Two arguments are made for imposing regulation in financial

Two arguments are made for imposing regulation in financial accounting; they are market failure and in order to achieve social goals that may not be met by a free market (even if there is no market failure). Describe or explain what is meant by this latter argument involving social goals.

Solution

Answer:

Financial Accounting, if not regulated may ignore the market aspect and the societal aspect of the business. It will consider only the financial aspect in record keeping and data analysis. Therefore, to make the financial accounting more useful and proper source for decision making it is necessary to regulate it for consideration of market factors and the societal factors because the business cannot live long without market and societal support and influence.

In order to achieve social goals that may not be met by a free market, it is essential to regulate the financial accounting to consider social factors of the business. Business takes a lot from the society and it is its prime responsibility to return favour to the society and therefore, the social goals need due consideration in analysis of the business in addition to its financial health and financial goals.