Remuneration Policy
‘There is too much accounting regulation’. In order to address this comment, this essay will focus on how theories of regulation apply to accounting practices and the necessity of accounting regulation.
First of all, according to Oxford Dictionaries, accounting means ‘the process or work of keeping financial accounts’. While regulation is ‘a rule or directive made and maintained by an authority’. (Oxford Dictionaries 2013) Since long ago the necessity of accounting regulation has been keep questioning. Efficient markets theory claim that accounting regulation is not necessary since the forces of supply and demand will help to maintain markets efficient by serving the society to the best and enhance the allocation of resources. Then, by applying this theory to the market of accounting information, the users will demand for accounting information and companies tend to supply such information, that’s why the market is always instantaneously getting relevant information. Plus, the free-market forces can determine the right accounting data to be supplied and suitable accounting practice to be used. However, this theory is rather unrealistic, when the accounting information is treated as public product and it is available to everyone. Further on, ‘free-rider’ problem such as ‘certain people getting benefit from something that paid by other people ‘will distorts the market. More problems coming up when users cannot decide on what they need and accountants not satisfy on procedures. All this causes inefficiency in accounting information market. At this point, government intervention is needed. Through regulating the procedure of accounting, they can help to resolve the outcomes and improve the market conditions. (Gaffikin 2005)
According to agency theory, the connection between owners and managers are known as principal-agent relationship. The manager as the agent will acts on behalf of the owner (principal) to achieve the principal’s goals. Atkinson and Feltham
First of all, according to Oxford Dictionaries, accounting means ‘the process or work of keeping financial accounts’. While regulation is ‘a rule or directive made and maintained by an authority’. (Oxford Dictionaries 2013) Since long ago the necessity of accounting regulation has been keep questioning. Efficient markets theory claim that accounting regulation is not necessary since the forces of supply and demand will help to maintain markets efficient by serving the society to the best and enhance the allocation of resources. Then, by applying this theory to the market of accounting information, the users will demand for accounting information and companies tend to supply such information, that’s why the market is always instantaneously getting relevant information. Plus, the free-market forces can determine the right accounting data to be supplied and suitable accounting practice to be used. However, this theory is rather unrealistic, when the accounting information is treated as public product and it is available to everyone. Further on, ‘free-rider’ problem such as ‘certain people getting benefit from something that paid by other people ‘will distorts the market. More problems coming up when users cannot decide on what they need and accountants not satisfy on procedures. All this causes inefficiency in accounting information market. At this point, government intervention is needed. Through regulating the procedure of accounting, they can help to resolve the outcomes and improve the market conditions. (Gaffikin 2005)
According to agency theory, the connection between owners and managers are known as principal-agent relationship. The manager as the agent will acts on behalf of the owner (principal) to achieve the principal’s goals. Atkinson and Feltham