Transparency in Accounting Essay Example
Transparency in Accounting The Culprit or the Revealer?
Transparency in accounting has been a controversial issue in recent years largely due to events such as the fall of Enron, the WorldCom scandal, and the latest financial crisis. Supporters of greater transparency used these opportunities to demonstrate that if companies had been more transparent in the beginning, investors would have been better informed of reality and the financial crisis would have been less severe. On the other hand, critics blame transparency and the accounting profession for the financial downturn by citing Statement No. 157 issued by the Financial Accounting Standards Board (FASB) which deals with mark-to-market accounting (Rose and Trussel 2009). “Depending on the audience, fair value accounting is either the most controversial aspect of modern accounting or the most highly desired result of FASB’s current standards-setting project” (Schuetze 2006). The debate surrounding transparency raises the question of whether having transparency in accounting causes crises to occur or merely presents investors with an opportunity to “see” what is truly occurring within a company by reading the financial statements.
What is transparency in accounting? Is valuing the employees and reporting that figure on the balance sheet an example of transparency? Without a consensus definition, pinpointing the true meaning of accounting transparency can be difficult. A simplistic defining of the phrase is when a company fully discloses its information to users. Adjectives used to further describe accounting transparency are relevant, reliable, understandable, and timely. Another method to explain transparency in accounting is to illustrate what transparency is not. Accounting transparency should be the opposite of its antonym, opaque, which is defined as “… hard to understand, obscure” (McAllister 2003). Regardless of the method used to define the phrase, businesses are realizing the need to be transparent.
Transparency in accounting has been a controversial issue in recent years largely due to events such as the fall of Enron, the WorldCom scandal, and the latest financial crisis. Supporters of greater transparency used these opportunities to demonstrate that if companies had been more transparent in the beginning, investors would have been better informed of reality and the financial crisis would have been less severe. On the other hand, critics blame transparency and the accounting profession for the financial downturn by citing Statement No. 157 issued by the Financial Accounting Standards Board (FASB) which deals with mark-to-market accounting (Rose and Trussel 2009). “Depending on the audience, fair value accounting is either the most controversial aspect of modern accounting or the most highly desired result of FASB’s current standards-setting project” (Schuetze 2006). The debate surrounding transparency raises the question of whether having transparency in accounting causes crises to occur or merely presents investors with an opportunity to “see” what is truly occurring within a company by reading the financial statements.
What is transparency in accounting? Is valuing the employees and reporting that figure on the balance sheet an example of transparency? Without a consensus definition, pinpointing the true meaning of accounting transparency can be difficult. A simplistic defining of the phrase is when a company fully discloses its information to users. Adjectives used to further describe accounting transparency are relevant, reliable, understandable, and timely. Another method to explain transparency in accounting is to illustrate what transparency is not. Accounting transparency should be the opposite of its antonym, opaque, which is defined as “… hard to understand, obscure” (McAllister 2003). Regardless of the method used to define the phrase, businesses are realizing the need to be transparent.