Essays on Latest Information Regrding The Accounting Profession And Discuss The Future Of The Accounting Term Paper

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Accounting in 21st CenturyAccounting profession has been under severe scrutiny all over the world for a decade ever since the fall of Enron, World Com in the U. S. and HIH Insurance in Australia due to artificially created rosy financial pictures of these publicly owned corporations relying on which the public had invested their money on the shares of these corporations. But for the connivance or negligence of the accounting profession, this could not have been possible. When the so called financial bubble burst, the creative accounting practices of the companies were exposed.

Brief BackgroundHistory of American accounting is traceable to English Accounting which took cues from the accounting concepts of Rome and Egypt. Egypt which had the system of scrutiny of accounts by engaging two taxation officers ultimately resulting in fiscal control was followed suit by Rome by introducing cross checking of each other between the officers in charge of revenue expenditure and expenditure authorization. Thus the practice of keeping two identical records by two different persons to trace mistakes developed. The British adopted this kind of audit in due course.

British Statutory audit has its origins to the medieval practice of verification of trustees-managed farm transactions by outsiders. During the fifteenth century, this practice of independent checking of accounts spread to upcoming publicly owned companies who were accountable to outsider shareholders. Thus the purpose of accounts verification was to keep track of how the companies were run by the independent directors wherein also lay the auditors’ duty to identify financial malpractices disclosed by accounts. (De Ridder J) This led finally to the emergence of enactments in England in 1900s requiring publicly owned companies to be audited by the representative investors. (Chatfield M 1968) A case decided in 1887 (Leeds Estate 1887) paved way for directives mandating audit.

For example, the decision in Leeds Estate case stated that books of accounts of the companies should be verified for the presence and value of reserves. (Chatfield M 1974) Then came the Companies Act 1907 in England requiring the filing of audited balance sheet with the authorities and also to be made available to the shareholders. The Act of 1928-29 stipulated that companies must also produce their annual income statements to the share holders besides segregating current assets from fixed assets in the balance sheet along with the report of auditor for any fresh share offers and mergers planned, and loans to employees.

From 1948, professionally qualified auditors alone could furnish reports to the effect the company’s books audited disclosed the ‘full and fair view’ of its fiscal affairs. Then consolidated financial statements were required to be filed. Gradually also developed, a system of granting auditing tenure at each annual meetings of shareholders. Thus auditor came to be known as an independent authority.

(Chatfield M 1974). The above British tradition being a forerunner to American auditing, the United States relied less on statutory directives and more by creation of professional accounting societies. Thus American Association of Public Accountants (AAPA) came into being on Sept 20, 1887 at which time official title for qualified accountants were not in existence. (Zeff Stephen 1972) The AAPA however was responsible for the enactment of a bill for Certified Public Accountant (CPA) in 1896 which prohibited unqualified persons to use the title of CPA.

Though to begin with no qualification and experience were prescribed for becoming a CPA, interviewing of the applicants for suitability was adopted. (Carey L 1969). Later in 1906 the association published bylaws for ethics and discipline in the profession advising the CPAs not to engage themselves in employment of conflicting interests, and issue soliciting advertisements. Yet the directives were not authoritative enough to enforce discipline among the accounting profession. In 1914, when the Federal agencies wanted to create standards and a register for public accountants who complied with those standards sought to be created, the AAPA reacted by reconstituting itself as the Institute of Accountants in the USA and gazetted the first ever auditing standards for the U. S in the name of Uniform accounting by 1917.

Subsequently in 1923, the institute brought into force rules and procedures for certification of financial statements containing transactions after balance sheet date. This gave rise to rules for professional conduct. Later in 1930 in response to the request of the New York Stock Exchange to improve upon financial reporting in the light of varied accounting practices that prevailed at the time, the said accounting institute enforced five general accounting principles and recommended to the institute to ask the listed corporations to adopt these accounting standards and also to declare their accounting methods.

The exchange adopted these standards for the listed corporations and went one step further requiring them to file their audited financial statements every year along with the scope of the audit. (Carey L 1969) After the creation of Securities Exchange Commission in 1934, it was made compulsory for financial statements of the listed companies to be audited by the Independent Public or Certified Accountant with a power to direct the companies to follow the prescribed accounting methods.

Since the accounting institute was not keeping the accounting methods uniform enough to the SEC’s satisfaction, the latter started trying to develop its own uniform standards of accounting but due to practical difficulties, it issued Accounting Release no 4 informing that if the accounting principles followed by the companies were not supported by authority, their financial statements would be considered as misleading.

By 1940 Code of Professional ethics had emerged and held a member of the accounting profession guilty for the five irregularities listed below. This was known as Rule 5.

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