Public trust in the Accounting Profession sample essay
Restoring of the public’s confidence in the accounting profession is of paramount importance and rightly so. This profession has suffered major drawbacks in the level of trust and confidence the public holds in its work because of major international corporate collapses. The accounting profession is a profession like no other, and one of the most noble in the market place. With that precious franchise come some unique pressures and challenges.
There is increased scrutiny of financial reporting deficiencies and corporate disclosure requirements. This has had a negative and cumulative impact on the perceive credibility of financial reporting. The issue is now at the forefront of public debate about the accounting profession and its effectiveness. The decline in reporting credibility is prevalent across capital markets worldwide, with the scale of the problem partly attributable to the unprecedented level of share prices in many markets. Restoring public trust and confidence in a manner that can be sustained over the long term requires concerted actions by a various parties in order to address some very real systematic weaknesses plaguing our current corporate governance, accountability and related systems. The ramifications of Enron, WorldCom and Parmakt are far, reaching.
The hallmarks of public accountancy are objectively, ethics and independence. The public engages an accountant because they trust ability of that individual to provide necessary services consistent with high professional standards. Likewise, the public reasonably expects that if an accountant is negligent or incompetent, he or she will be held professionally accountable.
Accounting professionals must comply with ethical standards regardless of the task they are performing. It is to the sincere advantage of the accounting profession if in all fields of activities it exercises care to maintain scrupulously all professional and ethical standards-competence, independence, integrity, and a professional attitude. The accounting professionals must not only avoid a conflict of interests, but also the appearance of a conflict of interest. Forces of change such as escalating competition to obtain and hold on to auditing clients and potential conflict of interest as accountants offers a literal supermarket of non audit services, presents new challenges to auditor independence. Principles of professional conduct are meant to guide accountants not only when offering traditional services, but also when conducting any professional service on behalf of clients.
The accounting professional’s responsibility to the public is not only stated in their professional code, but it is an inherent component of our existence and, most importantly, what differentiates public accounting as a profession from merely a business or occupation. The professional standards of the AICPA state clearly that any profession shows its worth by accepting its responsibilities to the public. (AICPA, 1992)
The cornerstone of the guidance provided by AICPA remain as today’s foundation of ethical behavior- objectivity, integrity, trust and most importantly independence-independence is not only a condition of mind, but one of character as well. As a professional, a CPA cannot subordinate his professional judgment to the views of his client and must not have any interest in the outcome. Additionally, he must be free of any bias. This is so important that the independence is question must not only be independence in fact but also in appearance. In environments where there are focused opinions, vested interests and partial analysis there is need for unrelenting objectivity. The ability of an accounting professional to maintain objectivity is at the heart of the deep-seated respect for assurance provided during an assignment. (AICPA, 1992)
On integrity the AICPA code of professional conduct states that, “Uncompromised integrity is a quality from which the public trust derives and the benchmark against which a member of the profession must ultimately test all decisions. This is all meaningless unless trust has been established. And this trust is earned status and must be nurtured and guarded by the CPA as his most precious investment. For when the public’s trust wares the CPA is not longer the unique accounting professional. (AICPA, 1992)
Virtues are properties which predispose a protagonist to act in a certain way. There is need for virtues in accounting as these enable accountants to balance conflicting responsibilities and pressures. Requirements of the profession’s code of conduct are related to relevant virtues. Those virtues identified include; trustworthiness, benevolence and altruism, honesty and integrity, impartiality and open-mindedness.
Benevolence is characterized by the true goodness of the spirit and mind. Accounting professionals are required to show unbiased kindness when they are carrying out their work. This enhances the trust and confidence in them. Biasness shows that a CPA cannot be trusted and this is one character that true accounting professionals should avoid.
Ethics are truly the cornerstone of the accounting profession and have a great impact on corporate America. Unethical activity can have harmful effects such as the junk bond debate, and the loans and savings catastrophes. Traditionally, the accountant has been placed in the role of watchdog, however, in today’s business environment a trusted consultant can provide more by guiding a business to live up to its own ethical standards and leading the way to increased cost savings, profits, and new business.
A discussion of independence cannot be complete a comment on the crucial important of the state of being independent in both appearance and fact. Therefore an accounting professional must really have two kinds of independency. Independence in fact refers to objectivity, to the quality of not being influenced by regard to personal advantage. An auditor must assess his relationship with a client in order to determine whether his opinion would be considered objective and unbiased for one who has knowledge of all the facts.
AICPA Rule 101 on independence indicates that independence cannot be guaranteed if there is any directly monetary interest or material interest in the company for which the services are provided. Therefore it would be safe to assume that if an auditor had any financial interest in a firm or served as an officer or director, his judgment could appear to be clouded and independence would be considered impaired. Unswerving independence and impartiality is the peer beyond price and the indispensable shield for the profession. (AICPA, 1992)
Economic development is directly linked to the credibility of financial information. The public is discouraged from making investment when it is not confident in the financial reporting process, or in the financial information released as part of that process. This in turn prevents capital market growth. The accounting professionals, together with financial institutions, regulators, and others face on uphill battle in building confidence in financial information in the light of recent crises around the globe. .
In recognition of the public trust afforded to public accountants in the USA, each state recognizes public accountancy as a profession and issues the certificate of Certified Public Accountant (CPA). The CPA certificate symbolizes technical competence. The licensing of CPAs in the USA by the states reflects a belief that public interest will be protected by an official identification of competent professional accountants who offer their accounting services, which are also provided by non-CPAs. The various states generally restrict the auditing of financial statements to CPAs.
AICPA, Code of Professional Conduct, as amended January 14, 1992. (New York: AICPA), 1109.
David A. Costelo.1994. Accounting, Ethics and the Public Interest. New man Library.