Accounting standards and professional ethics;

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Accounting Standards and Professional Ethics
Arthur R. Wyatt
Arthur Andersen & Co.
Over the years accounting standards and auditing practices have become sufficiently divorced that they almost seem to be in separate environments with only negligible overlap. While professional auditors continue to need to evaluate client applications of accounting standards, those auditors today are also frequently involved in seeking loopholes in the standards to exploit for client benefit. Auditors continue to be supportive of the accounting standard-setting process, but many times that support seems to flow more from a concern about the uncertainties associated with any revision to the current mechanism than from a residual satisfaction with recent and current FASB standards.
The increasing complexity of the world in which the auditor operates probably means that a separation of the establishment of accounting standards from the evaluation of their application was inevitable. Greater specialization arises when the environment becomes increasingly complex. Even so, the rather marked change in how auditors seem to approach the evaluations of the application of standards today, as compared to simpler times, appears to be more an attitudinal change than the necessary consequence of greater complex­ity,
better technology, or increased specialization.
Thus, the relationship between accounting standards and the professional auditor may be less direct today than in the past. A brief look at how this relationship has changed may sharpen the focus of the current relationship. First, it may be useful to consider why accounting standards are developed today in the manner in which they are, rather than in some alternative procedure. We should recognize that when Congress created the Securities and Exchange Commission in 1934 it authorized the Commission to articulate accounting standards. Over the next few years, the SEC was fully occupied in getting organized and in dealing with many inherited problems flowing from the trauma in the stock markets over the preceding four or five years. The need to develop accounting standards did not reach a high enough level of priority for the SEC to undertake any productive activity.
At the same time, many of the leaders on the practicing side of the accounting profession were concerned about the potential ramifications of having accounting standards established by a governmental agency. Leaders of the profession, who, at that time, were also generally the top technical partners in the several leading firms, approached the SEC through the offices of the American Institute of CPAs to offer to assume the authority for the develop­ment
of accounting standards. After considerable discussion, and a very close vote within the Commission itself, the Commission authorized the AICPA to
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