4 Whilst acknowledging the importance of high quality corporate reporting, the recommendations to improve it aresometimes questioned on the basis that the marketplace for capital can determine the nature and quality of corporatereporting. It could be argued that additional accounting and disclosure standards would only distort a marketmechanism that already works well and would add costs to the reporting mechanism, with no apparent benefit. Itcould be said that accounting standards create costly, inefficient, and unnecessary regulation. It could be argued thatincreased disclosure reduces risks and offers a degree of protection to users. However, increased disclosure has severalcosts to the preparer of financial statements.Required:(a) Explain why accounting standards are needed to help the market mechanism work effectively for the benefitof preparers and users of corporate reports. (9 marks)
4 Whilst acknowledging the importance of high quality corporate reporting, the recommendations to improve it are
sometimes questioned on the basis that the marketplace for capital can determine the nature and quality of corporate
reporting. It could be argued that additional accounting and disclosure standards would only distort a market
mechanism that already works well and would add costs to the reporting mechanism, with no apparent benefit. It
could be said that accounting standards create costly, inefficient, and unnecessary regulation. It could be argued that
increased disclosure reduces risks and offers a degree of protection to users. However, increased disclosure has several
costs to the preparer of financial statements.
Required:
(a) Explain why accounting standards are needed to help the market mechanism work effectively for the benefit
of preparers and users of corporate reports. (9 marks)