The mission of FASRI is to facilitate the communication between researchers and standard-setters. Needless to say, one important way to judge the usefulness of accounting academic work is to see to what extent the research work can inform regulators of the policy implications. In a world that the regulation governing financial reporting and disclosure is so prevalent, people tend to take the existence of regulation as granted. However, further thinking will raise the following question—why there is a need for regulation of financial reporting at the first place? What economic rationale justifies the regulation of financial reporting?

One possible explanation is market imperfection. In a capital market without market imperfection, firms will trade off the cost and benefit of disclosure and voluntarily disclose the efficient level of accounting information. In that case, there is no need for regulation. However, given the capital market is imperfect (for example, the free-rider problem), there is a role for regulation.

Another potential reason is that the business and accounting practices become increasingly complicated, so setting the accounting treatment standards is an efficient way to increase the transparency and comparability of financial reporting.

The above are the two possible explanations I can come out. Does anyone have more explanations on that? Also to my best knowledge, there is little work throughout the literature successfully address this basic question. Does anyone have an idea why this is the case?