- Accounting reform
Accounting reform is an expansion to
accountingrules that goes beyond the realm of financial measures for both individual economic entities and national economies. It is advocated by those who consider the focus of the present standards and practices wholly inadequate to the task of measuring and reporting the activity, success, and failure of modern enterprise, including government.
Real debate concerns concepts such as whether to report transactions, such as asset acquisitions, at their cost or at their current market values. The former, traditional approach, appeals for its reliability, but can quickly lose its relevance due to inflation and other factors; the latter, increasingly common approach, is appealing for its relevance, but is less reliable due to the need to use subjective measures. Accounting standards setters such as the
International Accounting Standards Boardattempt to strike a balance between relevance and reliability.
Limited reforms within professional
managementcircles have led in the past to activity-based costing, economic value added, and riskmeasures.
Not only do most businesses raise capital based on numbers derived from current standards, there are extensive lobbying efforts by the accounting industry to keep those standards roughly as they are: complex, loopholed, and unable to be applied or audited easily by laymen.
Heads of the
U.S. Securities and Exchange Commissionsince the 1980s have consistently complained that this lobbying makes it impossible for them to apply meaningful reform, even in the wake of accounting scandals, e.g. that which felled Arthur Andersenin 2002.
Any comprehensive scheme of accounting reform is a major professional and academic enterprise; Typically it requires examination of the role of each of the fundamental
factors of production, an analysis of capital indicating how many types there are and how each supports each factor of a production process.
A comprehensive scheme that would affect, for instance, the United Nations standards for
national accounts, the rules of the Bank for International Settlements, or listing requirementson the major stock exchanges, would have to defend any change against critics that advocated lesser reforms - making it extraordinarily difficult to achieve simultaneous consent. Marilyn Waring, who deeply criticized the UN account system for systematically under-valuing the social and economic contributions of women, stated also that she had to read literally an entire room full of books in order even to understand the standards applied today. It seems unlikely that most advocates of reform have the stamina to do so, nor the background required to debate each issue with economists or accountants that build their careers on the detailed extension and improvement of standards that already exist. Most critics considered reform prospects bleak.
The critique from
ecological economicswas even more fundamental, claiming that most means of measuring well-beingindicated that the developed nations were in a state of " uneconomic growth" through the 1980s and 1990s, due mostly to failures of measurement, most or all of which could be tracked back to the practice of using the Gross National Productas a means of making money supplydecisions. This is perhaps the most obvious and widely-held critique of current national accounting and economic growth reporting systems - the creators of the GNP and GDP measures themselves advise against its use as a single measure of economic growth - but politicians and press typically do so without caveat nor apology.
Paul Hawken, Amory Lovinsand others who advocate a consistent global system for valuing natural capital, note that failures in this area are particularly grim: promoting extinction, loss of biodiversity, climate changeand destructive weather for the sake of such "growth". John McMurtrycharacterized this as "the cancerstage of capitalism".
What makes "economic sense" under current standards, they argue, is in fact leading to ecological catastrophe, social conflict, and economic chaos.
One barrier to accounting reform are governments themselves. They have the authority to determine what are accepted accounting principles, while using questionable accounting practices themselves. Governments, for example, pay off operating costs with longer-term debt and thus overstate budgetary surpluses or conceal operating deficits. This is not unlike the allegedly fraudulent practices of some corporations.
Notable advocates of accounting reform:
* [http://www.bc.edu/schools/law/fac-staff/deans-faculty/cunninghaml/ Lawrence A. Cunningham]
standard accounting practices
economic value added
Wikimedia Foundation. 2010.