Is It Realistic To Expect That The Interests Of Various Affe

Is It Realistic To Expect That The Interests Of Various Affected Parti

Is it realistic to expect that the interests of various affected parties will not impact on accounting regulation processes? Is it appropriate to have one globally standardised set of accounting standards? How particular accounting based agreements with parties such as debtholders and managers can provide incentives for managers to manipulate accounting numbers? Why unexpected accounting earnings and abnormal share price returns are expected to be related? How the results of behavioural research can be of relevance to corporations and the accounting profession for anticipating individual reactions to accounting disclosures?

All questions have relevant chapters in the essential reading textbook so that students can start using the textbook as a starting point and extend their work. Your answer should discuss and critically evaluate the chosen phenomenon under the light of a relevant theory taught in the module. I have provided more details below on how to write your work, what suggestions I have, and how to prepare your answer. You can also find some previous years’ examples on Blackboard regarding structure and answer type, with different marks to give you an idea of what is expected.

Paper For Above instruction

The influence of various affected parties on accounting regulation processes is a complex yet critical aspect of financial reporting. Recognizing that stakeholders—including regulators, managers, debtholders, shareholders, and the broader public—possess diverse interests highlights the potential for conflicts of interest that can shape standard-setting and enforcement practices. From a theoretical perspective, stakeholder theory provides a useful framework to understand these dynamics. Stakeholder theory asserts that organizations and regulatory bodies are influenced by the competing demands of various groups, which can lead to biased or manipulated regulations aimed at favoring certain interests (Freeman, 1984).

The question of whether a single global set of accounting standards is appropriate remains contentious. On one hand, the adoption of International Financial Reporting Standards (IFRS) seeks to promote comparability, transparency, and efficiency across nations, facilitating cross-border investments and economic integration. Economically, this aligns with the institutional theory, suggesting that convergence fosters market stability and reduces informational asymmetries (Nobes & Parker, 2016). However, cultural, legal, and economic differences among countries can hinder the full standardization of accounting practices, indicating that a one-size-fits-all approach may overlook local contexts and needs (Ball, 2006).

Managers and other parties often enter into contractual agreements—such as debt covenants or management compensation plans—that create incentives for financial statement manipulation. Agency theory explains this phenomenon by emphasizing the separation of ownership and control, where managers (agents) may pursue personal objectives at the expense of stakeholders (principals). For instance, managers might manipulate earnings to meet debt covenants or boost stock prices, thereby increasing their own bonuses or job security (Jensen & Meckling, 1976). Empirical evidence suggests that such incentives can lead to earnings management practices like income smoothing or accrual manipulation (Healy & Wahlen, 1999).

Unexpected accounting earnings and abnormal share price returns are interconnected due to their reflection of new information being integrated into stock prices. According to the Efficient Market Hypothesis (EMH), markets respond swiftly and rationally to new information, leading to abnormal returns when earnings differ from expectations (Fama, 1970). Unexpected earnings can signal managerial optimism or pessimism, influencing investor sentiment and stock prices. Furthermore, behavioral finance research indicates that cognitive biases—such as overconfidence or herd behavior—also contribute to anomalies in share returns following earnings announcements (Shleifer & Vishny, 1997).

Behavioral research offers significant insights into how individual investors and corporate managers respond to accounting disclosures. Psychological biases, such as anchoring or framing effects, shape perceptions of financial information, potentially leading to overreaction or underreaction in markets (Tversky & Kahneman, 1974). For corporations and accountants, understanding these biases is crucial for anticipating stakeholder reactions and designing disclosures that mitigate misinformation or misinterpretation. Additionally, regulators can leverage behavioral insights to improve disclosure formats, ensuring the dissemination of information that aligns with actual investor cognition and behavior (Thaler & Sunstein, 2008).

References

• Ball, R. (2006). International Financial Reporting Standards (IFRS): Pros and Cons. Accounting and Business Research, 36(1), 5-27.
• Fama, E. F. (1970). Efficient Capital Markets: A Review of Theory and Empirical Work. Journal of Finance, 25(2), 383-417.
• Freeman, R. E. (1984). Stakeholder Theory. Classics of Organization Theory, 69-90.
• Healy, P. M., & Wahlen, J. M. (1999). A review of the earnings management literature and its implications for standard setting. Accounting Horizons, 13(4), 365-383.
• Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs, and ownership structure. Journal of Financial Economics, 3(4), 305-360.
• Nobes, C., & Parker, R. (2016). Comparative International Accounting. Pearson Education.
• Shleifer, A., & Vishny, R. W. (1997). The Limits of Arbitrage. Journal of Finance, 52(1), 35-55.
• Thaler, R. H., & Sunstein, C. R. (2008). Nudge: Improving Decisions About Health, Wealth, and Happiness. Yale University Press.
• Tversky, A., & Kahneman, D. (1974). Judgment under Uncertainty: Heuristics and Biases. Science, 185(4157), 1124-1131.