Question $1(15$ marks$)$

Sunder $(2002)$ examines regulatory competition as a model for writing and implementing corporate financial standards. Under this model, two or more approved standard setting bodies are allowed to compete for the allegiance of the reporting entities. Each corporation can choose which of the two or more sets of competing standards it wishes to use in preparing its financial reports. Corporations must choose an entire set of standards in toto, clearly mark the reports with the set of standards used to prepare them, and pay a fee to the body who wrote the standards.

Sunder$$s main argument is that a competitive regulatory regime for accounting standards that allows individual firms to choose from a set of accounting standards is more efficient than the current norm within national economies of having a monopoly of a single set of accounting standards.

Required

a$)$

Some theorists consider information to be a commodity, which implies that there is a cost associated with its production. Describe three ways in which financial reporting can assist in the production of more relevant and$/$or reliable information $(3$ marks$)$

b$)$

Sunder$$s preference for competition suggests an assumption that there exist private incentives for information production. Describe two major types of such private incentives, and provide one example for each $(4$ marks$)$

c$)$

The need for regulation arises from market failures in private information production. Describe two such market failures $(4$ marks$).$

d$)$

Discuss Sunder$$s suggestion that there should be competition between standard setters. Consider the pros and cons of such competition $(4$ marks$)$