Over on AECM, good friend Bob Jensen has written a letter seemingly addressed to me. I’m posting it, then replying to it.
This is my reply to somebody on the AECM who is becoming increasingly cynical about our profession in the wake of the Lehman Report.
Dear XXXXX
As with most things in life, especially in accounting, law, medicine, politics, and war, it’s easily to get discouraged and even cynical because of all the bad things that are in the media.
However, all of our academic background has convinced us to balance everything. In virtually every instance we must balance the bad things with the countless good things that counterbalance the bad. For example, Sarbox has failed us in the publicized articles, but the countless successes of Sarbox just don’t get balanced in the media. The bad is seldom counterbalanced by the good in the media, including our listserv messaging.
The thing to pass on to students is to build on the bad and not get buried under it.
There is one writer in accounting and finance, Prem Sikka, that particularly gets my goat in his published Guardian articles, because he is always one sided. I often learn things from his articles and sometimes pass them along in my tidbits, but just once I would like to hear him say one thing positive about the auditing profession, banking, business, capitalism, and politics.
I write a lot of negative things, but if you carefully examine all of my writings you will find what I hope is more academic counterbalancing (http://www.trinity.edu/rjensen/threads.htm). I even, with great effort and a clothes pin on my nose, write some positive tidbits about accountics.
We must agree to disagree but not always disagree in the academy.
If we become too one-sided in the academy, it’s a big turn off for students and colleagues.
I once had a colleague in the political science department who was known for constantly bashing multinational corporations. My students who took his courses hammered him in course evaluations for preaching rather than ing. The university tired of his rants and persuaded him to retire early.Bob Jensen
Now, for my response.
Bob,
I’ll probably get over my “cynical stage.” However, I’m asking these questions in good faith. I’m searching for answers. In this day and age, of what value are financial statements? audits? regulation?
To be sure, events over the past few years have injured my belief and confidence in the system.
We know that there’s financial statement manipulation going on, lots of it. We know that there are unrecorded assets and liabilities that GAAP and IFRS don’t address, and valuation bases in the standards are inconsistent. Audit firms act like they can be bought. SEC regulators have so little respect for accounting that it’s delegating the task of standard setting to people from around the world with no interest in making the U.S. system of capital markets the best it can be.
There’s a lot here to get discouraged about. I think accounting can matter. Perhaps it did in the past. But does it matter in 2010?
Is financial reporting robust enough that none of these problems matter? As long as financial statements show the general flow of corporate performance is that enough?
Or is it, as a few have suggested, a ponzi scheme? There’s a rising value to stock markets as long as new money keeps coming in. Because humans are industrious and make progress, there’s always going to be new money (new money = human advancement). Current investors will be able to cash out as long as new investors keep coming in. Because of human-kind’s progress, future cash flow seems assured.
Is that all there is? Will the system keep working no matter how high a charge is exacted by the system’s leeches?
I’m still teaching financial statements. It’s my job and society still deems it important enough that people are paid pretty well to do it. And I”m still commenting on the system.
I’ve gone down this path of criticism because there are questions I simply can’t figure out the answer to.
If you think I’ve done too much rocking in the boat, then I must consider that I might have.
From this day on I’ll resume looking for answers. It is tough, given that the SEC and the Big 4 are deaf to suggestions for improvement in standard setting. I mean, what good ever came about from our calls not to move to a single set of global accounting standards. However, I’ll try to be more positive.
Debit and credit – – David Albrecht
The Summa 
I am doing research on why accounting and auditing failures continue to recur and why accounting academics are so quiet about it. I have found some very good articles in academic journals but very few words in the popular media from academics. The one exception is Prem Sikka who writes about a range of issues from women’s rights, labour rights, trade unions, economic downturn, corruption, taxation, banking regulation, poverty as well as on accounting and auditing. He is extraordinarily effective and is the best known accounting academic in the UK. I have been examining his articles and have also interviewed him. More recently, I interviewed a number of NGOs who have taken up accounting and taxation causes and they all attribute their interest to reading his articles and attending his seminars.
I found this website purely by chance and have not yet looked at the ACEM site. The comments here have given me some clues about the relative lack of the public impact by accounting academics. So I hope you will not mind answering some questions. The first question is about “balance”. How do you know what this means? If the world is out of balance and full of conflicts then claims of “balance” have no substance. As I understand it, the claim by Bob Jensen (I have not found any of his articles yet) is that “balance” means considering the other side. This is puzzling. My grandfather died in Nazi death camps and my father survived. They both spoke against the Nazis. By what moral standard do you expect people to speak for unacceptable practices? I have read Sikka’s articles from the 1990s when he was calling for the national minimum wage, which at that time was not fashionable. His argument was that poor wages are a major cause of social depravation. Should he also have sung the praises of companies that paid poor wages? I find the appeal to “balance” to be absurd and without any intellectual, moral and ethical foundation. I have come across many academic articles in which the authors praise free markets but keep quiet about its negative impact. Are you and Mr. Jensen critical? If so, where? I can’t help wondering that little has changed since the days of Galileo.
Professor Jensen writes as if only *media coverage* is giving people an increasingly cynical perspective of audit and accounting.
I may be a pampered know-nothing (aka “intern”) in a different service line entirely (tax), but it seems to me that I first became wary about audit in the first place from listening to auditors. How did they get that way? From being in the field.
Even as students, what we so often hear is a super-sugarcoated bomb of propaganda that even *we* can tell is covering a dreaded surprise (were it only intellectual diabetes, that would be the least of our troubles. Unfortunately, the propaganda covers up something much worse than that.)