Abstract
The International Federation of Accountants has proposed a framework for developing a regulatory system worldwide that will serve to promote the accounting profession’s service to the public interest. Laudable though the goal, this chapter argues that the IFAC proposal comes up short as a proposal for achieving that goal. Accounting does not inherently serve the public interest in its structure the way that traditional professions like medicine and law do. Medicine provides health to everyone via the Hippocratic Oath to serve every human. Law provides “justice under the law” via a process of legal representation for all parties in a legal dispute. Accounting’s service to the public interest is not so straightforward since serving the interests of a client does not, per se, serve any interest other than that of the client which may not be consonant with the interests of the society. IFAC takes the position that the public interest is served via accounting’s provision of decision useful information to markets. This chapter demonstrates that the IFAC characterization of markets and how they function for the good of the public is too simplistic. The author argues for a more explicit emphasis on accounting’s historical function based in accountability. Accounting has been throughout its history a social regulatory activity, i.e. it serves to express and to help consummate accountability relationships within society. A more explicit consideration of what are these relationships and more thoughtfulness about what they should be moves accounting’s focus toward a more ethical consideration of its role.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
Post Sarbanes-Oxley the role of IFAC closely resembles that of the PCAOB, that is, an overarching body to oversee the conduct of accounting professionals that sets standards of conduct for those professionals. Unlike PCAOB, IFAC has no enforcement power other than moral suasion.
- 2.
The ten members of the PIOB are appointed by the Monitoring Group (MG). Four members are nominated by the International Organization of Securities Commission; one by the International Association of Insurance Supervisors; one by the Basel Committee; one by the World Bank; and two by the European Commission. One member is selected by the MG from nominations submitted by IFAC. Striking is the absence from the PIOB of any representation from groups other than those from the finance industry, i.e., there is no “public” representation on the PIOB. There is no representation from investors, labor, consumers, academe, the religious community, public sector, etc.
- 3.
Other theories of professions that are critical of this public interest functionalist approach emphasize the group efforts by professionals to gain jurisdiction over certain activities for the purpose of extracting economic rents (e.g., Larsen 1977; Abbott 1988 ). Professional testimonies of their concern for the public, interpreted within these theories, is merely a strategic form of rhetoric to persuade the public that the professional group has the public’s interest as paramount in their functioning.
- 4.
There is a growing body of evidence that indicates a “public good urge” is a universal human value which is innate in human beings and that fairness is a central consideration in judging social outcomes (Basu 2011). People will incur substantial costs to themselves in order to punish wrong-doers who violate social norms of just behavior (Ariely 2008).
- 5.
A most obvious example is the tax services public accountants provide to very wealthy people. Society has an interest in everyone paying to support the necessary public goods, e.g., legal system, public safety, education, etc., and a fundamental principle of taxation is proportionality (Smith 1937). Tax avoidance schemes devised by accountants permit the most well-to-do to escape paying proportional tax. If society is to maintain the same levels of public goods, this shifts the burden of paying for them to people less able to afford them, but also not able to pay for the services of a professional accountant. Of course, one important way people “pay” for these services is to be deprived of those services.
- 6.
“But of one fault the economists who developed the ‘old’ welfare economics cannot be justly accused: they did not suffer from the delusion (not the pretense if not deluded) that what came to be called “welfare economics” can be constructed without facing up to the necessity for making judgements (sic) (at one and the same time judgements (sic) of moral philosophy and of political economy) about the distribution of wealth and of income in society” (Walsh 1996, p. 177).
- 7.
Robert Nelson has demonstrated the theological (faith like) nature of conventional economics, i.e., “The religious purpose of the market is to ensure maximal efficiency in the use of material resources of society, and thus the rapid movement of American society along a route of economic progress in the world (Nelson 2001, p. 8).”
- 8.
A further complication is the presumption that accounting possesses the expertise to actually provide accurate, transparent, and reliable information that leads to capital markets being more “efficient.” In spite of claims that accounting produces “decision useful information”, there is no persuasive evidence that the capability to do so actually exists (Williams and Ravenscroft 2012; Young 2006).
- 9.
The Cambridge University economist Ha-Joon Chang (2010) reaches the same conclusion following a different line of argument, e.g.: “Recognizing that the boundaries of the market are ambiguous and cannot be determined in an objective way lets us realize that economics is not a science like physics or chemistry, but a political exercise (ibid, p. 10).”
- 10.
The notion of fairness is deeply embedded in human nature (Shermer 2004). Corning (2011, pp. 25–26) identifies three components to substantive fairness: (1) equality, i.e., equal shares; (2) equity, i.e., giving one her due; and, (3) reciprocity, i.e., giving in return for getting. Ariely (2008) has shown that people will incur substantial costs to themselves to punish the cheater and to restore a just order.
References
Abbott, A. 1988. The system of professions. Chicago: The University of Chicago Press.
Alperovitz, G., and L. Daly. 2008. Unjust deserts. New York: The New Press.
Ariely, D. 2008. Predictably irrational. New York: Harper Collins.
Basu, K. 2011. Beyond the invisible hand. Princeton: Princeton University Press.
Bayou, M.E., A. Reinstein, and P.F. Williams. 2011. To tell the truth: A discussion of issues concerning truth and ethics in accounting. Accounting, Organizations and Society 36: 109–124.
Brown, D.E. 1991. Human universals. New York: McGraw-Hill.
Chang, H. 2010. 23 Things they don’t tell you about capitalism. New York: Bloomsbury Press.
Corning, P. 2011. The fair society. Chicago: The University of Chicago Press.
IFAC. 2008. IFAC policy position 3: International standard setting in the public interest. December, 2008. New York: International Federation of Accountants.
IFAC. 2010. IFAC policy position paper #4: A public interest framework for accountancy profession. Exposure Draft, November, 2010. New York: International Federation of Accountants.
IFAC. 2011. IFAC policy position 1: Regulation of the accounting profession. September, 2011. New York: International Federation of Accountants.
IFAC. 2012a. Our mission. http://www.ifac.org/about-ifac
IFAC. 2012b. IFAC policy position X: A definition of the public Interest. New York: International Federation of Accountants.
Ijiri, Y. 1975. Theory of accounting measurement, Studies in accounting research #10. Sarasota: American Accounting Association.
Ijiri, Y. 1983. On the accountability based conceptual framework of accounting. Journal of Accounting and Public Policy 2(2): 75–81.
Keen, S. 2001. Debunking economics. Anandale: Pluto Press Australia Ltd.
Kultgen, J. 1988. Ethics and professionalism. Philadelphia: University of Pennsylvania Press.
Larsen, M.S. 1977. The rise of professionalism: A sociological analysis. Berkeley: The University of California Press.
Marglin, S.A. 2008. The dismal science. Cambridge: Harvard University Press.
Nelson, R.H. 2001. Economics as religion. University Park: The Pennsylvania State University Press.
Posner, R.A. 2010. The crisis of capitalist democracy. Cambridge, MA: The Harvard University Press.
Ravenscroft, S., and P.F. Williams. 2009. Making imaginary worlds real: The case of expensing employee stock options. Accounting, Organizations and Society 34(6–7): 770–786.
Rosenberg, A. 1992. Economics – Mathematical politics or science of diminishing returns. Chicago: The University of Chicago Press.
Ross, D. (ed.). 1980. Aristotle: The Nicomachean ethics. Oxford: Oxford University Press.
Schmandt-Besserat, D. 1992. Before writing, vol. I. Austin: The University of Texas Press.
Sen, A. 1988. On ethics and economics. Malden: Blackwell Publishing.
Sen, A. 1999. Development as freedom. New York: Anchor Books.
Shermer, M. 2004. The science of good & evil. New York: Times Books/Henry Holt and Company.
Smith, A. 1937. The wealth of nations. New York: Random House, Inc.
Stiglitz, J.E., A. Sen, and J.-P. Fitoussi. 2010. Mis-measuring our lives. New York: The New Press.
Urton, G., and C.J. Brezine. 2005. Khipu accounting in ancient Peru. Science 309(5737): 1065–1067.
Walsh, V. 1996. Rationality, allocation, and reproduction. Oxford: Oxford University Press.
Williams, P.F. 2004. Recovering accounting as a worthy endeavor. Critical Perspectives on Accounting 15(4–5): 513–517.
Williams, P.F. 2010. The focus of professional ethics: Ethical professionals or ethical profession? Research on Professional Responsibility and Ethics in Accounting 14: 15–35.
Williams, P.F., and S. Ravenscroft. 2012. Rethinking decision usefulness. Working paper, North Carolina State University.
Wolfe, A. 1989. Whose keeper? Berkeley: University of California Press.
Young, J.J. 2006. Making up users. Accounting, Organizations and Society 31(6): 579–600.
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2014 Springer Science+Business Media Dordrecht
About this chapter
Cite this chapter
Williams, P.F. (2014). The IFAC Framework: International Accounting and the Public Interest. In: Mintz, S. (eds) Accounting for the Public Interest. Advances in Business Ethics Research, vol 4. Springer, Dordrecht. https://doi.org/10.1007/978-94-007-7082-9_8
Download citation
DOI: https://doi.org/10.1007/978-94-007-7082-9_8
Published:
Publisher Name: Springer, Dordrecht
Print ISBN: 978-94-007-7081-2
Online ISBN: 978-94-007-7082-9
eBook Packages: Humanities, Social Sciences and LawPhilosophy and Religion (R0)