The main purpose of this paper is to respond to the above assigned publication. The above article will be analyzed and clarify the meaning behind the article. To this end, the paper gives a careful consideration to the several theories under the Public Interest Theory umbrella.
The roles of the politicians (regulators) will be presented as witnessed in the above mentioned article. Further, the motivations of politicians as regulators is also presented. A position/stance is then taken agreeing/disagreeing by the position taken by the author. The explanation for the stance taken is also presented taking into account the events in the recent years which could have had an influence.
The main meaning being brought out in this article is the financial impacts of the ineffective response that BP undertook towards the deep water horizon oil spill. The article sought out to further compare the damage valuation approaches as well as emphasizing the call for the inceasingly reliable environmental accounting as well as reporting. The article acknowledged this Spill as the hugest marine oil spill in the history of the United States. The huge losses suffered by the community alongside the shareholders was triggered by the bang on the Deepwater Horizon offshore oil platform around fifty miles southeast of the Mississippi River delta on 2010, April 2010.
The meaning is the failure by the BP Company following a series of the ineffective efforts to control the leak thus leading to a continuous flow oil into the GoM. Over 5 million barrels of the BP’s oil were generated from Macondo well with over 4.2 million barrels pouring into the GoM waters. Due to the lack of the effective regulation, BP irresponsibly treated all charges linked to the incident as the non-operating items and hence deduced from the taxable income circumventing the effective payments of damages. The changes never reflected the amounts linked to fines as well as penalties, except for the ones that could emerged from the proven strict liabilities as reflected in the Clean Water Act that could gave information on damages payable for negligence.
The lack of effective regulation allowed BP to get away with the irrational argument that it could never reliably estimate either the amount or timing of additional amounts associated with the spill. The article was also clear of the challenges of assessing the ecological as well as socio-economic damages through the use of value loss vis-à-vis replacement cost approach. It appreciated the increasing need for increasingly reliable environmental accounting and reporting. This was required to ease the ecological as well as economic impacts of spill that has been increasingly hard to quantify in both time and space.
This would made it easy to compel BP to provide the true impacts of at least twenty categories of the valuable ecosystem services around and in the GoM. This because the government trustees always find it increasingly hard to measure the lost ecosystems commodities rigorously as stakeholders end up contesting both the results and methodological foundations of these studies. The resource replacement has become the panacea and more practical to assessing the damages. It replaces the lost economic alongside ecological wealth through restoration. It does this by soliciting restoration bids and subsequently utilizing such monetary costs as the concrete focus in negotiating for damages thereby evading measuring lost social wealth and associated uncertainties and costs.
Nevertheless, the article recognizes hidden and unpredictable nature of the biophysical damages. Accordingly, there is a likelihood that physical damages become underestimated provided the test of showcasing causally linked effects. The problem economically arising from replacement method is that the costs differ with benefits. Thus, focusing on restoration cost as a measure of damage can results in over-and under-deterrence on the basis of correlation between restoration cost and true social cost of physical damage.
The need for regulation is thus appreciated to allow the methods of measuring ecosystem services hit an increasingly mature stage which will in turn benefits the trustees, plaintiffs alongside courts by availing powerful tools to assess marine-linked liabilities damages. Until this is done, and in the phase of present economic and scientific knowledge, the penalties scale is best resolved via political bargaining in place of technical calculation. This is, however, unfortunate as it undesirably allowed BP to neither disclose fully the particulars of the ecosystems alongside social damages, nor the said methods for calculating its pretax charge (40.9 United States billion dollars).
This intentional action by BP was a setback to the plaintiffs since they above info would have remained critical to: (a) Assessing relevance of global amounts charged that is whether there were any undesirable externalities still left uncounted for and; (b) Understanding the amplitude of efforts of restoration to be taken with respect to ecosystem assets alongside values that have already been lost/partly/provisionally impaired. An understanding of the fiscal merits of deducing such a substantial non-operating charge from the taxable income, the limited disclosure by BP fails to give stakeholders complete image of environmental, social, and financial the spill’s implications.
The politicians are motivated to regulate the market based on the public interest. Regulators motivation is embedded on the public interest theory (PIT). The PIT assumes that economic market remain extremely fragile. Thus, the markets have tendencies to inefficiently operate. The markets also operate in favor of concerns of individuals while negating the significance of the society as a whole. Thus, regulators (politicians) come in to direct as well as monitor the economic markets via the intervention by the government. The accounting information market would otherwise operate inefficiently as firms would hoard the information to different stakeholders including investors, creditors and shareholders. The society as a whole would otherwise be shortchanged as the CSR will not be reflected due to lack of environmental accounting and reporting (Turki, Wali and Boujelbene 2017).
The politicians are thus inspired to prepare the regulation in the public interest when the public demands them to correct the inefficient practices like seen in the BP case that practiced limited disclosure of unaccounted for externalities from the spill. Regulators aim at doing good to the entire society instead of interest of any individual. The regulatory body is thus established by the politicians to serve the societal interest as a whole instead of making legislations in favor of regulators. The inspiration by the regulators to make laws arise from the public demands for efficient resource allocation (Tan et al. 2017).
The regulators endure to have socially efficient regulations that bar the private participants from using the regulations to hinder entrance of rivals in the market. They are focused at preventing the corporate from disclosing solely financial performance. The politicians ensure that even non-financial and relevant information like social and environmental impact of the activities of the firm are disclosed (Fuhrmann et al. 2017). Also, they ensure that organization’s initiative to enhance unwanted impact of the activities of the firm on both environment and society are also disclosed for efficient accounting information market operation.
Based on the PIT, it is rational for politicians or regulators to usher in legislation that mandates the corporate to disclose how their activities impact on the environment and the society. Regulation also mandates the corporate to disclose the initiatives they adopt to safeguard the society besides environment from undesirable impact of their operations. The public interest is, therefore, served when politicians or regulators make laws that mandates the disclosure of the impact of the corporate activities on both environment and society through a more regulation or environmental accounting and reporting.
I am in a full agreement with the position taken by the author that supports the need to move towards a more increased regulation for the oil as well as gas activities globally or the need for more reliable environmental accounting and reporting relating to environmental, safety and health protection controls as well as oversight of operations of drillings besides in terms of accessing novel drilling areas.. My rationale for regulation is that it promotes the efficient operation of the accounting information market. This is achieved by mandating the corporates to disclose both financial and non-financial information.
In absence of the regulation, the corporate would only disclose the financial information which serves their best interest rather than the society’s best interest. Moreover, politicians have played a key role in enacting legislations that bar the collusion between the industry employees and government agencies to advance the economic interest group theory but public interest theory. Without the regulations, the economic groups would have been formed to serve specific economic interest of the cohort (Liu, Luo and Wang 2017). These groups would have otherwise advance their conflict of interest.
The politicians stand firm to bar the government from being lobbied by economic interest groups to make laws based on their interests that do not serve the public interest. Regulation is a right steps towards realizing efficiency in the accounting information market thereby eliminating the information asymmetry. I advocate for the public interest theories of regulation since it can achieve certain degrees of desired outcomes that, if left to the market, would never be achieved (Gaffikin 2005).
Conclusion
To this end, it is clear that accounting information market can never be efficient without regulation. This is because the economic interest groups like BP have conflict of interest which make them inefficiently allocate the resource by only giving information that serve their best interest rather that of society as a whole, hence circumventing the payment of damages caused by the oil spill. Therefore, the potential of regulation will be effectively be achieved by focusing attention on regulators to ensure that reliable environment accounting and reporting is done.
References
Courtney, C., Dutta, S. and Li, Y., 2017. Resolving information asymmetry: Signaling, endorsement, and crowdfunding success. Entrepreneurship Theory and Practice, 41(2), pp.265-290.
Deegan, C., 2013. Financial accounting theory. McGraw-Hill Education Australia.
Fuhrmann, S., Ott, C., Looks, E. and Guenther, T.W., 2017. The contents of assurance statements for sustainability reports and information asymmetry. Accounting and Business Research, 47(4), pp.369-400.
Gaffikin, M., 2005. Regulation as accounting theory.
Gaffikin, M.J., 2008. Accounting theory: Research, regulation and accounting practice.
Liu, C., Luo, X.R. and Wang, F.L., 2017. An empirical investigation on the impact of XBRL adoption on information asymmetry: Evidence from Europe. Decision Support Systems, 93, pp.42-50.
Tan, D.T., Koo, T.T., Duval, D.T. and Forsyth, P.J., 2017. A method for reducing information asymmetry in destination–airline relationships. Current Issues in Tourism, 20(8), pp.825-838.
Turki, H., Wali, S. and Boujelbene, Y., 2017. IFRS Mandatory Adoption Effect on the Information Asymmetry: Immediate or Delayed?. Australasian Accounting, Business and Finance Journal, 11(1), pp.55-77.
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