Financial regulation, however, is not entirely dependent on financial statements because financial regulation can cover all of the economy while financial statements from accounting cover only the economic conditions of specific firms or group of firms under a conglomerate (Borio and Tsatsaronis 2005; HM Treasury 2010). For example, financial regulators would also be monitoring liquidity, interest rates, capital flows, and other macroeconomic variables, not merely financial statements. Meanwhile, another type of regulation also uses financial statements but is different from financial regulation: strengthening corporate governance.Academic research contributed to the sciences or fields of accounting, financial regulation, and corporate governance. In the process, academic research protected and advanced modern living and, thus, it can be said that academic research improved our lives. Although not all journal articles are academic research, I review a few accounting journals to illustrate how academic research has been developing the field of accounting and, relatedly, financial regulation. In so doing, I will attempt to illustrate how academic research contributes to making life more bearable and addressing life itself (Humphrey and Lee 2004; Sterling 1975).Barth and Landsman (2010) examined how financial reporting contributed to the financial crisis. They concluded that fair value accounting played little or no role in the financial crisis (Barth and Landsman 2010). Unfortunately, however, the lack of transparency in securitization and derivatives misled investors from assessing properly property values and the riskiness of bank assets and liabilities (Barth and Landsman 2010). Because of this, Barth and Landsman (2010) proposed to require banks to “recognize whatever assets and liabilities they have after the securitization” to reflect better the “underlying economics” of banks. Further, they recommended “disclosure of more disaggregated information, disclosure of the sensitivity of derivative fair values to changes in market risk variables, and implementing a risk-equivalence” to enable investors to understand better the leverage inherent in derivatives” (Barth and Landsman 2010).Future research may or may not confirm the validity of the Barth and Landsman perspective but the important point is that they have forwarded a point of view that promotes research inquiry so their recommendations can
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Barth, M. and Landsman, W. (2010) ‘How did financial reporting contribute to the financial crisis’. European Accounting Review. 19 (3) pp. 399-423.
Borio, C. and Tsatsaronis, K. (2005) ‘Accounting, prudential regulation and financial stability: Elements of a synthesis. BIS Working Papers No. 180. Switzerland: Monetary and Economic Department, Bank for International Settlement.
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