Volume 2, Issue 1

The aim of this paper is to stimulate a more systematic method of evolving standard, but evolutionary, rules of accounting. The conclusion, if sound, follows from two premises. First, rules of accounting have become, in large measure rules of law. Second, that the present methods by which accounting theory is translated into the accounting rules—or, if you choose, into accounting practices which thus enter the legal system, are not wholly satisfactory, especially in view of the results which now follow from that translation. By consequence, the task of developing a systematic yet flexible means of arriving at and recording the sound doctrine as it appears in the light of the knowledge of the day, takes the foreground as a major problem in the profession of accounting.

We explore differences in the roles of auditors and judges in the United States, emphasizing the issue of independence for each group. We examine factors that influence the independence of US judges and auditors. We use examples to highlight the potential impact of various factors on each profession and explore how they are affected by differences in the nature of their responsibilities. Based on these examples, we find generalized lessons that are applicable to each profession and explore further questions that should be asked. While much research has been done on factors that could potentially influence auditor independence, no research to date has examined lessons that auditors can learn from the judicial profession with respect to independence in the United States setting, and vice versa. This paper is a contemplation of the different threats that exist to independence and the difficulty in achieving it in two differently structured fields where its attainment was important for achieving societal ends associated with the professional roles. We hope through this discussion and presentation to broaden the perspective of both professions (judges, auditors) by furthering their understanding of the independence dilemmas facing occupants of the other’s role.

We provide an assessment of the role of economic theory in orienting Italy’s banking legislation over eight decades. From the unification of the country (1861) to the introduction of the 1936 Banking Act, five regulatory regimes are mapped out. Whilst market discipline and self-regulation arguments characterized the first sub-period (1861-1892), the first biting issuing-bank regulation, which inaugurated the second regime (1893-1906), was a political compromise that ignored economists’ requests of a return to convertibility. The third sub-period (1907-1925) was punctuated by two banking crises: the first (1907) vindicated economists who had stressed the need of a LLR, but did not lead to any crisis-prevention regulation; the second (1921-23) confirmed – to no avail – the dangers congenital to bank-industry ties, pinpointed by some members of the profession. The following sub-period (1926-1930) was inaugurated by the first commercial bank regulation (1926) and responded to the economists’ call for restricting bank competition. The 1936 regulation, which marked the onset of the approximately five-decade long fifth regime, matured in a vacuum of economic debate.Financial crises were an important trigger in all the discussed regulatory episodes to which many players, amongst which economists, contributed with varying weights and roles according to the circumstances. Players’ public and private motivations towards regulation were relevant drivers. The existing political regime is not found to have been a discriminating factor in determining the influence economic theory had on bank legislation. More important was instead the degree of authority and legitimacy that economists as a professional category displayed at the time of reforming the regulation. Finally, the desirability of economic theory actually percolating into banking laws is discussed, although the historical evidence on the matter is not clear-cut.

In Professor Baker’s review of the book by Pakaluk and Cheffers (2011) he took exception to their contention, implied in the book’s title, that accounting ethics contributed to the current financial crisis. Baker’s claim is that there is no evidence to support that contention. There have been a number of apologias for the accounting profession with respect to any culpability it might have in bringing the world to the state of financial crisis in which it currently finds itself. The financial crisis itself is evidence for accounting’s culpability in the crisis because the profession failed to prevent it. Since the inception of the profession in the United States, at least, the rationale for a profession of accounting has been that sufficient, reliable information would allow financial markets to self-police and lead to some kind of efficient allocation of capital, i.e., accounting functions to lubricate the capital markets and remove the frictions that result from “information asymmetries” and other such bothersome shortcomings inherent in markets. There is ample evidence that the profession has failed in that aspect of its self-proclaimed responsibility and, thus, is indeed partly responsible for the financial crisis. And, I intend to argue, that failure is at least partly a moral failure for which the profession, qua a profession, is responsible.

The book is a revision of prior version that was intended as a text for teaching accounting students about ethics, as well as a book about ethics for professional accountants. As such, the current book serves a useful purpose. Educating accounting students and practicing professionals is an important activity which should be encouraged. This organization outline is similar to the previous edition of the book, and much of the material is the same or similar, with the primary emphasis of the authors being directed towards instilling “virtue” ethics, as espoused by Alasdair MacIntyre, and based in turn on Platonic and Aristolian notions of ethics.The primary short-coming with the current edition of the book appears to involve the title, in which it is implied that accounting ethics had something to do with the “near collapse of the world’s financial system”. There is effectively no evidence that a failure of accounting ethics contributed to the financial crisis of 2008-2009. Alleging a connection between accounting ethics and the worldwide financial crisis is misleading at best and it tends to confuse students. While it is certainly important to encourage high standards of ethical conduct among accounting students and practicing accounting professionals, to make unfounded assertions about linkages between failures of accounting ethics and financial crises is tenuous at best.