There are 5 key claims in my opinion that are mentioned by the author and will hereby be identified.
Financial statements that are simple and comparable to the general public may not be in the best interest of the managers. Managers like to manipulate ﬁnancial reports to suit their own interests. Financial reporting would be easy to just report whatever is in the cash till. Despite the fact that financial reporting would be simplistic, it is better to have complex account than a simple financial reporting.
There is no perfect standard for any corporations in the world. An ever changing corporate world makes it harder to ascertain for the prefect standard. However, experimentation with alternatives in a competitive regulatory environment generates data to help identify with the most wanted accounting standards.
No single set of standards has been shown to be the best suited for all ﬁrms. The argument for regulatory monopoly in accounting is often based on the assumption that in the absence of such regulation, there will be no standards.
Financial reporting standards act as a template to prevent managers from taking advantage of the shareholders cost of capital and fraudulent behaviour or thoughts. Despite being a set of rules, the financial reporting standards still has its leeway from country to country.
With a centrally planned accounting standards, standards setters are susceptible to lobbying pressure especially when disagreement arises between varies interest party. On the contrary, with regulatory competition, standards setters can avoid the lobbying pressure. This is because those who do not like the standard can freely choose another one that is suitable.
For the first claim above, I agree that a simple financial report is favourable to the public but not so to the managers. However, this may not always hold true as it may paint a biased picture favourable towards the managers. This is mainly attributed to the...
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