Explanation of how corporate crises/failures lead to improved accounting regulations/standards

Running Head: Contemporary Accounting Theories
Contemporary Accounting Theories
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Contemporary Accounting Theories 1
“Explanation of how corporate crises/failures in every era lead to improved accounting
regulations/standards for financial reporting in the subsequent periods”
In a perfect world scenario, the investors, executives and board members would have
complete trust on the financial statements of the company and they would easily rely on the
intelligence of the statement. In a perfect world, there would be no uncertainty in the business
environment that would lead to business failure. However, all these events can happen in a
perfect world scenario only as in the current environment, the companies face crisis also and the
investors face losses in the business environment. Corporate failure and crisis are a significant
aspect that helps a business in growing as they provide experience to the corporate for future
survival. Corporate failures helps the organizations to look backward at the events that has
happened in past with other organizations and act responsibly for the future prospects of the
company (Eisenberg, 2017). Several accounting ratios in the business environment are made
even after the occurrence of various cases as before that no authoritative body estimated the
failure of the companies in different ways. One can work on the regulations only after the events
have happened in the business environment.
Further, it should also be noted that in every era accounting standards have helped the
business process in effectively working in the right manner so as to achieve success in the
business environment. Accounting standards refers to the common set of principles and
regulations that define the basis of financial accounting policies and practices in the business
environment. These type of standards improve the level of transparency in financial reporting in
all the countries (Agyei-Mensah, 2016). The accounting standards explain that when and how the
economic events should be recognized, displayed and measured in the business environment.
Investors, banks and regulatory agencies rely on the accounting standards so as to make sure that
relevant financial statement of the organization is displayed in the business environment (Morris,
2018).
Corporate crises events every time lead in the improved accounting regulations for
financial reporting because they provide opportunity to analyse various un-captured areas and
make standards in that respect. One such example of corporate crisis of previous decade is Xerox
Company fraud conducted in the year 2000. The auditor of the company KPMG certified the
company in the year 2000, further in the year 2002 the company restated the financial statements