FINANCIAL ACCOUNTING POLICY AND PRACTICE Essay Example | Topics and Well Written Essays - 1750 words

FINANCIAL ACCOUNTING POLICY AND PRACTICE - Essay Example The economic sector is keen on financial institutions and government; accounting is seen as an economic asset. Theoretically speaking, financial accounting and reporting is objective, neutral and political through the standard setting process is influenced by external factors with different interests. The activities in the economic sector affect directly the accounting practice of corporations. The standard setter regulator in accounting is either a government-controlled institutions or independent agencies. These two bring up the regulated and non-regulated theories (Marchetti, 2012). The unregulated approach states that the market and its mechanism determine the production and regulation according to its needs. The Agency Theory is introduced here, which is the relationship between principals and agents and helps with resolving problems that exist in the agency, these problems arise from inefficiencies and incomplete information. The unregulated approach, also known as free market approach contributes to positive accounting as it requires lower or higher standards to recognize losses or ga ins in contract markets. A regulated market, also known as the controlled market, is where the government controls the forces of supply and demand, which includes who is allowed to enter the market and what prices are charged (Mclaney, 2009 p. 56). According to Mclaney, E. (2009), free market economies have a freedom to innovate which allows the business owners to bring new ideas, new products, and new services. In the unregulated market, the customers make decisions on which products succeed or fail because they decide on which product to use and on what. The primary objective of a free market economy is to make a profit. The companies sacrifice worker safety, when a free market economy gets out of control, the consequences can be damaging. This includes; lost income, unemployment, and homelessness. Many of these failures come from those with short-term