Accounting Theory and Contemporary Issues

This document discusses the public interest theory, capture theory, and economic interest group theory of regulation in accounting. It also explores the concept of accountability in financial and non-financial performance of companies.

Running head: ACCOUNTING THEORY AND CONTEMPORARY ISSUES
Accounting Theory and Contemporary Issues
Name of the Student
Name of the University
Author’s Note

1ACCOUNTING THEORY AND CONTEMPORARY ISSUES
Table of Contents
Part A....................................................................................................................................................2
Requirement (a).................................................................................................................................2
Requirement (b).................................................................................................................................2
Requirement (c).................................................................................................................................3
Part B.....................................................................................................................................................4
Requirement (a).................................................................................................................................4
Requirement (b).................................................................................................................................5
References.............................................................................................................................................7

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Part A
Requirement (a)
According to the Public Interest Theory, there is need for regulations because of the presence
of market failure. The main aim of the regulations is the protection of public interest and society who
will be better off in the presence of regulations. Thus, the regulator has an independent role to play in
developing regulations (Koopman, Mitchell and Thierer 2014). For this reason, the government
intervention is required for the development of a regulated financial reporting environment that
ensures that the companies provides the needed as well as accurate information on the financial
performance and non-financial performance (Koopman, Mitchell and Thierer 2014). Hence as per this
theory, government regulation works as a re-distributive social welfare devise for correcting the
misallocation of resources. In case of the provided situation, as per the public interest theory
perspective, it is needed for the government to introduce regulation because of the market failure of
the existing regulations that only aim to disclose the financial performance of the firms instead of
providing information on the corporate social and environmental performance of those firms (Ginosar
2014).
It is needed for the government to assess the fact that whether the existing regulations are able
in providing as well as investor confidence and improving the overall market effcincieny (Faure
2014). At the same time, the government is also needed to assess whether disclosing both the financial
and corporate social responsibility and environmental information provides any incentive to the
companies since most of the companies prefers to provide only financial information to their key
stakeholders. As per the result of these assessments, in case the government finds that the existing
regulations fail in providing the corporate social responsibility and environmental information, then it
should actually introduce the regulation (Faure 2014).
Requirement (b)
Public Interest Theory or the Capture theory is different from the public interest theory. This
particular theory takes the attempt to prove the fact that there is involvement of the interest group in

3ACCOUNTING THEORY AND CONTEMPORARY ISSUES
the regulation development process. As per this theory, regulations are developed in the response to
the demand of the interest group in order to maximize the income of the interest group (Unger 2013).
It can be seen from the above discussion that the capture theory of regulation is related to the
fact that the interest group demands that the government regulations levies control on the industry
with the aim to capture as well as control the regulations so that they can make these regulations to act
as per their own personal interest (Mansbridge 2018). No matter how the regulators have designed the
regulations, the developed regulation by the regulatory organizations for a specific business is actually
captured by the business. This aspect leads to the increase in the profit of the companies rather than
the increase in the social welfare. This particular aspect is responsible for the collusion between the
supervision departments that majorly affect the main regulatory objective which lead to the harm to
the public (Bakan 2015). For instance, the presence of more severe regulatory requirement leads to the
occurrence of more severe corruption in the regulatory development process. Thus, it can be seen
from the adobe that the interest groups become beneficial from the development of regulations since
they develop regulations for their own benefit. In case there is the introduction of legislation in social
and environmental disclosure, the investors and people of community will be responsible in the long-
run (Bakan 2015).
Requirement (c)
The economic interest group theory of regulation indicates towards the crucial aspect the
presence of the power of supply and demand can be seen in the regulations where the government is
placed to the supply side and the interest group is placed on the demand side. As per this theory,
industry developed the regulations and the main objective of these regulations is the creation of
advantage to the concerned industry (Berry and Wilcox 2018).
It can be seen from the above discussion that the development of regulation provides major
advantage to the industry. In the presence of this aspect, different kinds of interest group will have the
power for competition based on the benefits and thus, they will be involved in lobbying for
influencing the government officials responsible for the decision-making process so that their
personal benefits can be maximized (Hrebenar and Scott 2015). For this reason, it is needed to take

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into consideration the impact of the introduced legislations. While applying the concept of the
economic interest group theory, it can be said that the legislations will be introduced with the aim to
provide benefit to certain interest group rather than the whole community (Hefeker 2018). As per this
theory, certain organizations will be involved in lobbying in the legislation development process to
get advantage (Hrebenar and Scott 2015). The heavily polluting organizations will be lobbying for
their personal benefits so that they can enhance their corporate accountability to get the financial
success in the presence of large pollution related issues. This aspect will not lead to the enhanced
accountability on the corporate social responsibility and environmental user by the introduction of
legislations (Hefeker 2018).
Part B
Requirement (a)
Accountability can be considered as the obligation of a company or individual to account for
its activities, take responsibilities for them and the disclosure of the results in the most transparent
manner. The responsibility of money is also included in it. In other words, accountability can be
considered as assurance that the evaluation of a company or an individual will be done on the basis of
their behaviour or performance to something which they have responsibility (Smith 2014). The term
of accountability is connected to responsibility but it is widely considered from the perspective of
oversight. For example, a staff may be responsible to ensure that a response to a request for proposal
meets all the requirements. In case the task is not performed on satisfactory level, there may or may
not any consequence. On the other hand, accountability states that the staff must be held responsible
for the successful completion of the task and will be responsible for providing explanation in case
there is failure (Smith 2014).
The components of corporate accountability is be answerable to all the stakeholders of the
company for their actions and results. It also implies that a company must be responsible to answer
for any deviance from the pre-set goals and objectives (Christensen 2015). Most importantly,
accountability is often widened for implying a requirement for the businesses to follow the business

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practices which are ethical, responsible and sustainable. For this reason, accountability and
transparency are considered as two crucial pillars of corporate governance (Christensen 2015).
Requirement (b)
It can be seen from the above discussion that accountability is considered as a crucial aspect
for the companies since it makes the companies more responsible towards their stakeholders. Now, it
needs to be mentioned that the business organizations are accountable for different aspects of the
corporate performance and the presence of two aspects of corporate performance can be seen. They
are Financial performance and Non-financial performance. These are two crucial aspects that the
business operations should be accountable for. These aspects are discussed below.
Financial Performance – The presence of multiple departments can be seen within the companies
and all of these departments are connected to the accounting and finance department. The business
organizations are accountable for recording the accounting and financial aspects related to all the
departments and report the same to the stakeholders (Wong 2016). This process is called the reporting
of financial performance. Under the process of financial reporting, the managements of the companies
are accountable for providing the stakeholders with the information about their financial performance
through different financial statements such as balance sheet, statement of profit or loss, statement of
cash flows and statement of change-in-equity. At the same time, these business organizations are also
accountable for providing extra supporting information for the financial statements through the noted
to the financial statements so that the stakeholders do not face difficulty in comprehending the
company’s financial performance and position (Christensen 2015).
At the same time, it needs to be mentioned that the companies are accountable for ensuring
proper audit of their financial statements with the aim to provide the necessary assurance to the
stakeholders that the provided financial information is free from material misstatements. In the
presence of all these accountabilities, the managements of the companies become answerable to the
stakeholders in case there is major fall or deviation in the current financial performance of the
companies as compared to the past years (Zadek, Evans and Pruzan 2013). In addition, these
companies are accountable for establishing proper corporate governance mechanism in the whole

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financial reporting system with the aim to prevent the occurrence of frauds and errors in financial
reporting. The Board of Directors of the companies are accountable for ensuring the balanced as well
as understandable assessment of the financial performance and position of the companies (Zadek,
Evans and Pruzan 2013).
Non-Financial Performance – The above discussion shows the accountability of the companies
towards their financial performance. However, in the presence of the raising concern about the
governance, social and environmental issues all over the world, companies all over the world have
become accounted for the non-financial aspect of their corporate performance to all of the
stakeholders (Cooper 2017). Aspects of non-financial performance of the companies can be
considered as the disclosure of the performance on the aspects like social, environmental and human
rights. It can be considered as the accountability of the companies’ towers Environmental, Social and
Governance (ESG) issues. In today’s business world, stakeholders of the companies considers non-
financial information of the companies as crucial mean for the decision-making process and this
particular aspect has increased the accountability of the companies towards different components of
non-financial reporting (Zadek, Evans and Pruzan 2013).
The managements of the companies have major accountability in disclosing their initiatives
towards reducing the negative impact of their business on the environment and community. For this
reason, they are required to disclose the information on the progress of their non-financial
performance. This aspect makes them answerable to the stakeholders in case they fail to achieve the
promised result in case of sustainability (Christensen et al. 2015). This particular accountability also
drives the companies towards the adoption of ethical as well as sustainable business practice for the
betterment of the whole company and the shareholders. Business organizations can improve their risk-
management framework by ensuring the presence of non-financial reporting. For this reason, the
managements of these companies are accounted for the development of effective risk management
and corporate governance mechanism in order to prevent fraud and conduct the business operation in
the most ethical manner (Wong 2016). These are the aspects of the corporate performance of the
companies that the companies are accounted for.

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References
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Berry, J.M. and Wilcox, C., 2018. The interest group society. Routledge.
Christensen, D.M., 2015. Corporate accountability reporting and high-profile misconduct. The
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