A major perspective on accounting (financial reporting) regulation views regulation as being required to protect the public interest. However, the regulatory capture and economic (private) interests perspectives argue that the public interest objective could be adversely affected by various factors.
The provision of welfare to the common citizen of a country could be considered as an essential objective of a modern welfare state and in order to achieve such objective the implementation of certain regulations is done by the state through its bodies assigned with the power of administration in order to monitor and control the activities of privet business entities in such a way that the consequences of their activities do not form a negative impact upon the society in general. (Anon, 2014)
Regulations has been categorized in two different types first one is economic regulation and second is social regulation. The ultimate objective of social regulation is to control the economic activities of the society and it is linked with different issues regarding impact of pollution on public health, workers’ safety etc. on the other side the regulation of activities of business entity lies under the purview of economic regulation, like granting license to new firms, awarding broadcasting right to the cable operators, entry restrictions etc. There lies four different categories of stakeholders in a society which comprises the entire regulatory directive structure, they are, the producers, the consumers, the government and the state authority acting as the regulatory body. However we find another group, that is the political class who with the help of its coercive state powers enters into the system and plays an important part to determine the activities of the designated body regarding issuance of directives and their implementation. So we can find that in this process the regulatory authority gets captured by industrial and commercial activities. There are various theories which seeks to explain such behaviour and throws light on how these organizations are able to twist the regulation making process in their way.