High Profile corporate collapses in the last two decades have been Assignment

High Profile corporate collapses in the last two decades have been attributed to laxities in the regulatory framework of financi - Assignment Example In June 2002, the EU has adopted a regulation to prepare their financial statements in agreement with IFRS or IAS which is required to be followed by all listed European Union companies in the regulated markets. Companies are open to select their national reporting standards and follow Generally Accepted Accounting Principles (GAAP) for associate and subsidiary companies. The regulation is applicable only on the consolidated accounts. The regulation came into consideration from the year 2005 (PwC, 2005). With an aim to develop common accounting standards in 1973, nine countries including UK formed International Accounting Standards Committee (IASC). Over hundred countries have it’s become members. Countries, especially bigger economies, are bringing in their own perspectives and adapting to this accounting standards. In coming up with common acceptable accounting standards IASC had to deal with accounting conflictions (Accounting Standards Board, 1999). IASC has not been succe ssful in resolving all the conflicts with all member countries as it is nearly an impossible task to fully satisfy more than hundred accounting bodies from across the world. International Financial Reporting Standards (IFRS) or International Accounting Standards (IAS) is applicable to more than 90 countries. ... Except for some changes in IAS 39 relating to the fair value of financial instruments, IFRS 6 and some of the IFRIC interpretations, European Union has now endorsed IFRS (IFRS, 2012). The EU regulation is only enforceable for listed companies. A member state has an alternative to extend the use of IFRS within their jurisdiction to unlisted companies. Department of Trade and Industry has said that the unlisted companies would still be permitted to adopt IFRS over UK GAAP as there is no mandatory instructions for unlisted companies to move to IFRS (IFRS, 2012). Arguments in favour of financial reporting regulation Mainstream economistic reasoning has also been influential in respect of the issue of how best to regulate financial accounting. Some of the above perspectives have implications for how accounting should be regulated. Perspectives that assume the existence of perfect information clearly would not see the need for further regulation. Under the scenario of perfect and complete markets, a company that accepted all projects with non-negative present values would simply have to announce these present values or cash flows to the market, if we take a slightly less abstract view (although strictly in such reasoning this would automatically happen for markets to be perfect and complete). The value of the company would then equal the present value of these cash flows, which in turn would equal the market price. Under these circumstances one may even question whether annual reports are necessary. Within mainstream economic thinking (that assumes ‘perfect and complete markets’ to maximise well-being and the role of ‘accounting information’ to be confined to serving markets), the answer to this question would be in the negative as it would be to the question ‘is