The economic groups will have strong power and those groups who do not have the power will not be able to lobby Private interest theory of accounting regulation.
The government uses the regulations to achieve its national economic goals. The politicians are not predictable since they put regulations for their own advantage.
There are many methods of finding a discount rate but two methods which are most used are: Therefore, there is adequate representation of the politicians as well as the interest groups since the regulations are drawn for their needs Stigler, J.
The industry sets the regulations for the benefit of its members J. Capture theory does not explain clearly how an industry can subject an agency to its interests but cannot resist its formation. Advantages of economic interest theory The industry concerned is allowed to make its own rules and regulations.
Etzioni, The Capture Theory of Regulations, pg There are many questions which arise while doing cost-benefit analysis are: The capture theory states the government agencies are formulated by former and future industry employees, hence these employees of the industry work in the best interest of the industry.
History[ edit ] The theory of public interest regulation prevailed up to the s until public choice theory launched its critical attack on established theory. Politicians can suppress some groups in the decision making process and this would discourage proper decisions about the regulatory measures to adopt.
Public interest theory was developed by A. For example, regulations on environment, labor, and many others make companies to reduce profitability J.
Hertog, General Theories of Regulation,pg. These groups lobby government to make the legislation according to their interest. On the other hand, the economic theory suggests that regulations are generated from the forces of supply and demand. The economic groups do not have public interest in their agenda.
The industry sets the regulations for the benefit of its members J. Kahneman and Tversky documented an endowment effect ,in which individual gives higher value for the things he owns at present than the things he will achieve in future by paying something.
On the other hand, the regulator might be captured because the utilities have more financial and legal resources and they have a well-established lobby organization which the customers do not have.
It also operates these regulations and there are no external mechanisms involved. Differences between capture theory economic interest theory private interest theory and capture theory The capture theory suggests that regulations are designed to fit the demands of those affected by them.
The industries under regulations are required to offer services beyond their capacity. Now when corporate are disclosing only financial performance of organizations but they are disclosing other non financial but relevant information such as environmental and social impact of the organizations activities, initiatives of the organizations to improve the undesirable impact of their activities on the society and environment.
While there is no pointed origin or categorical articulation of this theory, its notions can be traced back to works of Arthur Cecil Pigou ;  related to his analysis of externalities and welfare economics. The cost benefit analysis becomes very complicated when human life valuation is required for policy formulation.
European Journal of Law and Economics. Limitations of capture theory The theory does not provide a significant difference from the public interest theory.
Politicians also seek political support from these groups and may favor the decisions of the groups in the decision making process The theory advocates for the use of representative groups in the establishment of regulations.
Many views suggest that cost-benefit analysis provides efficiency analysis of the proposed regulation that is how efficient is this regulation?
Regulations seem to favor the consumers rather than the industry. It is not clear, therefore, whether customers or utilities have benefited most during the post-reform regulation. The benefits may be negative or positive.
The industry should be involved in the governmental decision making on economic matters that affect the industry A.Private Interest Theory Of Accounting Regulation “The theories we use to help us understand standard-setting in national arenas (such as Australia) don't work so well at the international level where the International Accounting Standard Board (IASB) is taking a leading role.
We will have to modify them or expand our theoretical repertoire” Discuss the above statement, clearly indicating your agreement or.
Regulation as Accounting Theory Michael Gaffikin Theories of regulation are discussed and compared. Some important issues relating to regulation as a substitute for research in creating theory.
Public Interest Theory is a part of welfare economics and emphasizes that regulation should maximize social welfare and that regulation is the result of a cost/benefit analysis done to determine if the cost to improve the operation of the market outweighs the amount of increased social welfare.
Private interest theory is the main regulatory theory which emphasises the need for standard setters to intervene because of market inefficiencies and inability to self regulate.
Private Interest or (economic Interest theory) is based on an assumption similar to PAT that individuals seek to act in their own self interest%(1). Financial Accounting Theory Introduction The aim of this paper is to consider three theories of regulation, the public interest theory, the capture theory and the economic interest theory These three theories attempt to explain why a particular phenomena in the regulation process occurs and as such they are positive theories.
Economic Interest Theory and Regulation. Regulation as an Accounting Theory,para15). The politicians are not predictable since they put regulations for their own advantage.
They may support the private sector for their own interests. Politicians can suppress some groups in the decision making process and this would discourage .Download