Mediating Interests: The Accountancy Bodies' Responses to the McFarlane Report

There is now a considerable literature on the significance for accountants of their being accepted as a profession. The claim that they have regard to ‘the public interest’ in their activities is a central feature of the accountancy bodies’ claims to being accepted as a ‘profession’. This, they argue, distinguishes them from trade associations and trade unions. The claim is significant for both their economic and symbolic value. This paper examines the accountancy bodies’ claims by examining their responses to the 1992 publication of a discussion document The Future of Auditing by the Auditing Practices Board. Responses by four major professional bodies are analysed in detail. It is concluded that most of them do not attempt to redeem the claim to have regard to the public interest. Instead, they are mainly concerned to promote their members' private interests, frequently by advocating policy measures that will advance their own members' interests at the expense of those of other accountancy bodies. The significance of the contradiction between the transparency of this advocacy and the considerable effort expended in claiming to act in the public interest is discussed.     

The disciplinary process of the accounting profession: protecting the public or the profession? The Québec experience

The voluntary self-regulatory system of the accounting profession was criticized in recent years for its lack of effectiveness, of public representation, and the conflict between the profession's desire to protect its industry and its “role as self-regulator and protector of the public” (Coofee, Working Paper, Columbia Law School, 2001, p. 22 (available on SSRN Electronic Library at id=270944)). This study examines the role of disciplinary activities of the profession in protecting the public interest in the Canadian province of Québec, a jurisdiction where, although the profession is self-regulated, several rules are imposed by the government, including mandatory public participation and oversight by a regulatory agency.My results indicate that at the trial stage, which is heavily regulated and where public participation is high, public-interest violations predominate, are considered more serious than private-interest violations, and result in more severe sanctions. At the inquiry stage, which is characterized by a lower level of public involvement and a high degree of discretion, the results indicate that the decision of whether or not to prosecute a case depends on the cost of the disciplinary process, the notoriety of the case, and the risk that the case if prosecuted results in an acquittal. These findings suggest that the preponderance of the public interest over the private interest depends on the degree of regulation and public participation.     

Money,politics, and the regulation of public accounting services: Evidence from the Sarbanes–Oxley Act of 2002

Because public accounting is a regulated practice, the profession actively manages its relationship with the state. While prior studies have analyzed the profession’s efforts to shape its regulatory environment, few studies have examined the profession’s pointed attempts to influence a specific regulatory policy that affects the practice of auditing in the United States. Drawing on extant theories of regulation and political economy, this study investigates the rationality and effectiveness of political action committee (PAC) contributions paid to members of the US Congress by the US public accounting profession during the policy formulation period of the Sarbanes–Oxley Act of 2002. Based on the results of empirical tests, we conclude that the US profession strategically manages its relationship with the federal government, in part, through direct involvement in the financing of political campaigns. Furthermore, the profession’s pattern of contributions implies an ideologically conservative as well as a professional regulatory motivation for providing financial support to federal legislators. Thus, although the US profession continues to proclaim the primacy of its public interest orientation, it does not appear to be politically neutral when attempting to influence public policy.     

The role of auditing in the fight against corruption

The purpose of this paper is to analyze how various types of auditing may contribute to fight corruption. While previous literature has primarily addressed auditing's ability to prevent corruption, this paper systematically explores auditing's potential to detect corruption. It argues that financial auditing has excluded corruption from the definition of fraud and instead classified it as ‘non-compliance with laws and regulations’. The main arguments for this exclusion is that corruption leaves no material errors in financial statements and no evidence for the auditor to follow. The paper refutes this, arguing that commercial and political corruption creates misstatements in the financial statements of the corruption giver's organization as well as the corruption receiver's organization. Thus, if auditing is to gain a more prominent role in the fight against corruption, auditing standards must include corruption in the definition of fraud, private and public sector auditors need to cooperate and exchange information, auditing techniques to detect corruption should be employed, and the auditing profession must embrace effective preventive measures such as anti-corruption certifications.     

Acting in the public interest: accounting for the vulnerable

This article seeks to initiate research around the potential roles of the accounting profession for tackling the challenges of the vulnerable. Its backdrop is the current consideration of the profession’s public interest role. The importance of dialogue around the public interest role is evidenced by the increasing levels of vulnerability, even within developed countries. Accounting underpinned by broader values has potential to provide knowledge of issues relating to the vulnerable. However, the accounting profession has only engaged with such potential to a limited degree. The article overviews existing knowledge and areas within which more research is required. In order to illustrate the potential for such research, initial findings from two case studies of homelessness (an example of the vulnerable) provide evidence as to the importance, and challenges, of accounting for the vulnerable. This article highlights the need to: take a principles-based approach in defining the vulnerable, undertake an accounting that reflects the lives they value, acknowledge that there are different ways for addressing these issues, recognise that an absence of perfect numbers should not become a barrier to action, and that accounting for the vulnerable is one way that the accounting profession may discharge their public interest roles.     

Critical thinking in the public accounting profession: aptitudes and attitudes

The public accounting profession has called for enhanced critical thinking skills in accounting graduates. However, critical thinking is a term which does not enjoy a universally-accepted definition. This study attempts to identify the critical thinking competencies essential to success in public accounting, and articulates those competencies to facilitate future research aimed at curricular change to meet the needs of the profession. The findings reveal that the profession uses the term critical thinking to refer to a broad set of competencies which includes both cognitive and non-cognitive attributes, attitudes, and behaviors. These competencies are presented as an operational definition of critical thinking useful to accounting education researchers.     

Moral will,accounting and the phronemos

This commentary examines the work of Everett and Tremblay (2014) and their contribution to critical accounting. They examine three key ethical dilemmas that confront modern accounting practice. They examine a set of in-depth interviews, the autobiography of the former Vice President of Internal Audit of WorldCom, Cynthia Cooper, and the documents of the Institute of Internal Auditors (IIA) to shed light on accounting and audit ethics. The dilemmas confronting the accounting profession are complex and multi-faceted, which they place in their socio-economic context using ideas from Pierre Bourdieu. I add ideas from Lovibond (2004),MacIntyre (1984) and McDowell (1993) as well as audit work by Jere Francis. My solution involves accountants acting like the phronemos. The phronemos is Aristotle's term for a wise and ethical person who has the capacity to judge and act appropriately. This ideal of the phronemos is used to examine the ethical ambiguities in accounting that involve analyzing the critical role that accounting curricula, education and pedagogy play in making better judgments. This critical accounting focus was also a focus in Chabrak and Craig's work on accounting education. They examined professional credentialing and professional education. Like Everett and Tremblay, they also point us toward the public interest role of accounting and our societal need for better and informed judgments. The comment concludes with the observation that Aristotle's notion of the phronemos is an ideal type that promotes virtue ethics to address the drift in accounting away from ethics and its public interest role.     

Breaking the link with a university education in the creation of a chartered accountant: The ICAS story

Accountancy is now well established as an elite professional occupation in most parts of the world and much of this status has been afforded through an association with educational qualifications. The assumption that a university education adds value to individuals, employers and society has led to a massive increase in tertiary education both in the UK and internationally and there is a societal expectation in the UK that a university education is the norm rather than an opportunity reserved for the academically elite. However, within this context, the chartered accounting profession in Scotland (ICAS) is considering opening up training to school leavers and other non-graduates as part of its ‘Fast Forward to 2010’ strategy. Evidence from the sociological literature suggests that any alteration in the educational composition of the members of a professional group may adversely impact upon that group's status and standing in society. In turn, any change in the educational qualifications of the members of a profession risks influencing the perceptions and aspirations of potential recruits.In this study we seek to further our understanding of how potential recruits perceive and evaluate both university education and the accountancy profession as an occupational group. In addition we consider how the school leaver route may be viewed by potential recruits in terms of its impact upon individuals' career aspirations and the overall status of the profession. By collecting data from school pupils from both the public and the private educational sector and first year and final year university undergraduates from a ‘traditional’ and ‘new’ university this study has identified some of the possible consequences of the ICAS proposal and provides insights relevant to an understanding of the professional identity of CAs in the 21st century. As such, our insights may serve to assist policy-makers in understanding the potential consequences of any changes in the educational requirements of future recruits.     

Internalization versus externalization of the internal audit function: an examination of professional and organizational imperatives

This paper examines the recent trend towards the outsourcing of internal audit services to the public accounting profession. Here we draw from two dominant literature perspectives (the sociology of professions literature and the outsourcing literature) to examine this clash between the public accounting profession and the internal auditing profession over the provision of internal audit services. Two major research propositions are postulated from which to consider these issues. These propositions concern themselves with the efforts of both the public accounting profession and the internal audit profession in this outsourcing debate. We examine these professions both in terms of volitional professional behavior (as espoused in the sociology of professions literature) and organizational arguments (inherent advantages and disadvantages of the externalization of work as typically espoused by the outsourcing literature).     

Traditional accountants and business professionals: Portraying the accounting profession after Enron

Society’s perception of the legitimacy of the accounting profession and its members is grounded in the verbal and visual images of accountants that are projected not only by accountants themselves but also by the media. The paper uses the critical literature on stereotypes to examine how books written for a general readership on Enron and other recent corporate failures portray accountants and accounting, and the implications their authors draw for corporate governance and the survival of the financial system. The paper explores how commentators have analyzed the changing activities of accountants (including the rise of consulting) and have contrasted the personalities of “founding fathers” of the US accounting profession with their early 21st-century successors. The paper concludes that changing stereotypes of accountants are evidence of “negative signals of movement” for accounting as a profession.     

Public Interest, Ethics, and the Balanced Scorecard: Implications for the Accounting Profession

The accounting profession bos been grappling with the issue of public interest responsibility for a number of years. The aim of this paper is to examine how a balanced scorecard (BSC) model can be used by the accounting profession to more effectively incorporate a public interest responsibility in its strategic framework. By using a BSC model, the paper provides an integrated framework for translating strategic values into a comprehensive set of objectives, performance measures and improvement actions .     

Accounting and the Economic Reforms in New Zealand: A Study of the State/Profession Relationship

This paper examines some aspects of the developing relationship between the state and the accounting profession in New Zealand focusing on a period when a major programme of economic reform was implemented. The paper suggests that accounting facilitated the macro-micro interface by providing the link between the set of values highlighted through the reform process and the internal workings of organisations while benefiting from the involvement in the reform process. It also points out that the ideological shift and the associated values entrenched in the reform programme provided the environment that motivated and enabled the profession to introduce significant strategic and structural changes. Through the reform process, the accounting profession in New Zealand has changed from the traditional ideal type of established profession to a profession that can adapt to a changing environment. This strategy suggests the emergence of the accounting profession as a new group of "organic intellectuals", that is responsive to the needs of its members and the ever changing surroundings.     

The effects of personality traits on digital transformation: Evidence from German tax consulting

Digitization is said to strongly disrupt business and professional life. Especially tax consulting has aroused public interest in this respect. Frey and Osborne (2017) even go so far as to predict that tax consulting will become obsolete. Although these statements are misleading without further interpretation, there is no denying the fact that some change in the accounting and tax profession is inevitable. In Germany, however, business digitization currently does not seem to be urgently necessary in the tax consulting field since this profession is protected by law from competition. Thus, by examining the digitization efforts of German tax consultants we are able to exclude almost all effects of outside pressure and therefore take a look at intrinsic motivation. This study focuses on psychological factors and explores the relationship between tax consultants' Big-Five personality and their level of digitization. Personality is measured using the ten-item Big-Five inventory provided by Rammstedt and John (2007). We develop a digital maturity model based on 20 questions relating to digitization in business and tax consulting. After carrying out a factor analysis, five factors are extracted. To interpret our results, we develop two business model transformation indices as well as an overall digitization index. Our analysis is based on a survey of 968 members of the chamber of tax consultants (Steuerberaterkammer) in Munich, Germany. We are able to show that tax consultants scoring high on extraversion and openness to experience and low on neuroticism exhibit a higher level of digitization. This is, to the best of our knowledge, the first study to discuss intrinsic motivation and digitization in an accounting context. Moreover, an index for digitization as a whole and two business model transformation indices are provided, shedding light upon a hard-to-grasp phenomenon.     

Some comments on the impact of the economic power exercised by the AICPA and the major accounting firms

This paper explores some of the effects on the accounting profession and accounting education of the economic power exercised by the AICPA and the major accounting firms. As their economic power has increased, their concern for their responsibilities to the public interest appears to have decreased. Instead they have exercised their economic power to dominate their environment by controlling accounting education, the other accounting professions, and the regulation of public accounting to protect and enhance their private interests.     

Quis Auditoret Ipsos Auditores? Can Auditors Be Trusted?

This article explores the extent to which the audit profession and its practices promote public trust in audits. Differences between auditors and non‐auditors as to beliefs about the role of a financial report audit have long been discussed under the term ‘expectations gap’. However, this prior debate has tended to focus on non‐auditors’ alleged misunderstanding of audit processes without a corresponding understanding on the part of the profession as to why the public might place its trust in auditors. The study explores the nature of trust in an auditing context and notes that like any profession, auditing faces practical limitations but the inability to directly observe the conduct of audits combined with professional status create an ‘over trust’ expectation in the public. Changes in audit practices and culture have also exposed the profession to criticism. The article seeks to offer one approach by which the auditing profession can restore public confidence; namely, evidence‐based practice, which has proven effective in improving the quality of practice in medicine. Adoption of a reflective evidence‐based approach to audit practice offers the promise of greater audit quality and an improvement in the profession's accountability and public confidence.     

Recalling the Public Oversight Board (1977–2002) and winners of the John J. McCloy Award

The Public Oversight Board (POB) was an independent, private sector body that, between 1977 and 2002, monitored and reported on the self-regulatory activities of the SEC Practice Section of the Division for CPA Firms of the AICPA. In retrospect, the POB served an important developmental purpose prior to legislation that established the Public Company Accounting Oversight Board (PCAOB) in 2002. As a part of its activities, the POB began in 1989 to honor individuals who had made major contributions to auditing practice. This paper features profiles of individuals who contributed to the development of financial auditing in the United States and who were nationally recognized when the POB selected them as recipients of the John J. McCloy Award. The McCloy Award, given to recognize individual contributions to the achievement of audit excellence by the POB between 1989 and 2001, honored those who advanced the activities of the external auditing profession. McCloy, for whom the award was named, served as the POB's chairman from its inception in 1977 to 1984. As a diplomat and public servant, this non-accountant accumulated a distinguished record of service over his career. The McCloy Award winners were the exemplars of public accountability. Winners had a mix of backgrounds; some had been president or chairman of the AICPA or had won the AICPA Gold Medal for Distinguished Service. Still other McCloy winners were not involved with publicly-held clients on a regular basis, or were not practicing accountants, but whose recognition was merited because of their insistence on the public accountability of the auditing profession. Regardless, the McCloy Award recipients represent those who contributed to the effectiveness of the public auditing process in the United States. To date the PCAOB has not elected to continue the McCloy Award or to establish a similar recognition.     

Modernity,space-based patriarchy and global capitalism: implications for Syrian women accountants

This paper contributes to the current literature on gender, modernity, patriarchy and accounting by bringing insights into the experiences of women accountants in Syria: an Arab and predominantly Muslim country. By doing so, this paper enhances understanding of women's interrelationship with accounting beyond the Anglo-American context that currently dominates the research agenda on gender and accounting. Face-to-face interviews with 20 women accountants were carried out in Syria in 2008. This study reveals that in the context of global capitalism and patriarchy, factors of class, alienation, tradition and economic difficulties are contributing to the subordinated role of women in society in general and in the accounting profession in particular. The increased commercialisation of the accounting profession in the Arab world, including Syria, has resulted in socio-economic hierarchies and discriminatory practices, where interviewees spoke of discrimination based on class, sex and on the knowledge held. Further, despite advances to Syrian women's access to the public space, the public space for Syrian women accountants often operates based largely on how men act in this space. Men (and socially/financially advantaged women) often occupy aspects of the public (accounting) space that are perceived to be more significant and better financially rewarded. Thus, the dichotomy of public/private spaces in this study is understood in a broader sense to incorporate the symbolic as well as spatial aspects. This paper concludes that the accounting profession's aspirations need to be challenged through critically evaluating and redefining work roles and values to ensure emancipation for women. Furthermore, in the Arab world, dominant patriarchal structures will only be challenged and changed when obstacles preventing women from enjoying their human rights and contributing fully in society are addressed and eliminated.     

Perceptions of master of accountancy graduates concerning their job search and employment experiences with public accounting firms

The public accounting profession has been calling for a 150-hour education requirement for new entrants to the profession for over two decades. The rationale for increasing the entry-level education requirement is that since the business world is more dynamic and complex than ever before, new professionals need broader knowledge and skills to be able to cope. Graduates of master of accountancy (MSA) programs would appear to be the type of students that public accounting firms are seeking since they often have intellectual breadth gained through undergraduate degrees in areas other than accountancy, current technical competence in accountancy, and frequently have work experience. This paper reports the results of a study undertaken to determine the perceptions of MSA graduates concerning: (1) how recruiters from public accounting firms viewed their non-accounting academic backgrounds and work experience; (2) how well prepared they were for their first jobs in public accounting as compared to traditional undergraduate accounting majors; and (3) any bias they experienced during the hiring process. The results of this study indicate that although a majority of the respondents who desired careers in public accounting were able to secure jobs in the field, they believed it was harder for them to get jobs in public accounting than their peers with just undergraduate degrees. The majority did not feel that public accounting firms viewed their non-accounting academic backgrounds and work experience favorably. Although more than half believed that they were paid more than their peers who held only undergraduate degrees, less than half felt that they were given more responsibility. The results also indicate that older MSA graduates believed that they were subject to age bias during the interview process.     

Economic analysis of accountants' ethical standards: The case of audit opinion shopping

The public accounting profession presently employs a strict system of ethical standards that relies upon explicit rules plus monitoring and enforcement procedures that penalize violations of the rules. An alternative approach to ethical standards that the public accounting profession may wish to consider is a laissez faire approach. Instead of rules and penalties to enforce desired behaviors, the laissez faire approach utilizes moral training and leadership to motivate professional accountants to act in the public interest, for the sake of the profession as a whole. The theoretical basis for the laissez faire approach is a growing body of evidence in economics and related disciplines that people often take actions to further the collective welfare of a group despite a detrimental effect on their own selfish interests. This paper offers a framework for examining the relative economic merits of the strict and laissez faire approaches to ethical standards within the accounting profession. The framework is based on game theory, and the setting employed in the paper involves opinion shopping by audit clients. The paper finds that the effectiveness of a laissez faire approach to ethical standards, at least in the opinion-shopping scenario, is related to (a) the ethical climate, which refers to the likelihood a given independent auditor will choose the ethical action, (b) the frequency of independent auditor rotation, which reduces the economic advantage of being the incumbent auditor, (c) the explicitness of Generally Accepted Accounting Principles (GAAP), which reduces uncertainty over whether or not a particular act is ethical, (d) the availability of opportunities to discuss ethical choices with rival auditors, and (e) disclosure requirements associated with auditor–client disputes over material accounting issues.     

Could Accounting Have Saved Itself from the Antitrust Laws?Revisiting the Antitrust Investigations into the US Accounting Profession 1966–1990

While the role of lobbying in the US public accounting profession has been the subject of several studies, what has not been addressed is the profession's historic reluctance to lobby and the impact this may have had on the profession. This paper provides a case study of public accounting's interaction with government and the need for the profession to articulate the impact of government policies on the practice of accounting. It reviews and assesses the antitrust investigations by the US Justice Department and Federal Trade Commission that led to the repeal of the profession's anticompetitive ethics rules, rules that had governed American public accounting for most of the 20th century. These investigations are often blamed for an increased competitive atmosphere in public accounting that prioritized growth and profitability over quality in attest services. Using records obtained from Freedom of Information Act requests and archival sources, I attempt to reconstruct the US Government's motivations and the efforts of the American Institute of CPAs. I find a troubling lack of understanding of the audit profession by executive branch regulators and Congress and a reticence by the American Institute of Certified Public Accountants to advocate for the profession that led to what many observers see as a profound misapplication of the antitrust laws. While this study deals only with the US, similar regulatory changes took place in Canada, the UK, Australia, and New Zealand.