Essay: Regulatory Theory of Accounting

Sample Essay

The regulatory theory of accounting explains how changes in regulations and demands of regulatory bodies affect the process of financial statement preparation and quality of information presented in these statements. The implementation of fair value accounting standards in companies and the pressure by regulatory bodies to rigidly apply fair value measures ensures the relevance and reliability of financial statements but some values may be distorted as standard setters have not provided extensive guidance for valuation of derivatives.

The proposed amendments in fair value accounting standards would require managers to disclose all assumptions they have applied in valuation of assets and liabilities especially the valuation completed in level 3 assets and liabilities.

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