Does the accounting profession deserve its reputation? Why or why not?
At the time Stephen Zeff wrote this article, the accounting profession deserved it reputation it had developed. From it humble begins in the early 19th century, to 2003 when this article was published, the accounting profession’s reputation became tarnished. At the time the Securities Act of 1933 and the Securities Exchange Act of 1934 were passed the intent was to create accounting standards for publicly traded companies. However as time went by the accounting profession faced scandals and deceit. The immense pressure placed on auditors to generate new revenue by retaining existing customers and generating new leads, clouded their judgement about addressing inconsistencies and asking questions. Greed and the pressure to make a profit, further tarnished the reputation the founders of the “Big 8” firms worked to develop. The accounting profession no longer represented honesty, integrity and accuracy. In a study printed int 1976 “the Big 8 firms lacked independence from their clients (Zeff, 9/2003, Pg 201).” Max Block summed it up in 1982 stating the accounting profession “was a term that lost some of its relevance (Zeff, 12/2003, Pg 267).
Employees of auditing firms were pressured to expand their services to consulting to keep up with their competition. Professionalism deteriorated and auditors became focused on keeping the company’s they were working for happy. Employees that did not meet the demands of the firm were let go. Many auditors did not feel they could question accounting or disclosure treatments. In an effort to increase revenues creative and sometimes questionable accounting techniques were used. As I am sure most of us remember with the fall on Enron in 2001, Arthur Anderson and the SEC signed off on the use of “mark-to-market” accounting, allowing Enron to recognize anticipated profits, without ever having to prove that the profits existed.
With increasing pressure from their clients, auditors became more cut-throat and determined to keep their clients happy regardless of the consequences it may have. With the failure of Enron and the fall of Arthur Anderson, the public lost confidence in auditor to fairly assess a company. I recently watched a video on Enron and gained a better understanding of how big a scandal and cover-up it really was. Enron hid their debt in shell companies and while their motto was ask why, no one did out of fear of being fired. The auditors turned their heads and focused on what the client felt was their best interest instead of what reality really was. Arthur Anderson failed for many reasons, but the trust the public had in them was gone after Enron.