(Not sure about that) this is a critical project report from the Essay

(Not sure about that) this is a critical project report from the module of issues in accounting research, - Essay Example A critical review of its content is thus relevant even now. Watts and Zimmermann The impact of Watts and Zimmermann's paper is immense: A Google Scholar search finds 1035 citations of it, and Watts' (1990) ten year retrospective article has 3041! Published in The Accounting Review, a major journal, the paper not only introduced positive accounting as a concept but began to focus on the role of regulatory boards and politics. The papers' primary research question is simple: Why would firms spend valuable assets resisting accounting standards (Watts and Zimmermann, 1978, 131)? Empirically, they had done so numerous times. A superficial analysis might point to corruption or to trying to protect against malfeasance, but Watts and Zimmermann's research indicates that there is a more complex structural reason. Their research indicated several trends: 1. Larger companies, ceterus paribus, will support less complex accounting measures like General Price Level Accounting more often than small er companies: This is theoretically supported by the notion that a large company would be more likely to be a target of government interference or auditing and thus has more of a stake, proportional to their size. Firm size is the largest factor in their analysis. 2. Direction of change in earning is vital: Companies that are earning less than in previous years and thus experiencing negative growth or at risk of reporting losses unsurprisingly resist accounting changes that might a) further depress their costs by requiring more administrative overhead and paperwork and b) might require more complex reporting of the firms' difficulties. The paper also pointed to complex government-economic interaction forces. Even the mere effect of requiring different accounting standards could have multiple impacts on firm behavior. â€Å"Investment-production† decisions could end up changing as firms' accounting overhead increases, with firms picking either less costly or less risky investm ents to shield them from the risk (Watts and Zimmermann, 1978, 131). This would be indicated by a lower beta on common stock, which was found in those firms supporting GPLA. They also found that there was a â€Å"decline in systematic risk as firm size increases and as government intervention costs rise†. The benefits of improved accounting might be eclipsed by the cost for larger and larger companies. This in turn begs a question: Might larger firms have larger accounting overhead in general due to the number and complexity of their transactions? There are implications for policy as well, both for NGO accounting standards boards like the FASB and for national and provincial governmental regulation like the SEC. Corporate lobbying has historically had a major freezing effect on actions taken by regulators, including the SEC arguably having chosen the AICPA as their â€Å"scapegoat† so as to avoid the difficult task of crafting regulatory standards themselves (Watts and Zimmermann, 1978, 132). To avoid resisting corporate lobbying, regulators may wish to choose accounting standards that improve firms' fidelity of financial information without incurring substantial overhead. Of course, in light of recent events in the global