The Need for Financial Regulation

There is a need for regulation in financial reporting because of a number of reasons. There are several major user groups of financial reporting, some of which include equity investor groups, employee groups, analyst adviser group, the government, the public and other stakeholders. These different stakeholders however, need to be able to interpret and use financial information in a systematic way in order to make the necessary financial decisions. If these different user groups created financial reports, it will be prepared in diverse ways which would suit their various requirements. If this is the case, then different groups will interpret different financial reports in different ways. There are international differences in accounting practices. Accounting practices differ from country to country and so do the regulatory frame work and the balance between the public and private regulation. Over the years, bodies like the EU have been formed. There is need for accounting regulation as all these different countries coming together may have different accounting standards, thus there will be the need for financial reports regulation.

Disclosure requirements resolve some of the problems associated with the asymmetry of information between the directors and some user groups. They also enable user groups to compare the level of their inducements with those received by the other groups. The Act also requires that the directors not only present the financial statements to the shareholders each year but also that independent auditors are appointed to examine the financial statements and report their findings to the shareholders. The law addresses the problem of information asymmetry by requiring the disclosure of certain key items of interest to user groups. The Accountancy Profession also recommend the same but in this role as regulator. The accountancy profession is more influential in achieving a significant increase in the comparability of financial statements....