Regulations on Financial Reporting



Regulations on Financial Reporting

Introduction

History is filled with examples where crisis and scandals paved the way for regulatory interventions in the financial markets. The United Kingdom introduced major changes in its regulatory practice after the fall of the Barings Bank as a result of the financial scandals during the 1990s. The Financial Services Authority was deregulated in order to develop more rigid and consolidated regulations that conformed to the practice that were prevalent in the industry. Similarly, the Unites States saw a major shift in its financial accounting regulations after the Enron catastrophe. The financial crisis of 2007-2009 has resulted in bringing the issue of standardizing the regulations on financial accounting practices. Regulators worldwide have realized the systematic risks inherent in the financial markets and the critical role that regulations can play in sprouting and exacerbating the fiasco (Scott 1997).

However, there are a number of perspectives on the issue of regulating the financial markets. The critics of the idea present the argument that these regulations are not needed as the market player's act in an efficient manner to serve the society and efficiently utilize their resources. However, on the other hand, proponents of the regulations maintain that markets usually place their interests above the best benefit of the society. Hence, interventions in the form of regulations are necessary. This can be explained with the help of the example of airplane safety regulations. If these regulations were not present there would be a large number of incidents of air plane crashes as every airline provider would try to maximize their interests by stressing their resources. This would result in negative consequences on the quality of their service, which results in lapses in the performance of their system. This is an extreme example but it shows that there are many instances when regulation can be used to protect the members of the society from the negative consequences resulting from selfish activities.

This can be explained with the help of the impact that Industrial Revolution had on the Britain. During the early phases of the 19th century, many believed that intervention from the government authorities would have negative consequence on the pace of the development of the industrial empire. The government decided to use the Laissez-faire (leave alone) policy as it deemed that its interference would be considered as an offensive stance by the society(Day 1993). However, the society soon realized that industries could not perform in a harmonious manner as they always had to keep the interests of the capitalists (Day 2000, p5-8). The social abnormities were depicted in the writings of Charles Dickens in his famous novel “Oliver Twist” as well as many famous artists used their paintings to show the exploitation of this capitalist structure. Laborers had to work under extremely unsafe conditions; child labor was used excessively as well as workers were forced to work extremely long hours. All this led to extreme poverty and misery in the United Kingdom (Rahman 2002, ...