The Involvement of Governments in Accounting

Introduction 

The high standards of performance from the professional accountants have many benefits to the society and the economy since it contributes to the efficient resource management and allocation within both the public and private sectors. Such high performance levels also help in an efficient operation of capital and financial markets as well as the production of services and goods for the economy. While doing this, accountants have been involved in the improvement of the living standards of individuals as well as the overall wealth. However, the manner in which the accountancy profession should be regulated has been an issue of debate within the recent years. In fact, consequential change that has resulted from the move by the accountants, their customers, the bodies of professional accountancy, and governments to seek to make sure that the profession persists in the delivery of high quality services has been experienced. Such a move has also been done as a way of ensuring that the accountancy profession contributes significantly to the growth and the development of the economy. 

The focus of this essay is on the manner in which governments engage in the accountancy profession through first describing why regulation of the accountancy profession is a requirement in the modern world. Specifically, the essay notes that the government involves itself in the activities of accounting as a regulator of such activities. For this reason, as the work further elaborates, the regulatory framework involves a great deal of a collaboration between the governments and different accountancy professional groups. Therefore, the scope of this paper defines the works of the professional accountancy groups, the theories of regulation, especially the public interest and interest group theories. Through such an approach, it is possible to define the need for regulation before describing the different ways in the government involves in the regulatory framework so described. 

The Accountancy Professional Organizations and the Interest of the Public 

The members within each profession and professional body have a critical responsibility to the communities in which they live, and to the interest of the public and not just to their present clients, the employers, and the professionals themselves (Gaffikin, 2005). Therefore, there is a need to note such an element of one of the features of the professional accountancy field. As much as the individuals within any specific profession have a duty to serve the interest of the public, the professional institutions have a more specific duty and role concerning this issue. Among the fundamental goals of each professional organization is to offer an assurance as to the qualities of the services that they offer to the public through its members (Gaffikin, 2005). To attain this, professional bodies are supposed to dedicate their services the promotion and upholding professional practices with the highest quality services, which include the regulation of its members. In this way, the professional accounting bodies contribute to the interest of the public, which is one of the essential features of any professional organization. There is a need that professional bodies regulate the actions and behavior of their members as a means of ensuring that their responsibilities to the organizations are fulfilled even while there exists a significant level of external regulations of the profession through governmental agencies around the world. The later mode of regulation, therefore, continues to be of significance to the accounting profession. 

In the development of the rationale for governmental regulation of the accountancy profession, a need exists to understand the public and interest groups theories concerning the subject of regulation. In this respect, and concerning the theories of public interest, advocates consider that the regulation serves the objective of attaining specific publicly desired outcomes that would be unattainable had they been left to the market (Bergmann, 2012). The regulations are offered as a means of responding to the demands of the public for corrections to the inequitable and inefficient market systems. For such a reason, the pursuance of regulation is done for public interests as opposed to the private ones. This perspective was the most prominent perception of regulation up to the 1960s and it still preserves most of its adherents (Gaffikin, 2005). There is a general perception that the determination of the interests of the public is a normative issue and those people in positive theorizing would, for such reasons, object to this approach since they supposed that they consider that it is almost impossible to ascertain the objective purposes of regulations. Therefore, this idea means that there is no basis for an objective identification of the interests of the public (Gaffikin, 2005). 

There are other charges that the public interest approach has at its feet. Such charges entail the fact that attention would be directed towards the regulators themselves. A significant question, therefore, concerns if such bodies have the possibility of acting in disinterested manners. For instance, are the professional bodies sufficiently proficient? As it might be anticipated, the critics of such an approach indicate that there are numerous questions raised towards the reward structure for the regulators, the structure of their career, and training. However, as much as such criticism on the public interest approach to regulation exist, it is understood that regulation from this perspective hopes to serve the interests of the public, which is quite useful considering the competitive and potentially exploitative strategies of the free market economy that has continued to be favored contemporarily (Gaffikin, 2005). 

Concerning the theory of interest groups, it is understood, as Gaffikin (2005) argues, that they are related to the public interest paradigm. Therefore, the activities of regulation are perceived as the results of the relationships among the different groups as well as between the state and such groups. However, the advocates of this perspective perceive that regulation concerns a competition for power as opposed to for the service of public interest. In this line of thought, the different regulatory groups are concerned with a struggle for political power and those that win in such struggles shape the form of regulation (Bergmann, 2012). It is further emphasized that the powerful interest groups collaborate with the governments in the production of regimes of regulation that exclude the interests of the non-participating groups. 

The Accountancy Profession 

The members of the accountancy profession as well as all the institutions of professional accountancy have the duties described within the succeeding section of this essay. Members of this profession are meant to contribute to the wellbeing of their immediate communities in a variety of ways as well as across a variety of organizations. The professional accountants provide their services in almost all economic sectors. They offer their services within the public practice domain, within small, medium, and large-scale organizations, and as personal accountancy consultants (Bergmann, 2012). It is also worthwhile noting that such individuals work within the entities of the public sector such as academic institutions, non-profits, financial and industrial enterprises, and commercial ones. It is notable, therefore, that the professional accountants contribute to all the sectors of the economy. 

The roles played by the professional accountants, regardless of the sector from which they provide their services, are quite diverse. For instance, such professionals work in fields of financial reporting and accounting, business intelligence, corporate finance, information systems, taxation, and management (Bushman & Landsman, 2012). The individuals also provision their services as independent auditors and consultants across a wide range of domains in addition to working as academic in a range of institution of accountancy professional training. Therefore, the accountancy professionals contribute to the improvement of individual firms, support and perpetuate non-profit institutions, and help the governments the world over in the attainment of their social and economic objectives (Bushman & Landsman, 2012). Additionally, the professional accountants act as fundamental contributors to the performances of the financial markets, through their reporting of and the provision of assurance on information on financial issues that investors and other stakeholders wish to have (Bushman & Landsman, 2012). In such approaches and others, the field of professional accountancy boosts the growth of global economics and the ultimate wellbeing of the society. 

The Requirement for Regulation of the Accountancy Profession 

It is noteworthy that each profession has a definitive framework of ethics, attitude, skills, and knowledge within it. Professional regulation is a particular response to the requirement for specific standards that require to be met by the professionals that are found within their profession. The requirement for and the nature of such a regulatory framework is reliant on the each profession as well as the conditions of the market in which it works. Like most other professions, the accountancy profession relies on the service quality that its members provision for its sustainability (Bergmann, 2012). For such a reason, the sustainability of the accountancy profession also depends on its ability to deal effectively and in an efficient manner to the needs of the society and the economy. Therefore, regulations seek to make sure that the right quality and consistent, where appropriate, quality accountancy services are provided to those that need them. 

A number of reasons make it necessary for the adoption of regulatory frameworks for the purpose of ensuring the provision of appropriate quality services within the market for accounting services (Cooper & Robson, 2006). Such reasons include the enforcement of the rules of professional ethics, the enforcement of technical standards, and the requirement for the presentation of non-contracting users of the services of accounting such as creditors and investors. Within the recent past, for instance, ethical malpractices on the part of a section of the accountancy profession members as well as the resulting absence of confidence in financial reporting caused the changes within the regulatory framework of the profession within most regions the world over. As much as the individual triggers of the interventions of regulation of the accountancy profession might change over time, there exist to general cases, which provide important illustrations concerning why the regulations could effective approaches to ensuring high standards as well as in addressing the issues in market operations for the services of accounting (Cooper & Robson, 2006). The first of such cases results from the condition of an imbalance of knowledge between the clients that seek the accounting services and the people that offer such services. The second of the cases concerns the existence of significant costs or benefits from the provisioning of the services of accounting that accrue to third parties, and not those that produce and acquire the services. 

The existence of a regulatory framework of the accountancy profession seeks to address the knowledge imbalance that might exist between the purchaser and provider of the accountancy services as described. This objective is attainable through the provision of an assurance to the purchaser of the services that the providers have the necessary qualifications that would be up to the desired standards of professional practice in their work (Cooper & Robson, 2006). Therefore, using this approach, the purchaser of the services will gain an assurance that they will obtain services to the required standards. The second issues that regulation hopes to deal with concerns situations in which parties outside the contracting ones either incur costs or receive benefits because of the transaction. In this case, regulation could make sure that the costs and the benefits to the third parties are accounted for during the determination of the services to be provisioned, and the desired quality (Cooper & Robson, 2006). The fact that financial statements have a wider usage compared to the firm that acquires an audit, for instance, the regulatory issues of financial reporting and auditing make sure that potential investors and those that already invested obtain the information that they need. In this case, the purpose of regulation is to make sure that the benefits of the third parties are built in during the contracting for audits by firms (Bergmann, 2012). 

The professional accountancy market as the ability to be inefficient, which is why regulation is utilized in the mitigation of the probable effect of such inefficiency on the society and the economy. In the designing of regulatory frameworks, however, there is a need to take care that the characteristic and nature of the probable issues for the market operations are understood properly; otherwise, the regulatory framework might fail to realize its objective. Consequently, the objective of regulatory in accounting practice is to make sure that the services provided by the professional accountants are of the desired quality. Similarly, the regulations that affect the profession, as is the case with the rest of the regulations, require being of the desired quality. Such policies require being subject to regular review, be implementing fairly, and regularly, targeting, non-discriminatory, transparent, and proportionate if they are to meet public interest described previously within this work. Additionally, an effective framework of regulation should not be one that bars competition and their benefits should outweigh the costs to the economy and society. 

The Areas that Regulations Cover 

The areas of regulation of the profession of accountancy covers diverse areas such as the requirements of entry and licensing, which entail educational needs, behavior monitoring and the performance of the accountants (Cooper & Robson, 2006). The regulatory frameworks also cover the accounting standards, which entails the ethical standards necessary for all the professional accountants as well as the disciplinary procedures and systems for the professionals who do not meet the demands of the standards. While each of the countries has its preferred system of accounting regulation, the US adopted the FASB Accounting Standards Codification, the SFAC, and IASB standards as the appropriate ones in the definition of the standards of accounting that the professional accountants should follow. It is critical noting that the need for high standards of professional accounting as the ones that the US and the rest of the nations have adopted offers a foundation for the individuals of their profession, the users of such services and the regulators for assessing compliance with the best practices within the profession. Complying with the set regulation is often facilitated by the existence of high quality standards. Therefore, the rationale for regulations and for the standard setting is the fulfillment of the objectives of public interest as described previously. It is also imperative noting that the aspects of the accountancy profession that are regulated need to be those required for the addressing of the generic issues that have also been described. The influence of a well-defined regulation will be the provision of assurance and ensuring that the services of accounting are of the quality and nature that is required. 

The Significance of Ethical Conduct 

As much as regulation is important as described, it is not self-fulfilling on its own in the attainment of the objective of ensuring consistency and quality in providing professional accountancy services. For such reasons, the governments around the world realize that values are of fundamental value in the development of behavior (Narayan, 2012). In fact, it is argued that no regulations would be truly effective in the absence of a real framework of ethical behavior (Bushman & Landsman, 2012). The ethical conduct of professional accountants is the one that is the ultimate assurance of proper service as well as quality. Proper education on the values of accounting through the appropriate utilization of professional judgment and experience based on a solid educational background will be fundamental to the profession’s future. The regulatory services should be provided such that they promote and attain the desired behaviors of the accounting professionals. High quality service delivery on the side of the accountancy professionals is therefore a function of the standards of professional practice that the governments around the world set through the various bodies concerned with such regulation. Such professional standards include regulatory systems, personal values and competencies, and ethics, all of which should be consistent with and in supportive of each other. 

The Manner in Which Regulation is Implemented and the Critical Role of Governments 

In practice, the bodies of professional accounting deals with the implementation of the regulation of the regulatory policies in liaison and supervision of the governments. Similarly, it should be understood that governments rarely engage in the enforcement minus an interaction either explicitly or implicitly with the professional bodies of accountancy (Narayan, 2012). The trends in balance of power between the two facets of regulatory implementation within the professional accountancy field, however, might differ. For instance, within the recent years, most national have been experiencing a rise in the role of the regulation by the governments around the world, while in some others, particularly the ones in transition, the move has always been to strengthen the power of the professional institutions (Narayan, 2012). Commonly, the bodies of professional accountancy only act under delegations from their respective governments. In such case, the governments have given the professional bodies the necessary legal recognition in addition to giving them a collection of responsibilities and role with some of them constituting an example of reporting requirements (Bushman & Landsman, 2012). 

The responsibilities given to the accountancy bodies may entail the continuation of the educational requirements, the establishment of the disciplinary procedures, and the creation of standards of professionalism. Additionally, the reporting requirements could be variant, but they could be in the form of annual reports provided by professional institutions to governments. It is imperative noting that even within environments in which governments are strongly in control, there remains a strong obligation on the professional bodies to deal with fundamental levels of self-regulation (Cooper & Robson, 2006). 

The role that the governments play in the regulatory frameworks of the profession of accountancy is to make sure that the regulations attain the objective of serving the public interests, at the lowest probable costs, quality, and quality consistency in the supply of services of accountancy (Bushman & Landsman, 2012). In doing this in an efficient manner, the governments have been involved in understanding the characteristics and nature of the regulation issues that they seek to address. In addition, the governments have been involved in the institution of systems of monitoring the performances of bodies charged with the regulation of the profession of accountancy. Another involvement by the same governments has been their focus on the outcomes, which entail the overall quality and consistency concerning the services of accounting. The governments have also depicted their capacities to amend regulations and legislations quickly in the event that such requirements emerge. 

Conclusion 

The influence of governments the world over in the activities of accounting manifests in this work as that of regulation of the activities of professional accountants. However, the role that the government plays in accounting practices described in this work is that of a shared objective of making sure that the professional accountants provide their services in relation to public interests through meeting the defined standards of such practice. The concerns of quality, the standards and behavior of the professional accountants, as well as an awareness of the interests of the public imperative of the profession of accountancy, implies that the profession’s organizations as well governmental regulators have a significant commonality of objectives and interests. The manner in which the regulation of the profession happens is a critical means in the attainment of the aims defined. Specifically, should the regulations be effective, a need exists for the existence an ongoing dialogue as well as an alignment of the actions between the accountancy bodies and governments. Such dialogues need to need to focus the developments within the profession as well as the developments in the society and the economy that could be of significant to the development of the profession. 

References  

Bergmann, A. (2012). The influence of the nature of government accounting and reporting in decision-making: evidence from Switzerland.  Public Money & Management ,  32 (1), 15-20. 

Bushman, R., & Landsman, W. R. (2010). The pros and cons of regulating corporate reporting: a critical review of the arguments.  Accounting and Business Research ,  40 (3), 259-273. 

Cooper, D. J., & Robson, K. (2006). Accounting, professions and regulation: Locating the sites of professionalization.  Accounting, organizations and society ,  31 (4), 415-444. 

Gaffikin, M. (2005). Regulation as accounting theory . Retrieved January 4, 2018 from http://ro.uow.edu.au/cgi/viewcontent.cgi?article=1049&context=accfinwp 

Narayan, A. K. (2012). The role of government and accounting in the development of academic research commercialization: The New Zealand experience.  Accounting History ,  17 (3-4), 311-329.