University Accounting Theory: Corporate Failures and Standard Setting

This report provides a comprehensive analysis of contemporary accounting theory, focusing on the relationship between corporate failures and the evolution of accounting standards and regulations. It examines how corporate crises have historically led to improvements in financial reporting practices, drawing on various journal articles to support its arguments. The report critically evaluates the political processes involved in setting accounting standards, exploring the influence of various stakeholders, including political bodies and lobbying efforts, on the International Accounting Standards Board (IASB). It highlights the complexities and challenges in balancing political pressures with the objective of creating high-quality, globally accepted accounting standards, using examples such as the global financial crisis and the EU's influence on the IASB to illustrate the dynamic interplay between politics and accounting.

Running head: CONTEMPORARY ACCOUNTING THEORY
Contemporary accounting theory
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CONTEMPORARY ACCOUNTING THEORY
Executive summary:
The objective of the report is to conduct an analysis on the accounting regulations in light of
the accounting scandals and corporate failures along with conducting the critical evaluation
of the political process of the same. Such analyses have been done by reviewing the journal
articles that have been sourced differently. The information retrieved from the articles has
contributed to evaluate the accounting standard settings.

CONTEMPORARY ACCOUNTING THEORY
Table of Contents
Introduction:...............................................................................................................................3
Discussion:.................................................................................................................................3
Evaluating the improved accounting regulations and standard in light of corporate failure:....3
Critically evaluating the political process of accounting standard:...........................................3
Conclusion:................................................................................................................................3

CONTEMPORARY ACCOUNTING THEORY
Introduction:
The objective of the report is to conduct critical analysis of the journal articles
depicting how the corporate failure has resulted in improving the accounting standards and
regulations in the system of financial reporting. Such analysis has been conducted by
reviewing the literature pertaining to the articles and the concerned topic. Later part of the
report also demonstrates the analysis of the political process of the setting of accounting
standard. Such analysis has been done by reviewing the literature retrieved from different
journal articles.
Discussion:
Evaluating the improved accounting regulations and standard in light of corporate
failure:
The failure of the corporate has been attributed to the accounting practices by many
scholars and researcher and the failures of such corporate have resulted in the introduction of
the improved accounting standards and regulations. The developed accounting standard is
intended to avoid the possibility of crisis that arises from the failure of company to comply
with the accounting standards and loopholes in the existing standard practice.
The article titled” Responsible accounting for stakeholders” conducts a critical
analysis of the existing financial theory and how the development of accounting standard
should embrace the broader group of stakeholders such as creditors and investor. The current
research paper has laid a normative foundation for the practical and theoretical perspective on
the public accounting profession responsibility. This particular research paper have accounted
many factors that results in the failure of corporate organization and in spite of the current

CONTEMPORARY ACCOUNTING THEORY
retirements on the financial reporting, many investors have lost confidence. The
responsibility of organization towards the stakeholders should increase and extended in
addition to the financial investors. It has been found that the most worthy stakeholders for the
reporting purpose are those who have contributed significantly to the process of value
creation of the firms. Furthermore, it is recommended in the article that the development of
the more representative and effective discipline would be encouraged by the stakeholder by
way of emergence of stakeholder accounting. The reporting process that is based on
standardized stakeholder across the organization would allow a measurement precision of
high level and the potential to integrate the issues that is of concerned to the border group of
stakeholders. Such standardized reporting system would help the researchers in accurately
assessing the trade offs of cost and benefits that would be linked with a wider range of
behavior of corporate. The failure of the corporate has been also associated with the residual
risks which are borne by one of the stakeholders that are shareholder of organization which is
linked with the corporate activities outcome (Harrison & van der 2015). In this regard, the
article has addressed the concerned issue of the residual risk completely borne by the
shareholders that a socially responsible and shareholder oriented firms would provide
accurate repotting by taking into account all the group or broader group of stakeholders.
In addition to the issue addressed above, the article also places great importance on
the sustainability reporting as one of the important reason for the failure of the corporate is
lack of reporting on their environmental performance and environmental accounting.
Therefore, majority of the largest global corporations have engaged in such reporting system.
It is indicated by the research paper that such reporting presents a favorable view rather than
the realistic view of the performance of organization as the information presented in such
report are not aggregate, not material, not assured and cannot be compared with other
organization. The effectiveness for reporting and accounting for the stakeholder benefits

CONTEMPORARY ACCOUNTING THEORY
bearing residual risk would be limited due to such difficulties encountered in the reporting
system.
In one of the articles titled” “Did regulation fair disclosure, SOX and regulations of
other analysts reduce the mispricing of security” conducted an analysis on the pricing of
security and performance of stock market in light of the accounting regulations. From the
analysis if the article was ascertained that after the introduction of the regulatory standard,
there was considerable decline in the mispricing of the securities. There was an improvement
in the accuracy because of the standard and regulation with such improvement being
consistent with the mispricing of security decline. The article has established the theoretically
and empirically that the mispricing of security is inversely related to the quality of the
environment of corporate information. However, it has also been ascertained that there was
homogeneity in the security mispricing across the firms. A series of regulation in the US
capital market have been questioned in the article for the stringency of the reforms that
resulted in improving the corporate information. The enactment of the standard setting and
regulations has resulted in improvement in the security pricing by reducing the mispricing. It
has been found that the findings are vigorous when it comes to the potential confounding
effects such as recent financial crisis, delisting of traders and investors trading activity. The
changes in regulations resulted in improving the corporate information by reinforcing the
interference (Lee et al., 2015).
The article titled” The negative impact of the additional legislation on the stewardship
of corporate” examines the potential changes in the accounting legislation that are proposed
in the UK in the after math of the financial crisis. The research paper has addressed the
research question that whether the additional legislation imposed would be able to strengthen
the proposed adjustment to the corporate governance brought by the corporate stewardship.
The implementation of new and improved corporate legislative requirements is the reaction

CONTEMPORARY ACCOUNTING THEORY
of many jurisdictions to the global financial crisis. The examination of the attitude of
members of Australia to the amendment in the legislations proposed by United Kingdom has
been done in the article. The method of corporate governance is questioned in light of several
corporate failures that whether such reporting ensures that the corporate reporting is
adequate. Article did not account for ascertaining the fact the poor legislation is responsible
for such failure, however, it was ascertained that such corporate failure or the crisis was due
to the failure on part of organization to enforce the legislation. In addition to this, it was
founded that the additional legal requirements would be opposed by both the group that is
undertaken in the study as they do not consider the additional legislation to provide benefits
that resulted in questioning the prudence of various legislation introduced after the crisis
(O'Leary et al., 2013). Nevertheless, the significance of the findings ascertained the article by
addressing the issue is important to the legislations having specific proposals.
One of the accounting research journals named “disclosure on regulation on the
commercial banking industry and the lessons learned from the era of national banking”
conducted an examination of the impact on the development and stability of organization due
to the adoption of standardized regulations. The article also presented various challenges
when evaluating the implications of the disclosure regulations and supervisory. The impact of
the accounting regulation on the banking system of US has been investigated in this research
paper. One of the important conditions bonding the employees of banks to present the
financial condition of the banks is the regulation imposed for the banking system (Granja,
2018). In addition to this, the article has also examined the impact of such regulation on the
access and availability of credit. The article has presented an opportunity to measure the
plausible exogenous shocks by exploring the significant changes in the disclosure system
regulatory. From the analysis of the article, it is ascertained that the laws of disclosure do not
reflect the material change and the impact of regulations in persuasively estimating the

CONTEMPORARY ACCOUNTING THEORY
regulations effect is related to the fact that laws has shortfalls in terms of the lack of sufficient
temporal and spatial variation. It is also found from the analysis of article that disclosure
regulations has the consequence of increasing the per capita of bank along with declining rate
of interest on the loans offered (O'Leary et al., 2013).
Critically evaluating the political process of accounting standard:
The article titled” Repoliticalization of accounting standards setting- The global
financial crisis, IASB and EU” threw some light on the accounting standards objective and its
appropriate shape since the crisis outbreak. The article described how the global standard
setter that is IASB (International accounting standard board) is influenced by the political
factors and how they respond to such pressure by adopting the perspective of Europe.
Researcher in the article also seeks to analyze the mechanism underlying the standard and the
power exercised in the process of standard setting. There are various aspects in which the
article has contributed to the knowledge of setting of accounting standard. Firstly, the finding
generated by the article calls for a adequate understanding of the politics of accounting
standard and how such standard interacts with economics and macro politics. Secondly,
article has demonstrated how the political and public factors have reclaimed the role of
accounting standard setting towards a refined understanding of the wider trend of the
international economic activities governance. It has been found that the accounting standards
setting have been repoliticalized due to the global financial crisis and the IASB was
successful in not getting influenced from the political pressure and maintained is
independence post the crisis as well (Bengtsson, 2011). However, at the expense of
stakeholders, the political factors have gained influence. In addition to this, in the current
scenario, it is difficult to make the assessment of the implication on the international
accounting standard setting due to the new balance of power (Stubbs & Higgins, 2018). From

CONTEMPORARY ACCOUNTING THEORY
the analysis of the article, it is quite clear that the political support cannot be taken by the
international accounting standard board and if the accounting standard succumb to the
political pressures arising from the European Union, then there would be hampering of the
further dissemination of such standard. Furthermore, it has also been found that the adoption
of the IFRS (International Financial Reporting Standard) by EU came with the pre condition
that surrounds the independence of IASB. However the independence of IASB was sacrifice
because of the consequence of certain system of banks and financial stability pressure.
One of the articles on accounting titled” Political lobbying on the proposed standard:
A challenge to IASB” examined the several attempts put by different parties that prevented
the setter of accounting standard from imposition of objectionable requirement. The IASB is
facing the obstacle in terms of triggering of the political pressures by the board to prescribe
particular accounting treatments, eliminate the alternative treatments and tightening the
interpretations allowed. The work of IASB might be politically intruded due to the screening
mechanism of EC. Moreover, the member of the states of EU under the established rues
would operate at the political level for the purpose of making decision. The article has
presented several sources of political intrusions in the development and working of IASB
(Zeff, 2002). The predecessor of IASB is affected by the political considerations and the
political opposition defeats many of the boards and it successes in defeating one of the
objectives of the board. In addition to this, the article also presents several examples where
the regulatory body faced the political pressure such as political pressure faced by the
standard board of UK (Zeff, 2002). Article pointed out number of reasons for which the
AASB was subjected to the political pressures. The settings where there is existence of
stronger mechanism of enforcement, it is found that the impact of political pressure in such
setting is greater. The members of IASB would be given pause because of phantom of the
political challenges that have been recounted in the article. It is hoped in light of useful and

CONTEMPORARY ACCOUNTING THEORY
sound financial reporting that the board will not retreat from the controversial and sensitive
issues in the need of reporting quality from high standards.
The article on the scandal titled “political and regulatory market perspective on the
recent accounting scandals” contributes by way of making historical significance highlighting
the difference between the perspective of market regulatory and the political factors in the
scandal. The scandalous events have been analyzed and interpreted in the article by
evaluating the response of politics and market to the events and how such negligent and
fraudulent events are addressed. The failure of corporate organization has been because of
mainly the market and regulatory failure. The occurrence of such scandals has been evaluated
in the article. The occurrence of such scandals have been found to be associated with the
political and regulatory responses with such responses having two branches that involves
criminal proceedings against the company and individual being accused of negligence and
fraudulent activities. In addition to this, article has presented the scandal main culprit to be
the conflict of interest between the non audit and audit firms for which there is unusual
relationship. The occurrence of accounting scandals is viewed differently when they are
analyzed from the perspective of corporate governance, political process and financial
reporting. In addition to this, the political process monitoring and creating the regulations is
captured by the regulated industry and organized special group of interest. The analysis of the
political perspective have been influenced by the interpretation of scandalous events and the
incentives of political pressure results in avoiding the loss of investors from the perception of
responsibility (Ball, 2009). In addition to this, it was found that the audit firms conducting the
revelation of substantial audit work has resulted in the adverse political reaction to the
occurrence of such accounting scandal.
The article titled”Separating the technical and political: Accounting standard setting
and purification” examine the construction of boundary between the technical and political in

CONTEMPORARY ACCOUNTING THEORY
the setting of accounting standard using the case of stock option in the US. The usefulness of
purity in understanding the stock option significance is illustrated in the paper and when the
attention is directed towards the interpretation and selection of concepts and facts there can
be easily blurring of the technical and political factors when attempting the testimony
boundaries. The public administration and regulatory bodies deeply embeds the distrusts of
politics (Veldman & Willmott, 2016). Stock options had been the most controversial project
that was politicalized. The financial reporting is purified by the products of standard setting
that helps in addressing the objects and transactions that are identified as impurities that is
associated with then political factors. The debate concerning the stock option was regarded
as highly politicized where the FASB has been presented from seeking correct accounting
answer because of political interference. It is suggested by the objective of purification by
way of deliberative process that standard setting should operate outside the political
interferences and politics as the political factor is considered as negative influence on such
regulatory bodies and the standards setting becomes a contest in the light of introduction of
the politics (Young, 2014). The article outlines the fact that producing the financial
accounting requirements would be followed by reconsidering the institutional process when
embracing the political factors. The value inherent in the occurrence of decision throughout
the process of standard setting that helps in facilitating the examination and articulation of the
reporting system.
Conclusion:
It is evaluated from the analysis of the articles explaining the link between the
improvements in corporate information due to improved regulations resulting from the
occurrence of corporate failures that many jurisdictions have made additional legislation
requirements in the after math of crisis or corporate collapse that has facilitated the financial

CONTEMPORARY ACCOUNTING THEORY
reporting system. However, from the analysis of one of the articles on the concerned topic, it
was found that there was negative response of the board when introducing the additional
requirements of the regulations. In addition to this, it has also been ascertained that the
accounting standard board are considerably affected by the influence of political pressures
that have resulted in the amendment of such standard.