question

1) Can Public Interest Theory or Private Interest Theory explain the regulation of accounting using International Financial Reporting Standards (IFRS)?

Answer 1

Public Interest Theory explains the regulation of accounting using International Financial Reporting Standards (IFRS).

As per Public Interest Theory regulation should lead to maximization of social welfare in a manner that the solutions as well as the regulations are economically efficient. IFRS are accounting standards that have been issued by the IFRS foundation. The standards help in providing a common global language for accounting and for business affairs so that the accounts of different companies can be understood and compared easily despite their country of operation or domicile country.

Regulation of accounting using IFRS ensures that books of accounts are comparable, understandable and reliable. This will be applicable to both internal users of financial statements of a company as well as the external users of the financial statements.

Accounting regulation by IFRS is the result of a cost/benefit analysis. This analysis is done to determine if the cost to make the desired improvements is more than the quantum of welfare associated with the regulation or not.