I have not had many accounting articles of late. It has not been intentional (and definitely is not a commentary on their importance), but I just do not find as many that are strictly relevant to finance. However, that changed today as I was sent the following:
SSRN-Social Norms versus Standards of Accounting by Shyam Sunder
A few highlights from the paper:
*"Historically, norms of accounting played an important role in corporate financial reporting. Starting with the federal regulation of securities, accounting norms have been progressively replaced by written standards....[and]enforcement mechanisms, often supported by implicit or explicit power of the state to impose punishment. The spate of accounting and auditing failures of the recent years raise questions about the wisdom of this transition from norms to standards....It is possible that the pendulum of standardization in accounting may have swung too far, and it may be time to allow for a greater role for social norms in the practice of corporate financial reporting."
*"The monopoly rights given to the FASB in the U.S. (and the International Accounting Standards Board or IASB in the EU) deprived the economies, and their rule makers, from the benefits of experimentation with alternative rules and structures so their consequences could be observed in the field before deciding on which rules, if any, might be more efficient. Rule makers have little idea, ex ante, of the important consequences (e.g., the corporate cost of capital) of the alternatives they consider."
*"Given the deliberate and premeditated nature of financial fraud and misrepresentation (and other white color crimes), “clarifications” of the rules invite and facilitate evasion"
And my favorite!
*"Indeed the U.S. constitution—a document that covers the entire governance system for the republic—has less than 5,000 words. The United Kingdom has no written constitution. A great part of the governance of both countries depends on norms. Do accountants deal with greater stakes?"
BTW: I like the prescriptions called for as well, but will allow you to read those (pages 20 to 22 of paper)
Cite:
Sunder, Shyam, "Social Norms versus Standards of Accounting" (May 2005). Yale ICF Working Paper No. 05-14. http://ssrn.com/abstract=725821
1 comment:
This paper repeats the IASB/FASB argument of a few years ago between principles based vs. standards based accounting. The principles based argument states that specifying rules begs for circumvention. As a former Big Six/Five/Four accountant, I have personal experience that principles/standards, norms/rules arguments miss the point. They assume that we can legislate away a person's desire to do the inappropriate or, alternatively, that everyone wants to do the right thing, but want for a better guideline. In my experience, everyone (or, at least, most everyone) knows what the appropriate answer to an accounting issue is. The question is whether the accountant or the auditor has the backbone to enforce it. If they don't, then accounting scandals will continue.
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