Accounting and Public Accountability: A Macro and Micro Examination in Financial Accounting and Auditing

Abstract

Accountability has its roots in accounting as both words’ etymology traces to the Latin word “accomptare” (to account). Financial accounting, as the field came to be known, has at its heart the rendering of an account of the financial affairs of an organization to interested parties who may have invested in, loaned money to or in other ways funded the organization. These parties are separate from the management of the organization and have limited powers to compel managers to reveal information. Hence, laws and regulations call on managers to account for their stewardship of the resources entrusted to them as well as to provide these third parties with information useful to determining whether they will invest, loan or provide more resources to the entity. Given this mandate to provide information about a financial nature, there have been increasing calls by third parties for accountants and accounting standards to be involved in a broader range of reporting such as environmental accounting and corporate social responsibility reporting. To aid in creating trustworthy financial accounts as well as other types of accounts, an entire profession of public accountants (also known as auditors) has grown to attest to the compliance of these accounts with generally accepted accounting principles so as to render a “true and fair account” of the organization’s finances or other appropriate standards. Thus, in this chapter we will outline the sources of public accountability in financial accounting practices and how public accounting (i.e., auditing) attempts to ensure that these financial accounts are trustworthy or worthy of belief by third parties who have relatively little ability to compel a further account. We also examine the call to expand this accounting and audit role beyond the financial. This review requires us to look at the “big picture” of the role of financial statements and other accountings in acts of public accountability as well as the micro roles of accountability practices and pressures on individuals involved in attesting to these accounts.

Keywords: Public Accountability, Relationships of Accountability, Financial Accounting, Auditing, Review

JEL Classification: M41, M49