Accounting Standard Setting

4104 Words Jan 7th, 2011 17 Pages

ATPB 313 / ACTB 423
Accounting Theory & Practice

Chapter 7 SHD

Learning Outcomes

At the At the end of this lecture, students should be able to explain:

✓ The three theories proposed to understand the process of regulation – public interest, regulatory capture and private-interest theory ✓ a comparison of the free market and regulatory approaches to standard setting ✓ International standard setting ✓ Standard setting in Malaysia


• Since 1960s, accounting profession has been criticized for its weakness. Failures to solve problem faced by practitioners accountant remains unresolved and lack of independence of financial information. • This has led the profession
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Market failures occur since other individuals can receive the product free of charge, the normal pricing system in the market cannot function

• The theory was justified as a result of failures in the market for accounting information evidenced by significant number of corporate collapse, even after auditors had certified accounts as ‘true & fair” • Calls for stricter accounting standards or for changes in standard setting processes following major corporate collapse • The theory present the reason for or the origin of government intervention in the accounting standard-setting processes being the rectification of failures in the market for accounting information

Ii - Regulatory capture theory

• Regulation is supplied in response to the demands of special interest groups, in order to maximize the income of their members • Assumption: (1) all members of
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