MODULE 0 – INTRODUCTORY MODULE

PRELIMINARY READING TEXTS ON

ACCOUNTANCY PROFESSIONALIZATION


TOPICAL OVERVIEW

§ Reading Text 1 – What is a Profession?
§ Reading Text 2 – Brief Notes on Accounting
§ Reading Text 3 – Education, Training, Qualifications, and Prospects

LEARNING OUTCOMES

After studying this module, the learners are expected to:

1. State the conceptual definition of a profession.
2. Explain how professions are generally formed and regulated.
3. Discuss the concept of professional autonomy.
4. Relate the concepts of status, prestige, and power to professions.
5. Enumerate the characteristic features of a profession.
6. Describe the unique identity of accounting as a profession.
7. Trace the brief history, etymology, and terminology of accounting.
8. Enumerate and describe the various accounting disciplines.
9. Describe the roles of professional accountancy organizations and standard-setters.
10. Discuss introductory concepts on accounting education, training, qualifications, and prospects.

MODULE OVERVIEW

This introductory module, placed prior to the formal lesson discussion modules, seeks to provide
students with a general overview of the concept of professionalization as it relates to the accountancy
profession through a series of short and interconnected preliminary reading texts. These reading texts
are designed to familiarize students of the course general context and premise of the topics that lie
ahead in the formal discussions. Furthermore, these reading texts serve to set academic expectation
levels in terms of the scope of the discussions included in the course.

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 READING 1
WHAT IS A PROFESSION?

DEFINING A PROFESSION

A profession is an occupation founded upon specialized educational training, the purpose of which is
to supply disinterested objective counsel and service to others, for a direct and definite compensation,
wholly apart from expectation of other business gain. According to the European Union's Directive on
Recognition of Professional Qualifications, professions are "those practiced on the basis of relevant
professional qualifications in a personal, responsible and professionally independent capacity by those
providing intellectual and conceptual services in the interest of the client and the public".

It has been said that a profession is not a trade and not an industry. Medieval and early modern tradition
recognized only three professions: divinity, medicine, and law – the so-called "learned professions".
Major milestones which may mark an occupation being identified as a profession include:
§ an occupation becomes a full-time occupation
§ the establishment of a training school
§ the establishment of a university school
§ the establishment of a local association
§ the establishment of a national association of professional ethics
§ the establishment of state licensing laws

With the rise of technology and occupational specialization in the 19th century, other bodies began to
claim professional status: mechanical engineering, pharmacy, veterinary medicine, psychology, nursing,
teaching, librarianship, optometry and social work, each of which could claim, using these milestones,
to have become professions by 1900.

Some professions change slightly in status and power, but their prestige generally remains stable over
time, even if the profession begins to have more required study and formal education. Disciplines
formalized more recently, such as architecture, now have equally long periods of study associated with
them.

FORMATION AND REGULATION

A profession arises when any trade or occupation transforms itself through "the development of formal
qualifications based upon education, apprenticeship, and examinations, the emergence of regulatory
bodies with powers to admit and discipline members, and some degree of rights.”

Originally, any regulation of the professions was self-regulation through statutory bodies and regulatory
agencies. With the growing role of government, statutory bodies have increasingly taken on this role,
their members being appointed either by the profession or (increasingly) by government. Proposals for
the introduction or enhancement of statutory regulation may be welcomed by a profession as protecting
clients and enhancing its quality and reputation, or as restricting access to the profession.

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Besides regulating access to a profession, professional bodies may set examinations of competence and
enforce adherence to an ethical code. There may be several such bodies for one profession in a single
country, an example being the accountancy bodies of the United Kingdom (ACCA, CAI, CIMA, CIPFA,
ICAEW and ICAS), all of which have been given a Royal Charter, although their members are not
necessarily considered to hold equivalent qualifications, and which operate alongside further bodies
(AAPA, IFA, CPAA). Another example of a regulatory body that governs a profession is the Hong Kong
Professional Teachers Union, which governs the conduct, rights, obligations and duties of salaried
teachers working in educational institutions in Hong Kong. The engineering profession is highly
regulated in some countries (Canada and USA) with a strict licensing system for Professional Engineer
that controls the practice but not in others (UK) where titles and qualifications are regulated Chartered
Engineer but practice is not regulated.

Typically, individuals are required by law to be qualified by a local professional body before they are
permitted to practice in that profession. However, in some countries, individuals may not be required
by law to be qualified by such a professional body in order to practice, as is the case for accountancy in
the United Kingdom (except for auditing and insolvency work which legally require qualification by a
professional body). In such cases, qualification by the professional bodies is effectively still considered
a prerequisite to practice as most employers and clients stipulate that the individual hold such
qualifications before hiring their services.

DEGREE OF AUTONOMY

Professions tend to be autonomous, which means they have a high degree of control of their own affairs.
Professionals are autonomous insofar as they can make independent judgments about their work". This
usually means "the freedom to exercise their professional judgment."

However, it also has other meanings. Professional autonomy is often described as a claim of
professionals that has to serve primarily their own interests. This professional autonomy can only be
maintained if members of the profession subject their activities and decisions to a critical evaluation by
other members of the profession. The concept of autonomy can therefore be seen to embrace not only
judgment, but also self-interest and a continuous process of critical evaluation of ethics and procedures
from within the profession itself.

STATUS, PRESTIGE, AND POWER

Professions tend to have a high social status, regarded by society as highly important. This high esteem
arises primarily from the higher social function of their work. The typical profession involves technical,
specialized, and highly skilled work. This skill and experience is often referred to as "professional
expertise." In the modern era, training for a profession involves obtaining degrees and certifications.
Often, entry to the profession is barred without licensure. Learning new skills that are required as a
profession evolves is called continuing education. Standards are set by states and associations. Leading
professionals tend to police and protect their area of expertise and monitor the conduct of their fellow
professionals through associations, national or otherwise. Professionals often exercise a dominating
influence over related trades, setting guidelines and standards. Socially powerful professionals
consolidate their power in organizations for specific goals. Working together, they can reduce
bureaucratic entanglements and increase a profession's adaptability to the changing conditions of the
world.

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CHARACTERISTIC FEATURES

There is considerable agreement about defining the characteristic features of a profession. They have a
professional association, cognitive base, institutionalized training, licensing, work autonomy, colleague
control, and code of ethics. High standards of professional and intellectual excellence can also be added
in that professions are considered as “occupations with special power and prestige" and that they
comprise an “exclusive elite group” in all societies. Members of a profession have also been defined as
"workers whose qualities of detachment, autonomy, and group allegiance are more extensive than those
found among other groups...their attributes include a high degree of systematic knowledge; strong
community orientation and loyalty; self-regulation; and a system of rewards defined and administered
by the community of workers.

A profession has been further defined as: "a special type of occupation...(possessing) corporate
solidarity...prolonged specialized training in a body of abstract knowledge, and a collectivity or service
orientation...a vocational sub-culture which comprises implicit codes of behavior, generates an esprit de
corps among members of the same profession, and ensures them certain occupational
advantages...(also) bureaucratic structures and monopolistic privileges to perform certain types of
work...professional literature, legislation, etc."

A critical characteristic of a profession is the need to cultivate and exercise professional discretion - that
is, the ability to make case by case judgments that cannot be determined by an absolute rule or
instruction.

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 READING 2
BRIEF NOTES ON ACCOUNTING

THE IDENTITY OF ACCOUNTING

Accounting or Accountancy is the measurement, processing, and communication of financial and non
financial information about economic entities such as businesses and corporations. Accounting, which
has been called the "language of business" measures the results of an organization's economic activities
and conveys this information to a variety of users, including investors, creditors, management, and
regulators. Practitioners of accounting are known as accountants. The terms "accounting" and "financial
reporting" are often used as synonyms.

Accounting can be divided into several fields including financial accounting, management accounting,
external auditing, tax accounting and cost accounting. Accounting information systems are designed to
support accounting functions and related activities. Financial accounting focuses on the reporting of an
organization's financial information, including the preparation of financial statements, to the external
users of the information, such as investors, regulators and suppliers; and management accounting
focuses on the measurement, analysis and reporting of information for internal use by management. The
recording of financial transactions, so that summaries of the financials may be presented in financial
reports, is known as bookkeeping, of which double-entry bookkeeping is the most common system.

Accounting has existed in various forms and levels of sophistication throughout human history. The
double-entry accounting system in use today was developed in medieval Europe, particularly in Venice,
and is usually attributed to the Italian mathematician and Franciscan friar Luca Pacioli. Today, accounting
is facilitated by accounting organizations such as standard-setters, accounting firms and professional
bodies. Financial statements are usually audited by accounting firms, and are prepared in accordance
with generally accepted accounting principles (GAAP). GAAP is set by various standard-setting
organizations such as the Financial Accounting Standards Board (FASB) in the United States and the
Financial Reporting Council in the United Kingdom. As of 2012, "all major economies" have plans to
converge towards or adopt the International Financial Reporting Standards (IFRS).

ACCOUNTING: SHORT HISTORY, ETYMOLOGY, TERMINOLOGY

Accounting is thousands of years old and can be traced to ancient civilizations. The early development
of accounting dates back to ancient Mesopotamia, and is closely related to developments in writing,
counting and money; there is also evidence of early forms of bookkeeping in ancient Iran, and early
auditing systems by the ancient Egyptians and Babylonians. By the time of Emperor Augustus, the
Roman government had access to detailed financial information. Double-entry bookkeeping was
pioneered in the Jewish community of the early-medieval Middle East and was further refined in
medieval Europe. With the development of joint-stock companies, accounting split into financial
accounting and management accounting. The first published work on a double-entry bookkeeping
system was the Summa de arithmetica, published in Italy in 1494 by Luca Pacioli (the "Father of
Accounting"). Accounting began to transition into an organized profession in the nineteenth century,
with local professional bodies in England merging to form the Institute of Chartered Accountants in
England and Wales in 1880.

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Both the words accounting and accountancy were in use in Great Britain by the mid-1800s, and are
derived from the words “accompting” and “accountantship” used in the 18th century. In Middle English
(used roughly between the 12th and the late 15th century) the verb "to account" had the form
“accounten”, which was derived from the Old French word “aconter”, which is in turn related to the
Vulgar Latin word “computare”, meaning "to reckon". The base of “computare” is “putare”, which
"variously meant to prune, to purify, to correct an account, hence, to count or calculate, as well as to
think". The word "accountant" is derived from the French word “compter”, which is also derived from
the Italian and Latin word “computare”. The word was formerly written in English as "accomptant", but
in process of time the word, which was always pronounced by dropping the "p", became gradually
changed both in pronunciation and in orthography to its present form.

Accounting has variously been defined as the keeping or preparation of the financial records of
transactions of the firm, the analysis, verification and reporting of such records and "the principles and
procedures of accounting"; it also refers to the job of being an accountant. Accountancy refers to the
occupation or profession of an accountant.

DISCIPLINES OF ACCOUNTING

Accounting has several subfields or subject areas, including financial accounting, management
accounting, auditing, taxation and accounting information systems.

Financial accounting focuses on the reporting of an organization's financial information to external users
of the information, such as investors, potential investors and creditors. It calculates and records business
transactions and prepares financial statements for the external users in accordance with generally
accepted accounting principles (GAAP). GAAP, in turn, arises from the wide agreement between
accounting theory and practice, and change over time to meet the needs of decision-makers. Financial
accounting produces past-oriented reports—for example financial statements are often published six to
ten months after the end of the accounting period—on an annual or quarterly basis, generally about the
organization as a whole.

Management accounting focuses on the measurement, analysis and reporting of information that can
help managers in making decisions to fulfill the goals of an organization. In management accounting,
internal measures and reports are based on cost-benefit analysis, and are not required to follow the
generally accepted accounting principle (GAAP). In 2014 CIMA created the Global Management
Accounting Principles (GMAPs). The result of research from across 20 countries in five continents, the
principles aim to guide best practice in the discipline. Management accounting produces past-oriented
reports with time spans that vary widely, but it also encompasses future-oriented reports such as
budgets. Management accounting reports often include financial and non financial information, and
may, for example, focus on specific products and departments.

Auditing is the verification of assertions made by others regarding a payoff, and in the context of
accounting it is the "unbiased examination and evaluation of the financial statements of an organization".
Audit is a professional service that is systematic and conventional. An audit of financial statements aims
to express or disclaim an independent opinion on the financial statements. The auditor expresses an
independent opinion on the fairness with which the financial statements presents the financial position,
results of operations, and cash flows of an entity, in accordance with the generally acceptable accounting
principle (GAAP) and "in all material respects". An auditor is also required to identify circumstances in
which the generally acceptable accounting principles (GAAP) has not been consistently observed.

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An accounting information system is a part of an organization's information system used for processing
accounting data. Many corporations use artificial intelligence-based information systems. The banking
and finance industry uses AI in fraud detection. The retail industry uses AI for customer services. AI is
also used in the cybersecurity industry. It involves computer hardware and software systems using
statistics and modeling. Many accounting practices have been simplified with the help of accounting
computer-based software. An enterprise resource planning (ERP) system is commonly used for a large
organization and it provides a comprehensive, centralized, integrated source of information that
companies can use to manage all major business processes, from purchasing to manufacturing to
human resources. These systems can be cloud based and available on demand via application or
browser, or available as software installed on specific computers or local servers.

Tax accounting concentrates on the preparation, analysis and presentation of tax payments and tax
returns. This requires the use of specialized accounting principles for tax purposes which can differ from
the generally accepted accounting principles (GAAP) for financial reporting.

Forensic accounting is a specialty practice area of accounting that describes engagements that result
from actual or anticipated disputes or litigation. "Forensic" means "suitable for use in a court of law", and
it is to that standard and potential outcome that forensic accountants generally have to work.

PROFESSIONAL ORGANIZATIONS, FIRMS, AND STANDARD-SETTERS

Professional accounting bodies include the American Institute of Certified Public Accountants (AICPA)
and the other 179 members of the International Federation of Accountants (IFAC), including Institute of
Chartered Accountants of Scotland (ICAS), Institute of Chartered Accountants of Pakistan (ICAP), CPA
Australia, Institute of Chartered Accountants of India, Association of Chartered Certified Accountants
(ACCA) and Institute of Chartered Accountants in England and Wales (ICAEW). Professional bodies for
subfields of the accounting professions also exist, for example the Chartered Institute of Management
Accountants (CIMA) in the UK and Institute of management accountants in the United States. Many of
these professional bodies offer education and training including qualification and administration for
various accounting designations, such as certified public accountant (AICPA) and chartered accountant.

Depending on its size, a company may be legally required to have their financial statements audited by
a qualified auditor, and audits are usually carried out by accounting firms. Accounting firms grew in the
United States and Europe in the late nineteenth and early twentieth century, and through several
mergers there were large international accounting firms by the mid-twentieth century. Further large
mergers in the late twentieth century led to the dominance of the auditing market by the "Big Five"
accounting firms: Arthur Andersen, Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers. The
demise of Arthur Andersen following the Enron scandal reduced the Big Five to the Big Four.

Generally accepted accounting principles (GAAP) are accounting standards issued by national
regulatory bodies. In addition, the International Accounting Standards Board (IASB) issues the
International Financial Reporting Standards (IFRS) implemented by 147 countries. While standards for
international audit and assurance, ethics, education, and public sector accounting are all set by
independent standard settings boards supported by IFAC. The International Auditing and Assurance
Standards Board sets international standards for auditing, assurance, and quality control; the
International Ethics Standards Board for Accountants (IESBA) sets the internationally appropriate
principles- based Code of Ethics for Professional Accounts the International Accounting Education
Standards Board (IAESB) sets professional accounting education standards; International Public Sector
Accounting Standards Board (IPSASB) sets accrual-based international public sector accounting

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standards. Organizations in individual countries may issue accounting standards unique to the countries.
For example, in the United States the Financial Accounting Standards Board (FASB) issues the
Statements of Financial Accounting Standards, which form the basis of US GAAP, and in the United
Kingdom the Financial Reporting Council (FRC) sets accounting standards. However, as of 2012 "all
major economies" have plans to converge towards or adopt the IFRS.

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 READING 3
EDUCATION, TRAINING,
QUALIFICATIONS, AND PROSPECTS

ACADEMIC DEGREES

At least a bachelor's degree in accounting or a related field is required for most accountant and auditor
job positions, and some employers prefer applicants with a master's degree. A degree in accounting
may also be required for, or may be used to fulfill the requirements for, membership to professional
accounting bodies. A masters or doctorate is required in order to pursue a career in accounting
academia, for example to work as a university professor in accounting. The Doctor of Philosophy (PhD)
and the Doctor of Business Administration (DBA) are the most popular degrees. The PhD is the most
common degree for those wishing to pursue a career in academia, while DBA programs generally focus
on equipping business executives for business or public careers requiring research skills and
qualifications.

Professional accounting qualifications include the Chartered Accountant designations and other
qualifications including certificates and diplomas. In Scotland, chartered accountants of ICAS undergo
Continuous Professional Development and abide by the ICAS code of ethics. In England and Wales,
chartered accountants of the ICAEW undergo annual training, and are bound by the ICAEW's code of
ethics and subject to its disciplinary procedures In the United States, the requirements for joining the
AICPA as a Certified Public Accountant are set by the Board of Accountancy of each state, and members
agree to abide by the AICPA's Code of Professional Conduct and Bylaws. The ACCA is the largest global
accountancy body with over 320,000 members and the organization provides an ‘IFRS stream’ and a ‘UK
stream’. Students must pass a total of 14 exams, which are arranged across three papers.

ACCOUNTANCY RESEARCH

Accounting research is research in the effects of economic events on the process of accounting, the
effects of reported information on economic events, and the roles of accounting in organizations and
society. It encompasses a broad range of research areas including financial accounting, management
accounting, auditing and taxation.

Accounting research is carried out both by academic researchers and practicing accountants.
Methodologies in academic accounting research include archival research, which examines "objective
data collected from repositories"; experimental research, which examines data "the researcher gathered
by administering treatments to subjects"; analytical research, which is "based on the act of formally
modeling theories or substantiating ideas in mathematical terms"; interpretive research, which
emphasizes the role of language, interpretation and understanding in accounting practice, "highlighting
the symbolic structures and taken-for-granted themes which pattern the world in distinct ways"; critical
research, which emphasizes the role of power and conflict in accounting practice; case studies;
computer simulation; and field research.

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Empirical studies document that leading accounting journals publish in total fewer research articles than
comparable journals in economics and other business disciplines, and consequently, accounting
scholars are relatively less successful in academic publishing than their business school peers. Due to
different publication rates between accounting and other business disciplines, a recent study based on
academic author rankings concludes that the competitive value of a single publication in a top-ranked
journal is highest in accounting and lowest in marketing.

ETHICS AND ACCOUNTING SCANDALS

The year 2001 witnessed a series of financial information frauds involving Enron, auditing firm Arthur
Andersen, the telecommunications company WorldCom, Qwest and Sunbeam, among other well-
known corporations. These problems highlighted the need to review the effectiveness of accounting
standards, auditing regulations and corporate governance principles. In some cases, management
manipulated the figures shown in financial reports to indicate a better economic performance. In others,
tax and regulatory incentives encouraged over-leveraging of companies and decisions to bear
extraordinary and unjustified risk.

The Enron scandal deeply influenced the development of new regulations to improve the reliability of
financial reporting, and increased public awareness about the importance of having accounting
standards that show the financial reality of companies and the objectivity and independence of auditing
firms.

In addition to being the largest bankruptcy reorganization in American history, the Enron scandal
undoubtedly is the biggest audit failure causing the dissolution of Arthur Andersen, which at the time
was one of the five largest accounting firms in the world. After a series of revelations involving irregular
accounting procedures conducted throughout the 1990s, Enron filed for Chapter 11 bankruptcy
protection in December 2001.

One consequence of these events was the passage of Sarbanes–Oxley Act in the United States 2002, as
a result of the first admissions of fraudulent behavior made by Enron. The act significantly raises criminal
penalties for securities fraud, for destroying, altering or fabricating records in federal investigations or
any scheme or attempt to defraud shareholders.

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REFERENCES AND WORKS CITED

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Bratton, William W. "Enron and the Dark Side of Shareholder Value" (Tulane Law Review, New Orleans,
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Brint, Steven. 1994. In an Age of Experts: The Changing Roles of Professionals in Politics and Public Life.
Princeton University Press.

Burchell, S.; Clubb, C.; Hopwood, A.; Hughes, J.; Nahapiet, J. (1980). "The roles of accounting in
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Joseph M. Jacob, Doctors and Rules: A Sociology of Professional Values, Transaction Publishers, New
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Oldroyd, David & Dobie, Alisdair: Themes in the history of bookkeeping, The Routledge Companion to
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Oler, Derek K., Mitchell J. Oler, and Christopher J. Skousen. 2010. “Characterizing Accounting
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Perks, R. W. (1993). Accounting and Society. London: Chapman & Hall. p. 16. ISBN 978-0-412-47330-2.

Timeline of the History of the Accountancy Profession, Institute of Chartered Accountants in England
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