Government Accounting Regulation Theory

Based on the fundamental theories in Economics, the essay examined the relationship between governmental regulation and accounting information disclosure by public companies, and the necessity as well as merits and disadvantages of accounting regulation from government. The author concludes that governmental accounting regulation must keep moderate, and the objective of governmental accounting regulation on public companies is to protect the interest of investors, especially the interest of medium and small investors. The essay further discusses the safeguards to realize the regulation objective from two aspects- organization mechanism and operating mechanism of regulation. Since governmental accounting regulation should be related to reality, the essay focuses on solving the actual problems in China. In that discussion, the author tries to relate theory with reality, giving profound analysis on existing issues as well as devoting to seeking pressing solutions.Principal views of the essay are as follows:In economics, theories about governmental regulation include public interest theory of regulation, capture theory of regulation, economic theory of regulation and procedure theory of regulation. These theories provide rationales for governmental accounting regulation from different aspects: public interest is the starting point and concluding point of governmental accounting regulation; intervention of firms indicates the influence of interested parties that should be taken into account in governmental accounting regulation; theory of supply and demand provides a logical framework to analyze the effectiveness of governmental regulation; and the complexity of governmental regulatory behavior indicates that attention should be paid to the standardization of governmental regulatory behavior.Based on the different definitions of "governmental regulation" and combined with the characteristics of accounting, the author think that "governmental accounting regulation" is the regulatory and restrictive activities of related governmental agencies or other accounting professional organizations or parties authorized by it to maintain normal operation of security market, so as to reach the objective of protecting the interests of various market participants, especially medium and small investors, through development of accounting rules, mandatory auditing and enforcement. If not otherwise explained, the word "accounting" means "financial accounting". "Public company" refers to companies that have issued securities to the public, including companies that have the intention to go listed and companies whose securities have been listed. The full expression of "governmental accounting regulation" should be "governmental regulation on accounting information of public companies", which is briefed for convenience.According to the definition of governmental accounting regulation, government regulates the accounting information of public companies to maintain normal operating order of security market. Therefore, there exists inherent relationship among mandatory information disclosure by public companies, market effectiveness theory and governmental accounting regulation. Market effectiveness theory is founded on mandatory information disclosure, and mandatory information disclosure by public companies is the content and result of governmental regulation; market effectiveness theory serves as the rationale and measurement criteria for governmental accounting regulation.It's impossible to rely solely on market itself to realize effective security market because market failure is a phenomenon which can not be overcome by market itself. Accordingly, the failure of accounting information market as a result of its nature-monopolization, public goods and asymmetric distribution, forms the necessity of governmental accounting regulation. However, while governmental regulation has merits in fostering reform and development of accounting practice and theory, maintaining the link between principal and agency, and facilitating smooth tra...