Role of Accounting in Capital Markets and Corporate Failures

ACCOUNTING AND
FINANCE

TABLE OF CONTENTS
INTRODUCTION.....................................................................................................................................3
MAIN BODY.............................................................................................................................................3
1. Traditional accounting supporting the capital markets and the shareholders in the society.................3
2. Current accounting rules are the major cause of corporate failures and challenges faced in the
external environment...............................................................................................................................3
3. Accounting theories pertaining to social, environmental accounting and business ethics....................3
4. Research work related to the assignment.............................................................................................3
CONCLUSION..........................................................................................................................................3
REFERENCES..........................................................................................................................................3

INTRODUCTION
Accounting and finance are the two major departments and important functions of the
business that are concerned with managing the funds of the organization and applying it viably in
the profitable ventures of the business. These departments are essential for some major decision-
making that are undertaken by the company like the investments, acquisition of funds, allocation
of the resources and its optimum utilization in the business. This project shall be highlighting the
relationship between the traditional forms of accounting and its application in the development
of capital markets. It shall be showing how the accounting theories and practices have assisted
the shareholders and the associated society in making the equitable investment decisions and
allocating the surplus to the most productive business venture. Apart from that the report shall be
demonstrating how the current accounting rules are the major reasons of deriving corporate
failures and challenges in surviving the changes pertaining to the external social and economic
environment of the business. Lastly it shall be reflecting the most significant business concern
these days which is the fulfilment of the corporate social responsibility and there are some
accounting theories pertaining to the environment and the business ethics that are to be followed
by the business. The corporate governance and the fulfillment of the corporate social
responsibility is one of essential requirements in the current scenario.
MAIN BODY
1. Traditional accounting supporting the capital markets and the shareholders in the society
It can be ascertained that there is a relationship between the traditional forms of
accounting that is used by the organization and the capital markets that are valuing the various
businesses. This relation can be traced in the ancient era where the various accounting
disclosures that were made by the companies in respect of their financial statements were used in
the process of developing of the capital markets and accordingly the surplus capital was being
invested in the businesses (Cockcroft and Russell, 2018). The financial analysis of the capital
markets is based on the accounting information that is displayed by the various businesses
through the financial statements of the company.
The capital markets these days are operating globally across the international economies
and this has been facilitated by the accounting function and the applied tools and techniques that
are used to review the stocks in the capital market. Post the evaluation the investors sort to
identify the key investment opportunities and allocate their unproductive financial resources to
the growth oriented and potential businesses that can maximize the wealth of the shareholders.
The accounting statements that are prepared by the companies can be used to compare financial
soundness and stability of the enterprises and based on that and in consultancy of the experts the
decision is taken. Ultimately it can be assessed that both the accounting and the finance function
of the entity works hand in hand and assists the progress of one another (Brooks and
Oikonomou, 2018). The capital market which is the source of long term sources of finance for
the company can only be achieved if the accounting policies and procedures and thereby attained
results are valid of the company.
It can also be understood that these traditional forms of accounting that were used by the
businesses not having much compliances associated with the disclosure policies are detrimental