Content area
Full text
The accounting profession was, until fairly recently, a completely self-regulated profession. The profession not only had the ability to set Generally Accepted Accounting Standards (GAAP) for financial reporting but also had the ability to set Generally Accepted Auditing Standards (GAAS) for conducting audits. While the private sector maintains the authority to set GAAP, the regulation of the audit function including the setting of auditing standards has been lost by the profession largely due to ethical lapses within the accounting profession. The purpose of this paper is to consider the impact that financial scandals and the end of self-regulation had on the subjects addressed by articles that were published in The Accounting Review (an academic journal) and the Journal of Accountancy (a practitioner journal) from 2000-2012.
The American Institute of Certified Public Accountants (AICPA) asserted itself as the leading regulatory body within the profession from the early days of its development. While the Securities Exchange Act of 1934 empowered the Securities and Exchange Commission (SEC) to set reporting standards by law for firms falling under its jurisdiction, the SEC preferred to allow the private sector of accountants to set reporting standards. After assuming the primary role in setting GAAP for financial reporting, the AICPA held a virtual monopoly in this field until the 1970s. In 1973, under congressional pressure, the AICPA transferred its responsibility for setting GAAP to a newly formed private sector body-the Financial Accounting Standards Board (FASB), which still maintains its GAAP standard setting authority. Although it lost the authority to set financial reporting standards, the AICPA did temporarily retain its standards setting function in auditing.
However, the long era of self-regulation by the accounting profession of the prized audit function through the AICPA ultimately came to an end in the wake of a number of corporate accounting scandals occurring in the early 2000s. Corporate failure, unethical behavior, and financial reporting irregularities occurred within large public companies including Enron, Tyco, and WorldCom. These scandals often involved the CEOs or CFOs acting unethically in pursuit of financial gains. In addition, audit failure famously came to light with Arthur Anderson's complicity in Enron's historic accounting fraud. These scandals brought into question the reliability of financial statement information, the commitment to ethical behavior of public companies and...