The international accounting profession
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Address the following issues/questions:
The international accounting profession has lost its way and is no longer serving the needs of different users of accounting information in a manner which is appropriate and meaningful for the global business environment of today.
Do you agree or disagree? Identify the different user groups who require accounting information and explain how this information is provided for them. Discuss how the status of the accounting profession, both in your country and internationally, has been impacted by financial scandals in the recent past and describe what measures have been taken to counterbalance the impact of these. Do you think that the measures have been successful?
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Note: To prepare for this essay please read the required articles that is attached
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SAMPLE ANSWER
Introduction
I disagree with the statement as the accounting profession is now more than ever before serving the needs of the global business environment and the contribution that the accounting profession has contributed to the global business environment is phenomenal and cannot be ignored, not even in the wake of the major financial scandals that rocked the financial markets in the last two decades. It’s true that some accounting professionals failed miserably in their responsibilities and which resulted in massive losses in the financial markets that brought most of the European countries including the US and UK to dire financial crises (Hermanson, 2008). The most notable financial scandal that shook the world economy was the Lehman Brothers in 2008, one of the largest investment banks in the US and it was also the largest financial institution in the US to collapse due to bankruptcy and the Enron scandal in 2001.
The most affected people were the shareholders, depositors and creditors. Most depositors had trusted the institution with all their life savings while shareholders invested their hard earned money in the hope of creating more wealth while the creditors were also hoping to gain financially by extending both long and short term loans to the bank (Atrill & Mclaney, 2013).
These groups of people require accurate and up to date information concerning their investments, savings and debt portfolios and payments. Investments accounts provide a range of investment portfolio that the institution has interest in and the amounts invested. The published accounts provide all the information regarding customer savings and the debts that the company has accumulated for a particular financial year. Specific financial statements that provide investment information are the company’s cash flow and the statement of equity. The balance sheet provides the total assets and liabilities that the company has for a particular financial period and it also shows the company’s leverage that most creditors and financiers require. The income and expenditure account provides information on the company’s revenue expenditure and sales. The creditors are mostly interested in this information as it proves whether the company is liquid or not. It provides the information that reflects the company’s liquidity.
The accounting profession in the US has been impacted negatively by the numerous scandals that have created a lot of financial crises in the corporate world. The confidence rating of the profession has been eroded and the public’s trust in the institution has waned. The US government reacted by introducing the Sarbanes Oxley Act that places criminal liability for certain acts of irresponsibility among company executives. The Act places a lot responsibility on the decisions made by company executives. Other institutions like the European union have been active in creating the Basel I, II and III that makes it mandatory for financial institutions to maintain certain ratios for protection of the depositors funds in case of liquidity problems (Sissell, 2006).
The US government also reacted by trying and jailing all the perpetrators of the financial scandals including reprimanding Ernest and Young, the accounting firm that was largely blamed for the collapse of the Giant Lehman Bros in 2008 while after the Enron scandal, Arthur Andersen, the accounting firm that assisted the company’s fraudulent activities was dissolved and most of the senior executives from the company were sent to prison together with Enron’s management team.
These actions have created more transparency and accountability in the accounting profession (Kuschnik, 2008). The number of scandals has significantly dropped since the introduction of the Sarbanes Oxley act in 2002 hence these measures have been fairly successful in tackling inefficiencies and fraudulent activities in the accounting profession (Hartman, 2005).
References
Atrill, P. & Mclaney, E., 2013, Accounting and Finance for Non-Specialists. 8th Ed. Harlow, UK: Pearson Publishing.
Hartman, T., 2005, The cost of being public in the era of Sarbanes-Oxley. Foley and Lardner
Presentation. June 2005. Hay, D.C., W
Hermanson, D. R., 2008, Fraudulent Financial Reporting: How Do We Close the Knowledge Gap? Retrieved May 29, 2015, from http://www.theifp.org/research-grants/IFP-Whitepaper-1.pdf. Center for Audit
Kuschnik, B., 2008, The Sarbanes Oxley Act: “Big Brother is watching” you or Adequate Measures of Corporate Governance Regulation? 5 Rutgers Business Law Journals.
Sissell, K., 2006, Committee to Recommend Changes to Sarbanes-Oxley Act. Chemical
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