Financial reporting is arguably one of the most heavily regulated areas of business activity. Provide the main reasons why accounting information is so heavily regulated. In your answer try to address the intended consequences of such regulation.
The main reasons why accounting information is so heavily regulated because it leads to a more transparent and better financial reporting system. Please consider these facts:This regulation also makes it difficult to find loopholes in the tax system for the purpose of reducing tax liability. Further, financial reporting is regulated because of the potential for market failure arising from the information gap between managers - who possess inside information - and investors (information asymmetry), as well as from misaligned incentives (moral hazard).
It is important to think of the problem in these terms: Regulations that focus on complete disclosure are much more effective in meeting their intended consequences of such regulation than those that attempt to dictate behavior, and they impose less of a burden on the regulated entity. The SEC has been constructive in this regard. ...
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