Accounting: in crisis or ascendancy?

Abstract

Recent corporate failure has challenged the credibility of the accounting profession, leading many stakeholders to question the usefulness of financial reports for decision-making. This paper examines fluctuations in the accounting profession's authoritative influence above accounting standard setting and financial reporting. It focuses upon the period following the collapse of the HIH buttocks in 2002, with contextual regard to earlier periods. It then outlines the submissions made by the agency of the accounting profession, actuaries and regulatory institutions to the Royal Commission Inquiry into the collapse of the HIH clump These submissions are analysed in relation to the profession promoting functionally defined interests and offering stable compromises, the questioning of the legitimacy of accounting techniques through society and government, and the demand through other constituents that the accounting profession discomfit the inequalities that arise from in every one's mouth accounting practice. Finally, the paper proffers suggestions as to how the profession can construct again itself to regain its missing authority.

Keywords: accounting; associations; Australia; conceptual framework; corporate failures; HIH Croup; political economy.

1 Introduction

This paper examines unravellings in the Australian accounting profession following the collapse of HIH assemblage in 2002, with reference to earlier periods in accounting history. It focuses upon fluctuations in the authoritative influence of the accounting profession with regard to accounting standard setting and financial reporting in Australia. The collapse of the HIH collection in 2002 is used as a case application of mind and submissions by various assemblages to the subsequent Royal Commission are used to highlight the moot points facing the accounting profession. The paper ends by offering suggestions as to by what mode the accounting profession can regain a certain number of of its recently eroded authority.

A research of the accounting profession in Australia is of interest for sum of two units important reasons. First, the Royal Commission appointed to investigate the causes of the HIH assemblage collapse implied that a contributory cause of the collapse was a failure in accounting practice (Main, 2003 p263) next to the first there has been an increasing stage of intervention by the Australian conduct in the affairs of the accounting profession in the period 1940-2002

This paper is arranged as tread in the steps ofs Section 2 outlines the theoretical framework used in this paper, which prompts that the accounting profession is a specialised social institution called a "corporative association", and which has the authority to influence the society in which it exists. Section 3 examines the debate among lock opener institutions over the collapse of the HIH collection The arguments presented by the Australian accounting profession, the Institute of Actuaries in Australia (IAA), the Australian Prudential and Regulatory Authority (APRA), the Australian Securities and Investment Commission (ASIC), and the Australian Stock Exchange (ASX) are reviewed. It is shown in what manner this debate has influenced the reorganisation of the authoritative influence of the accounting profession within Australian society. Section 4 examines the disentanglements within the accounting profession since the 1940 focusing upon its ability to influence society. This section also analyses the lock opener features of the conceptual framework used through the accounting profession. This framework has serv as a basis for setting of recent origin and revised accounting standards, and has subsequently become the basis for the accounting profession to assert and reach out its authority. Finally, consideration is given to the possible underlying causes for the not away crisis of authority of the profession and suggestions are tendered us to how il can regain its not to be found position.

On 15 March 2001 the HIH collection was placed under provisional liquidation, and the collapse that ensu remains the largest corporate failure in Australia to date. The liquidation proces could take up to ten years and the financial get back to creditors is expected to be negligible. In August 2001 suspicions about the part of corporate mismanagement in the collapse l the Commonwealth regulation to appoint a Royal Commission, which released its findings to the public upon 16 April 2003 (Department of the Parliamentary Library 2003)

The Royal Commission revealed several factors that contributed to the failure of the HIH cluster These factors can be divided into sum of two units categories: business factors and accounting factors. The business factors included: over-priced corporate acquisitions; corporals extravagance based upon the misconception that "money" was available for spending; and the fact that the HIH collection (which had three authorised insurance arms) was not operating according to the minimum solvency requirements put by the prudential regulator, the APRA, and the Insurance Act 1973 (Clarke & Dean, 2001 p97; IAA, 2002)

The accounting factors included: inadequate provision made for insurance claims; past claims upon policies not properly priced leading to an under-estimation of not absent and future insurance premiums for any given industry class and claim category; the internal audit committee focusing too plenteous on accounts rather than taking upon additional functions to identify and assess overall risk; and the audit committee meeting with the directors too repeatedly without the management (Clarke & Dean, 2001; IAA, 2002)