Reclaiming public trust in the wake of recent corporate accountability failures

Recent accountability failures in the USA and other countries have led to bankruptcies and restatements of financial statements that have harmed countless shareholders, employees, pensioners and other stakeholders. These failures also created a crisis of investor confidence and caused stock markets around the world to decline by billions of dollars. The accounting profession was seen as having failed to properly discharge its responsibilities to shareholders and the public in a number of these cases. Not surprisingly, public confidence in the integrity of the financial reporting process and the accounting profession took a big hit. Importantly, these failures involved not merely marginal companies with questionable reputations but some of the most prominent corporate names on both sides of the Atlantic. In response to these abuses, the USA and other nations have undertaken major reforms. In 2002, the US Congress passed the Sarbanes-Oxley Act to protect investors by strengthening corporate responsibility for financial reports, auditor independence, as well as audit quality and oversight. The Act also created the Public Company Accounting Oversight Board to oversee and regulate auditors of publicly traded companies. It will take the combined efforts of many parties over many years to rebuild public trust and confidence in the capital markets. To earn back such trust, members of the accountability profession must make a serious effort to improve their conduct and integrate best practices into their daily routines. Accounting and auditing standards need to be re-examined to provide more comprehensive business reporting. A broader performance and accountability-reporting model is essential and must encompass not only financial statements but performance and other information that will allow users to better assess institutional value and risk both presently and over time.