Financial Accounting Theory Essay

2749 Words Nov 6th, 2013 11 Pages

The aim of this paper is to consider three theories of regulation, the public interest theory, the capture theory and the economic interest theory. These three theories attempt to explain why a particular phenomena in the regulation process occurs and as such they are positive theories. Initially, in part (a) the theories are explained and then related to a case where the European Union Commission defers accounting standards. Lastly, in part (b) the theories are used to explain the case of the European Union Commission, the international accounting standard IAS 39 and the result of corporate lobbying.

Part (a)
i. Theories of Regulation
Public interest theory
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She found evidence that the outside interest groups did capture the regulatory body and therefore were able to significantly influence the timing of the regulatory process. The dam owners and the hydropower interest groups significantly influenced the slowing down of relicensing for their own benefit that of preserving their current generating capacity and delaying the costly environmental requirements. In addition, the environmental interest groups lobby to speed up the process so the environmental requirements can be implemented as soon as possible and were successful where the regulator possessed a strong environmental mind. A further example of capture theory is described by Hertig (2005) in his analysis of board reform. Hertig (2005) explains that the reforms were introduced to protect the shareholders from management malpractice however the management, controlling shareholders and institutional investor have captured the process and were able to influence what reforms were implemented. Further, he advises that their involvement in the reform process has prevented inefficient reforms but has also excluded efficient reforms.

One argument the critics employ against capture theory is that the regulated group may not be the only group who has the power to influence the regulator (Deegan 2006). This was demonstrated in the research by Kosnik (2005) where the dam owners

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