The Hindu Business Line : Normal accidents

A report `2 hours ago' on http://seattlepi.nwsource.com is about the big black hole in Fannie Mae accounting. A US federal court has fined the government-sponsored mortgage company $400 million, after it was found that Mae's executives `manipulated accounting to collect millions of dollars in undeserved bonuses and to deceive investors.' Another story is headlined `Corporate fraud alive and well in US,' from MSNBC `14 hours ago.' And Houston Chronicle, reports `5 hours ago' that Former Enron Chairman Kenneth Lay has finished testimony.

`The end of innocence?' asks Chapter 1 of Truth or Profit? by Dean Neu and Duncan Green, from Fernwood Publishing (www.fernwoodbooks.ca). "The images will not go away — huge multinational corporations failing, well-dressed executives being led away in handcuffs, and public accounting firms being charged for complicity," reads a depressing paragraph on the back cover.

Are public accountants self-seekers, "offering a form of window-dressing for greedy corporate executives?" Are accountants driven by profit motive, or do they ever seek truth in accounting?

When Neu and Green delve into these questions, they find that there are `two faces' of accountants — one, as `members of a profession in which character and personal ethics are important,' and two, as people who are in `the business of offering services to the public.' This leads to the central conflict with the ethics of public interest: "The partnership must successfully sell and promote its services to clients in order to survive."

The book has chapters chronicling the profession, right from its birth (in the early twentieth century), to `the age of financial scandal' (1992-2005). Though written from a Canadian perspective, many insights in the book have universal appeal.

Such as, that financial failures and scandals continue `despite the best efforts of government regulators and public accountancy associations.' Why not view the debacles as `normal accidents' ask Neu and Green? The duo reasons that unforeseen accidents are inevitable, `as with many social activities that involve organisations and individual stakeholders,' given the structures and incentives inherent in financial markets.

"The preparation of regular financial statements and the associated audit reports can and do prevent some of the worst fraudulent activities," but this doesn't rule out the possibility of undetected trickery.

The final message of the authors is that professional elites need to use their social capital and resources to communicate and re-invigorate the professional calling aspects. "Instead of engaging in image advertising to convince potential students and others that accountancy is sexy, perhaps the profession needs to engage in image advertising that extols the virtues of public service, duty and calling. Perhaps with time, such apparently conservative (read boring) attributes will become sexy, much as nerdy-ness became cool."

Wise words.

http://BookPeek.blogspot.com

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