Corporate Failures and Accounting Regulations: A Study, ACCT 20074

This report analyzes contemporary accounting theory, focusing on the relationship between corporate failures and the evolution of accounting regulations. It examines how financial crises and corporate scandals have prompted improvements in accounting standards, such as the Sarbanes-Oxley Act and Dodd-Frank Act. The report also critically evaluates the complex political processes involved in setting these standards, considering the influence of various stakeholders, including governments, corporations, and international bodies like the IASB and the EU. The analysis includes examples of how political pressures and lobbying efforts affect the approval and implementation of accounting rules, highlighting the challenges in balancing technical expertise with self-interested considerations. The study emphasizes the importance of updated accounting standards and governance arrangements in reducing corporate failures and ensuring reliable financial reporting for investors and other stakeholders. This report offers valuable insights into the interplay of corporate governance, financial crises, and accounting practices in a globalized context.

Running Head: CONTEMPORARY ACCOUNTING THEORY
CONTEMPORARY ACCOUNTING THEORY
Name of the Student
Name of the University
Author Note

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Executive Summary
The aim of this assignment is do the analysis on the contemporary accounting theory.
Under this analysis, the discussion will be based on the analysis of the corporate failure in
every era that has led to the improved standards/regulations of the accounting. In addition,
discussion will also be based on the evaluation with the appropriate example about the
complexity of the political process in the globalized context of the accounting setting
standard. Hence, with the analysis, it has been find that the increased corporate failure due to
several factors have resulted in the requirement of standards and regulations of the
accounting. However, the setting of standard faces with the complex political intervention
which should be minimized for the smooth functioning of regulators and corporates.

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Table of Contents
Introduction................................................................................................................................3
Corporate Failure that leads to Improving of Accounting Regulations.................................3
Accounting Standard Setting is a Complex Political Process................................................7
Conclusion................................................................................................................................10
Reference..................................................................................................................................11

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Introduction
The contemporaries in the recent global context is making sense of the practices that
is doubtful and suspicious by constructing the narrative that is framing the scandals in the
corporate, this has led for the regulator to change the regulations or do the amendments in
accounting. The issue of the corporate failures in the corporate is raising day-by-day, because
of it, there is the necessity for adopting of the accounting standards that is modified as the
need for the current situation. Hence, the objective of this assignment is to do the analysis of
how the crisis and failures in every period has urged for improvement in the regulations and
standard in accounting for the financial reporting in every subsequent period. Moreover, this
assignment will also discuss the arguments that the introduction of the accounting standard
and regulations is going through the complexity of the political process and lobbying in the
global context (Barth, Beaver & Landsman, 2001).
Corporate Failure that leads to Improving of Accounting Regulations
Financial crisis is defined as the experience of panic from the perspective of financial
as well as the consequences of the panic or the financial prices boom. The financial crisis has
led to the failure of financial market for performing their functions in the effective manner.
The occurrences of the severe shrinkages are in the economic activities volume. In addition,
with the number of common characteristics of the financial crisis. The concept of the
financial crisis is classified as currency crisis, banking crisis, foreign debt crisis and
systematic financial crisis (Grenier, Pomeroy & Stern, 2015).
According to Elio Lannuzzi, the financial market is thoughts as complex adaptive
system that precipitates in chaos and disorder because of seemingly mild event that activates
the latent forces and lead to the unpredictable and emerging consequences. The international
partners orientations is the step towards the new system of international finance, where the

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financial system stabilization does not passes only by the bodies that has created in Bretten
Woods, but however, through the new rules and structures endowments
(emeraldinsight.com., 2019).
The rapidly changing of the business environment as well as financial crisis has
increased the global corporate failures. The failures of the corporate is considered to be
discontinuity of the business operations of corporate that results in the inability of the
business for reaping of the adequate revenue or the profit of the company for paying the
business expenses. This condition arises generally due to fault in the management practices,
incompetency in the adherence in the regulations or standards (Holthausen & Watts, 2001).
The failures of the corporate also takes place due to failure of the corporate for adapting to
the environment changes, which includes change in the political decisions regarding finance,
limit of the opportunities in the area of innovations as well as diversification and economies
in relation of production and administrations. In spite of the above reasons of the corporate
failures, one of the most important factor is leniency for the adoptions of the regulations and
standard of accounting. Hence, this leniency has affected in the requirement of adopting the
amended standards of accounting by the regulator (Rongwu & Zhongxin, 2010).
According to George J. Staubus, the financial reporting that is fraudulent, errors in the
financial statements and misstatements as well as bias in the reporting that is marred by the
defects such as earning that is managed have plagued the financial reporting in many of the
countries in the recent years. These failures are considered as failures in the business ethics,
which represents the breach in the judiciary duties by the individuals who have accepted the
responsibilities but have not fellfield them. The primary interest of and secondary those who
are responsible for the reports are conflicted with the intended beneficiaries’ interest or that
of the users of financial reports. The more of the realistic views of the actual business
operations of that of the system of reporting depicts that it is flawed fundamentally. The

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primary responsibility of such failures is because of the top management who intends to make
the financial reports in align with the expectations and favors of the stakeholders. The
secondary responsibilities of it vests with the independency of auditors, who are most often
influenced by the management of the enterprise (Mora & Walker, 2015). Hence, these
conflict between the interest of the management and for reporting of their performance and
the interest of the investors in having the financial information that is decision useful, is
required to have the regulation that is updated and amended as per to the changing
environment. These changes in the regulations with the basic governance of arrangement
would reduce the failures of the corporate (Staubus, 2010).
In the perfect world, the board members, investors and executives have fully
confidence in the financial statements of the company. These people relies on the numbers
for making the intelligent estimates of the timing, magnitude and future cash flows
uncertainty as well as judging that whether the value of the resulting estimate is represented
fairly in the current prices of stock. This result in making the wise decisions for the purpose
of investment (Pacter, 2014).
However, unfortunately this is not the scenario in the real world, because of the
several reasons. First reason is, the dependency of the corporate financial statements is on the
estimation and judgements calls, which can widely off to the mark, which can even be made
in the good faith. The second reason is the intention of the standard financial metrics for
enabling the existence of the comparisons between the companies that may not be considered
as most accurate way for judging the particular companies value. It is especially the case of
the innovative firms in the economies of fast moving that give rises to the measures that is
unofficial which comes with their own problems (Curado, Guedes & Bontis, 2014).

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The best example of the failures of the corporate is the case of Enron. In the following
month, Enron has imploded by prompting passing of the regulations of Sarbanes-Oxley in
US. After six years, the collapse of the financial world has led to adopting the regulations of
Dodd-Frank as well as the global initiative for reconciling the differences between the
international accounting regimes and US (Young, 2014).
The problem includes the issue of universal standards, revenue recognition, unofficial
measures of earnings, accounting of fair value and much more. The world is going through
the verge of the revolutions of the accounting since 2002. There was the initiative for creating
the single set of the international accounting standards, with the aim of uniting the generally
accepted accounting principles of US (GAAP) and International financial reporting standards
(IFRS) that was in the process of adoption by the European countries. In today’s era, around
110 countries are using the one form of system. However, due to the failures in the corporate
has resulted into more improvements in the accounting standards (Gimbar, Hansen &
Ozlanski, 2016).
The cost of the economy of the failures of the business is relatively large. Hence, the
corporate failures are considered to have important interest to the financial, economic and
corporate managers. The failure of the corporate can be seen as the inability of corporate
organization for attaining its financial and economic objectives as well as the legal
obligations. Apart from that, the companies which is not fully independent, that runs creative
accounting practices, having the problem of issues like transparency and fair valuations,
presents the financial statement that is unreal as well as shares the audit reports that is
misleading (Ball, 2006). All such issues are relating to the crisis of corporate. It has been
observed from the history of finance and accounting that even the credit institutions, audit
institutions and rating agencies are getting the advantage that is unfair as well as generating

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cash that is unethical with the help of making the financial errors and intentional accounting
that is categorized actually as fraud (Bamber & McMeeking, 2016).
The foundation of the financial crisis has been sough to the non-compliance with the
principles of accounting as well as the solution that can be found in accounting itself, when
the assessment is done in the globalized context of crisis. The reinforcement of the situation,
where the divergence from main concepts and accounting principles lead to the crisis such as
WorldCom have shown the expenses of 3.8 million as capital, Enron sold its assets to the
private purpose companies off to the balance sheet and more (Sodan, Barac & Vuko, 2013).
Therefore, because of these reasons, adopting of the improved and updated
accounting standards become foremost important.
Accounting Standard Setting is a Complex Political Process
The process that is involved in the setting of accounting standards has in particular
two dimensions, which includes the aspect of technical approach and the aspect of political
approach. Hence, this assignment will discuss on the political aspect of setting of accounting
standard. The approval is required from the concerned government wherever any new or
amendments is required in the accounting standards by the national bodies and the
international bodies. Generally it is been observed that the rules and regulation of the
accounting that is favorable to the government is approved and those which is unfavorable is
not approved by asking for the changes and alleging various loopholes (Crawford et al.,
2014).
According to the author Sverigies Riksbank, in favor of the interest of the political
parties, there is the effect of re-balancing of power. It is incurred in between the stakeholders
and the setting of the international accounting standards. Further, they have the impression
that increase in political actors influence will leads towards the struggles of the power and the

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efforts that are taken for coping with the current on-going institution’s environment.
However, during past months, the policy of the disengagements that is towards the
accounting standard setting has revised by the EU. The principal behind this controversy was
due to the concept of fair value of the financial instruments. The EU on IASB has put the
pressure, in order to limit the asset’s type, which are subject of the accounting of fair value. It
has been analyzed by the author that prior crisis, IASB was successful for maintaining their
independence from the influence of the political parties, while the profession of the
accounting as well as to the lesser extent users on that time had bigger say in the setting of
the standard. However, during and since crisis, there was the occurrence of the rebalancing
effect. The political actors are not limited of their influence by confined to comment on the
proposals draft of the accounting that is late in the process. The EU has managed for altering
the governance structure and standard setting process. The struggle of the power that was
during financial crisis has contributed to the research of the accounting, in which it shows
how the macro events that affect accounting as well as the process that is through which there
is shaping of the accounting standards (Critical Perspectives on Accounting, 2019).
According to the author, Stephen A. Zeff, the existence of the obstacles in the way of
IASB is the pressure imposed by the political bodies, which can be caused by the board
initiative in order to prescribe the accounting specific treatments, eliminations of the
treatment of the alternative accounting, requirement of imposing the additional disclosures
and tightening the allowed interpretations. The industry and the parties that are affected have
made several attempts, which are from other countries and US, for aggressively move for the
prevention of the imposition of objectionable requirement by the accounting setting standard.
Such as Novartis, that is the major Swiss company, has written to IASB’s chairperson that
they will switch from IFRS to US GAAP, if in case the regulator IASB does not change the
standard on the goodwill amortization over 20 years. It happens because this Swiss company

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will not be able to continue with the uses of IFRS in their financial reports until and unless
the government does not pass the law to this effect (“Political” Lobbying on Proposed
Standards: A Challenge to the IASB, 2019).
According to the author Jeremy Bertomeu, the changes in the regulations dependent
upon political accountability of the setter of the accounting standards and the objectives that
are underlying, association of the cost-benefit with the disclosures to reporting entities.
However, the excess of the accountability have not to implement the regulations, preferred by
diversified investors. Further, the pressure put by the political bodies slows the setting of the
standard. High level of disclosure is preferred by standard setter than that of the cycle of
regulator that is induced by long phase characteristics for the requirement of increased
disclosures followed by deregulations that is sudden (springer.com., 2019).
According to Miranda Jamburia, for the ongoing affair or process of standard of
leasing, there has been the political effect on the setter of the accounting standard. The
developed new standard by the accounting setter will be useful in increasing comparability as
well as transparency in the companies by the help of the recognition of the liabilities and
assets lease for the disclosure of the important and essential in the balance sheet (Palea,
2015). Although, the proposed changes has become controversial, because of the emphasis on
the on the increased compliance of the cost as well as complexities that is involved in
opponents standards of the new standard, which was the main reason of dissatisfaction
("Political pressures and the evolution of disclosure regulation", 2019).
According to Brandon Gipper, political intervention influence over the setting of the
standard of accounting is described as those intervention that are more purposeful which is in
process of setting of standard by the entity of economic with the aim of influencing the
outcome of process which increase the organization’s economic value which is inconsistence

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with FASB’s missions. SEC, which is the regulatory agency of government, is faced most
often the political pressures for positioning itself that is not consistent with FASB. The
example regarding this is the decisions of overriding of the SFAS-29 in 1970. The rule had
been passed to allow the companies in the business of oil and gas for either using full cost or
efforts of the accounting methods for exploration and development costs; it was when the
FASB rule has outlawed the accounting of full cost (business.unsw.edu.au., 2019).
Conclusion
Therefore, the conclusion that has been drawn from the analysis is that, corporate now
a days are faced with so many challenges and work in the dynamic work environment of
internal as well as external. This has resulted in adopting the wrong practices that has led to
the failure of the corporate. In order to overcome this situation, there is increase in the
adoption of the standards and regulations by the accounting standard setter. Although, the
process of setting the accounting standard is not easy as it goes through the complex political
process and their interventions. Therefore, these lobbies created by the political actors have to
be minimized for enhancing the welfare for both the companies and the regulator.

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