Importance And Importance Of Accounting

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Accounting regulation is a principle that guides and standardises accounting practices. The Generally Accepted Accounting Principles (GAAP) are a group of accounting standards that are widely accepted as appropriate to the field of accounting. Accounting regulations are necessary so that financial statements are meaningful across a wide variety of businesses; otherwise, the accounting rules of different companies would make comparative analysis almost impossible. An accounting regulation is a guideline for financial accounting, such as how a firm prepares and presents its business income and expense, assets and liabilities. The Generally Accepted Accounting Principles is comprised of a large group of individual accounting regulations. GAAP …show more content…
Being mandated by government regulation or being supported by firm’s own reputation, gatekeepers, private lawsuits, and market discipline have enough evidence to disclose voluntarily information at socially optimal levels. The existence of market failure is an issue of supporting that argument. For example, regulation can help to reduce enforcement costs, redundancies in information production, and opportunistic behaviour, or can mitigate failure linked to externalities where firms do not fully internalise the consequences of their disclosure decisions. However, that would cause markets and government be imperfect. Therefore, it is important to avoid the Nirvana Fallacy in which regulation is justified by comparing imperfect market outcomes against outcomes deriving from imaginary governmental institutions that are competent, benevolent, and in possession of perfect information (Demsetz, 1969). Research has shown that there is cross-country variation in many aspects due to countries has differed in many respects. A serious question whether true harmonisation of financial reporting across the world is an achievable objective has raised by this …show more content…
The company board of directors approves and periodically reviews the guidelines which must align with the company’s direction, performance and regulatory practices. Corporate governance specifies the rights and responsibilities of company stakeholders, with particular emphasis on three groups: shareholders who own the company, board of directors who oversee the managers and management which run the daily operation. A key function of corporate governance is to determine how power is distributed between these groups to ensure the company runs fairly. Most broadly, corporate governance affects not only who controls publicly traded corporations and for what purpose but also the allocation of risks and returns from the firm’s activities among the various participants in the firm, including stockholders and managers as well as creditors, employees, customers, and even communities. Corporate governance became a very important issue in 2002, with the passing of Sarbanes Oxley Act. It sought to restore public confidence in corporate governance following the collapse of several major companies, due to accounting fraud, such as Enron and Worldcom. Corporate governance continues to be a hot topic today with the rising in corporate ethics. For example, one such issue is whether corporations should take responsibility beyond their direct shareholder interests, to include the communities

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