2.1 Is Accounting Regulation necessary?

Question 1

What would a world with no regulations look like?

1.
2.

Answer 1

• everyone would build reports in own favor (cheating)
  -> no comparability
• everyone would employ unregulated measures of earnings (non GAAP and non IFRS)
• cannot be used to make business decisions

Question 2

What are benefits of having accounting rules?

1.
2.
3.

What would be a counter-view?

Answer 2

• less risk of corporate abuse
• more uniformity and increased comparability (however, can one size fit all?)
• ## greater stakeholder confidence in the integrity of the accounts -> this should lower the cost of funding for businesses (bc minimize risk of corporate abuse; the more trust the lower you demand the risk premium)What if just market forces acted as a regulatory force? Is formal regulation necessary?