1.1 The Accounting Profession
A profession comprises an occupation that entails substantial training and study, and requires specialized knowledge. Professions are also usually represented by professional associations and contain a code of ethics, which guide the behavior of a professional worker. In addition professionals are awarded a license to practice such duties to the public practice. These licenses are apart from university degrees and are awarded by separate bodies.
In order to qualify as a profession accounting is required to meet all the aforementioned criteria. In this section we will explain how such features are met by the accountancy profession. In the majority of the countries in the world a person is required extensive training before becoming a professional accountant. For instance, in Canada, before becoming a chartered accountant one is required to:
- Obtain a relevant and accredited university degree specializing on accountancy;
- Achieve a pass from the examinations provided by the National Uniform Evaluation;
- Complete the Chartered Institute of Professional Accountants Program; and
- Attain thirty months practical employment experience from a recognized institution providing such training.
From the example described above one can see that before being capable to work the role of chartered public accounting vast training is provided both in academic and practical terms.
It is also common especially in advanced and industrialized countries to encounter structured associations of professional accountants. Such professional associations cater vast duties for the best interest of the public accountants, the profession and the users of such services. In the United States, the American Institute of Certified Public Accountants, is the professional association covering accountancy. Such association goes back to 1887. The purposes of the American Institute of Certified Public Accountants are basically in line with those of any other professional entity. They basically entail:
- Advocacy – representative of chartered public accountants to the government;
- Communications – promote public awareness and confidence on the accountancy services;
- Recruitment and education – motivate highly technical individuals to be chartered public accountants;
- Certification and Licensing – ensure uniform certification and licensing, which adhere to high quality standards; and
- Standards and performance – establish and maintain professional standards to ensure proficient service is provided.
The code of ethics, which is also present in the accounting profession, guides the behavior of accountants in public practice. It covers areas of integrity, confidentiality, technical competence and more. As one can notice in the main objectives of the American Institute of Certified Public Accountants named above, the later duty entail maintaining professional standards. One such standard is the code of ethics.
The aforesaid institution also controls carefully the issue on continued professional education. Chartered public accountants are required to continue attending courses during their profession to keep up their technical competence. Failure to adhere with such regulation leads to the removal of the license of certified public accountant.
As already stated at the end of the previous paragraph, chartered public accountants are also awarded a license to operate in the accountancy profession. Failure to work without such license can lead to sever fines and even imprisonment in accordance to State law. All the factors mentioned in this section substantiate and explain the fact that accounting is considered as a profession by the government and society at large.
1.2 Development of Accounting Principles and Procedures
Financial regulations originated in America in 1887, together with the inception of the American Institute of Chartered Public Accountants. In 1934 the Securities and Exchange Commission was enacted in order to lead the way in the formulation of accounting principles. At this stage the American Institute of Chartered Public Accounts was under constant attack by users of financial reports that there were too many definitions of income, which hindered comparability between companies. The search for generally accepted accounting principles started.
In 1970 the Financial Accounting Standards Board was set up via proposed studies carried out by the American Institute of Chartered Public Accountants and American Accounting Association on the most suitable organization structure for setting accounting principles and procedures. The Financial Accounting Standards Board main aim is to set the most appropriate accounting principles.
This is performed by employing seven full-time members with a background mix of key valuable experiences in public accounting, in industry, as an accounting instructor and as a user of such financial reports. In addition, the Financial Accounting Standards Advisory Board, assists the Financial Accounting Standards Board in setting such regulations by providing adequate contact with different industries and accounting profession and from the information attain from such sectors provide recommendations on new issues necessary and the need to replace some old standards, which no longer cater for the market needs. This Council also provides the task of a standing board on tentative positions taken by the Financial Accounting Standards Board.
1.3 Dissemination of Accounting Principles and Procedures
The accounting principles and procedures are basically regulations, which have to be adopted in the accounting profession. Frequently, when a new standard is issued, it is provided to the public considerable time before it is enacted into force. For example, the International Accounting Standards Board, which is the institution that sets accounting principles and procedures in Europe, when issued the accounting standard on Financial Instruments, such standard were available in 2000, even thought the effective enforcement date was 1st January 2001. This transitionary period is provided in order to allow the dissemination and learning of the new standard.
As stated in the first section of this assignment, chartered public accountants are demanded to attend a number of courses each year to keep their warrant. One of the main objectives of this Continued Professional Education scheme is to maintain the technical competence of accountants and thus disseminate these new standards among the profession.
In practice, large audit firms sometimes also provide in-house training to staff whenever new important standards are issued. Indeed the Financial Accounting Standards Board discusses such new accounting standards with partners of main firms in order to enhance such training and thus ensure effective distribution of these principles.
The Financial Accounting Standards Board also published standard textbooks and utilizes the magazines issued by the American Institute of Chartered Public Accountants and other Accounting Institutions as mediums to foster the principles and practices created by this organization.
Hendriksen S. E.; Van Breda F. M. (1992). Accounting Theory. Fifth Edition. United States of America: Irwin/McGraw-Hill.
Institute of Chartered Accountants of Ontario. About the CA Profession (on line). Available from: http://www.icao.on.ca/Public/AboutCAProfession/page3376.aspx (Accessed 9th April 2007).
International Accounting Standards (2000). IAS 39 – Financial Instruments: Recognition and Measurement. London: International Accounting Standards Committee.
The American Institute of Certified Public Accountants. AICPA Mission (on line). Available from: http://www.aicpa.org/About+the+AICPA/AICPA+Mission/ (Accessed 9th April 2007).