An analysis of changes in the business environment

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The context and dynamics of the global business environment has resulted in changes in the skills set required by accountants seeking to add value for their clients. New business models have meant the horizon and scope of business is no longer limited by national boundaries. As suppliers of business information, the global business environment has implications for accountants as 'knowledge professionals' helping to drive businesses forward. Many corporate entities now seek business opportunities in the global market place. Changing markets and advances in technology have manifest themselves as rapid changes for all stakeholders where business practices, markets and capital adjust and/or move as part of a quest for marginal revenue.

In times of such change and development few would deny that the role of the traditional accountant as a mere score keeper is no longer a viable contributor to business. The changing role of the accountant has seen many commentators over the last 20 years from around the world criticise the skills set developed by students of undergraduate business courses. Collectively, these groups have called for changes in the way accountants are educated. The need for change is based on a number of deficiencies identified in the skill sets that graduates typically bring to the workplace. There is some consensus which suggests the skills of knowledge professionals cannot efficiently be nurtured in university courses where the curriculum is dominated by a raft of specialised technical skills. Some argue requisite skills required by tomorrow's business leaders will include transferable technical skills along with generic, professional, ethical, and lifelong learning skills.

The mixture of skills is seen as necessary by employers as it helps them solve the diversity of business challenges. This raises the issue of whether there is congruence between accounting graduate skills and skills sought by employers of graduates. This in turn raises two important questions, first is there an 'expectation gap' between the actual content and attribute development of accounting courses and the skills expected/anticipated by employers? Secondly, if this is indeed the case, should universities change to provide the accounting profession graduates to suit their expectations? This study explores the accounting profession's requirement for graduates with highly developed generic skills in an environment that requires accountants to demonstrate sophisticated levels of technical expertise to meet the demands of financial service markets.

The changing role of the accountant

Howieson (2003) outlines how the 'knowledge age' has meant that for accountants there is less compliance work and a greater emphasis on knowledge and ability to manage knowledge as a commodity (product). Howieson indicates that this changing environment will create new ethical challenges and structural and operational changes for accountants and their clients. Not only will the accountant of the future require competence in procedures, but also problem-solving and client advice will be dominant features of the skilled professional.

It is assumed that these changes in the work environment of the accountant have been instrumental in driving the recruitment strategies of large accounting firms. This includes the increased emphasis on the development of generic skills as part of the preparation of new graduates. However, Jacobs (2003) argues that the incorporation of generic skills into the curriculum has been received uncritically, despite the lack of understanding as to how to teach or assess these skills. Similarly employers who increasingly demand these skills are in fact not certain as to how to assess candidates' possession of the skills. This study utilises legitimacy theory and more specifically the option of a social contract that is a central tenet of legitimacy theory, to test the view that there is increasing incongruence of the value system and the social system that underpin the accounting profession, given the changes in expectations of the skill set of accounting graduates.

2. What does it mean to be a professional accountant?

Defining a profession

Accounting has been described as an increasingly 'social practice rather than a technical practice' (Carnegie and Napier, 2007, p.2) as it competes with other professional groups and occupations to attract and retain talent. As a profession accounting has come under scrutiny in many ways, particularly in eras of corporate collapse. These events lead some to question whether accounting meets the requirements of a profession. In examining what distinguishes a profession from other occupations Yee and West, (2006) indicate that occupational status is a matter of perception and is endowed by the society in which an occupational group is constituted. An aspect of the development of occupational status concerns the particular social and cultural values which abide within the society in which an occupation is situated. Occupations that become known as professions are those that reflect predominant social and cultural values. The criteria of professionalism then are necessarily reflective of the society which elevates the status of particular occupations while denying such an outcome to others. Enhanced occupational authority enjoyed by professions is deemed to be derived from their exclusive expertise (West, 2003). West provides a series of quotes that describe knowledge as the base of professions, for example:

…what we now call a profession emerges when a number of persons are found to be practising a definite technique founded upon specialized training. A profession may perhaps be defined as an occupation based upon specialized intellectual study and training (Carr-Saunders 1966/1928: 3-4 reported in West, 2003, p.34).

A more recent description of a professional is:

The specialized knowledge of the professional creates the basis for prestige and social distance between the expert and the client, since the client by definition is excluded from the esoteric knowledge of the professional association. The basis of professional knowledge is cognitive rationality whereby the privileged status of the profession is grounded in a scientific discipline (Turner 1995, p. 133).

Others have addressed professionalism from a sociological perspective, for instance, Greenwood (1975) identified five distinct characteristics that distinguish a profession from other occupation groups being: systematic theory; authority; community sanction; ethical codes and 'a culture'. Abercrombie et al., (1994, p.335) extends this further by suggesting that embedded in these characteristics is the notion that a profession relies on performing services not for its own interest but for the public good.

West (2003, p.40) concludes that the justification of professional groups rests with the structures of authority that relates to the contribution the group makes to enhancing social order. Professions are characterized as occupational groups that enjoy largely unchallenged authority in connection with the technical aspects of the services they deliver (West, 2003 p. 41). The way in which a professional group contributes to social order necessitates an examination of the special knowledge that is offered by the professional group.

Accounting as a profession

In the context of accounting, the public interest is deemed to be served and the professional authority of accountants justified when accounting information serves its stated purpose and functions. It is clear that accountants exercise a substantial degree of authority within the accounting domain as reflected by their exclusive rights to perform some accounting-related tasks (e.g. auditors report, preparation of technical aspects of financial reporting practice). West (2003 p.63) indicates that the development of the professionalisation of accounting is underpinned by the authority that lies in cognitively based expertise as well as a social process linked to social class, gender and political acuity of early accountants. The elevation of accounting within the occupational continuum has also been assisted by changes in legislative and economic environments.

Elliott and Jacobson (2002, p.78) state that a profession is defined more by 'its body of knowledge than by anything else'. Although it may be argued that the knowledge needed for professions changes over time, the body of knowledge encompassed e.g. by the accounting profession is recognised by society as having exclusive rights to apply that knowledge, typically by some form of licensing.

In summary it is clear that the accounting profession as an occupational group has over time achieved an elevated level of authority over financial reporting practices that have been sourced from a coherent body of discipline knowledge. Furthermore, the accounting profession has developed social contracts that have evolved as a means of defining expectations of appropriate ways of behaving as an accountant.

Ethics in Accounting

Ethics in accounting is of utmost importance to accounting professionals and those who rely on their services. Certified Public Accountants (CPAs) and other accounting professionals know that people who use their services, especially decision makers using financial statements, expect them to be highly competent, reliable, and objective. Those who work in the field of accounting must not only be well qualified but must also possess a high degree of professional integrity. A professional's good reputation is one of his or her most important possessions.

The general ethical standards of society apply to people in professions such as medicine and accounting just as much as to anyone else. However, society places even higher expectations on professionals. People need to have confidence in the quality of the complex services provided by professionals. Because of these high expectations, professions have adopted codes of ethics, also known as codes of professional conduct. These ethical codes call for their members to maintain a level of self-discipline that goes beyond the requirements of laws and regulations.


By joining their professional organizations, people who work in the field of accounting agree to uphold the high ethical standards of their profession. Each of the major professional associations for accountants has a code of ethics. The Code of Professional Conduct of the American Institute of CPAs (AICPA), the national professional association for CPAs, sets forth ethical principles and rules of conduct for its members.

The principles are positively stated and provide general guidelines that CPAs (or any professionals, for that matter) should strive to follow. The rules of conduct are much more explicit as to specific actions that should or should not be taken. The Institute of Management Accountants (IMA) Standards of Ethical Conduct applies to practitioners of management accounting and financial management, and the Institute of Internal Auditors (IIA) Code of Ethics applies to its members and to Certified Internal Auditors (CIAs).


A distinguishing mark of professions such as medicine and accounting is acceptance of their responsibilities to the public. The AICPA Code of Professional Conduct describes the accounting profession's public as consisting of "clients, credit grantors, governments, employers, investors, the business and financial community, and others who rely on the objectivity and integrity of CPAs to maintain the orderly functioning of commerce." Many, but not all, CPAs work in firms that provide accounting, auditing, and other services to the general public; these CPAs are said to be in public practice.

Regardless of where CPAs work, the AICPA Code applies to their professional conduct, although there are some special provisions for those in public practice. Internal auditors, management accountants, and financial managers most commonly are employees of the organizations to which they provide these services; but, as professionals, they, too, must also be mindful of their obligations to the public.

The responsibilities placed on accounting professionals by the three ethics codes and the related professional standards have many similarities. All three require professional competence, confidentiality, integrity, and objectivity. Accounting professionals should only undertake tasks that they can complete with professional competence, and they must carry out their responsibilities with sufficient care and diligence, usually referred to as due professional care or due care. The codes of ethics of the AICPA, IMA, and IIA all require that confidential information known to accounting professionals not be disclosed to outsiders. The most significant exception to the confidentiality rules is that accounting professionals' work papers are subject to subpoena by a court; nothing analogous to attorney-client privilege exists.


Maintaining integrity and objectivity calls for avoiding both actual and apparent conflicts of interest. This notion is termed independence. Being independent in fact and in appearance means that one not only is unbiased, impartial, and objective but also is perceived to be that way by others. While applicable to all accounting professionals, independence is especially important for CPAs in public practice. The AICPA's rules pertaining to independence for CPAs who perform audits are detailed and technical. For instance, a CPA lacks independence and thus may not audit a company if he or she (or the spouse or dependents) owns stock in that company and/or has certain other financial or employment relationships with the client.


To a large extent, the accounting profession is self-regulated through various professional associations rather than being regulated by the government. The AICPA, the IMA, and the IIA have internal means to enforce the codes of ethics. Furthermore, the professional organizations for CPAs in each state, known as state societies of CPAs, have mechanisms for enforcing their codes of ethics, which are usually very similar to the AICPA Code. Violations of ethical standards can lead to a person's being publicly expelled from the professional organization. Because of the extreme importance of a professional accountant's reputation, expulsion is a strong disciplinary measure. However, ethical violations can lead to even more adverse consequences for CPAs because of state and federal laws.

The state government issues a CPA's license to practice, usually through an organization known as the state board of accountancy. Since state laws governing the practice of accountancy typically include important parts of the AICPA Code, the Code thus gains legal enforceability. Consequently, ethical violations can result in the state's revoking a CPA's license to practice on a temporary or even permanent basis. Because a licensed CPA is also likely to belong to the AICPA and the state society of CPAs, investigations of ethics violations may be carried out jointly by the AICPA, the state society, and the state board of accountancy.

CPAs in public practice who audit the financial statements of public corporations are subject to federal securities laws and regulations, including the Securities Exchange Act of 1934. The Securities and Exchange Commission (SEC), which administers these laws, has broad powers to regulate corporations that sell their stock to the public. One important SEC requirement is that these corporations' financial statements be audited by an independent CPA. The SEC has the authority to establish and enforce auditing standards and procedures, including what constitutes independence for a CPA.

The SEC has largely delegated standard setting to the private sector but retains oversight and enforcement responsibilities. In 1998 the SEC and the AICPA jointly announced the creation of the Independence Standards Board (ISB), a private-sector body whose mission is to improve auditor independence standards. In announcing the formation of the ISB, the SEC reaffirmed the crucial importance of the CPA's independence: "[M]aintaining the independence of auditors of financial statements … is crucial to the credibility of financial reporting and, in turn, to the capital formation process" (SEC Release FRR-50,1998).


Threats and Safeguards

Solving ethical dilemmas in the accounting profession means making sure you are recording and interpreting financial data honestly and objectively. The practice of accounting is regulated both by government and by the accounting industry itself. To help accountants to guard against conflicts of interest and other forms of unprofessional conduct, the American Institute of Certified Public Accountants (AICPA) promulgates a Professional Code of Conduct, as well as a summary guide that outlines a "threats and safeguard" approach to assessing your compliance

Step 1

Consult the AICPA's Code of Professional Conduct, the authoritative source of the rules that AICPA expects members to follow in the course of their professional dealings. Also consult its Guide for Complying with Rules 102--505, which provides advice for dealing with potential ethical dilemmas with respect to general standards, independence, integrity and objectivity, confidentiality, fees, solicitation, and other basic topics. Note, however, that the guide is not a substitute for direct consultation of the Professional Code of Conduct. In an article for Journal of Accountancy, CPAs Martin A. Leibowitz and Alan Reinstein point out that while it "helps CPAs comply with the code in unusual ethical relationships or circumstances, the guide can never justify noncompliance with the code."

Watch out for "threats" to your ability to conduct yourself ethically: threats to objectivity posed by inadequate self-review; the risk of wrongly advocating the interests of an employer or client (or wrongly opposing their interests because of one's own adverse interests); undue influence of a client, employer or third party; and intrusion of one's own financial interests or the financial interests of someone close to you (for example, owning stock in the firm you are auditing).

Assess the relative severity of potentially compromising situations. Not all ethical dilemmas are created equal. If the threat can be reduced or eliminated by installing safeguards with the result that a reasonable observer can agree that ethical rules are not being violated---i.e., the threat is moderate enough to be regarded as "acceptable"---you may be able to continue the activity posing the ethical dilemma. Examples of such safeguards include subjecting your decision-making to peer review to reduce the possibility of undue influence; steering clear of joint ventures with a client to reduce the threat of self-interest; and providing avenues of internal "whistle blowing" that employees can use without fear of reprisal

If the ethical dilemma confronting you is clear-cut, severe, and impossible to ameliorate, escape the compromising situation posing the ethical dilemma. This can mean severing a relationship with a client or quitting your job at an accounting firm, after having clearly documented your concerns. While drastic, such a course may be the only way to conduct yourself ethically and protect yourself from legal liability.

6. Conclusions

There is evidence to suggest that on various occasions over the past decade, society has questioned the activities of accountants/auditors as a consequence of perceiving that these professionals were not acting in the public interest. At times, this questioning has resulted in large scale distrust and the severing of the social contract historically established between society and the accounting profession (employers). In a globally competitive market where strong demand for suitably qualified accounting graduates continues, employers are increasingly voicing their preference for specific graduate skills that reflect the value system of the firm. Employers pay highly for the 'right' person who 'fits the culture' of the organisation. Uncertainty exists about how 'right' may be interpreted by various stakeholders who have a legitimate interest in the education and employment of accounting graduates presumably educated to serve the public interest.

An important question to address is: Should the accounting education system change to accommodate the needs of employers, needs that reflect their value system, if they are incongruent with society's value system? While the discussion presented in this paper may not fully answer this question, it does raise a number of further questions for consideration in the changing accounting education landscape. While it is clear that accounting is a vocational discipline, it is a discipline that is deeply entrenched as a profession. Although the production of graduates that are 'work-ready' is a common catchcry in government and university publications, we must be mindful of ensuring that the expectations of society, that give the discipline legitimacy as a profession, remain at the forefront of any change. We ignore this 'contractual obligation' to our peril.