Victims of corporate fraud, Certified Public Accountants, and stakeholders in publicly traded companies are going to have mixed feelings after reading articles authored by Carl Tietjen and R. K. Mautz, because decades before the scandals that obliterated retirement funds, job security, and financial institutions from 2001 to 2008, these men already described the underlying flaws and conflicts of interests in corporate America, as if they were prophetic voices warning of impending doom (Hays & Ariail, 2013). Both Mautz and Tietjen called for higher standards and improvements in the process of rendering professional services as CPAs or independent accountants. Tietjen’s focus was to persuade the public to go easy on accountants considering the challenges they faced. Mautz saw the problem from another perspective, describing the environment that gave rise to the problems related to fairness, transparency, and financial ethics. An in-depth study of these articles, with an eye towards combining related insights leads to the creation of an analysis framework that enables analysts to understand the accounting and corporate scandals that radically altered the financial landscape of the 21st century.
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Just like Mautz, Tietjen saw the problems that plagued the accounting profession. He did not deny the propensity of businessmen and corporate executives to bend the rules for the purpose of financial growth and monetary rewards. Tietjen pointed out that in a best-case scenario accountants have the capability to provide a reliable and fair assessment of the organization’s financial performance through the use of financial reporting mechanisms mandated by law. However, Tietjen bemoan the fact that in a real-world setting, the accountants do not have absolute power to remain independent in terms of choosing and utilizing the most appropriate accounting parameters for the purpose of creating truthful and verifiable assessments of a company’s financial health.
Tietjen acknowledged the problems, and there was no denial on his part that accountants are also capable of misdeeds. However, Tietjen identified the nature of the relationship between independent accountants and publicly traded companies as the root cause of the problem. He lamented the fact that “the central weakness in the independent accountant’s position under the present concept is that he has neither the responsibility nor the authority to require client companies to select financial reporting practices and methods which are not just acceptable but are the most appropriate ones” (Tietjen, 1971, p. 70). In other words, Tietjen shifted the blame on erring companies and unscrupulous corporate executives.
Mautz’s Laments the Lack of Social Responsibility
Mautz shared the same sentiment when it comes to raising the ethical standards that govern the world of CPAs or independent accountants. However, Mautz perceived the said professionals not from a personal point of view. He did not share the vantage point of Tietjen and he did not empathize with the working man’s struggle against his employers. Mautz analyzed the problem from the perspective of accounting firms, the collective work of accountants under a corporate setting. As a result, Mautz saw the danger signs when accountants were viewed not just as ordinary workers, but as stakeholders in a business enterprise hired by publicly traded companies for the purpose of rubber stamping their respective financial disclosures.
Mautz did not see any difference between an accounting firm attempting to increase its revenues in comparison to a publicly traded company competing with other business entities and working to improve the organization’s quarterly earnings. Just like an oracle bewailing an incoming misfortune, he issued the following warning: “The public accounting firms we once knew appear to be experiencing a metamorphosis into an organization with a wide variety of capabilities offered to any client for any purpose as long as the desired service is both legal and profitable” (Mautz, 1988, p. 121). In other words, accounting firms are willing to go through the process of rubber stamping a company’s financial statement as long as the action satisfied the minimum legal requirements.
Understanding the Accounting and Corporate Scandals of the 21st Century
It is to the best interest of the general public in general, and to the stakeholders of publicly traded companies in particular, to synthesize and harmonize the insights from both articles in order to understand the corporate and accounting scandals of the 21st century. This process may help develop a mechanism that prevents the repetition of the Enron and Arthur Andersen accounting fiasco (McLean & Elkind, 2013). For example, regulators and investors must agree with the conclusion that says: “the basic premise that management has primary responsibility for financial reporting is not likely to change” (Tietjen, 1971, p, 70). In hindsight, a better appreciation of the statement’s ramifications may have prevented the Enron scandal. In the said case, Enron was able to get away with corporate malfeasance for so long because the public was made to believe that a reputable accounting firm was auditing the company’s books (Cole, 2014). Thus, Tietjen was correct when he said that the corporation controls the auditing process. For example, Enron utilized an accounting technique called the market-to-market valuation scheme that allowed the company to post future earnings as part of the corporate earnings for a particular fiscal year (Hays & Ariail, 2013).
It is also prudent to listen to the conclusion that says: “profitability as a primary goal is inappropriate for an activity with a public interest” (Mautz, 1988, p. 124). Using this framework, regulators are alerted to the conflict of interest that existed when Arthur Andersen, the accounting firm responsible for auditing Enron’s financial statements, was also the same company that Enron executives utilized to help them get away with corporate fraud (Brown, 2017). It has to be made clear that Arthur Andersen was under the same financial pressure as other revenue generating firms (McLean & Elkind, 2013).
Combining and harmonizing the insights from Mautz and Tietjen’s articles revealed a host of insights that may have prevented the corporate and accounting scandals that radically altered the global financial landscape. From Tietjen, the revelation regarding the role of corporations in creating and approving financial statements may have encouraged greater scrutiny regarding the actual role that accountants play in ensuring fairness and fair play. From Mautz, the warning about the effect of corporate greed on accounting firms may have prevented the use of accounting firms as a shield to cover corporate wrongdoing.
Brown, R. (2017). Regulation of corporate disclosure (4th ed.). New York, NY: Wolters Kluwer.
Cole, C. (2014). Audit partner accountability and audit transparency: Partner signature or disclosure agreement. Journal of Accounting and Finance, 14(2), 84-101.
Hays, J., & Ariail, D. (2013). Enron should not have been a surprise and the next major fraud should not be either. Journal of Accounting and Finance, 13(3), 134-143.
Mautz, R. (1988). Public accounting: Which kind of professionalism? Accounting Horizons, 2(3), 112-125.
McLean, B., & Elkind P. (2013). The smartest guys in the room: The amazing rise and scandalous fall of Enron. New York, NY: Penguin Books.
Tietjen, A. (1971). Financial reporting responsibilities. The Journal of Accountancy, 1(1), 69-73.