The world of accounting has been lauded in some cases and come under fire in others. Specifically, there have been times when the world of accounting has been seen as the gatekeeper for the public, providing individuals with information in a fair and accurate manner so they can make decisions about whether to invest in companies and make other financial decisions, too, on a personal level. In other cases, accounting has been seen as a failed enterprise unable to protect the public from cheating and scheming companies that tend to dominate the market today. In the news, one can find myriad examples of both good and bad accounting practices that demonstrate both what accounting is meant to be and what happens when accounting professionals fail in their stated duties.
In the corporate world, especially with public companies, it is critical for the information presented to the public to be full and accurate. People put their money into companies through the markets, and when they do so, they rely heavily on the information that is given to them. If profits are overstated or if something is left off the balance sheet, then investors are truly being defrauded because they are making decisions based upon information with significant asymmetry. In some cases, accountants have failed the public in this regard. Accounting scandals tend to happen when pressures are brought to bear on accountants, and corporate executives are able to get away with almost anything. Take, for instance, the TESCO scandal that recently put people in jail. A New York Times article from late last year entitled “3 Former Tesco Executives Charged With Fraud Over Accounting Scandal” describes the way in which three executives colluded to overstate quarterly profits by as much as 263 million pounds. This is a massive number, even for the company that has the highest market share of grocery stores in the UK. By overstating these figures, the company was giving a sense to investors that it was on much more solid footing than it actually was. This could have pushed the share price higher in the interim, but also caused problems down the road for the company.

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In cases like TESCO, as with the ENRON scandal many years before in the United States, accountants were unable to stem the tide within a corporate culture where they were either pushed out or overruled. In the ENRON scandal, an accountant within the company’s risk department recognized that deep irregularities were apparent. She presented information to her superiors, and even went up the chain of command when no one seemed to be doing anything. In that case, she saw herself as a person who was charged with the duty of protecting the public from what she saw as being wrongful conduct on the part of the company. In many different ways, the woman was told that she needed to stop looking, to be quiet, or to keep her claims to herself. There were attempts to coerce her to keep the information within the company. The situation as complicated by the fact that ENRON hired an accounting firm to help look into its books. Arthur Andersen, then one of the “Big Five” accounting firms, was in charge of ensuring that the books were correct, but even Arthur Andersen became complicit in the scam. That firm was brought to its knees by the scandal, and went under a short time after. The situation demonstrated the reality that an accountant’s job is to present information in a fair and fully manner to the general public so that people might be able to make good decisions with their money. One can see in that situation and many others how this duty played itself out on an individual level for one woman within the ENRON team, and how it failed to play itself out for an entire firm of highly talented accountants otherwise.

While the role of the accountant should be to look after the public and ensure the proliferation of the financial truth, there are real-life pressures that can make this difficult. Accounting firms like Arthur Andersen, for instance, need the business from companies like ENRON. This gives them a conflict of interest, and more, it gives them incentives to do what corporate executives want rather than actually doing the independent work they have been contracted to do. The same is true for individual accountants who are working in-house with companies. While their ultimate duty is to the truth and to the standards set forth in the ethical codes of the field, they actually have duties to themselves and their families, as well. There are in many cases corporate cultures built upon the idea of putting pressure on people within companies to ensure they are doing exactly what the company wants. Without this pressure, it is more difficult to control the situation, and executives who do the wrong thing can find themselves implicated in scandal.

Looking at the world of accounting over the last few years, it might be difficult to understand that the job is to represent faithfully the information that the public needs to know. Accountants are like curators at museums. They are there to make sure that whatever has happened, it is appropriately documented and brought to light. This role is invaluable in a world where investors need this information in order to make good decisions. Without accounting, the markets cannot function and the public will not trust companies. Still, some of the pressures and conflicts put on accountants has compromised their ability to fulfill these duties in many cases.

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