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REGULATING THE ACCOUNTING INDUSTRY
INTRODUCTION
The purpose of this paper is to introduce and discuss regulation of
the accounting industry, which is currently self-regulated. Is
regulation necessary, and if so, why?
THE ACCOUNTING INDUSTRY
Currently, the accounting industry is a “self-regulating” industry,
which means they set their own rules, and abide by them within the
industry, with a minimum of outside intervention. The Financial
Accounting Standards Board governs companies. The board sets the rules
and applications accounting firms must follow.
Many experts feel that self-regulation is no longer working, and the
Federal Government needs to place more constraints on accounting
firms. “…non-regulation and deregulation of the financial industries
has gotten us into this mess. Auditors are allowed to receive income
both from auditing and from consulting or ‘management advisory
services’ to the same client, the latter usually being the more
lucrative relationship with more potential for growth” (Amato).
She goes on to say, “The accounting profession does not have any
meaningful system of internal discipline and the private bar has been
constrained by the 1995 Private Securities Litigation ‘Reform’ Act.
The Securities and Exchange Commission has largely ceded its
regulatory power over accounting standards to the private sector”
(Amato). In other words, no one has been watching accounting firms
very closely.
Accounting firms do monitor themselves, there is even a web site for
firms who are concerned about malpractice: AccountingMalpractice.com,
which includes information on risk management and “firewall
protection.” Most industry analysts feel however, that the industry
needs more controls, and the current regulations proposed by the
Securities and Exchange Commission (SEC) are still not enough to
ensure another “Enron Scandal” will not occur. “Even if Pitt produces
a strong regulatory-reform plan, an SEC heavily stacked by the
accounting profession will oversee the new watchdogs. Such industry
influence paved the way for Enron's demise and provides little
reassurance that this fiasco is the last” (USA Today).
Even the SEC has admitted that the industry needs reform. Chairman
Pitt said in a speech in January, “Our disclosure and financial
reporting system is still the best in the world, but it has long
needed improvement. Its inadequacies are more visible after Enron's
failure, and the need for change cannot be ignored any longer” (Pitt).
Clearly, the current system is flawed, if a multi-million dollar
company such as Enron can fool the public, the SEC, and its
accountants, and go broke in a matter of weeks. Arthur Anderson, for
whatever reasons, did not detect the problem, or chose to ignore it.
Either way, the situation has ruined thousands of lives, and changed
the way America (and the world) views accounting firms. I believe in
order to gain the public trust once more, there needs to be a major
overhaul of accounting regulatory practices. Even if the SECs findings
and proposals are not enough, as many people now believe, something
must be done to ensure that this scandal cannot happen again.
The SEC says, “A strong accounting profession is key to our capital
system, and we are firmly committed to assuring that it functions
properly, expeditiously and in the public interest” (Pitt), and I
agree. The accounting industry must also conduct itself with the
highest standards. They must separate accounting functions from
“management advisory” functions, and their conduct must be impeccable.
Without tougher standards, that people can truly rely on, the
accounting industry may never appear trustworthy again.
Works Cited
Amato, Theresa. “How to Prevent the Next Enron Swindle.” Citizen
Works. 21 January 2002.
< http://www.citizenworks.org/citizensagenda.html >
Author not available. “SEC Prescribes Weak Cures for Accounting
Industry’s Ills.” USA Today. 18 January 2002. pp. 14A.
Editors. Accounting Malpractice.com. 2002.
< http://www.accountingmalpractice.com/ >
Pitt, Harvey L. “Public Statement by SEC Chairman: Regulation of the
Accounting Profession.” U.S. Securities and Exchange Commission. 17
January 2002.
< http://www.sec.gov/news/speech/spch535.htm > |
