Being mandated by government regulation or being supported by firm’s own reputation, gatekeepers, private lawsuits, and market discipline have enough evidence to disclose voluntarily information at socially optimal levels. The existence of market failure is an issue of supporting that argument. For example, regulation can help to reduce enforcement costs, redundancies in information production, and opportunistic behaviour, or can mitigate failure linked to externalities where firms do not fully internalise the consequences of their disclosure decisions. However, that would cause markets and government be imperfect. Therefore, it is important to avoid the Nirvana Fallacy in which regulation is justified by comparing imperfect market outcomes against outcomes deriving from imaginary governmental institutions that are competent, benevolent, and in possession of perfect information (Demsetz, 1969). Research has shown that there is cross-country variation in many aspects due to countries has differed in many respects. A serious question whether true harmonisation of financial reporting across the world is an achievable objective has raised by this …show more content…
The company board of directors approves and periodically reviews the guidelines which must align with the company’s direction, performance and regulatory practices. Corporate governance specifies the rights and responsibilities of company stakeholders, with particular emphasis on three groups: shareholders who own the company, board of directors who oversee the managers and management which run the daily operation. A key function of corporate governance is to determine how power is distributed between these groups to ensure the company runs fairly. Most broadly, corporate governance affects not only who controls publicly traded corporations and for what purpose but also the allocation of risks and returns from the firm’s activities among the various participants in the firm, including stockholders and managers as well as creditors, employees, customers, and even communities. Corporate governance became a very important issue in 2002, with the passing of Sarbanes Oxley Act. It sought to restore public confidence in corporate governance following the collapse of several major companies, due to accounting fraud, such as Enron and Worldcom. Corporate governance continues to be a hot topic today with the rising in corporate ethics. For example, one such issue is whether corporations should take responsibility beyond their direct shareholder interests, to include the communities