Patrick T. Kelly and Christine E. Earley
This chapter examines ethical leaders in accounting. We analyze the actions of individuals broadly associated with the accounting profession who have been presented with…
Abstract
This chapter examines ethical leaders in accounting. We analyze the actions of individuals broadly associated with the accounting profession who have been presented with challenging situations and evaluate their responses to difficult circumstances. Our subjects are transformational leaders who have demonstrated a commitment to the public interest along with the moral motivation and character to persevere under challenging circumstances. By providing examples of leaders who have had a positive impact on the public accounting profession, both students and practicing accountants will learn how ethical leadership can make the profession stronger.
Here you will find practical analysis of the rule and how it will work in the real world. It has a particular application to compliance officers who are charged with that…
Abstract
Here you will find practical analysis of the rule and how it will work in the real world. It has a particular application to compliance officers who are charged with that responsibility to see to it that the rule is properly implemented and enforced. There is also some forward looking analysis of what problems or questions the new rule may bring.
Jacqueline A. Burke and Hakyin Lee
Mandatory auditor firm rotation (mandatory rotation) has been a controversial issue in the United States for many decades. Mandatory rotation has been considered at various times…
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Mandatory auditor firm rotation (mandatory rotation) has been a controversial issue in the United States for many decades. Mandatory rotation has been considered at various times as a means of improving auditor independence. For example, in the United States, the Public Company Accounting Oversight Board (PCAOB) has considered mandatory rotation as a solution to the independence problem (PCAOB, 2011) and the European Parliament approved legislation that will require mandatory rotation in the near future (Council of European Union, 2014). The concept of implementing a mandatory rotation policy has been encouraged by some constituents of audited financial statements and rejected by other constituents of audited financial statements. Although there are apparent pros and cons of such a policy, the developmental process of such a policy in this country has not necessarily been an open-democratic, objective process. Universal mandatory rotation may or may not be the ideal solution; however, an open-democratic, objective process is needed to facilitate the development of a solution that considers the needs of all major stakeholders of audited financial statements – not simply accounting firms and public companies, but also investors. The purpose of this paper is to critically examine key issues relating to mandatory rotation and to encourage and stimulate future research and ongoing dialogue regarding this issue, in spite of efforts by certain constituents to silence the issue. This paper provides an overview of the various reasons, including practical, theoretical, political, and self-motivated reasons, why a mandatory rotation policy has not been implemented in the United States in order to address the potential conflict of interest between the auditor and client. This paper will also discuss how some deliberations of mandatory rotation have been flawed. The paper concludes with a summary of key issues along with two approaches for regulators, policy makers, and academics to consider as ways to improve the process and address auditor independence. The authors are not advocating for any specific solution; however, we are advocating for a more objective, unified approach and for the dialogue regarding auditor rotation to continue.
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The integrity of audited financial statements has been widely criticized, especially over the last decade. Arthur Levitt, then chairman of the Securities Exchange Commission…
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The integrity of audited financial statements has been widely criticized, especially over the last decade. Arthur Levitt, then chairman of the Securities Exchange Commission (SEC), brought widespread attention to the practice of earnings management in a speech he delivered in 1998 (Levitt, 1998). His successors in the SEC have also focused on the issue. The business media has also devoted much coverage to the topic and criticized the creative accounting practices of many well-known companies. These factors, in conjunction with the collapse of Enron and WorldCom, have probably engendered a loss of confidence in the credibility and transparency of audited financial statements. Two months after the Enron accounting irregularities became public, a Wall Street Journal article attributed a 250-point decline in the Dow Jones Industrial Average to concerns over widespread accounting misconduct (Browning & Weil, 2002). These same concerns were cited as a significant factor for the downward trends in the equity markets almost a year later (Browning & Dugan, 2002). The business media has offered numerous opinions such as these as to how investor confidence in audited financial statements has declined. However, a review of the literature found no corresponding empirical study conducted subsequent to the Enron and WorldCom revelations. Accordingly, this study examines the extent to which individual investors’ perceive that their attitudes involving the quality and usefulness of the information in audited financial statements have changed as a result of these events. The results indicate that investors perceive that a notable decrease of confidence in various dimensions of the quality and usefulness of this information has occurred. The findings indicate that accounting regulators and other parties should undertake actions to help restore investor confidence.
Daniel Diermeier, Robert J. Crawford and Charlotte Snyder
The cases describe the demise of Arthur Andersen, a firm that had long set the industry standard for professionalism in accounting and auditing. Once an example of strong…
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The cases describe the demise of Arthur Andersen, a firm that had long set the industry standard for professionalism in accounting and auditing. Once an example of strong corporate culture with a commitment to public service and independent integrity, Andersen saw its culture and standards weaken as it grew explosively and changed its mode of governance. The (A) case describes a crisis precipitated by the admission of Waste Management, a major Andersen client, that it overstated its pretax earnings by $1.43 billion from 1992 to 1996. The resulting Securities and Exchange Commission (SEC) investigation ended with Andersen paying a $7 million fine, the largest ever levied against an accounting firm, and agreeing to an injunction that effectively placed the accounting giant on probation. Students analyze the causes of Andersen's problems and advise Andersen leadership. The (B) case covers Arthur Andersen's relationship with Enron, one of the great success stories of the “new economy” boom. When Enron's aggressive use of off-balance sheet partnerships became impossible to hide in autumn 2001, news reports stated that Andersen auditors had engaged in extensive shredding of draft documents and associated communications with Enron. Students are asked to act as crisis management consultants to Andersen CEO Joe Berardino. The (C) case details Andersen's collapse following its indictment and conviction on criminal charges of obstructing justice in the Enron case. Its conviction was later overturned by the U.S. Supreme Court on narrow technical grounds, but by then Andersen had ceased to exist, eighty-nine years after Arthur E. Andersen had taken over a small accounting firm in Chicago. Students can focus on the impact of media on a reputational crisis.
Students will: Identify the teachable moment in a crisis that leaders can leverage as an opportunity to improve a firm's reputation or core identity, to reinforce values, and to drive change, Understand the impact on crisis management of the media landscape and regulatory decision-making, Realize the fragility of corporate cultures and the need to actively maintain them, especially during difficult times,
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Mark W. Dirsmith, Sajay Samuel, Mark A. Covaleski and James B. Heian
The sociology of professions literature has theorized that the professions are undergoing a dramatic transformation from being traditional professions to “entrepreneurial…
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The sociology of professions literature has theorized that the professions are undergoing a dramatic transformation from being traditional professions to “entrepreneurial professions” populated by “knowledge workers.” In part, this transformation is associated with the commodification and commercialization of professional endeavor.
Our purpose is to enlist the processual ordering perspective to examine the ongoing transformation of the Big 5 (and following the collapse of Arthur Andersen during our field study)/4 public accounting firms to become entrepreneurial firms populated by global knowledge experts. More specifically, we focus on the inter-play of power and meta-power across three moments of the social construction process – externalization, objectivation, and internalization – through which the ethos of entrepreneurialism is being socially constructed within these firms, their individual members, and in the public accounting profession. Finally, we explore impressions gleaned from our qualitative, naturalistic field study.
James C. Lampe, Andy Garcia and Kerri L. Tassin
This article is the third in a trilogy of articles that discuss the professionalism (or deprofessionalism) of the accounting profession. The first examines the slow uphill climb…
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This article is the third in a trilogy of articles that discuss the professionalism (or deprofessionalism) of the accounting profession. The first examines the slow uphill climb of accounting and auditing practice to the level of being recognized as a highly trusted profession. The second examines the stagnation in professionalism leading to deprofessionalization of the accounting profession. This third article looks at the resulting directionless efforts of accounting and auditing firms in the wake of major deprofessionalization events. The interest in this study is the time period immediately following the passage of the Sarbanes–Oxley Act (SOX) of 2002 which is described in this paper as the “Post-SOX” history of public accountancy in the United States. During this time period, nearly equally mixed activities of professionalism and deprofessionalism have resulted in a status quo with directionless efforts doing little if anything to reverse decline in professionalism. Public accountants continued to experience conflict with the Securities and Exchange Commission (SEC) over independence rules. The large Certified Public Accountant firms generated controversies and squabbles concerning “auditing and consulting,” while at the same time they faced questions regarding the marketing and selling of aggressive tax shelters. In addition, most of the self-regulating aspects of the profession declined dramatically following passage of SOX. While initially both tax fees and audit fees of CPA firms increased during this time period, concerns are again arising as the large CPA firms more recently have renewed the emphasis on advisory services. While revenues have both increased and changed in composition during the post-SOX era, public opinion has maintained a status quo. The post-SOX era has also seen a weakening in the Code of Conduct, providing more liberties for CPAs to maximize self-interest. Meanwhile, the PCAOB faced constitutional challenges, while at the same time the AICPA experienced strong divisions in its membership. To provide some sense to these directionless efforts, this study, similar to the prior two articles in this trilogy, concludes with a summary analysis based on the nine SOCRECELIST criteria, and the question whether public accountants have learned their history lesson.
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Humanity is facing some serious and troubling questions that need to be addressed and reflected on by concerned politicians, thinkers, and general public alike most urgently if we…
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Humanity is facing some serious and troubling questions that need to be addressed and reflected on by concerned politicians, thinkers, and general public alike most urgently if we are to survive as a species. Terrorism is on the rise in an unprecedented fashion. Unimaginable crimes have been committed by church leaders. Some Muslim clerics have contributed to unprecedented fanaticism of the masses of their followers. Huge corporations such as Enron have overstated their income by millions and even billions of dollars in order to obtain easy bonuses for a few executives at the expense of their employees, their stockholders, and the general public. Politicians have abused the trust of the voters by accepting huge contributions from corrupt corporations. Humanity is in urgent need of finding solutions to some chronic and unsettling problems more than ever before.
BRANDON BECKER, STUART KASWELL, JUDY POPPALARDO and CHERIE MACAULEY
The growth of new trading opportunities, advances in technology, and investor interest in fast, cheap execution have all challenged the dominance of traditional exchanges and…
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The growth of new trading opportunities, advances in technology, and investor interest in fast, cheap execution have all challenged the dominance of traditional exchanges and encouraged the development of alternative trading systems. This article explores the vigorous debate among market participants that has ensued, and outlines their various positions on how these developments should impact the existing regulatory structure.
History shows a repetitive cycle of corporations over‐reaching their boundaries and causing social turmoil. Governments are faced with the task of reining them in by enacting…
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History shows a repetitive cycle of corporations over‐reaching their boundaries and causing social turmoil. Governments are faced with the task of reining them in by enacting regulations. Investors are faced with the task of preserving their individual assets. Corporate governance remains the core issue in these battles. This paper examines the origins of corporate governance and the events during the twentieth century that have failed to align the interests of management and shareholders.