Accounting

The surge of the global financial crisis since 2008 is one phenomenon deserving a long overdue in-depth explanation. Not so much for the sectors primarily considered as the direct  hits of the crisis but for the drivers that spawned the global economic downturn, things are indeed interesting, going into the next possible wave of crisis yet unknown. Here, a clarification is therefore demanded from the sectors which are, by their affiliation with the industry, happens to be situated near the epicenter of the crisis  and this is the accounting profession.

Accountants are trained not only to identify, record, report and control financial transactions which comprise their traditional scope of responsibilities, but likewise to look into the entire economic environment for every financial and non-financial driver that may likely affect the recording, reporting and control of every business transaction. The accounting profession recognizes the theoretical framework of principles that support treatment of business transactions and how they impact key business decisions.    
       
Henceforth, the varying differences between the United States Generally Accepted Accounting Principles (US GAAP) and the IASC-based International Financial Reporting Standards (IFRS) are admitted by most experts as due to adherence to the principle-based accounting standards of the IFRS versus the regulatory-oriented US GAAP. Thus, the variances in concepts and practices adopted along the wide accounting divide remains to be reconciled. Meanwhile, multinational firms with global reporting responsibilities had to contend with new pronouncements of accounting standards as fast as they are officially announced. But with all the regulatory reportorial requirements, the benchmark and alternative treatments available to accountants, the vast opportunities for manipulations and creative accounting become an open game. Here, seasoned accountants from the government and private sectors bring their extreme expertise wherever they go and this allows them to practice innovative accounting whenever they can, and apparently cunningly believing it will take time before these are discovered by less-intelligent auditors-regulators. (Houck, 2003)
         
Further, whether acting as controllers, auditors, tax specialist or management consultants, the accountant is at the forefront of determining what is supposed to be conservative, generally-acceptable and substantive financial reporting system. However, the fast-changing economic environment is putting the accounting profession to a defensive stance more than ever. Here, the role of the accountant is further exacerbated by the surging technology and they are caught in the economic bubble they are tasked to guard against but are likely to join the fray. (Luttwak,1999)

Issues Raised vis--vis the Accounting Profession
The issues therefore are brought into the open (1) Does the accounting profession bear any blame for the financial crisis (2) What critical areas do the accounting profession may have been culpable to some degree And, (3) What redirections can be suggested to the accounting profession to strengthen and balance its role as a catalyst of the economic environment            

First Critical Area The Environment of Complexities              
With the growing complexities of the global economy, the accounting profession appears to be at the receiving end of the demands for clarification on what actually does happen at the innards of the financial turmoil leading to the economic crisis. While accountants are not in full control of the economic factors that shape the economy, they are nevertheless expected to take primary responsibility for the standards and principles to base treatment of every business transactions from - including errors, risks, frauds and illegal acts that may be committed intentionally or otherwise. Thus, knowing fully-well the appurtenant risks including the unintended consequences of every financial and non-financial misinterpretation, accountants are at the forefront of this responsibility as catalysts to bridge understanding among shareholders, management, employees and the various stakeholders. Peecher, Schwartz and Solomon (2006) recommend that this attest function utilize the Strategic Systems Audit (SSA) approach to address he quality issues of audit engagements in fairness to all stakeholders.  
         
Complexities in the economic environment are expected to put the accountant on the hot seat. This includes the irreversible influx of information technology (IT) processes which have greatly impacted the recording, reporting and control of financial and non-financial transactions. With financial information promptly becoming available in terms of volume, accuracy, distance and even strategic character, the opportunities as well as threats made possible under an IT environment has become palpable. Thus, electronic fund transfers are made possible to and from anywhere in the world. Similarly, investments can be as volatile as the electronic signals that bear it with the unprecedented speed of fund transfers. However, the risks include the speed at which capital repatriation can be undertaken and which may destabilize the fundamentals of any economy.

Here, the responsibility of the accounting professions in terms of timely disclosure and transparency can assuage investors from their unfounded fears.  Accountants however, become vulnerable and may share some degree of blame for any act that may question their professional allegiance  to the profession or to their clients. The virtue of auditors independence in this regard is simple yet is likely to be ignored, and in a number of instances may have been deliberately disregarded. (Windsor  Rasmussen, 2009) With the loyalty of the accountants impliedly skewed in favor of their clients, independence is likely to take the backstage in favor of the temporal character of the auditor-auditee relationship, unless there is an existing high-level negotiating power from both. (Emby  Davidson, 1998) The Enron-Andersen debacle is likely to support this contention.

Second Critical Area   The Standards Setting Environment and the Theoretical Bases
For a number of years, the accounting profession has considerably changed its recording and reportorial standards based on concepts and principles that can likely trigger confusing financial statement presentations. Among these concepts include the Fair-Value Accounting adopted by the Financial Accounting Standards Board (FASB) originally intended to make presentations clearer based on real values, but instead became the cause of the unprecedented decline in asset values and increase in instability among financial institutions. A rethinking of this standard has been sought as this has been identified to cause asset bubbles that further exacerbate the effects of their collapse. (Wallison, 2008).

Further, IAS 36, otherwise known as Impairment of Assets recognizes the vast differences between GAAP and IFRS. (DeMark, 2009) The differences in implementing these standards along the procedural computations of the amount of impairment are causing dissension among practitioners and may have likely lead to unwarranted reduction in assets value triggering fears of further decline down to a crisis level. Here, the role of regulation and the unresolved complexities of benchmark versus alternative treatments may have been overemphasized resulting in unfounded fears of another trigger mechanism  the regulatory sanctions. Thus, financial reporting is further tempered by the need to be conservative as a matter of principle all in the midst of confusing standards. Here, the conservatism principle draws the fears towards a further decline in the asset values actually triggering further reductions.

Third Critical Area The Political Environment  the Abuses of Capitalism
The clout of the accounting profession and the support role of the professional association of accountants have influenced somewhat the business trajectories of most economies shaping to some extent its political structure. Thus, in the professions desire to deliver some form of political solution to key economic problems, the pressure to instill transparency and accountability in the financial reporting system has been expressly institutionalized but pressure to withhold or deflect information remains strong. It is likely because the demand for appropriate transparency and good governance are commonly left and anchored on the initiatives, even self-interest of shareholders with the aid of corporate accountants restricted in the guise of privileged information. Nevertheless, a rule of mandatory disclosure of, say, client diversification is needed to facilitate the task of the market to achieve the optimal degree of auditor independence. (Siegers  Vandenberg, 1999)

Hence, to make sure that investors are not shielded from possible machinations of management, the United Nations Conference on Trade and Development (UNCTAD) helped formulate the guidelines on the global requirement for the qualification of professional accountants as symbols of order and transparency in the profession tasked with the highly sensitive job of risk monitoring and management of financial information. (UNCTAD, 1999) Apparently, this sensitive task of the accounting profession has not been acted upon effectively with the cyclical occurrences of global and regional stock market crashes which started in Asia in 1997 through 2008.

In more mundane terms, the 2008 global financial turmoil has been described by keen observers as capitalism being a victim of its own kind.  The following blog of the Young Conservatives (YCT) at Texas A  M University may simply be a subjective exaggeration, but the message is likely to affirm some of the fears of a number of economic managers particularly the accountants  
           
Capitalism is so effective sometimes that in virtually eradicating some problems it creates or brings to light lesser problems that were not there before or were not taken as seriously. And then the political left uses these lesser problems to indict capitalism and expand the power of government, all the while failing to mention the great scourges that capitalism has eliminated or mitigated. These lesser problems must be transformed into crises through political smoke and mirrors to make the people forget about the benefits of the market. (Wordpress.com, 2009)

Conclusion
The accounting profession, in its attempt to become more effective and relevant in safeguarding the economic interests of global stakeholders, is one sector which may be in dire need of structural and moral redirections to distinguish who it is working for and for what reasons, regardless of who underwrites the cost. Likewise, the burgeoning auditing and accounting services industry have spawned a number of non-audit services which brings the accounting profession more opportunities as well as risks of conflicts of interests. (Asare  Trompeter, 2005) Accountants may indeed be traversing on risky waters.

The past experiences of economic recovery after a stock market slump are adequate indicators that the series of financial crises are mainly due to conflicts of interests and the moral responsibility to respect a more balanced sense of perspectives in conducting global business along the various stakeholder concepts such as the balanced scorecard or the six sigma hence, these series of turmoil are in fact avoidable and at the least, manageable with accounting profession taking the lead because no one else is more competent to do so. (Lee  Jeong, 1995) (McManus, 1994)

The strengthening of the accounting profession to insulate it from blame while functioning as a catalytic intermediary, needs the strong moral and professional fiber of accountants more than the regulatory powers and teeth of the Sarbanes-Oxley Act. The collapse of more than 37 financial institutions on Wall Street has a clear common denominator the functional oversight in the accounting profession. (Reuters, 2009) Accountants hence, need to understand that this vacuum help create as well as maintain a situation where the general public has no choice but to trust the auditing profession even though auditors are more likely to breach the trust of the general public than the trust of insiders. (Neu, 1991)  

Nevertheless, only through formation of accounting professionals that understand the social reality of their attest function can the profession internally develop the professional attributes to meet the level of trust the financial community expects from them. (MacMillan, 2004)