Essay: Accounting Profession in 2014

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Accounting Profession in 2014

In the midst of scandal, the accounting profession finds itself under scrutiny; perhaps more than it ever has in the past. Accounting and auditing scandals have become les frequent since WorldCom and Enron, but that still does not mean that we are now immune. High profile cases continue to haunt the media. As Bernard Madoff is whisked off to jail, the American people are still dumbfounded at how he could fraudulently convert $50 billion in customer assets to personal use. We also have to ask how $1 billion in cash could have escaped the watchful eye of Satyam Computer Services.

Since the Enron scandal, the processes of accounting and auditing are converging, all while trying to absorb the economic shocks in the capital and mortgage markets. The profession is plagued by controversy over the application of proper valuation techniques and techniques to both assets and liabilities. These are the most pervasive questions plaguing the market, but there are still others out there. This research will examine current issues in the accounting profession and will attempt to provide a forward-looking picture of what the accounting profession will look like in the year 2014. It will examine the future, taking into consideration currently proposed changes and trends within the profession.

Do we need more regulation and is it inevitable?

The accounting profession has undergone more fundamental changes in the last 10 years, than it did for the entire first part of the 20th century. Aside from changes in the complexity of accounting techniques and tools needed in today's world, the accountant is under constant scrutiny. Accounting and auditing activities used to be separate activities. However, now, in order to keep themselves from coming under fire, they must often perform auditing activities, in addition to accounting activities. One the tail of Enron, WorldCom, and now Madoff, the publish demands much more from them in order to continue to trust them.

The public demands standards, transparency, and accountability from accountants today. The public demanded these things in the past, but it was assumed that the accountant would be honest. Now, one could say that almost the opposite is true and that the public views the profession with an air of distrust. This is a highly reactionary society, and even though most accountants are probably honest, the few bad apples caused quite a stir, largely due media coverage and the high profile status of the cases. The Sarbanes-Oxley Act was adopted as a reaction to the public's demands for transparency and higher levels of standardization.

Sarbanes-Oxley was only the first of many new standards that would have an impact on the accounting profession. The Public Company Accounting Oversight Board (PCAOB) was established as a result of the act. The accounting profession is becoming one of the most highly regulated professions and it can be expected that this trend will continue. Public trust has been shaken in the honesty and integrity of the accounting profession. In order to restore that trust, the public must be assured that they can trust accountants and the information that they supply. Accounting has been called the bedrock of our commercial system

. The question is whether regulation stops with Sarbanes-Oxley and the PCAOB, or if the accounting profession can expect even more regulation in the future.

In the past, accountants knew who their client was and were often pressured by managers to paint the best picture of the company possible

. It was all about preserving the appearance of success and the need to keep the share price high. Accounting is not an exact science, and although there are certain rules and principles that must be taken into consideration, there is more than one way to represent the financial status of a company. There are many judgment calls and much subjectivity in the accounting profession

. It was possible to represent the picture of a company in many ways, all of which were accurate, but that left the reader with an entirely different impression of the company. Subjectivity combined with managerial pressure created the situation that eventually led to scandal.

At the time of Sarbanes-Oxley and the PCAOAB, there was a need for quick action in order to restore the perception of order to the accounting profession. The government felt that it had to step in quickly to restore confidence in accountants and in the companies that hired them. According to the American Assembly, the stock bubble of the 1990s was a key contributing factor to the conditions that led to accounting scandal. When the bubble burst, it left managers struggling to meet stockholder expectations. They needed to assure investors that they would receive an ever-increasing stream of quarterly profits

. In their frenzy to deliver what shareholders and other investors wanted, they lost sight of their responsibility to present the information is the most honest manner.

Managerial pressure played heavily on the decisions of accountants to bend to their wishes and to employ "creative" techniques to make the numbers appear better than they actually were. There were a number of players that played a role in creating the scandals. The audit became viewed as a commodity that had a certain degree of intrinsic value

. When the audit confirmed increasing revenues, it had a positive effect on earnings per share

. The accountants were not the only ones to blame for this scenario. There were many managers, lawyers, and boards that approved and pressured accountants to paint a rosy picture for the future, or risk their livelihood and reputation. Many accountants begun to bend and the line between right and wrong became blurred. Professional practices had changed and the line between right and wrong had blurred. Soon this became the new norm in accounting practices.

When the scandals began to surface, auditors and accountants took the blame for the situation, but in reality, there were others that pressured them into their actions. However, the accountants and auditors were the easiest to blame because their actions could be directly liked to the new system of accounting. They were an easy target for shouldering the blame. However, regardless of the true roll that accountants played in the scandals, the fact remained that the profession would never be the same again. Accountants and auditors would be forced to comply with an increasing load of government regulation and oversight.

Members of the accounting profession feel that these regulations have decreased the quality of their work

. The need to adhere to regulations and trying to make a nonstandard asset fit into a standardized format has changed the field of accountancy to the point where it no longer resembles anything like it did in the days before oversight. In answering the question of whether even more government oversight is in the future of accounting, one must understand the nature of government oversight and intervention in a capital system. In general, the philosophy of the United States has been to leave industries alone, as long as they are acting honestly and in the best interests of the American public.

However, when something goes wrong that threatens the foundation of the capital market, or places the economy in danger, the government steps in and puts regulation into place to help mitigate the current crisis and to keep it from reappearing in the future. Their policy has always been to provide just enough regulation to resolve the current crisis, but not to be overly intrusive at the same time. Government policy and regulation is reactionary and as long as things are going well, they tend to let the markets take cares of themselves.

This same reactionary policy was seen most recently when the government stepped in to help resolve the current banking crisis. Up until this point, the discussions have focused on how to make the banks solvent. However, one can count on more regulations for banks in the future, similar to Sarbanes-Oxley. The banking industry can be expected to fall under the same scrutiny and regulation as the accounting industry.

In light of this regulatory attitude, one could expect that no further regulations will be adopted, unless another crisis emerges that demonstrates a need for tighter regulation. New regulations are not inevitable, and would not be likely to be adopted, as long as things continue to go well under the currently existing set of rules. However, if more problems arise then further regulations could be expected. When things go wrong, the American people are used to looking to the U.S. government for leadership and guidance. They expect action from their government in a crisis. However, if things are going well, they do not welcome further government interventions and restrictions. If the current set of standards works and no further scandals occur, then no new regulations can be expected.

What education is needed by the professional accountant to meet future demands?

The new accounting regulations are a bane and a blessing to the accountant. They have provided a level of standardization and created… [END OF PREVIEW]

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