The Governance and Disclosure of the Firm as an Enterprise Entity

Recent financial crises and scandals have focused attention on the system of governance and disclosure in a way many may never have imagined and few welcomed. Not only do reforms appear to be necessary to protect shareholders as well as other stakeholders, but also to develop a different understanding of the relationship between the financial markets and the business firm. This paper criticises two daydreams concerning the firm - as a \u27black-box\u27 or an \u27owner-entrepreneur\u27 - and contrasts them to the idea of the firm as an enterprise entity. The latter implies a comprehensive approach that integrates economics, accounting, and law. The firm is then understood as a managed dynamic system, characterized by different structures of production: institutional, organizational or epistemic (related to the place and role of institutions, internal organization, and knowledge within the firm). Accordingly, the accounting system is an integral part of this framework, one that demonstrates the joint implications of economic, accounting, and legal matters within the firm. In a business affair fraught with unfolding changes coupled with asymmetries of resources, access, control and information, the accounting system copes with the economic and monetary processes generated by the whole enterprise, by representing the enterprise capital (assets and liabilities) and income (revenues and costs). In this way, the accounting system allows this special process to exist and function autonomously from (and interactively with) financial holding of shareholders\u27 claims traded on the Share Exchange