Question

How do standard accounting principles help financial markets work efficiently? Does it hurt?

Answer 1

Above question is about how do standard accounting principles help financial markets work efficiently, and it hurt also .

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Answer: → Standard accounting principles make profit verification easier, thereby reducing adverse selection and moral hazard problems in financial markets, hence making them operate better. Standard accounting principles investors to screen out good thereby reducing the adverse financial markets make it firms from Selection easier bad problem for firms, in - In addition, they make it harder for understate prefits, thereby reducing (moral hazard) problem. managers to the principal -agent - By disclosing accurate earnings. Causes it about the company decisions. information about sales, Assets and to give more additional information for investors to make wiser Disclosing requirements wasn't so Et lessons the lemon problem, good (example but doesn't Enron.) eliminate sheets taking about off their financial Firms coold lie on their balance substantial amount of debt and Contracts, What Enron did. - The above financial also. said points, markets work Standard more principles help disadvantage accounting efficiently and