The Need for Appropriate Accounting Practices - Essay Example

?Academic research has no real life relevance and makes no contribution to the development of accounting and/or finance regulation Introduction Accounting and finance are important and integral part of world economic development. Commenting on the need for appropriate accounting practices, Hald 2010 states that, “Ethical accounting is not only important to private businesses or individuals for reliable information ... but has a responsibility to the public to provide transparent evaluations of publicly held business entities.” It is for this reason that institutions and organisations have always strived to ensure that there are appropriate accounting and finance structures in place. One of the most acceptable ways: worldwide to ensure that appropriate accounting and finance practices are followed is by the institution of accounting and finance regulations. Because of its importance, there have also been a lot of academic researches to monitor, review and assess these accounting and finance regulations. These academic researches go to the extent of coming up with suggestions as to how proper accounting and financial transactions can be treated in the accounting records. But the question is: does academic research has real life relevance or contribution on the development of accounting and finance regulations? 2. What is an academic research? In words of Leedy & Ormrod 2010, “Research is the systematic process of collecting and analyzing information to increase our understanding of the phenomenon under study.” Researches come in many forms and for many reasons – however, research conducted in the educational cycle and as an academic requirement is referred to as an academic research. This not withstanding, academic researchers look out for real and existing research problems to tackle. According to Kaufmann 2009, “Research paper is to combine primary and secondary information, guided by a provable thesis or claim, to arrive at a new or enlightened conclusion about the topic”. This means that even though academic researches are conducted as academic requirements, they should and are geared towards solving realistic problems. Commenting on the usefulness of academic research, The Association for College and Research Library, ACRL 2011 states that, “A desired outcome is to improve the transfer, teaching, learning and measurement of information literacy competencies”. The Science and Engineering Indicators, SEI 2004 extends the importance of academic research and development to a national perspective saying “Academic R&D is a significant part of the national R&D enterprise”. 3. Critical study of US Accounting Regulation and how these can be impacted by Academic Research Previts (2010), explains what accounting regulation is saying “the influence of scope of service provided by professional accountants by legislation and case law as well as dictates of a variety of government and private sector agencies.” In most countries, the need for accounting and finance regulation is informed by practices that go on accountancy and finance that calls for concern. In the United States for instance, there was the Sarbanes-Oxley Act passed in 2002 as a reaction to high profile accounting scandals that led to the collapse of Enron and WorldCom. “The Sarbanes-Oxley Act of 2002 ... is legislation enacted in response to the high-profile Enron and WorldCom financial scandals” (Spurzem, 2006). The Sarbanes-Oxley Act of 2002 is “a legislation that came into force in 2002 and introduced major changes to the regulation of financial practice and corporate governance” (SOXLAW, 2006). The law was necessitated to ensure that companies did not embark on corrupt accounting and financial management practices. This and many other regulations ensure that accounting and finance practitioners are supposed to follow certain laid down rules and ethics. The Sarbanes-Oxley Act was passed to change the financial system through strict audit rules, enforcement to compliance and discipline companies for any negligent conduct. With reference to the Act or regulation discussed above, it can be deduced that academic research has real life relevance and make contribution to the development of accounting and finance regulation in three major ways. First, it serves as a check or policing agent for the implementation of the regulation. Even though the government of the United States has its own way of monitoring for the implementation of the regulation such as in the case of The Sarbanes-Oxley Act where “the Board can discipline or issue remedial sanctions upon firms and their associates for negligent conduct” (Basel II, 2006), various academic research also play a significant role in alerting government and other oversight bodies responsible for the implementation of the regular to certain companies that may not be working according to the regulation. In a recent research conducted by this researcher at PrintMark Publication, a school-based magazine company, the researcher was shocked to make certain revelations even though regulations are in place. There was a general fraudulent act of understating payables, understating depreciation expenses and understanding value of ending inventory. There was also evidence of overstating income. One other way that academic research ensures the development of accounting and finance regulation is by assessing the success of the regulation. With its role as an assessor, academic research checks the regulation itself to see if it is achieving the goals for which it was enacted. This is done through comparative cases studies. In the view of Holetzky (2011), “A case study is “the study of a person, a small group, a single situation, or a specific "case," is called a case study.” Academic researches that compare degree of corruption and fraud in accounting and finance setups between times when there were no regulations and today that there are regulations are the best sources to depend on for an assessment. This is of course another good reason why academic research is important to the development of regulation because it serves as an examiner for the regulations. Finally, academic research is one of the most authentic sources to depend on for suggestions of amendments for the regulation. The reason why academic research becomes a very good source for amendment is that due to the setting of academic research, its findings and recommendations can be trusted as unbiased. This is because people who undertake academic research are not in competition with existing practitioners and would not pass biased judgement for any favouritism. For this reason, if a particular academic research suggests an amendment in the regulation after carefully analysing data gathered, it makes the suggestion dependable because the researcher would not be calling for the say, removal of that part of the regulation to favour his company. 4. Limitations of Academic Research on Accounting and Finance Regulation According to Previts (2010), “Research in Accounting Regulation seeks high quality manuscripts which address accounting regulatory policy” but the question is, has such academic research lived its full impact on accounting and financial regulation? Even though there is no denying fact that academic research as described above has real life relevance and importance on accounting and finance regulations, there are a lot of limitations to the realisation of those significances. In the first place, some accounting and finance practitioners regard accounting and finance regulations as mere publications works and so break them with impunity. To such people, “theories in general are composed of words and symbols and do not have a physical form” (Bizcovering 2009). People like this would make no meaning of academic research even if they do give regards to national regulations. There is also another group of accounting and finance practitioners who think academic research is for academic purposes and that is where it should remain. To such practitioners, academic researches are conducted to score academic points and so even when they are conducted at their workplace, they put in no effort to ensure that suggestions and recommendations in the research are adhered to. There is a final group of practitioners who would not make any meaning out of academic research due to practices that can best be termed as “lawful but corrupt” practices. Malcolm (2010) laments on some practices that are generally regarded as lawful but are corrupt. This practice, he calls gaming. He explains that “In the business world, "gaming" refers to the act of subverting the intent of rules or laws without technically breaking them”. Malcolm cites example from Enron. 5. Conclusion To conclude, the writer wants to emphasise that results, conclusions and recommendations from academic researches per se are made up of some excellent – and in some cases new ideas that could have a lot of relevance on the development of accounting and finance regulation. However, the will power to implement these recommendations is what is defeating the objectives of carrying out academic research in the field of accounting and finance. The spirit of academic research should therefore not die. It is the corpse of will-power and implementation that must rather be resurrected. To maximise the usefulness of academic research, university and academic researchers must be represented on the boards of institutions and bodies that are entrusted to ensure compliance to the regulation. Again, there should be more private sector participation like The International Accounting Standards Board (IASB) in the enforcement of the regulations. IASB “is an independent, private-sector body that operates under the oversight of the International Financial Reporting Standards Foundation” (IAS Plus, 2010). REFERENCES Accounting Scholar.Com, Positive Accounting Theory, accessed 6th February 2011, Association of College and Research Libraries, ACRL 2011, Academic Research A Painful Process For Students, accessed 4th February 2011 Bizcovering, 2009, Accounting Theory and Accounting Practice, accessed 5th February 2011 Cartwright, J 2009, Importance of Accounting Records and Companies Accounts For Business, Article Base, accessed 4th February 2011 Read More