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To tell the truth: A discussion of issues concerning truth and ethics in accounting

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  • Bayou, Mohamed E.
  • Reinstein, Alan
  • Williams, Paul F.

Abstract

Such major scandals as the savings and loan failures in the late 1980s and 1990s, the Enron, Global Crossing, WorldCom and Tyco corporate scandals, Arthur Andersen's demise, and the current crisis of the financial system have all been linked directly or indirectly to false, misleading, or untruthful accounting. Thus, in a pragmatic sense the question of the veracity of accounting or what it could mean for accounting to be true seems to exist. The assertion of a false or misleading financial report implies some belief that there could exist a true or not-misleading report. Accounting-standard setters have finessed this issue by agreeing that "decision usefulness," not truth, is financial reporting's ultimate objective. Over time they have gravitated to a coherence notion of truth to provide rationales for accounting policy. The result has been a serious conflict between the content of financial accounting and the auditing of that content. In this paper we describe this conflict and its consequences and, relying on John McCumber's work, provide an argument about how accounting scholars and practitioners might begin to think more cogently about what a truthful type of corporate reporting might be. We suggest that accounting-standard setters have too narrowly construed what accounting's role in democratic society is and how the contradictions of current standard-setting jeopardize the essential professional franchise of accountants, the audit function.

Suggested Citation

  • Bayou, Mohamed E. & Reinstein, Alan & Williams, Paul F., 2011. "To tell the truth: A discussion of issues concerning truth and ethics in accounting," Accounting, Organizations and Society, Elsevier, vol. 36(2), pages 109-124, February.
    • Handle: RePEc:eee:aosoci:v:36:y:2011:i:2:p:109-124
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    References listed on IDEAS

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