Critical Evaluation of Accounting Standards and Regulatory Bodies

The report elucidates the critical evaluation of the accounting standard and regulatory bodies in the aftermath of corporate collapse and financial crisis. It analyzes the improvement in accounting regulations and standard disclosure after various corporate collapses. It also evaluates the political process of accounting standard setting.

Running head: CONTEMPORARY ACCOUNTING THEORY
Contemporary accounting theory
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CONTEMPORARY ACCOUNTING THEORY
Executive summary:
The report elucidates the critical evaluation of the accounting standard and regulatory bodies
in the after math of the corporate collapse and the occurrence of financial crisis. The
amendment of the accounting regulation and accounting standard settings has been faced by
the intrusion of political factors. For the purpose of conducting an analysis into the financial
reporting system, in the context of failure and crisis, few journal articles have been sourced
and the evaluation of the same has been done.

CONTEMPORARY ACCOUNTING THEORY
Table of Contents
Executive summary:...................................................................................................................2
Introduction:...............................................................................................................................3
Evaluation of the corporate failure in improving the accounting regulations in the financial
reporting:....................................................................................................................................3
Critically evaluating the political process of the accounting standard setting:..........................3
Conclusion:................................................................................................................................3

CONTEMPORARY ACCOUNTING THEORY
Introduction:
The report is prepared to evaluate the improvement in the accounting standards setting
and accounting regulation in the after math of the corporate failures and the financial crisis. It
tends to evaluate and identifies the reason for the failure of corporate and how it has
contributed towards the emergence of accounting and regulatory bodies. In addition to this,
the political process of the accounting standard setting has also been evaluated. Such analysis
is done by referring to the journal articles and reviewing the descript literature.
Evaluation of the corporate failure in improving the accounting regulations in the
financial reporting:
The article titled” Cycles of crisis and regulations: the enduring agency and
stewardship problems of corporate governance” presents the failure of several corporate and
the collapse of other institution and the role of accounting standards and regulations. In
reaction to the failure of corporation, the regulatory system has evolved over time for living
up to the expectation of public. The article has disclosed the failure of many organizations
because of defective accounting policies or due to the existing loophole sin the accounting
system that made the organizations commit the crime either by falsifying the accounting
matters and statements. It is mentioned that the collapse of Enron is due to the misleading
company accounts and the component of the capital market infrastructure being
dysfunctional. In addition to this, the failure of other corporate organization such as One Tel
and HIH was because of the criteria and accounting system along with the failure on part of
the board to identify such unanticipated loss. There was invariable occurrence of statutory
intervention when such corporate collapses was highlighted during the recession. In the
aftermath of the collapse and conducting a detailed investigation into the factors that resulted
in the concurrence of such collapse, it is necessary to have active and voluntary self

CONTEMPORARY ACCOUNTING THEORY
regulation. The efforts to enhance the corporate accountability and make improvement in the
corporate performance are regarded as ongoing and vital. The factor that is considered critical
to the effectiveness of corporate governance is to continually raise the standards of disclosure
(Clarke, 2004). Therefore, it can be inferred from the analysis of the article that there have
been improvements in the accounting regulations and standard disclosure after the various
corporate collapses.
In the article titled” The negative impact of the additional legislation on the
stewardship of corporate”, the potential changes in the accounting disclosure standard and
regulations after the occurrence of the financial crisis have been investigated. A research
question pertaining to the imposition of additional legislation and how the corporate
governance would be strengthened by the proposed amendment has been projected in the
article. The global financial crisis has received reaction from various jurisdictions by way of
implementation of improved and new corporate legislative requirements. The article has also
presented the reaction of the Australian members toward the amended legislations which the
United Kingdom has proposed. The adequacy of the corporate governance and its mechanism
has also been questioned in the article by evaluating the existing financial reporting system in
the light of the accounting regulations and standard. However, the failure of such corporate
has resulted in introducing the additional legislative requirements and enforcing the
legislations. The two groups who opposed to the additional legal requirements as proposed by
UK was the executive director being a part of the board and audit committee. Such opposition
was done on the ground that the introduced additional requirements would not benefit and
which also made them question about the legislation prudence (O'Leary et al., 2013). The
legislations with particular proposals helps in addressing the issue from the findings
generated in the article where it is has its relevance.

CONTEMPORARY ACCOUNTING THEORY
The journal on accounting research titled” disclosure on regulation on the commercial
banking industry and the lessons learned from the era of national banking” evaluated the
impact of accounting regulations on the stability and development of organization. It was also
depicted in the article that when evaluating the supervisory and disclosure regulations, there
was some challenges that was also pointed out. An opportunity to explore the considerable
changes in the disclosure regulatory system for measuring the plausible exogenous shocks
has also been presented in the article. Therefore, the research paper conducts an investigation
into the banking system of United States and how the system was impacted by the improved
accounting standard and regulations. The regulations and the regulatory standard that is
imposed on the banks which require the bank to comply with poses an important condition
that requires the employee of the bank to present the financial condition in an adequate and
fair manner (Granja, 2018). Furthermore, the functioning and the service efficiency of the
bank is also measured due to the imposition of the standard and how the standard and
regulations enhances the access to credit facility and their availability. It has been found from
the analysis of the article that any material change is nit reflected by the laws of disclosure
and the impact of regulation is persuasively estimated by way of lacking temporal and spatial
variation.
One of the articles on accounting research titled” Responsible accounting for
stakeholders” critically evaluates the existing financial theory and the development of the
accounting standard should incorporate a wider group of stakeholders which include investor
and creditor. A normative foundation on the responsibility of the public accounting
profession has been laid in the present paper in an empirical and theoretical manner. The
article depicts many reasons that is associated with the failure of the corporate organization
and have identified that investors are losing confidence in the financial reporting system in
spite of some of the changes that is introduced in the regulatory standard and disclosure. The

CONTEMPORARY ACCOUNTING THEORY
article recommends that the stakeholder accounting emergence would encourage the
development of the effective and representative discipline. The measurement precision would
be of high level if the process of reporting is based on the stakeholder standardization as this
would help in accounting for the issues of the broader group of stakeholders. Therefore, the
researcher would be able to accurately assess the trade off concerning the cost and benefits
using the standardized system of reporting. One of the reasons responsible for failure of
organization that is pointed out in the article is associated with the residual risk which is
borne by the shareholders of organization and accordingly impacting the outcome of the
corporate activities. Another reason that is cited in the article for the failure of organization is
inadequate reporting on the environmental performance and thereby on the environmental
accounting. Therefore, sustainability reporting system have found to be of great importance ti
improve the overall financial reporting system by many of large corporate. The information
presented in the reporting system which does not incorporate the environmental factors are
not material, not aggregate and makes it difficult to compare with other organization. Such
reporting rather than providing realistic view offers a favorable view on the performance of
organization (Harrison & van der Laan Smith, 2015). Due to various difficulties that are
encountered in the reporting system, the effectiveness of the benefits of stakeholder bearing
residual risk and the reporting effectiveness would become limited.
Critically evaluating the political process of the accounting standard setting:
The article titled” Political lobbying on the proposed standard: A challenge to the
IASB” has examined the attempts of the accounting standard bodies by identifying the
several objection requirements that was prevented by them. The triggering political pressures
have created obstacle for the IASB for elimination of alternative treatment and preventing
any particular accounting treatment and further tightening the allowed interpretations. The

CONTEMPORARY ACCOUNTING THEORY
initiative taken by IASB would prescribe standards that have greater specificity and there
would be less room for flexibility. The article has identified the eight countries where the
accounting standard setter act in liaison with the IASB and the political pressure in these
eight countries might emerge from different degrees. The effort of the accounting standard to
achieve convergence at a high quality level would be impeded by such pressures. In addition
to this, the article also points out that the work of IASB has been politically intruded because
of the mechanism of the European commission (Storey et al., 2016). It says that the EU
companies using IFRS in their financial statements should receive legal endorsements. The
operation of IFRS for endorsing it by accounting regulatory committee would be done at the
political level established under the rules of EU for decision making. The article identifies
various political intrusions in the working and development of the IASB and many of such
pressures affecting te development of the standard. One of the objectives of IASC boards that
is improvement in the comparability of the project was successfully defeated by the political
pressures which the supporters of the harmonization found their most committed and
articulate exponents. Another instance presented in the article is accounting for deferred
taxation sponsored by the accounting standard committee of UK faced strong political
objections. The governing council of accounting profession and ASC was persuaded by the
cumulative effects of the political pressures from all the sides such as clearing bank, big
industry and government (Zeff, 2002).
The article titled” Separating the political and technical: Accounting standard setting
and purification” outlines the fact that imperative to separate technical work from politics
resulted the organization and formation of the FSAB (Financial accounting standard board).
The paper contributes to the literature of the accounting standard setting as the political
process for exploring the boundary work between the technical and political factors by
drawing upon the theoretical concepts of purification. The construction of the boundaries

CONTEMPORARY ACCOUNTING THEORY
between the technical and political factors in the accounting standard setting has been
examined by using the accounting stock option case in the United States. The case of stock
option has been chosen because it is characterized as political and the most controversial
project which the FASB has undertaken. The debate of stock option was considered as highly
politicized event where the FASB was prevented from requiring correct accounting answer
because of the political event. The financial reporting is purified by the products of standards
setting by addressing the transactions and objects which is identified as impurities. It is
suggested by the purification that the standard setting should operate outside political
interference and politics as the politics as regarded as negative influence. The article poses a
question to the future research work that whether embracing of politics would help in
enriching the process of accounting policies selection (Young, 2014). However, it would be
required to reconsider the institutional process to produce the financial accounting
requirements for embracing the politics.
The article titled” Repoliticalization of accounting standards setting- The global
financial crisis, IASB and EU” conducted an investigation into the response of the global
standard setter to limit the political influence and how the European Union sought to gain
control over the IASB. It was ascertained from the article that between the stakeholders of
international accounting standards setting, there was re balancing of power in favor of
political interest. It is suspected that the ongoing changes in the institutional environment and
further power struggle would result from the heightened influence of the political pressure. In
order to understand the relationship between the standard setters and political factors, it is
sought to understand the mechanism which helps in exercising power in the standard setting
and the power underlying IASB. In addition to this, the article has also demonstrated the
reclamation of the role of political actors for gaining an understanding of the wider trend
toward privatization in the international economic activity governance. Furthermore, it is

CONTEMPORARY ACCOUNTING THEORY
mentioned in the article that for the success of the accounting standards, the endorsement of
political and public actors are considered necessary (Palea, 2015). However, the research on
the measures and concrete steps taken by the political actors in influencing the accounting
setting and accounting standards is very less. It is suggested from the current understanding
of the article that the political influence on the standard setting is successfully resisted by
IASB and they were not been able to proactively influenced by EU in the process of
standards setting. However, following the global financial crisis, the influence of political
factors seems to returning to the setting of accounting standard. The better understanding of
the relationship between the accounting standard setting and politics is presented by the new
found political interest. IASB was always been under the political pressure even during the re
establishment of IAS 139 (Bengtsson, 2011). A number of strategies were embarked by IASB
to minimize or resist the political influence. For the adoption of IFRS by EU, the political
independence of IASB was the precondition. Therefore, the article presents several instances
where the political factors influence the standards setting process and the reestablishment of
several standards.
The article titled” Shareholder activism and voluntary disclosure initiation: The case
of political spending” made use of disclosure of corporate political pending for making a
detailed enquiry into the political spending of the shareholder proposal by highlighting the
shareholder activism role in motivating the disclosure of ESG (environmental, social and
governance). It is important to analyze the institutional detail around the political spending
with such disclosures being important to investors. It has been found from the analysis of the
article that investors react positively to the extent of political spending and agency problem.
The findings that the voluntary disclosure announcement generates negative price response
are consistent with the increased voluntary disclosure of political contributions in the stock
volatility of the firms of UK. The concern that the political spending is the symptomatic of

CONTEMPORARY ACCOUNTING THEORY
agency issues within the firms makes the corporate political spending a subject of
considerable scrutiny (Eisenberg, 2017). It is argued by researchers that political spending are
used by managers to pursue their private interest which makes the political spending
symptomatic of agency problems. The interest of the shareholder might not align with the
spending for political activities and potential agency conflicts. From the evaluation of the
article, it has been ascertained that the firms have more conservative political ideologies
when it is targeted by public pension funds and union. Moreover, the reaction of investors are
more positive for the firm that have higher agency problems and political spending and it is
more negative for the firms where the pension funds sponsors the proposals (Baloria et al.,
2018). The findings generated from the article contribute to the debate about the shareholder
activism success as such activism helps the investors in expressing their opinion about the
desirable change in the policies of corporate disclosure. Therefore, the disclosures on ESG
are diverse and it includes the disclosure concerning political contribution and activism play a
crucial role in changing the policies disclosure.
Conclusion:
The articles analyzed above provide a detailed explanation on the accounting
standards and disclosure regulation and how such regulations were amended after the various
corporate collapses and financial crisis witnessed by them. In addition to this, various other
articles have also been analyzed that depicted the influence of political factors in amending
the accounting standards and regulations. From the evaluation of article, it has been
ascertained that many jurisdiction contributed toward improved reporting system by
amending the existing regulations and accounting disclosure policies. Furthermore, as
evaluated from the articles, it can be inferred that the political factors have greatly influenced
the restructuring and functioning of the accounting and regulatory standard. Hence, the

CONTEMPORARY ACCOUNTING THEORY
standards have been amended and some of the amendments have received opposition from
the political pressures.

CONTEMPORARY ACCOUNTING THEORY
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CONTEMPORARY ACCOUNTING THEORY
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