Accounting Theory and Contemporary Issues

This document discusses the public interest theory, capture theory, and economic interest group theory in relation to accounting regulations and corporate accountability.

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
Answer to a........................................................................................................................................2
Answer to b.......................................................................................................................................2
Answer to c........................................................................................................................................3
Part B.....................................................................................................................................................3
Answer to a........................................................................................................................................3
Answer to b.......................................................................................................................................4
References.............................................................................................................................................6

2ACCOUNTING THEORY AND CONTEMPORARY ISSUES
Part A
Answer to a
The public interest theory states about the necessity of regulations in case there is market
failure since the presence of regulations works a protector of the interest of the public and society
(Aguilera, Goyer and Kabbach-Castro 2013). This indicates towards the necessity of government
intervention so that regulated financial reporting environment can be developed which puts the
obligation on the firms for providing information on both their financial and non-financial
performance. According to the perspective of this theory, the government should introduce
regulations due to the market failure of the companies to disclose information about corporate and
social impact.
The government should actually introduce the proposed legislation when the assessment
shows that the existing regulations have failed in providing information on corporate and social
impact. In this process, the government needs to assess whether the investors are gaining confidence
and overall market efficiency is improving the presence of the existing regulations (Dana 2018).
Answer to b
The concept of capture theory states that the interest groups are involved in the process of
developing the regulations so that their personal interest can be fulfilled and incomes can be
maximized. As per the concept of this theory, the demand of the interest groups is that the government
regulations will establish control on the respective industries so that the regulations can be captured
and controlled in order to make the regulations work for achieving their personal interests ( Borges
2017). Thus, the introduced regulations will be captured irrespective of how effectively they have
been introduced. It provides the firms to maximize their profit rather than doing welfare for the
society. This aspect leads to the development of inefficiencies in the government’s supervision
department and thus, the main objectives behind the regulations get compromised (Borges 2017). For
this reason, there will be the occurrence of more severe corruption in case there is the presence of
more regulations. This proves the fact that the interest group is the main constituent who will be

3ACCOUNTING THEORY AND CONTEMPORARY ISSUES
beneficial from the introduction of regulation in long-run as they will get the chance to manipulate
these regulations for fulfilling their own interests (Borges 2017).
Answer to c
According to the economic interest group theory, regulations include the power of both the
supply and demand where government represents the power of supply and interest group represents
the power of demand. This theory states that the main reason behind the development of regulations is
to make certain industries advantageous (Dür and Mateo, 2014). This aspect provides the interest
groups with the power of competition for gaining the benefits from the introduced regulations which
leads to their involvement in lobbying so that they can influence the government officials who have
particular responsibility to make decisions about the development and introduction of regulations. It
implies that the introduced regulations make certain groups beneficial rather than the whole
community (Dür and Mateo, 2014). It needs to be mentioned that the heavily polluted companies can
get financial success by compiling with the regulations for disclosing information on social and
environmental performance (Dür and Mateo, 2014). In case this happens, there will not be any actual
increase in the accountability of the companies towards social and environmental performance
because the main intention of these companies is to gain financial success. Thus, there will not be any
increase in the accountability towards corporate and social performance.
Part B
Answer to a
Accountability is the obligation of a company or an individual to account for their undertaken
activities that make them responsible for what they have done so that the transparent disclosure of the
outcome and the results can be ensured. Accountability provides the necessary assurance that actual
performance will be considered in order to evaluate that person or the company (Utting 2015).
Responsibility is majorly connected with accountability, but oversight is widely considered in
accountability. Corporate accountability puts the obligation on the companies to be answerable to the
businesses’ stakeholders for their actions and performance. For example, companies must provide
proper answers with justification to the concerned stakeholders if there is a major fall in their

4ACCOUNTING THEORY AND CONTEMPORARY ISSUES
performance. At the same time, corporate accountability puts the obligation on the companies for
complying with the required ethical business practises so that they can conduct their business
operations in the most responsible and sustainable manner (Kraak et al. 2014). In the presence of
these aspects, both accountability as well as transparency is considered as the main supports of
corporate governance.
Answer to b
It needs to be mentioned that there are certain aspects of corporate performance that a
business should be accountable for; they are Financial performance and Non-financial performance.
Following shows the derailed discussing on these two aspects.
It is the responsibility of the companies to properly record all the financial transactions and
information so that they can be properly reported to the concerned stakeholders which is known as the
process of financial reporting. It is the accountability of the companies under financial reporting that
they must disclose the financial information to the stakeholders that denotes their financial
performance and financial position through income statement, balance sheet, cash flow statement and
change-in-equity statement (Loughran and McDonald 2014). Moreover, the companies are also
accountable for providing the notes to the financial statements so that the stakeholders can assess the
companies’ performance and position in better manner. After that, major accountability of the
companies can be seen in ensuring audited financial statements so that the stakeholders can know
about the materially misstated areas in the financial statements that can affect the companies’
financial performance and position (Loughran and McDonald 2014). Accountability puts the
obligation on the managements of the companies to provide proper answers and justification to the
stakeholders in case the performance of the companies decreases majorly (Li et al. 2013).
Establishment of effective internal control related to financial reporting can be considered as a major
responsibility of the companies since they are accountable for establishing control over the whole
financial reporting mechanism of them. Lastly, the senior managements of the companies have major
accountability in balanced assessment of the companies’ financial performance and position in order
to present them to the stakeholders.

5ACCOUNTING THEORY AND CONTEMPORARY ISSUES
Along with the financial performance, major accountability of the companies can be seen in
the non-financial performance. The presence of a major surge can be seen in the accountability of the
companies to disclose their non-financial performance when there is raising concern about the social
and environmental issues (Qiu, Shaukat and Tharyan 2016). Under the non-financial performance, the
obligation on the companies is to disclose information of their performance in the areas of social,
environmental, governance and human rights. Increased importance of the non-financial information
can be seen to the stakeholders in the present situation for the decision-making purpose which puts
increased obligation on the firms to report on their non-financial performance. Thus, accountability of
the managements of the companies can be seen to disclose the information on their initiatives and
corrective measures in order to reduce the impact of their operations on the society and environment
(Albertini 2013). At the same time, they are accountable for answering the stakeholders if there is
major difference in their current performance for achieving the sustainability targets. Governance is
considered as another crucial aspect to which the companies are accountable for and thus, they are
needed to disclose the required information on the presence of governance mechanism within their
organization. These are the non-financial performance aspects for which the companies are
accountable for (Qiu, Shaukat and Tharyan 2016).

6ACCOUNTING THEORY AND CONTEMPORARY ISSUES
References
Aguilera, R.V., Goyer, M. and Kabbach-Castro, L.R., 2013. Regulation and comparative corporate
governance. Handbook of corporate governance, pp.23-45.
Albertini, E., 2013. Does environmental management improve financial performance? A meta-
analytical review. Organization & Environment, 26(4), pp.431-457.
Borges, M.R., 2017. Regulation and Regulatory Capture. World Academy of Art & Science, pp.10-12.
Dana, D.A., 2018. The New “Contractarian” Paradigm in Environmental Regulation. In The Theory
and Practice of Command and Control in Environmental Policy (pp. 51-75). Routledge.
Dür, A. and Mateo, G., 2014. Public opinion and interest group influence: how citizen groups derailed
the Anti-Counterfeiting Trade Agreement. Journal of European Public Policy, 21(8), pp.1199-1217.
Kraak, V.I., Swinburn, B., Lawrence, M. and Harrison, P., 2014. An accountability framework to
promote healthy food environments. Public health nutrition, 17(11), pp.2467-2483.
Li, Q., Luo, W., Wang, Y. and Wu, L., 2013. Firm performance, corporate ownership, and corporate
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Loughran, T. and McDonald, B., 2014. Measuring readability in financial disclosures. The Journal of
Finance, 69(4), pp.1643-1671.
Qiu, Y., Shaukat, A. and Tharyan, R., 2016. Environmental and social disclosures: Link with
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Utting, P., 2015. Corporate accountability, fair trade and multi-stakeholder regulation. Handbook of
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