Capture Theory

roaring biz

I am required to explain Capture Theory in my coming 3rd year class on Accounting Theory. The theory is used to explain the necessity of regulation in the disclosure of accounting information and the dynamics between the Regulator and the regulated.

What is Capture Theory?
The regulated party seeks to take charge (capture) of the Regulator with the intention that the rules subsequently released by Regulator will be in favour of the regulated party.

In more human language, I would paraphrase by saying, "Those people you are out to control in the first place, actually taken control of you."

Can Edgar relate the Theory to some real life applications in Singapore context?
National Wage Council is a tripartite entity made up of the employers, the union representatives and the Government. A tripartite entity would ensure nobody get "captured".

Under Code of Corporate Governance, the Board of Directors are required to be represented by independent directors too. Whether the independent directors are "captured" by directors who are in executive positions/representing majority shareholders are less clear and it varies from company to company.

In the recent ACCA conference, there was a rallying call from a leading accounting professional from Malaysia to fellow professionals and interest groups in this region, to speak up and participate actively in the IFRS standard-setting process. I guess this is ensure that IFRS put into law are not "captured".

The End of Double Entry?

the start of Bintan golf

I am reading a couple of textbooks at the same time for the new term of 2009. I wish with you these few interesting paragraphs challenging the existence of the double-entry system.

The books that I am reading credited the first organised written thought on double entry system to this Franciscan monk called Luca Pacioli and his now famous work called "Summa de Arithmetica, Geometrica, Proportioni et Proportionalita" published in Venice back in 1494. It is simply a system of debits and credits, where the debits going to the left and credits going to the right. It is a system of subtraction-by-opposition ie. put on the opposite side if you want to minus.

Then a clever chap (possibly someone who cannot handle double entry) asked, "Why can't we use positive and negative numbers instead of T-accounts?"

So if you want to pay salary, you just add to Salary expenses and minus the same amount from the Cash/Bank.

FYI - negative numbers were only accepted in the mathematics world in 17th century while double entry has been around since 13th/14th century.

In the 21st century's classes of Edgar, both systems are used in our learning programmes.

P/S - http://accountingwithedgar.blogspot.com/2007/09/origin-of-debit-credit.html