Analysis of Traditional Accountants and Business Professionals by Carnegie and Napier - Article Example

Title: Traditional accountants and business professionals: Portraying the accounting profession after Enron. Journal: Accounting, Organizations and Society. Authors: Garry D. Carnegie, Christopher J. Napier Date: 2010 Introduction Accounting forms the backbone in the operations of profit-making and non-profit making corporations. Accounting forms a foundation under which financial institutions operate, able to evaluate their financial standing and its capacity to borrow. Moreover, the firm is able to find out its position against competitors and its ability to stand against financial, legal, political, social and economic crisis. Good accounting can only be achieved by honesty, accountability and reliability of accountants, auditors and proper accounting frameworks in an organization (Gottschalk, 2010). Thus, the aim of this paper is to analyse and discuss article presented by Carnegie and Napier. Objectives Accounting as a discipline and practice underwent a historic transformation after the collapse of Enron Company which was closely followed by the downfall of the WorldCom due to bankruptcy necessitated by accounting malpractices, thus opening a Pandora’s Box in issues relating to auditing and financial reporting (Carnegie & Napier, 2010). This resulted in the public lacking confidence in auditing, accounting practices, financial reporting and regulations and legislations reinforced in corporations. The objectives of the study is primarily to evaluate the importance of auditors being honest, trusted and having integrity, and the pressure they get involved in caving in to corporate manipulation. The second objective is to analyze how far accounting should indulge in consultancy services. Independence of auditors and importance of having standardized financial reporting forms the third objective of the study. The final objective of the study is the importance of books, articles and opinions presented not only by professional accountants, but by financial analysts, journalists, among others. Bodies of Literature used by Carnegie and Napier in their Article Carnegie and Napier in their article the traditional accountants and business professionals: Portraying the accounting profession after Enron, have used materials from books and contents from other journals to support their arguments and the outcomes of the downfall of Enron, evaluating the principles guiding accounting practice, and the integrity and ethics in financial reporting, auditing and regulations in corporations (Carnegie & Napier, 2010). According to a column titled ‘ the man who put auditing first’ written by Parker in the Financial times, the book ‘ fat cats and running dogs ; the Enron stage of capitalism’ authored by Prashad, and the article ‘inside Arthur Andersen: shifting values, unexpected consequences’ written by Squires, McDougal and Yeack, describes auditing as a process that was used to favour a few in expense of a broader public (Squires, et al., 2003). According to the authors, the auditor Andersen shredding the financial statements of Enron although done according to documentation retention policies in the firm, or to protect the public was seen as a misconduct in part of a traditional auditor who is supposed to act in the interest of the public (Prashad, 2002). In order to understand the identity of accountants, the practice of auditing, the image of accounting in pre and post-Enron era, and how the public’s perception of accounting has changed, Carnegie and Napier, identified four categories of books written to explain it. Moreover, analyze the conduct of Andersen. They are the books with an insider account, where an individual present during the running and fall of Enron or who had a direct contact or transaction with Andersen. The other categories of books are books with journalistic accounts derived from direct interviews, court proceedings, and press articles and cuttings obtained by reporters. Books with scholarly reflections are the third group that entails opinions and arguments by academics. The fourth category is books based on opportunistic authors who used Enron in their topics and titles or highlighted it in passing, as a marketing strategy to sell their books (Parker, 2005). Carnegie and Napier used contents from variety of articles to suggest that public’s opinions on the image of accounting are based on the character and integrity of accountants themselves and not the accounting practice. Moreover, the books written post- Enron, Carnegie and Napier agrees with Squires that they concentrated more on Enron’s extensive usage of market to market accounting, the relationship between Andersen and his clients, the unethical act of Andersen to shred financial statements and usage of off-balance sheet processes in the financial reporting of Enron. In the books ‘ joking apart: the serious side of to the accountant stereotype’ by Bougen, ‘recurring issues in auditing’ by Chandler and ‘history of accounting’ authored by Chatfield and Vangermeersch, supports Carnegie and Napier that accounting has evolved from the initially boring profession to a more exciting one (Chandler & Edwards, 1994). The accounting fraternity has put efforts to changing the stereotypes of accounting, and the perception of the public on public accounting firms, by separating auditing from consultancy work, which exposes auditors to greed, pursuit of personal gratification, and corporate manipulation of auditors. The research design of this study is cross-sectional design because auditing malpractices were cited not only in Enron, but in firms such as HIH Australia, WorldCom USA, Parmalat Italy, EALS UK, and Royal Ahold Netherlands (Chandler & Edwards, 1994). The Main Findings of the Study Lessons learnt post-Enron, the character of Andersen as an auditor, the public’s perception of the accounting and auditing based on information received from academics, opportunistic authors and journalist has formed a basis on evaluating and setting up best practices in accounting profession (Bougen, 1994). From the study, it is apparent that the character and actions of a few and stereotyping of traditional and business professional has developed a system of behavior or norm under which accountants and auditors are judged on. Among other findings is that accounting has changed dramatically from a boring profession to a practice that holds high stakes and has the critical role of stabilizing the thin line between the interests of the state and the private sector. Moreover, the change has been realized by moving from the traditional stereotype to business professional stereotype which is not necessarily a good thing. The study has found out that traditional accounting is based on purely placing the interests of the public first, and that clients do not determine the process of auditing but addressed in the process of acquisition of public’s interest. A traditional accountant takes caution, is risk-averse and believes that the client is not necessarily right all the time (Bougen, 1994). The business professional accounting the study has find out, is based on accruing higher profits for the clients, adding values to them through auditing processes and systems like offering auditing consultancy that helps clients exploit avenues that will give them more money, give advice on taxation and audit and assurance. The findings are that the only way the business professional accounting helps the public is through increasing capital market’s efficiency among other things provision of advice to clients on ventures that maximizes profits that results in creation of social welfare (Chandler & Edwards, 1994). Other findings are that in the attempt of professionalizing accounting, stakeholders need to trend carefully lest they lose the confidence of the public that they desperately seek to restore by creating negative signals events which can turn out to be debilitating and global. Implications of the Study The study has implications on accounting theories and practice. Accounting theories and practice suggests that accounting should be viewed as a profession. The study has evaluated that financial analyst, the media and the public views accounting more of an industry than a profession. Accounting practice and its theories implies that accounting should purposely be done for the interest of the public and that the needs of the client should be considered in passing, to pursue a wider objective to satisfy the interest of the public (Parker, 2005). The study has disputed this fact by bringing into play the stereotype of business professional accounting that seeks to fulfill and please the client by helping them maximize their profits rather than meets the interests of the public. The study has reinforced the principles of accounting by stressing the great need for accountability, honesty and trust of auditors in financial reporting (Squires, et al, 2003). The study highlights the need for legislation and policies in accounting firms to act as guideline to auditors and avoid malpractice. The study implies that although auditors are to blame for the bad image associated with accounting and financial reporting, legal frameworks, corporate regulations and firm’s policies in regards to storage, filing and deletion of data are also to blame. The media has moreover, played a key role on how accounting is perceived, by dwelling so much on the wrong rather than the good, auditors have done(Squires, et al., 2003). The study has implied the need to be careful when implementing the professionalizing accounting process. Finally, the study implies auditing requires preserving its independence, by facing up to the challenge of being its own watchdog. This can be done by accountants being honest, reliable, and trustworthy and puts the interest of the public foremost that of the client during the process of professionalizing accounting, and establishing policies and legislations to guide during auditing and financial reporting (Prashad, 2002). Conclusions Effective accounting is only possible if there are accountable, reliable, honest and trustworthy frameworks and auditors in the auditing process. Accounting practice and auditing has evolved from the traditional accounting stereotype of keeping the interest of the public first to business professional accounting stereotype that seeks to add value to the clients irrespective of the adversities to the public. References Bougen, P. D. (1994). Joking apart: the serious side to the accountant stereotype. Accounting, Organizations and Society, 19, 319-335. Carnegie, G. & Napier, C. (2010). Traditional accountants and business professionals: Portraying the accounting profession after Enron. Accounting, Organizations and Society, 35: 360- 376. Chandler R. & Edwards, J.R. (1994). Recurring issues in auditing. Professional debate 1875-1900. New York and London: Garland. Gottschalk. P. (2010). White-Collar Crime: Detection, Prevention and Strategy in Business Enterprises. London: Universal-Publishers. Parker, A. (2005). The man who put auditing first. Financial Times, 1 December, 12. Prashad, V. (2002). Fat cats and running dogs: The Enron stage of capitalism. London: Zed Books. Squires, S. E., Smith, C. J., McDougal, L., & Yeack, W. R. (2003). Inside Arthur Andersen: Shifting values, unexpected consequences. Upper Saddle River: FT Prentice-Hall. Read More