Critically Examine the Nature of Accounting Regulation by Comparing and Contrasting the Arguments for and Against Accounting Regulation

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Accounting regulation is the policing of accounting information production and dissemination, according to rules by an entity no directly party to or involved in the activity. There are three elements of accounting regulations that need to be taken into account. These three elements are: (1) intention to intervene, (2) restriction on choice to achieve certain goals and (3) exercise of control by a party at least nominally independent of those directly involved in the activity. There are several arguments for and against the accounting regulations and these will be discussed below stating real life examples of each of the argument. The first argument for regulation is increased efficiency in allocating capital. What we mean by this is that we need sufficient information to make the right decision where to allocate the capital and in the absence of compulsory disclosure, some companies could conceal or misrepresent information relevant to decision making. It is believed that mandatory disclosure should increase information communicated. However, the counterargument for this is the fact that determining the optimal quantity of information is problematic. The rationale is to provide optimal information for markets to function, however, it isn’t possible to determine at which point a regulation will lead to information overload and that will harm user. Cheaper production of information is another argument for regulation. This means that mandatory disclosure reduces the need for user to produce their own information and if many users produce the same information then there is too much overlapped information produced. Search costs are also reduced as the user knows where to find information and understands the form in which the information is presented. Another advantage of regulation is that it will perform a check on management perks. Without a regulatory

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