The Accounting Profession And Its Obligation To Society

The Accounting Profession and its Obligations to Society

Advanced Financial Accounting and Reporting

Topic D Review

Due: Thursday 14 April 2006

Sophie Lindsay

87864

Over the last decade or so the credibility of the accounting profession has taken some major hits. Enron, WorldCom, and the Australian HIH Insurance case are just a few examples where the executives of corporations have served their own self interest while leaving the stakeholders and society to cop the blow. So how can the accounting profession safeguard against these huge corporations destroying their credibility? Will there have to be a major shift towards accountants being ultimately responsible to society as well as the common stakeholder?

Without the corporation evolving into the giant capital raising tool, the modern industry would never have developed so tremendously. It is this notion though, which has transformed share ownership from a responsibility into simply a transfer of wealth in the hope of a buck or two in return. Shareholders 'own' the company, but as there are often hundreds of thousands of shareholders to any one company - how does any normal shareholder have any control over what it is they supposedly own? Transferability has become the biggest demand with respect to share ownership. Investors want to be able to sell at the drop of a hat or buy just as quickly. For this to work shareholders must have limited liability (which means relinquishing control), and there must be millions of shares available for trade. The latter of the two results in any one shareholder having a less meaningful stake in the company. All of this collapses into the simple "Wall Street Rule": vote with management's wishes or sell up! (Monks & Minow, 1995) So in the end, management has very little accountability as any unhappy shareholder simply finds a new investment. This idea of accountability slipping away from the shareholders grips is of much concern. If the board of directors are not accountable to the shareholders then where is their incentive to act in their best interests? Even more concerning is: who is watching over society and the public interest? Surely this is left up to the regulatory agencies: the governments and the financial accounting standards board - but are they doing their job? It wouldn't appear so in Australia as Rule B1 of the Joint Code of Ethical conduct is not having any significant influence. Rule B1 focuses on the public interest and states that above all else, accountants responsibilities lie