The Accounting profession has developed professional organizations over its long history, but the one which has dominated in the development of strategies and standards to help build confidence in the accounting profession, with a focus on auditing, is the American Institute of Certified Professional Accountants (AICPA). The AICPA’s strategy to increase confidence and reduce the expectations gap of the public has been to set a high ethical standards, use of peer review, continual reviewing and updating of standards with the FASB, and a loyalty to the public interest above all others. Other organizations have been influential in the strategies and standards also like the International Federation of Accountants (IFAC), Securities and Exchange Commission (SEC), Public Company Accounting Oversight Board (PCAOB), and Financial Accounting Standards Board (FASB). FASB has been the main agency for accounting standards since its formation in 1973.[i]
The collapse of Enron, WorldCom, and Tyco in the early part of this century created many of the current regulations, and passing of new standards for the accounting profession. In 2003 standards concerning special purpose entities, mark-to-market accounting were passed, and executive responsibility regulations were enacted through the passing of Sarbanes-Oxley Act(SOX) in 2002. FASB Interpretation 46 was added as a standard in 2003. It was passed due to Enron’s off balance sheet use of special purpose entities to hide the debt obligations it was accruing, while not correctly identifying those obligations which Enron owed. Enron and WorldCom were incorrectly using mark-to-market accounting[ii] for some of their revenue transactions, which caused the FASB to reinterpret the correct use of mark-to-market. Mark-to-market was further revised after the mortgage crisis in 2008. This type of accounting still remains an area with many questions for the profession. SOX implemented many new regulations such as: upper level management must certify the financial statements, there must be a financial expert on the board of directors, an Audit Committee has to be used by the board of directors and the auditors should speak with the Audit Committee without management present, it established the PCAOB to regulate accounting firms in their audit of public firms and development of standards, auditors must be independent, auditors must evaluate internal controls and then company management must certify the internal controls.[iii],[iv]
The collapse of Enron, WorldCom, the mortgage crisis, and the Great Recession of 2008/2009 have caused the accounting profession to attempt to continue to enhance its standing in society. All of these events have changed the public’s perception of the economy and the thought of accounting. The accounting profession have been changed by these events, due to the involvement of accountants with a lack of objectivity that helped perpetuate the situations.
[i] Wolk, Harry, et al. Accounting Theory: Conceptual Issues in a Political and Economic Enviroment. Los Angeles: Sage, 2013. Print
[ii] Thomas, C. William. “The Rise and Fall of Enron.” Journal of Accountancy. April 2002. Web. 15 Sep 2013.
[iii] “Sarbanes-Oxley Act” Wikipedia. n.p. n.d. Web. 7 Sept 2013
[iv] Brooks, Leonard and Paul Dunn. Business& Professional Ethics for Directors, Executives, &Accountants. Mason, OH: Southwestern, 2012. Electronic.