FINANCIAL REPORTING

The Pros and Cons of Regulation of Financial Reporting

Table of Contents

Introduction2

Advantages of Regulation of Financial Reporting2

Accountability2

Transparency2

Integrity2

Liquidity Position2

Efficiency in Performance2

Reduces the Probability of Agency Conflicts2

Promotes Corporate Governance2

Disadvantages of Regulation of Financial Reporting2

Manipulation in the Accounting Numbers2

Capital Resource Misallocation2

Waste of Government Resources2

Disclosure of Confidential Information2

Excessive Regulations2

Ineffective Implementation of the Regulations2

Criticism on the Pros and Cons of Financial Regulations2

Why There Is A Need Increase The Efficiency Of Accounting Regulations?2

Reduction of Systematic Risk2

Protection of Investors2

Regulatory Structure2

International Coordination2

Conclusion2

References2

The Pros and Cons of Regulation of Financial Reporting

Introduction

The global financial crisis has shaken the economies of all parts of the world. The international financial collapse started in the mid of 2007 and proceeded until 2008. The stock markets have fallen immediately in different parts of the world. Not only this, the survival of financial institutions was in danger. The uncertainty and risks in the business transactions exceeded beyond imagination and one after another, many businesses failed. Therefore, the governments of all nations had huge pressures to come up with a strategy to reduce the hazardous impact of the financial crises. Not only this, the after effects of the financial crises still have a profound impact on the global market.

In this assignment, I am going to write a critique on financial reporting. I am going to provide an argument in favour and against of financial reporting and their impact on the business transactions.

Advantages of Regulation of Financial Reporting

The after effects of global financial crises are hazardous. The survival of many financial institutions and multinational companies is still in danger. The uncertainties and risks in business transactions are very high, which can have a huge impact on the economies of the nations. Therefore, financial regulations are very essential to track the performance of the organizations. Following are the advantages of financial reporting:

Accountability

The performance of all the companies directly affects all of its share holders. Therefore, companies are responsible to operate in the best interest of the parties which are affected through its performance. Apart from this, concept of fairness in financial reporting is only possible when companies are accountable to report their performance on a regular basis (Norton, 2006, p. 58). Moreover, since companies from India, China and other third world nations are becoming significant players of international market. Therefore, there is a dire need to improve performance on a continuous basis in order to beat the global competitors and the regulations of financial reporting will determine the actual financial performance of the companies.

Transparency

Due to regulation of financial reporting, the transparency in business operations is made possible. Transparency is the most heated topic of discussion in corporate governance. The transparency of reporting has helped shareholders to make safe investments. Shareholders can track the financial health of the company and predict the performance of the company in the future (Previts, 2008, 243). Moreover, they can also track the proportion of profits given in the form of dividends. Similarly, banks can track the performance, credibility and liquidity position of the company before granting loans and ...