Sarbanes-Oxley and the Accounting Profession: Public Interest Implications

Sara Ann Reiter, Paul F. Williams

Binghamton University, Binghamton, USA.
North Carolina State University, Raleigh, USA.

DOI: 10.4236/ojacct.2013.21003                

Abstract

The USaccounting profession was caught up in, and some say responsible for, the whirlwind of accounting and business scandals that rocked the US markets in 2002. To restore investor confidence in financial information, the Sarbanes-Oxley Act created a new Public Company Accounting Oversight Board with the authority to set standards for auditors of publicly traded companies, thus ending a century of professional regulation of auditing. In this analysis we employ sociological theories of professionalism [1-4] to help understand the implications of the Sarbanes-Oxley legislation for the accounting profession and for the public interest. We explain why professional self-regulation is important for retaining valuable economic franchises. We also explain why the public interest orientation of the profession is important and how government take-over of auditing standards potentially erodes the public accounting profession’s commitment to the public interest. Self-control over professional work, a key characteristic of professional status, is pre-empted by the newly created government oversight body PCAOB. With government takeover of oversight of auditing practice, claims to professional status are weakened and professional commitment to and involvement with vital work standards may suffer. In addition, the profession may no longer have incentives to promote the public interest or to innovate and change in response to changing conditions. We also trace events leading up to Sarbanes-Oxley legislation and conclude that underlying problems arising from internal work differentiation as consulting work became more profitable and glamorous and development of a commercially oriented work culture may continue to threaten the profession in the future. Finally, we speculate that the greatest costs may be opportunity costs as the profession no longer has the incentives or ability to innovate and embrace new forms of accountability.

Keywords

Accounting Profession; Sarbanes-Oxley; Public Interest

Conflicts of Interest

The authors declare no conflicts of interest.

References

[1]	E. Freidson, “Professional Powers: A Study of the Institutionalization of Formal Knowledge,” The University of Chicago Press, Chicago, 1986.
[2]	E. Friedson, “Professionalism Reborn: Theory, Prophecy and Policy,” The University of Chicago Press, Chicago, 1994.
[3]	E. Friedson, “Professionalism: The Third Choice,” The University of Chicago Press, Chicago, 2001.
[4]	A. Abbott, “The Systems of Professions,” The University of Chicago Press, Chicago, 1988.
[5]	H. Willmott, “Organising the Profession: A Theoretical and Historical Examination of the Development of the Major Accountancy Bodies in the UK,” Accounting, Organizations and Society, Vol. 11, No. 6, 1986, pp. 555-580. doi:10.1016/0361-3682(86)90036-X
[6]	M. S. Larson, “The Rise of Professionalism: A Sociological Analysis,” The University of California Press, Berkely and Los Angeles, 1977.
[7]	H. Hendrickson, “Some Comments on the Impact of the Economic Power Exercised by the AICPA and the Major Accounting Firms,” Critical Perspectives on Accounting, Vol. 12, No. 2, 2001, pp. 159-166. doi:10.1006/cpac.2001.0461
[8]	T. Lee, “The Professionalization of Accountancy: A History of Protecting the Public Interest in a Self-Interested Way,” Accounting, Auditing & Accountability Journal, Vol. 8, No. 4, 1995, pp. 48-69. doi:10.1108/09513579510100725
[9]	W. F. Chua and C. Poullaos, “The Dynamics of ‘Closure’ Amidst the Construction of Market, Profession, Empire and Nationhood: An Historial Analysis of an Australian Accounting Association 1886-1903,” Accounting, Organizations and Society, Vol. 25, No. 2, 1998, pp. 155-187. doi:10.1016/S0361-3682(97)00009-3
[10]	B. D. Merino and A. G. Mayper, “Securities Legislation and the Accounting Profession in the 1930s: The Rhetoric and Reality of the American Dream,” Critical Perspectives on Accounting, Vol. 12, No. 4, 2001, pp. 501-525. doi:10.1006/cpac.2000.0432
[11]	R. Roslender, “Sociological Perspectives on Modern Accountancy,” Routledge, London, 1992.
[12]	American Institute of Certified Public Accountants, “Landmark Accounting Reform Legislation Signed Into Law,” The CPA Letter, AICPA, New York, 2002.
[13]	D. R. Carmichael, “The PCAOB and the Social Responsibility of the Independent Auditor,” Accounting Horizons, Vol. 18, No. 2, 2004, pp. 127-133. doi:10.2308/acch.2004.18.2.127
[14]	L. E. Turner, “Independence: A Covenant for the Ages,” Speech by SEC Staff, 2001. http://www.sec.gov/news/speech/spch504.htm
[15]	I. C. Hunt Jr., “Accountants as Gatekeepers—Adding Security and Value to the Financial Reporting System,” Speech by SEC Staff, 2001. http://www.sec.gov/news/speech/spch518.htm
[16]	L. E. Turner, “We’re Good but We Can Be Better,” Speech by SEC Staff, 2001. http://www.sec.gov/news/speech/spch511.htm
[17]	R. K. Elliott and P. D. Jacobson, “SEC Independence Concepts,” The CPA Journal, Vol. LXVIII, No. 4, 1998, pp. 14-20.
[18]	R. K. Elliott and P. D. Jacobson, “Audit Independence Concepts,” The CPA Journal, Vol. LXVIII, No. 12, 1998, pp. 30-34, 36, 37.
[19]	W. R. Kinney, “Auditor Independence: A Burdensome Constraint or Core Value?” Accounting Horizons, Vol. 13, No. 1, 1999, pp. 69-75. doi:10.2308/acch.1999.13.1.69
[20]	S. Labaton, “S.E.C.’s Embattled Chief Resigns in Wake of Latest Political Storm,” The New York Times, 6 November, 2002.
[21]	American Assembly, “The Future of the Accounting Profession,” The American Assembly, Columbia University, New York, 2003.
[22]	A. B. Bailey, “The Practicing Professional’s Mental Model: Are We Creating the Right Mental Models for New Professionals?” Issues in Accounting Education, Vol. 10, No. 1, 1995, pp. 191-195.
[23]	A. R. Wyatt, “Accounting Professionalism—They Just Don’t Get It!” Accounting Horizons, Vol. 18, No. 1, 2004, pp. 45-53. doi:10.2308/acch.2004.18.1.45
[24]	S. A. Zeff, “How the US Accounting Profession Got Where It Is Today: Part I,” Accounting Horizons, Vol. 17, No. 3, 2003, pp. 189-205. doi:10.2308/acch.2003.17.3.189
[25]	S. A. Zeff, “How the US Accounting Profession Got Where It Is Today: Part II,” Accounting Horizons, Vol. 17, No. 4, 2003, pp. 267-286. doi:10.2308/acch.2003.17.4.267
[26]	A. Wolfe, “Whose Keeper? Social Science and Moral Obligation,” The University of California Press, Berkely, 1989.
[27]	S. A. Reiter and P. F. Williams, “The Philosophy and Rhetoric of Auditor Independence Concepts,” Business Ethics Quarterly, Vol. 14, No. 3, 2004, pp. 355-376. doi:10.5840/beq200414329
[28]	B. C. Melancon, “A New Accounting Culture,” Yale Club, New York, 2002.
[29]	PricewaterhouseCoopers, “Stand and Be Counted,” PricewaterhouseCoopers, London, 2003.