hi, are you able to help to do this home work? don't need to referencing just need to answer the questions what they asked. I attached my questions and relevantlecture slides.

Due 21.8.16 Regulatory and Political Influence on Accounting Practice 1. A detailed description of how Enron collapse relates to the concepts/theories that were discussed in the 'regulatory and political influence on accounting practice' lecture. Here you should be providing a critical evaluation of the Enron case contents and the linkages, connections and relationships you have been able to see and draw from its contents to the contents of the regulatory and political influence on accounting practice. (150 words) 2. Why might such a political context exist in accounting? What would be the main causes/reasons for this? 3. What do you think the effect of the current business operating environment, Globalization and the recent introduction of International Financial Reporting Standards (IFRS) has had on such a political and regulatory climate? 4. How does this make you feel, bearing in mind that you will soon be an accounting graduate commencing your own professional journey within such a context? 5. How might you start to prepare yourself to enter such a political and regulatory professional context in which your ethics and judgment may be called into question? What might be the effect of such political and regulatory influence for the accounting profession? (200 words) 6. Outline what you have gained personally as a result of this activity engagement? Regulatory and Political Influence on Accounting Practice Lecture 2 Learning Objectives Critically discuss the regulatory environment concerning Australian external financial reporting. Describe the main regulatory bodies that encompass the Australian reporting environment. Review some of the arguments proposed for and against regulation of the accounting profession. Outline the relevance of potential economic, political and social impacts to the accounting standard setting process. Introduction Financial Accounting A process involving the collection and processing of financial information to meet the decision-making needs of parties external to an organisation. The information rights of outsiders, who are not involved in the day-to-day operations of the organisation, must be protected. How? What is Regulation? Definition: The Oxford Dictionary defines regulation in terms of a \"prescribed rule\" or \"authoritative direction\" The Macquarie Dictionary defines regulation as \"a rule of order, as for conduct, prescribed by authority; a governing direction or law\" On the basis of these definitions we can say that regulation is designed to control or govern conduct Hence regulations relate to the rules that have been developed by an independent authoritative body that has been given the power to govern how we prepare financial statements, and the actions of the authoritative body will have the effect of restricting the accounting options that would otherwise be available to an organisation. Regulators Change in the development of accounting standards and regulation with an enhanced emphasis being placed on government rather than accounting profession reducing ability of accounting profession to 'self-regulate'. There are four main bodies that create and/or enforce accounting regulation in Australia The Australian Securities and Investments Commission (ASIC) The Australian Accounting Standards Board (AASB) The Financial Reporting Council (FRC) The Australian Securities Exchange (ASX) Regulators 2000 Currently Australian Accounting Standard Setting Financial Reporting Council Broad membership (www.frc.gov.au). base - 18 Oversees activities of AASB - provides direction. Advises Govt. on standard setting. Responsible for decision that Australian reporting entities would adopt accounting standards issued by IASB. Now also oversees Auditing Standards Board (AUASB). Auditing standards made by AUASB require legislative backing (not the case prior to 2004). and members Assurance AASB Functions (under s. 227 of ASIC Act) to include: developing a conceptual framework making accounting standards under s. 334 of the Corporations Act formulating accounting standards for other purposes relating to organisations not governed by the Corporations Law. participating in and contributing to the development of a single set of accounting standards for worldwide use Majority of standards underwent change in 2003-04 Reports to the Financial Reporting Council (FRC) Has one full-time chairperson and the balance are parttime members appointed by the FRC ASIC Formerly the Australian Securities Commission (ASC) Name changed to reflect increased responsibility for regulating investment products Regulatory \"Watchdog\" - Responsible for administering corporation legislation Independent of state ministers or state parliaments Reports to the Commonwealth Parliament and Treasurer Investigates companies suspected of non-compliance with the Act or accounting standards Issues its own interpretation of the financial reporting requirements of the Corporations Act Australian Securities Exchange (ASX) One nationally operated securities exchange with a set of listing rules for all trading floors in each capital city Sets out the listing and trading rules that apply to nationally listed securities. Failure to comply may lead to removal from the Board. Rules help ensure that information is disseminated in an efficient and timely manner. ASX Listing Rules divided into 20 chapterskey chapters are Chapter 3 (continuous disclosure) and Chapter 4 (periodic disclosure). For example, Listing Rule 3.1 Once an entity is or becomes aware of any information concerning it that a reasonable person would expect to have a material effect on the price or value of the entity's securities, the entity must immediately tell the ASX that information. Corporate Governance Principles and Recommendations A company should: Lay solid foundations for management and oversight Structure the board to add value Promote ethical and responsible decision making Safeguard integrity in financial reporting Make timely and balanced disclosure Respect the rights of shareholders Recognise and manage risk Remunerate fairly and responsibly ASX Corporate Governance Council, Good Corporate Principles and Recommendations, ASX, Sydney, Aug 2007. Impact of Adopting IFRS In 2002 FRC committed Australia to adopt IFRS's issued by the International Accounting Standards Board (IASB) by 2005 Key decision to adopt IFRS was influenced by the European Unions decision to adopt. IFRSs are converted into Australian (AASB) accounting standards: AASB standards have general applicability to not-for-profit and local government sectorsmaterial added by AASB that describes the scope and applicability to the Australian context. Remember, new standards are continuously being released and existing accounting standards are frequently revised. All standards can be downloaded from the AASB website (www.aasb.com.au) AASB issuing standards to match IFRSs, and to cover areas not addressed by IASB: Life Insurance Contracts, Land Under Roads, Whole of Govt. and General Govt. Sector Financial Reporting, Contributions. Impact of Adopting IFRS The adoption of IFRSs has meant significant changes post-2005 in some standards: Intangible assets now expensed and not capitalised Revaluation of intangible assets greatly restricted to the requirement of an active market for assets and associated prices are publicly available Amortisation of goodwill abolished replaced by impairment testing More stringent tests for classifying items as equity vs liability The US has not adopted IFRSs (as yet) Currently a Convergence Project is being jointly undertaken by the IASB and FASB to converge IFRS and FASB released accounting standards We can expect many changes in accounting standards over the next few years as a result of the convergence projectand some of these changes are likely to be significant! IASB IASB comprises 14 individuals (although this is expected to increase in coming years) Each IASB member has one vote on technical and other matters Publication of standard or exposure draft requires approval by approx 63% of the Board. On publication of a standard, also publishes a 'Basis for Conclusions' to explain publicly how conclusions were reached, background information to assist application, and dissenting opinions. www.aasb.com.au IASB has an International Financial Reporting Interpretations Committee The 'official' interpretative arm of the IASB Provides guidance on issues not covered in IFRSs Provides interpretations of existing requirements within IFRSs Interpretations have the force of law The 'Theories' of Regulation Australia is fairly heavily regulated - response to Enron, Worldcom, HIH Insurance. Is this level of regulation really needed? Opinions on the need for regulation vary and range between the 'free-market' perspective and the 'pro-regulation' perspective. 'Influence' and 'Power' play a role in standard setting. Is it realistic to expect that the interests of various affected parties will not impact on the final regulations? Political process What seems to be important is who might be affected either socially or economically by the regulations. Free Market Perspective Accounting information should be treated like other goods, with demand and supply forces allowed to operate to generate an optimal supply In other words, the market will determine the optimum supply of information about an entity. Even without regulation there are private economic-based incentives for the business to provide credible info to outside parties, to avoid an increase in cost of operations. 'Market for managers' 'Market for corporate takeovers' 'Market for lemons' Private Economic Based Incentives Assumed that managers will operate business for own benefit and this is expected by shareholders and debtholders. Based on agency theory - (assumption that all parties will assume that others will work in their own self-interest unless constrained to do so). Therefore in interests of management to enter contracts with shareholders and debtholders to constrain managers' actions and align them with goals of the organisation. Contracts often based on accounting information - therefore, an incentive to produce accounting information. Organisations not producing accounting information will be penalised by higher costs of capital - damaging the financial interests of those managers who own shares in those orgn. The higher transparency - the less the risk - the cheaper the cost of finance Private Economic Based Incentives Organisations best placed to determine what information should be produced to increase the confidence of external stakeholders (therefore decreasing cost of capital). Imposing regulation restricting available set of accounting methods decreases efficiency of contracting. I.e. Changing method of depreciation, not allowing revaluation of goodwill etc. Limitations May be too many parties for contracting to be feasible Prohibitive cost of negotiation if different investors want different information Costly to negotiate single contract with all investors as they need to agree on information provided Market for Managers Managers' previous performance impacts on remuneration they can command in future. In absence of regulation assumed managers encouraged to adopt strategies to maximise value of firm (providing a favourable view of own performance). includes providing optimal amount of accounting information Limitations Managerial labour market operates efficiently Information about past performance known by prospective employers and will be impounded in future salaries Capital market is efficient when determining the value of the firm Assume effective managerial strategies are reflected in positive share price movements Market for Corporate Takeovers Argument Underperforming organisations will be taken over by another entity with the existing management team subsequently replaced. Threat. Therefore managers motivated to maximise firm value. Information produced to minimise cost of capital thereby increasing firm value. assumes managers know marginal cost and marginal benefits of information. Market for Lemons No information viewed in the same light as bad information (Akerlof, 1970). market may make the assessment that silence implies the organisation has bad news to disclose Absence of disclosure the market will deem orgn as a 'lemon' Therefore managers motivated to disclose both good and bad news. Evidence that both good and bad news disclosed voluntarily (Skinner, 1994). Empirical research - illustrates orgn will disclose when performing well and will also make pre-emptive disclosures when not performing well with 'reputational-effects' statements. Market for Lemons Assumes the market knows that managers have news to disclose may not always be a realistic assumption (Enron) If knowledge of non-disclosure becomes available later, market expected to react at that stage Pro-Regulation Perspective We have reviewed reasons for eliminating regulation If someone wants information they will pay for it! - leaving it to the 'market' to determine the optimum level. If info is not produced there will be greater uncertainty of orgn performance - resulting in increased cost of capital for orgn. Relies on users paying for accounting information - is accounting information a free or public good? Once produced accounting information can be used and passed onto others with no cost. 'Freeriders' - not paying for the good or service True demand understated - knowledge they can obtain free info Results in an underproduction of information from producers Pro-Regulation Perspective Some argue free goods often overproduced as a result of regulation - Individuals know they do not have to pay, will overstate their need for the good or service e.g. investment analysts Could lead to 'accounting standards overload'. Invisible hand - mentioned once in Adam Smiths text 'The Wealth of Nations' In the absence of regulation, productive resources will, as a result of individuals pursuing their own self-interest, somehow, as if by an 'invisible hand', find their way to their most productive users. This ignores market failures and uneven distribution of power But Smith advocated regulatory intervention in some instances - where in the public interest to protect the more vulnerable. Public Interest Theory Public interest theory \"holds that regulation is supplied in response to the demand of the public for the correction of inefficient or inequitable market practices\" - Posner (1974 p. 335) Regulation put in place to benefit society as a whole rather than vested interests. Regulatory body considered to represent interests of the society in which it operates, rather than private interests of the regulators - neutral. Society needs confidence that capital markets efficiently allocate resources to productive assets - regulation is the tool The enactment of regulation is a balancing act between the perceived social benefits and the perceived social costs of the regulation. Assumes that government is a neutral arbiter. Critics of Public Interest Theory Critics question assumptions that economic markets operate inefficiently if unregulated. Question the assumption that regulation is virtually costless. Others question assumption of government neutrality argue that no legislation is put in place by particular parties because they genuinely believed that it was in the public interest. argue that government will only legislate and groups will only lobby for regulation if it will increase their own wealth. Capture Theory While regulation might be introduced with the goal of benefiting the public this goal may not subsequently be achieved. The regulated seeks to take charge of (capture) the regulator - as the regulator will potentially have significant impact on their industry. Seek to ensure rules subsequently released are advantageous to the parties subject to regulation. See for example - Cortese (2009) Corporate strategy and the climate disclosures standards board, paper presented at the CSEAR 2008 Conference, Adelaide. Although regulating initially in the public interest, difficult for regulator to remain independent. Captured! Walker (1987) analysed the capture of Australian standard-setting through the ASRB, arguing that: the accounting profession lobbied before the board (ASRB) established to ensure no independent research capability no academic as chair to receive admin officer not a research director priorities only set after consultation with Australian Accounting Research Foundation - professionally sponsored body funded by accounting profession i.e. sole control. ASRB 'fast-tracked' only AARF submissions majority of board membership were from the accounting profession Criticisms of Capture Theory No reason to suggest that regulated industry the only interest group able to influence the regulator. No reason why regulated industries only able to capture existing agencies rather than procure the creation of an agency. No reason why regulated could not prevent creation of the regulatory agency. Economic Interest Group Theory The release of new or revised accounting standards have real economic and social consequences For example, the introduction of AASB 2 share-based Payment or consider how the adoption of AASB 138 Intangibles might have created real economic impacts within Australia. The economic interest group theory of regulation assumes that groups will form to protect particular economic interests. Groups are often in conflict with each other and will lobby government to put in place legislation which will benefit them at the expense of others. No notion of public interest inherent in the theory. Regulators (and all other individuals) deemed to be motivated by self interest. Economic Interest Group Theory The regulator is not a neutral arbiter but is seen as an interest group itself. Regulator motivated to ensure re-election or maintenance of its position of power. Regulation serves the private interests of politically effective groups. Those groups with insufficient power will not be able to effectively lobby for regulation to protect its own interests. Accounting Regulation - A Political Output The view that financial accounting should be objective, neutral and apolitical can be challenged - will inevitably be political as it affects wealth distribution within society Standard-setters encourage submissions on drafts of proposed standards by affected parties. If standard-setters give consideration to views in submissions, accounting standards and therefore financial reports are the result of various social and environmental considerations tied to the values, norms and expectations of the society in which standards are developed questionable whether financial accounting can claim to be neutral and objective Accounting Regulation - A Political Output Compliance with accounting standards usually seen to indicate financial statements are 'true and fair' can or should financial statements that have been prepared on the basis of accounting standards (with such standards having been developed after taking into account various economic and social consequences) be deemed to be 'true and fair'? Users may not be aware that financial reports are the outcome of various political pressures Should regulators consider preparers' views given that standards are designed to limit what preparers do? Exercise One of the most pressing problems confronting the world is 'global warming' and 'climate change'. To effectively address this issue, governments across the world will be required to introduce regulations to mitigate the impacts of business activities on the environment. This would require corporations to make significant changes to how they operate. Given the theories of regulation we have reviewed discuss whether you think that they provide hope, or otherwise, that regulations will be introduced that will ultimately benefit future generations but will require corporations to change how they do business. References Deegan (2009) Financial Accounting Theory (3ed), McGraw Hill Ltd: Australia. Deegan (2009) Australian Financial Accounting (6ed), McGraw Hill Ltd: Australia