Accounting’s Nadir: Failures of Form or Substance?

University of Pennsylvania Journal of Business Law, Vol. 12, 2010

81 Pages Posted: 4 Aug 2009 Last revised: 30 Sep 2010

Date Written: August 2, 2009


In light of a tumultuous decade of scandal and alleged involvement in global economic crisis, accounting may well be at its lowest point in terms of respect and authority. But what is the source of this condition: the organization of the profession or poor practice — form or substance? This paper argues that public attention paid to substantive accounting questions (e.g. fair value) has distracted from the more pressing concern of accounting’s regulatory failures. Substantive questions are of great importance, but they are also deeply intertwined with the organization and oversight of public accounting, as was recognized by early twentieth-century accounting theorists in appealing simultaneously to political progressivism and philosophical pragmatism to establish the monopoly of CPAs in the 'publicity' of financial condition.

This emphasis of substance over form has occurred simultaneously with a shift in rhetoric from 'accounting as art' to 'accounting as science,' resulting in less attention to accounting’s oversight and a dangerous mix of public and private interests in promulgating accounting standards. This scientific idealization also disregards the deeply political and decidedly non-scientific nature of many aspects of accounting and stands at odds with the emphasis on experience, judgment, and artistry used to justify CPAs’ role in financial regulation, as formalized in the 1930s in the wake of another financial crisis. Building on accounting’s pragmatist roots and contemporary legal literature on accounting, the article concludes that substantive reforms should better incorporate elements of judgment and subjectivity by requiring increased disclosure and transparency, but not prescribing specific accounting treatments.

Keywords: corporate governance, accounting, fair value, CPA, financial regulation, AICPA, FASB, PCAOB, NASBA

JEL Classification: G34, M44

Suggested Citation

Green, Daniel Austin, Accounting’s Nadir: Failures of Form or Substance? (August 2, 2009). University of Pennsylvania Journal of Business Law, Vol. 12, 2010. Available at SSRN:

Daniel Austin Green (Contact Author)

Francisco Marroquin University ( email )

6 calle final, zona 10
Guatemala City, 01010

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