THE ACCOUNTING profession has a critical role in stopping bad corporate practices such as those that were responsible for the global credit crunch. That’s the view of Bob Bunting, a veteran of 40 years in the profession in the US and the current president of the International Federation of Accountants (IFAC), who was in Dublin recently.
He argues that placing senior accountants centre stage in boardrooms and listening to their opinions could help ensure mistakes are not repeated.
Bunting said that while the auditing profession had undergone reform in the wake of Enron and other financial scandals in the early years of this decade, this had not extended to corporate accountants working in-house.
“Accountants reporting up the line were under pressure to tell boards what senior management wanted to hear, so the excess optimism of management often went unchallenged,” he observes. To prevent a repeat of this, Bunting said that appropriately qualified and experienced accountants should be placed at equal peer level with other senior directors in the boardroom and should be charged to present boards with a rigorous analysis of business risk.
“This current crisis clearly highlights the importance of clarifying and strengthening the role of accountants in business.”
The absence of a proper risk management function was accompanied by a culture of greed, with a focus on short-term metrics over long-term shareholder interest, Bunting concedes, but he also believes that globalisation and the speed of international markets compounded the problem as boards lost control over the ability to manage information to make appropriate and considered decisions. In response to this globalisation, Bunting believes that regulation and standards must also be developed on a global platform. “No government or regulator can protect their citizens if they don’t have the help of regulators and governments across the globe.”
Governments’ own accounting standards need to be examined, he says. With only a handful of exceptions, governments around the world have been reluctant to adopt public sector financial reporting standards that include using accrued accounting to take future liabilities into account. Given the financial obligations many have taken on recently, this is understandable. “There’s simply no incentive for politicians to look at these numbers.”
Bunting feels that accounting also needs to take account of the real economy and he is anxious that small and medium enterprises are not over-burdened by reporting standards that may be inappropriate for their scale.
“All large companies start as small companies, so we need to give them every advantage. It’s the SME sector that will lead us out of the recession.”
