The Role of AccountingRegulation On Wednesday, July 10 2002 The Wall Street Jour
ID: 2457860 • Letter: T
Question
The Role of AccountingRegulation
On Wednesday, July 10 2002 The Wall Street Journalreported the following headlines:
Securities Threat¹
Bush Crackdown on Business Fraud Signals NewEra
Stream of Corporate Scandals Causes BipartisanOutrage; Return of Big Government?
Fiery Rhetoric on Wall Street
President Bush’s tongue-lashing of big businessmarks a swing of the American political pendulum away from aquarter-century of bipartisan deferred to capitalists. “Wewill use the full weight of the law to expose and root outcorruption.”
“Book-cooking” has eroded “the trust and theconfidence that is absolutely vital to the function of our capitalmarkets,” Rep. Patrick Toomey, a Republican fromPennsylvania, said.
Required: Discuss the role of accounting regulation. Whyis trust vital to the function of our capital markets?
¹The Wall Street Journal,Wednesday, July, 2002, Eastern Edition, p. A1.
Explanation / Answer
The year 2002 saw an end of an era of booming business &rising stock prices. Companies which were thought to be too good to be true turnedout to be "Cooking the books "I,e to create the appearance ofearnings that really did not exist . Managing earnings or "Cooking Books " is simply a way ofmaking things look better than they actually are to keep stockholders happy, entice new investors, meet budgets & earn executivebonuses. The recent "Satyam " scandal has further eroded the trust ofthe potential investor . Investors have become vary & suspicious. The role of accounting regulation has never been acutely feltthan at present. Role of AccountingRegulation: Develop and standardiseinformation presented to shareholders. To make certain facts aboutan investment accessible to investors. To make meaningfulfinancial information available to the public so that all investors can determinewhether or not a company's investment are worth theirmoneys. Role of AccountingRegulation: The year 2002 saw an end of an era of booming business &rising stock prices. Companies which were thought to be too good to be true turnedout to be "Cooking the books "I,e to create the appearance ofearnings that really did not exist . Managing earnings or "Cooking Books " is simply a way ofmaking things look better than they actually are to keep stockholders happy, entice new investors, meet budgets & earn executivebonuses. The recent "Satyam " scandal has further eroded the trust ofthe potential investor . Investors have become vary & suspicious. The role of accounting regulation has never been acutely feltthan at present.Related Questions
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