Home > News and Downloads > Accountants must fulfil their role as gatekeepers of corporate governance

Accountants must fulfil their role as gatekeepers of corporate governance

The accounting function is critical to the successful operation and sustainability of any business.

“The Enron, Worldcom, Tyco, Freddie Mac, Lehman Brothers, Bernie Madoff, Xerox and Parmalat scandals have driven home the importance of sound accounting practices. Accounting scandals in these organisations and the demise of some of these organisations due to financial mismanagement point to the fact that accountants must fulfil their role as gatekeepers of corporate governance within the organisation. Accountants must protect the interests of shareholders, creditors, business partners and financial institutions such as banks,” says Fasset CEO, Cheryl James.

James says it is the accountant’s role to ensure that every aspect of the accounting function is performed strictly “according to the book” and with absolute integrity. “They must ensure that financial reporting is of the highest quality. Practices such as inflating assets, depreciating assets incorrectly, under-reporting line costs, inflating revenues, misstating earnings, or keeping debts off the balance sheet, can threaten an organisation’s sustainability in the long-term,” she cautions.

Burton G Malkiel said: “A firm’s income statement may be likened to a bikini: what it reveals is interesting but what it conceals is vital.” “Malkiel reminds us that it is easy to manipulate an income statement. Fortunately, with the rise of shareholder and stakeholder activism, it is difficult to conceal information or be economical with the truth. You cannot fool shareholders or stakeholders. They know what to look for and they ask the right questions,” James contends.

The call for greater transparency and greater accountability in financial reporting has given rise to integrated reporting. “Organisations can no longer be selective about the information they include; stakeholders want a full picture of the organisation, warts and all to enable them to assess true performance,” James observes.

James says Enron’s demise and the global crisis in financial markets have eroded trust in the accounting profession: “Accountants need to rebuild trust. Integrated reporting helps to rebuild trust because it compels organisations to be transparent. I challenge all organisations, even those where it is not a legal requirement to produce an integrated Annual Report to do so; this will instil faith in the accounting profession and the reporting process. It also sends a strong message that accountants have embraced their corporate governance gatekeeping role,” James concludes.