Public Interest Theory Is Economic Theory Essay


Discuss About The Public Interest Theory Is Economic Theory?



Public Interest Theory is defined as the welfare of people overcoming the self centered interest of any person, specified group or firm through which the entire society will be benefited. This theory warrants about the recognition, protection and promotion by the government through its officials or agencies. These official or agencies are called regulators who may be politicians. Although this is a vague term, public interest is generally claimed by the governments in respect of secrecy of state and confidentiality. This concept is mainly done with approximation of performing comparison between anticipated gains and probable costs involved which is connected to a decision, program, policy or project (Businessdictionary, 2015).

The definition of Public Interest theory of regulation tries to find out the steps from regulators to protect and benefit human kind in macro level. In this context of definition, it is to be adjudged in respect of the case study of Gulf Of Mexico Oil Spill with the accounting policies adopted by the company in order to replenish the damage made in the sea water affecting the environment and its living objects for the oil spill by subsequent explosion (Hantke-Domas, 2003).

The case study- synopsis

The incident

The happening is called as The Deepwater Horizon oil spill or Gulf of Mexico Oil Spill, alias BP Oil Spill which is considered as the biggest level of oil spill happened in the US. This was caused due to an explosion which was happened on the Deepwater Horizon offshore oil platform situated around 50 miles southeast of the Mississippi River delta on 20th April, 2010. This platform was rum by the oil exploration company BP. After a series of failed attempts to pug the leakage, BP announced on July 15th that necessary had been successfully initiated in order to cap the leak to restrict the flow of crude oil in the Gulf of Mexico in 86 days. This happening had attracted the eyes of the world and soon strong debate was started about the volume of the oil leaked into the water. The resultant impact on the environment was estimated in respect of pollution in air, ground and sea water (Pallardy, 2010). BP was the main developer of the oil field named Macondo prospect oil field. The Deepwater Horizon was under a contract with BP by the owner Transocean Ltd for the purpose of drilling an exploratory well. During the time of explosion, both the companies were going though the process of closing down the well with the anticipation of later production. The4 Government of US had declared BP as responsible for this happening with the entire accountability of cleaning up process along with relevant costs of the environment affected by this incident of oil spill. Initially BP had taken up the accountability for this cleanup cost, but alter BP had raised points of sharing the costs by other associates who are engaged in the process (Epa, 2010).

Financial Implication for damage control by BP

BP had announced in their financial report of an amount of US $ 40.9 billion for the purpose of Deepwater Horizon Oil Spill in the fourth quarter of their financial statement which is non-operating in nature and with deduction from taxable income. This amount is mainly meant for satisfying the claims as per adjudication of Gulf Coast Claims Facility with other allied expenses. In addition they are also provided an amount of US $ 500 million for the research program for studying the impact of Gulf of Mexico Oil Spill and respective impact on the ecosystem of shoreline (Houdet & Germaneau, 2011)

Assessment of ecological and socio-economic damages

As per Costanza et al. (2010), the most affected categories of valuable ecosystem services in around the area of Gulf of Mexico which are not considered as marketable like climate regulation, protection of hurricane by coastal wetland, and recreational, cultural and artistic value. Here comes the role of government trustees who had found it really difficult to assess the lost ecosystem goods and services, methodological foundation along with result of such studies which were found debatable by the stakeholders. The trustees had opted for the other ways to assess the damages in more practical manner though replacement cost approach to evaluate the cost of restoration as per monetary value to form a solid consensus for negotiating damages by ignoring lost social wealth with it allied costs and uncertainties. This can explain the basis of calculation of BP related to the figure of US $ 40.9 billion which had never considered the respective details of ecosystem and social damages.

Accounting aspect of Deepwater Horizon Oil Spill

As per BP, the operation itself attracts significant uncertainties as per the extent and timing of costs and respective liabilities causing due to this incident with the subsequent impact in regulatory and operating environment with increment of risks. These risks are causing negative impact on the business of the entity with its relativity in the other business and financial aspects with future implementation of strategies. This situation has raised the question regarding the necessity of environmental accounting in its effective form. There are certain factors to be considered in this aspect:

  • Latest status and trend of respective ecosystem in which the entity operates;
  • Social and ecological externalities of the respective entity;
  • Summarization of all respective environmental revenues, charges and liabilities with related calculation methods to derive all material environmental transactions with explanation of the potential gaps between the factors(Hester et al., 2016).

Role of regulators

Regulators are the entities who can be responsible for handling the issues of such incidents which can cause environmental damage created by any action of business entity to protect public interest which may affect the community at large or the environment.

Accounting Standard Boards- directives


Conceptual framework enforces accounting to be made for protecting public interest. Basic objective of this framework is to ensure prudence and clarity for the stakeholders through the accounting procedure and presentation of financial information. Conceptual framework is endorsing the objective of serving public interest through provision of structure and direction to financial accounting with respective reporting to provide unbiased financial and other related information for the stakeholders. This reporting has direct impact on the stakeholders and the society at large. It is the prime responsibility for the regulators to protect public interest through the required steps to be taken for any issues other than the routine activities (Fasb, 2010).


International Accounting Standard Board or IASB is more committed for development of single set of global accounting standard ensuring highest level of assured quality to ensure prudence and comparable information by providing general purpose financial reports or GPFR. To make a perfect application of this effort IASB is coordinating with the regional accounting standard boards like AASB to accomplish the objective of convergence in accounting standards globally.

As public interest theory demands that it should attract highest level of priority through the intervention of regulators or regulating agencies, they must be provided with proper platform to assess any such incident which may have environmental impact with the derivation of loss to the mankind, other living objects and the environment in macro level (Hoogervorst & Prada, 2012).

My Opinion

The incident of Deepwater Horizon Oil spill should be treated with high level of stern action against the corporate involved in it and as the same incident causes damage to the living object of the surrounding and the huge damage to the environmental ecosystem.


The incident of Deepwater Horizon Oil Spill was the eye-opener for the community at large to understand the damage caused by oil spill in sea water with the magnitude of damage it can create for the living objects with the environment. The proper assessment of this incident can only be derived through detailed exercise in which financial accounting plays vital role, so far replenishment of the damage, so far it can be done on monetary terms. Regulators or regulatory agency at times needs guidance for this purpose and the different accounting standard boards should come up proactively by setting standard which can help guiding the regulators for derivation of such loss due to damage caused by any incident which causes direct harm to the environment. Regulator, in the form of politicians may divulge from their duties pampering won interest but the strict guideline provided by the accountings standard cannot allow them to do so and thus the proper practice of accounting standard can be ensured related to such happenings.


Businessdictionary, 2015. Public interest. [Online] Available at: [Accessed 19 May 2017].

Epa, 2010. Deepwater Horizon – BP Gulf of Mexico Oil Spill. [Online] Available at: [Accessed 19 May 2017].

Fasb, 2010. Statement of Financial Accounting Concepts. [Online] Available at: [Accessed 19 May 2017].

Hantke-Domas, M., 2003. The Public Interest Theory of Regulation: Non-Existence or Misinterpretation? European Journal of Law and Economics, 15(2), pp.165–94. Available at: [Accessed 19 May 2017].

Hester, M.W. et al., 2016. Impacts of the Deepwater Horizon oil spill on the salt marsh vegetation of Louisiana. Environmental Pollution, 216, pp.361–70.

Hoogervorst, H. & Prada, M., 2012. Working in the Public Interest: The IFRS Foundation and the IASB. [Online] Available at: [Accessed 19 May 2017].

Houdet, J. & Germaneau, C., 2011. The financial impacts of BP's response to the deepwater horizon oil spill.

Pallardy, R., 2010. Deepwater Horizon oil spill of 2010. [Online] Available at: [Accessed 19 May 2017].

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