1.Public Interest Theory
This theory proposes that the regulation is introduced to protect the public (the society at large). This protection is required due to inefficient markets. It assumes that the regulatory body (usually the government) is a neutral arbiter and will not let its own self-interest to impact on its rule-making process.
2.Capture Theory
This theory argues although regulation is introduced to protect the public, the regulatory mechanisms are often subsequently controlled (captured) to protect the interests of particular self-interested groups within the society, typically those whose activities are most affected by the regulation. That is the ‘regulated’ tend to capture the ‘regulator.’
3.Private Interest Theory (Economic Interest Group Theory)
This theory relaxes the assumptions that regulations are initially introduced to protect the public interest and that the regulators are neutral arbiters not driven by self-interest. Instead, it proposes that regulators are made up of individuals who are self-interested and the regulator is motivated to ensure re-election or maintenance of its position of power.
Economic and Social Impacts of Accounting Regulation
Although accounting regulation is considered only affect how underlying economic transactions and events are reflected in financial statements, there is also a considerable body of evidence that accounting regulations have social and economic consequences to many organizations and people. There are many examples that accounting standards have indirect social and economic impacts. For example the prohibition of recognition of internally generated assets such as brands, mastheads and the research expenditure by LKAS 38 could lead to reduction in investment made by companies in research activities. This could cause negative economic and social consequences, which are ultimately felt by the whole society. These potential social and economic consequences associated with accounting standards have led particular organizations to lobby regulators either in opposition or favor of particular accounting standards.
