Question

Determine whether the following statements are true or false , and justify your answer

1- Given that accounting information is a public good , we have to have mandatory accounting regulation.

2- It is better to lobby the accounting standard - setter indirectly rather than directly.

3- A change in reported income is an economic consequence of a change in an accounting standard's requirements

PLEASE JUSTIFY EVEN IF YES

Answer 1

1. The statement is TRUE that Acconting information is a public good as we learnt, a ‘public good’ is a good which, after it is first made available, others can use without payingfor and which can be passed on to others that also do not pay for its use. Financial accounting information, usually in the formof financial statements in annual reports, is effectively a public good. These days, thisinformation is available for free and users do not pay directly for this. Further, regulation is often introduced when there is an undersupply of a resource. This is morelikely to occur for goods with ‘public’ characteristics. In terms of financial reporting, regulation ensures that the information provided is sufficient and of a certain quality.

2. The statement is FALSE. Lobbying is an essential part of the International Accounting Standards Board (IASB) standard-setting process and setting accounting standards must me done directly so as to effect the system directly.

3. The statement is TRUE. A change in reported income is an economic consequence of a change in an accounting standard's requirements. Changes in accounting policies and corrections of errors are generally retrospectively accounted for, whereas changes in accounting estimates are generally accounted for on a prospective basis.