GLOBAL ECONOMIC CRISIS A CHALLENGE TO ACCOUNTING PROFESSION
SHEHU USMAN HASSAN
Department of Accounting
Ahmadu Bello University, Zaria.
A paper presented at International Conference with the theme: Global Financial Crises and African Quest for Development, Faculty of Administration, Ahmadu Bello University, Zaria. Kongo Conference Hotel, Zaria.
Kaduna State, Nigeria.
JULY 20th - 22th , 2010
Accounting practices are deeply implicated in the global financial crisis and in proposals for restoring stability to the global financial system. This paper discusses the methodological and theoretical gaps in accounting research that explain our failure to anticipate the crisis and limit our ability to analyze and respond to it. Documentation and review of literature are utilized to identify the gaps. It is therefore noted that accountants globally fail to provide information about the range of uncertainty containing estimate of current values; income and cash flows but using flawed measurements such as value at risk or cash flow at risk and even statistical dispersion models used by them to predict future outcome are usually symmetric. These imperfect measurements lead to inability of accountants to predict the coming of global financial crisis talkless of mitigating against it. What therefore left to be done is for accounting scholars to be normative, descriptive and critical. Specifically, they should encourage accounting researchers to make their normative value judgments explicit, to describe and interpret the world of “accounting in action”, and to be critical in the sense of recognizing the politically and socially contested nature of accounting practices globally.
Accounting has evolved, as have medicine, law, and other professions, in response to the social and economic needs of society. For the most part, early accounting dealt only with meeting the financial information needs of a relatively few owners of business enterprises. As business and society became more complex over the years, the accounting function expanded in order to meet the needs of a variety of interested parties. The two major users of accounting information may be referred to as internal users and external users. The management of the entity is an internal user; all other users, such as investors, creditors, labour, and governmental bodies, are external users of accounting information. While it has become commonplace to blame bankers and their bonuses for the current global financial crisis, as the economic ruin deepens and spreads more fundamental questions will undoubtedly be asked about our economic system and the institutions upon which it is founded. The academic community is one of such institution. Why did neoclassical economic thought become unquestioned doctrine in so much of our academic discourse? How did business and economics departments come to be champions of market dogma, rather than centers for intellectual debate and social critique? In the years preceding the near collapse of the US financial system, why did the looming catastrophe, inherent in a highly financialized economy that was fuelled by irresponsible lending practices, financial engineering, bogus bond ratings, opaque financial instruments, and the growth of a systemically dangerous shadow banking system, escape the attention and critique of accounting researchers? Additionally, questions arise over the role of audit. In few, if any, of the recent major corporate failures have audit reports raised concerns that anything was about to go wrong, nor have they given clues that major write-downs of assets would be necessary. There are signs of unease about the current value of audit reports (Sikka, 2009). Apart from a change in the audit approach, auditors face an increasing demand for more accountability and perceived benefits for users. One...