Accounting for Financial Capital: American Hegemony and the Conflict Over International Accounting Standards

Abstract

The history of accounting is closely linked to the history of capital accumulation. Accounting fraud has been part of every major crisis in capital accumulation, as have attempts to re-establish investor trust. Accountants are structurally caught in the contradiction of corporations’ interests and investors’ interests. At times their role is to help companies make their books look as rosy as possible; yet they have to keep the trust of financial investors. The development of accounting institutions and accounting standards is a reflection of this contradiction. The economic crisis and financial scandals of the 1930s led the accounting industry to promote public trust in the profession by formalizing (i.e. guaranteeing the consistency and transparency of) accounting procedures. Similar developments accompanied the crisis of Fordism in the US with the creation of the Financial Accounting Standards Board (FASB). It is one of the paradoxes of such institutions that after a few years they might act and function in a way that is completely opposed to the original intentions behind their creation. Although the FASB was originally established because the accounting practices of some companies were regarded as problematic, in practice the development of new accounting standards had the effect of eliminating many restrictions and facilitating the use of accounting as a weapon in economic competition. The logic that resulted can be said to have culminated in the financial scandals of Enron, Worldcom and other companies — a series of events that triggered new institutional reforms such as the Sarbanes-Oxley Act.