Contemporary Accounting Theory: Crises, Regulations, and Politics

This report investigates the relationship between corporate failures and the evolution of accounting regulations and standards. It explores how crises, such as those in the financial sector, have prompted improvements in financial reporting. The report examines the impact of corporate failures on accounting regulations and standard setting, and the political process of accounting standard setting. The analysis considers the impact of corporate failures on accounting regulations and standard setting, and the political process of accounting standard setting. The report uses several journal articles to illustrate how political pressures influence standard setters and the development of accounting standards. The study covers the impact of IFRS adoption, the role of corporate governance, and the influence of political lobbying on accounting standards. It presents a critical evaluation of the political process, highlighting how self-interested considerations can affect the interests of investors and other users of financial information. The report concludes by emphasizing the ongoing need for improved corporate accountability and the importance of understanding the political dynamics of accounting standard setting.

Running head: CONTEMPORARY ACCOUNTING THEORY
Contemporary accounting theory
Name of the student
Name of the university
Student ID
Author note

CONTEMPORARY ACCOUNTING THEORY
Executive summary:
The paper has been prepared for demonstrating the information on the accounting standard
setting and the accounting regulations after the occurrence of any corporate collapse and
financial crisis. The cause of failure of corporate can be partially attributable to the
inadequacy of the accounting standards and regulations. It has been inferred from the analysis
of several articles that there has been improvement in the corporate information brought by
the improvement in the accounting standards and regulations of the financial reporting
system. Furthermore, the critical evaluation of the political process of the accounting standard
settings have ascertained that the political intrusion plays a significant role in influencing the
performance and decision making of the board and standard setters.

CONTEMPORARY ACCOUNTING THEORY
Table of Contents
Introduction:...............................................................................................................................3
Explaining the impact of corporate failure on accounting regulations and standard for
financial reporting:.....................................................................................................................3
Critical evaluating the political process of the accounting standard setting:.............................3
Conclusion:................................................................................................................................3
References list:...........................................................................................................................4

CONTEMPORARY ACCOUNTING THEORY
Introduction:
The report is prepared to demonstrate the improvement in the accounting regulations
and accounting setters in the financial reporting system. Such changes have been evaluated in
the context of the failure of corporate and the occurrence of financial crisis that has led to the
downfall of many organizations. The later part of report also presents a critical evaluation of
the accounting standard setting and its evolution resulting from the complex political
pressures. The arguments addressing the mentioned topic were done by referring to some
relevant journal articles.
Explaining the impact of corporate failure on accounting regulations and standard for
financial reporting:
The collapse of several organizations because of abusive financial report for which
the blame lies on the accounting regulations and standards. Some of the journals articles have
been reviewed critically to indentify the reason for such collapse and whether the failure of
organization has resulted in improved accounting regulations and standard setting.
The journal article titled”Cycles of Crisis and Regulation: the enduring agency and
stewardship problems of corporate governance” have examined the response of accounting
regulators and standard setters in the after math of the corporate collapse and during the
recession. It has been presented in the article that there was a wave of increased regulations
and corporate govern ace reforms during the period of corporate collapse and recession. The
shareholders and companies were more concerned with the generation of wealth rather than
the mechanism of corporate governance. The driver of the corporate governance mechanism
is attributable to enhance corporate accountability and improved corporate performance.
Article has discussed about various corporate downfall such as HIH, One Tel, Wall Street

CONTEMPORARY ACCOUNTING THEORY
clash 1929 and the financial crisis experienced by Asia. There was invariable occurrence of
the statutory intervention when the corporate collapse was highlighted during the period of
recession. In order to retain the growth and confidence, it is required to have active voluntary
self regulations for avoiding any mandatory restrictions over regulations. Corporate
governance is regarded as both risk management and creation of wealth. The continuous
efforts to enhance the corporate accountability and improve the corporate governance and
ongoing and are considered vital for the corporate governance. When more of the public
would have wealth invested in the company, there will be increasing reforms and the method
of corporate governance as a matter of public. After the occurrence of several corporate
collapse, the disclosure mechanism were enhanced in terms of imposing penalties, increasing
the penalties for market manipulation, improving the conduct of shareholder meeting, whistle
blowing, bundling of resolutions and disclosure of directorship (Clarke, 2004).
The journal article titled” Did regulation fair disclosure, SOX and regulations of other
analysts reduce the mispricing of security” evaluated the stock market inefficiency and the
mispricing of the securities in the after math of the improved regulations standard. It was
found that the mispricing of the security was reduced considerably due to the introduction of
improved standard of regulation. The article has identified from both empirical and
theoretical perspective that there exist well indentified relationship between the corporate
information quality and security mispricing. In addition to this, the valuation of the corporate
information has resulted in the rationalization of security mispricing and information
uncertainty. The article has presented several research questions in relation to the US capital
market in relation to the stringency and reforms of regulations which has the consequence of
improving the quality of information. Furthermore, it was also ascertained that the security
price was consequently impacted by the regulation ratification and thereby reduction in the
price significantly. The researcher has reinforced the kind of information that helps in

CONTEMPORARY ACCOUNTING THEORY
improving the corporate information that contributes to the improvement in the overall
performance and market efficiency (Lee et al., 2014).
The article titled” Mandatory IFRS Adoption and the Contractual Usefulness of
Accounting Information in Executive Compensation” have examined the adoption of the
IFRS in Continental Europe which impacted the accounting information in terms of its
contractual usefulness. Such information and the impact were captured in the executive
compensation reflected by relative performance evaluation and pay performance sensitivity.
It is indicated by the empirical evidences that the countries with larger differences in
previously adopted local accounting standards and the IFRS has weak increase in accounting
based in pay performance sensitivity after the adoption of the internationalized accounting
standard. Furthermore, the transition to IFRS has been evaluated in terms of contracting
implications and it is analyzed that whether the IFRS leads to increased comparability and
earning quality. It was found post the adoption of IFRS that there was a considerable decline
in the return generated by the stock based on the pay performance sensitivity. Moreover, the
results obtained are consistent with the improvement in the quality of earning post the
adoption of IFRS. A considerable increase in the accounting performance with respect to
comparability has been found and weak decrease in the accounting performance was also
evident. The analysis which was conducted further found that the firms with more foreign
operations have larger increase in the use of relative performance evaluation compared to
domestic peers. However, the deepening economic integration in the continental Europe is
not responsible for change in accounting based relative performance evaluation. For the
companies that have been chosen for the analysis have the perception that the accounting
earning is of higher quality when it is evaluated after the adoption of IFRS as against the
local standard. In the event of setting compensation, the use of foreign peer’s increases in
accounting based relative performance evaluation. Therefore, the research found strong

CONTEMPORARY ACCOUNTING THEORY
evidence in relation to the facts identified after the adoption of IFRS. The overall results
obtained from the analysis of the research paper have found to be consistent with the
mandatory adoption of IFRS that results a significant increase in the accounting earnings of
cross country comparability along with improvement in the quality of earning (Ozkan et al.,
2012). One of the major benefits of adoption of IFRS has been highlighted in the report. The
funding is that the contracting of the executive compensation can be facilitated by the
mandatory adoption of IFRS in terms of greater earning comparability and higher earning
quality. Therefore, from the analysis of the article, it can be inferred that the economic factors
does not play any role in determining the efficiency of contract compensation.
The article named “The negative impact of the additional legislation on the
stewardship of corporate” conducts an examination of the improvement of the regulatory
bodies and the accounting standard. The question concerning the adjustment and alterations
made in the accounting standard have been addressed in the article and it is found that such
changes in the context of corporate stewardship would strengthen the accounting standard.
The improvement in the accounting standard setting and the accounting regulations have
received positive response from several jurisdiction as they contribute by way of disclosure
of relevant information. Furthermore, the article has also evaluated and analyzed the
additional legislation requirements that the regulatory body and the accounting standard
bodies introduced along with corporate legislation improvement. The article concentrates on
the accounting reforms proposed by UK after the financial crisis and have evaluated the
response of members of Australia. With reference to this, the responses of two groups have
been taken into account which includes audit committee and executive directors. It was
ascertained that the additional requirements of the accounting and corporate legislation were
opposed by both the identified groups. The opposition was done because it was identified that
there would not be any additional benefits due to the additional legislative requirements and

CONTEMPORARY ACCOUNTING THEORY
the organization or the reporting entity as a whole would be receive any advantage (O'Leary
et al., 2013). Nevertheless, the accounting legislation prudence was also criticized in the
article. Some of the issue that has been addressed in the article was consistent with the
findings generated from assessing the impact of additional legislative requirements.
Critical evaluating the political process of the accounting standard setting:
This section of the report conducts critical evaluation of the evolution of the
accounting standard setting through a complex political process. For the purpose of analysis,
some of the journal articles on the accounting research have been selected and evaluated.
The article titled” ” Political lobbying on the proposed standard: A challenge to
IASB” conducts an evaluation of the prevention of the accounting standard setting to impose
objectionable requirements and the same has been explained by using several examples. The
article has presented numerous examples of the political intrusion faced by the standards
setter in switching to internationally standardized regulatory bodies. The emergence of
political pressure can be in different degrees and where the standard setter would act in the
liaison with the IASB. The article points out that the reason why some companies in Europe
considered switching to US GAAP was that fact that the preparers in US constitute a
powerful lobby and are well organized. In addition to this, the work of IASB was politically
intruded because of the screening mechanism of European Union. The objective was to
determine whether the legal enforcement should be received by such companies for usage in
the financial statements. The predecessor of the accounting standard setter was impacted by
the political considerations and the political opposition defeated the proposal between IASC
boards. Another example of political pressure that is presented in the article is the existence
of external auditors only and no mechanism of enforcement. The introduction of the

CONTEMPORARY ACCOUNTING THEORY
accounting for deferred taxation was to harmonize the Americans; however political
objections began to be strongly voiced by the big industry. It was proposed that the method of
LIFO would be eliminated by IASC, although the accounting bodies of Canada and US
favored retaining this method of inventory treatment. Some other delegations also votes
against the nit to eliminate LIFO and therefore one of the objectives of comparability and
objectivity of the IASC was defeated by the political pressures (Zeff, 2002). The government
council and accounting profession were reversed because of the cumulative effects of all the
sides that are clearing bank, big industry and government. The accounting standard board in
UK also faced a great deal of contentiousness and political pressure on subject such as future
loss provision in acquisition accounting and accounting for securitizations. Therefore, from
the analysis of the article, it has been found that the accounting standard setters were
subjected to political pressures regarding number of issues.
One of the accounting journal articles titled” Separating the technical and political:
Accounting standard setting and purification” evaluated the political and technical factors and
how such factors should be differentiated in determining the purification and setting the
accounting standard. The political distrust is deeply embedded in the literature of public and
regulatory administration. It is examined that the construction of boundary between the
political and technical factors helps in legitimizing the process of standard setting. Such
boundary simultaneously created disassociation between the products and the accounting
standard setting from seemingly interested political process. The article has conducted an
evaluation of the most controversial case of stock option that was undertaken by FASB as the
case offers a rich set of materials that can be explored. Since the political factors is associated
with impurity and any input in the political process cannot be described as the opinion for the
political process. The financial reporting is purified by the products of standards setting by
identifying the objects and transactions. It is suggested by the purification which include

CONTEMPORARY ACCOUNTING THEORY
production and maintenance provides a suggestion of the fact through deliberative process
that standard setting should carry out their operations outside the political interference and
political factors. Standard setting has become a context with the introduction of politics that
win or lose based on their competing and they often compete for advantage. The setting of
accounting standard in the article has been defined as the political process and the paper
makes a contribution to the theoretical concepts of purification by exploring the boundary
work required to demarcate between the technical and political factors (Young, 2014). In
addition to this, the usefulness of purity is evaluated in the paper by understanding the
description of stock option as an anomaly of accounting. However, the boundary between the
technical and political factors drawn by the testimony can be blurred easily. The political
factors can be considered as the art that is used for dealing with the agreements when the
politic s concerning accounting serves as the biased accounting.
Another article titled” “Repoliticalization of accounting standards setting- The global
financial crisis, EU and IASB” tends to examine the manner in which the European Union
gain control over the International accounting standard board and how the political influence
was limited by the response of the global standard setter. It has been found from the analysis
if the article that there has been power rebalancing in favor of the political interest between
the different international accounting setting stakeholders. Furthermore, it is also suspected
that there can struggling between the power due to the heightened influence of the political
factors and the efforts taken by them to cope up with the changes that are witnessed in the
institutional environment. In addition to this, a refined understanding of the wider influence
trend towards the international activity governance and the privatization is also contributed in
the article. IASB from the theoretical perspective has been portrayed as that they bare
captured by private interest in the international accounting standard setting area. The
stakeholders have been influenced by the political influence and economic power along with

CONTEMPORARY ACCOUNTING THEORY
the industry concentration and expertise. It has been deduced from the facts discussed above
that the IASB has become less responsive to lobbying and to regulators and politicians.
However, for the success of the accounting standards, the endorsement from the political and
public actor is considered necessary (Bengtsson, 2011). Nevertheless, the article also pointed
out there has been less research on the measures and the concrete steps taken by the political
actors in influencing the standard setting and the accounting standard.
In one of the journals article named” Shareholder Activism and Voluntary Disclosure
Initiation: The Case of Political Spending” has conducted a detailed enquiry on the political
spending in relation to the proposals of shareholders which highlighted the activism of the
shareholder can be used as the mechanism to motive the disclosure of the environmental
mental, social and governance factors. It is highlighted from the findings of the article that
investors can easily expresses their preference for the disclosure of corporate policies using
the mechanism of shareholder proposals. The activism around the corporate political
spending is investigated whether the investors are able to gain influence over the disclosure
policies. The political spending is regarded as the symptomatic agency problems which
argues that the monitoring incentive motivate such proposals. The research on the targeted
forms selected have high political spending compared to non target firms as they have more
conservative political ideologies. Furthermore, it has been found that the reaction of investors
is positively related to the political spending and agency problems. The announcement of
voluntary disclosure initiation results in negative price responses which is consistent with the
increased mandatory disclosure resulting from political contribution. The corporate political
spending has become a subject of considerable scrutiny due to the agency problems (Baloria
et al., 2018). Therefore, the organizations with higher political spending are associated with
positive response from investors.

CONTEMPORARY ACCOUNTING THEORY
Conclusion:
From the analysis of the journal articles concerned with the topic on improvement in
the accounting regulation and standard setting, it was found that in the after math of failure
and crisis, the accounting bodies made several attempts to introduce the revised and redefined
regulations resulting in improved corporate reporting system. In addition to this, it was also
ascertained that the political factors played an influential role in shaping the accounting
standard setting and thereby, it can be inferred that evolution of the standard setter was due to
the political intrusion.