Lecture 2

Question 1

What is the free market approach?

Answer 1

Rely on market forces to determine information to supply

Market based penalties to discourage non supply of misleading information

Question 2

What is the downside of accounting regulation

Answer 2

Vulnerability of the process to lobbying and capture
Effectiveness of enforcement
Imposes costs
Regulatory arbitrage- companies may mitgrate to areas where burden of regulation is Lower

Question 3

Pro regulation approach

Answer 3

Overcome information asymmmetries

Markets encouraged to be more efficient

Question 4

What are the 3 sources of regulation

Answer 4

Legislation
Accounting standards
Stock exchange

Question 5

Reasons for international differences

Answer 5

Legal systems

Historystrength of accounting profession

Question 6

What are harmonisation and standardisation

Answer 6

Harmonisation: process of making standards similar
Standardisation: implies countries settling on the same standards on processes

Question 7

What are the benefits of standardisation

Answer 7

Easier access to international capital markets
Reduced cost for companies
Increased comparotbility