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.
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.
Now, for my response.
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