Report R2.13 Dynamics of Professional Practice: Learnings from the Accounting Profession Seminar Leader: M. K. Samal, Independent Researcher, Bhubaneswar smanaswee[at]yahoo.co.in Issues discussed during the seminar: * Professional Practice * Regulation of a Profession * Accounting as a profession * Accounting Research The seminar started the session with a broad definition of ‘profession’. Some of the attributes of a profession as presented were as follows: * Codified knowledge * Formal method of transferring knowledge * Governing/regulatory body * Well-defined code of conduct Based on the above attributes, the seminar leader projected accounting as a profession and raised several issues relating to the regulatory environment of the accounting profession. These included: * Widening gap between the principles and practice of regulation. * Causes of the deviation of practice from letter and spirit of regulation * Relevance of compliance-based regulation. Who should regulate the accounting profession? Several views were presented on this issue. Government or a statutory body can play the role of regulator. However, experience has shown that having a centralized regulatory body is not sufficient to stop undesirable accounting practices. Examples of some of the recent accounting scams (Enron and WorldCom) were given to drive-in the limitations of compliance-based regulation. Such limitations highlight the need for self-regulation. Can accounting profession move from highly centralized regulatory environment to a self-regulating mode? Participants highlighted the role of accounting academicians in creating such an environment. One of the tools being used extensively by the accounting regulators is the accounting standards. The apex body of the profession (for example, Institute of Chartered Accountants of India) issues the accounting standards. A study conducted by the seminar leader on the relevance of standards in India was discussed. Research findings on the gap between the accounting standards and their applicability were shared. The presenter was of the view that though the accounting standards issued by the ICAI are comprehensive, the language of the standards provides scope for manipulation. In this scenario, the two alternatives before regulatory authorities are bringing about stricter regulation through greater number of laws or allowing greater flexibility through lesser regulatory interference. However, it is not clear at present which of these would bring about the desired level of compliance (the focus was on compliance with respect to disclosure of information). There is also a need to establish robust criteria for assessing the quality of disclosure. Issues about the cost of establishing regulation and ensuring compliance to it were also discussed in this context. Very often it is difficult to justify the existence of laws on the basis of a cost-benefit analysis. Accounting Theory and Research: One of the objectives of accounting theory is to explain and predict accounting practice. It was mentioned that researchers should be able to provide theories that are more useful to decision makers in maximizing welfare. This raises further questions like: * Whose welfare? * How to measure the welfare? * Who are the decision makers? There is a lack of clarity in the existing literature on these issues. The development of accounting theories over the years was also discussed: * 19th and Early 20th century: Accounting writers were concerned with describing observed practices and developing rules for teaching. * 1933-34: Concept of regulatory reporting started. This can be attributed to US stock market crash and the US Securities Act. During this period accounting became more concerned with prescribing how firms should report. * 1950s: Studies of Modigliani and Miller (1958) relating to efficient market hypthothesis influenced the prevalent accounting theories. * 1960s: Researchers started relating accounting numbers with economic variables. An attempt to place research in accounting in the context of various research languages was also made. A descriptive language is used in the study of existing state of affairs to unravel inherent, un-constructed standards and patterns in various phenomena. Normative language is employed when studying how various phenomena should adhere to standards constructed by some external authority. Prescriptive language is applied while studying self-constructed standards that function as recommended norms in a particular situation. Though regulatory studies in accounting are typically normative, accounting as a discipline is much wider in scope. While identifying and studying the existing accounting practices, researchers employ a descriptive language that seeks intrinsic patterns and relationships. At other times, when researchers propose a course of action as a response to some exigency, they employ the prescriptive language. So in the wider sense, accounting not only deals with constructed standards imposed extraneously or exogenously, but also inherent and self-constructed standards as well. The objectives of accounting as a practice also need to be reassessed. The conjecture that providing more information can aid better decision-making was questioned. It was found that in many situations, more information could be detrimental to effective decision-making. It was felt that accounting research in India is in a very nascent stage.There are very few studies showing the relationship between market performance and accounting performance. Non-availability of quality data is one of the major constraints. Similarly, studies on internal accounting are also limited. Reported by D. V. Ramana and Jacob D. Vakkayil. Copyleft Xavier Institute of Management, Xavier Square, Bhubaneswar 751013, India Research World (ISSN 0974-2379) http://www1.ximb.ac.in/RW.nsf/pages/Home |
