Question

What are the arguments favoring regulation of financial reporting?

Answer 1

Answer :

1. One such argument is that it is in the interest of public. Without regulation , there are chances of facing failure in the free market system because no one provides such information about firm except the firm. Therefore , it creates monoply in the market if market is not regulated. Arguments are that better and best regulation is neccesary to raise quality of financial reporting in order to avoid public frauds and failures.

2.Another one is that accounying information is public goods. These are under produced in free market. Under production is due to not able to recover production costs from all customers and hence they are demotivated. Regulatory intervention is the only solution to it. Intervention in the form of mandatory reporting helps yo meet the demand.

3.another one is , information provided in unregulatory markets may not be conparable one among firms. Therefore, this problem is solved by regulation of financial reporting. Hence, another favour.

4. Evolutionary improvements in accounting standards are possible due to regulation in financial reporting.