How the U.S. Accounting Profession Got Where It Is Today: Part II

This article is the second of two articles providing a sobering account of how the U.S. accounting profession fared in the 20th century addresses how the forces encountered in earlier times affected the professional nature of accounting firms for some 20 years beginning in the early 1980s. A series of defining events and decisions have brought the accounting profession to where it is today, including the actions taken by the Federal Trade Commission and the Department of justice to force the profession to repeal its bans against competitive bidding and direct, uninvited solicitation of clients. At the same time as audit partners were given these perverse incentives by their firm's top management, their clients were becoming ever more driven by their own set of perverse incentives: bonuses based on earnings, and stock options with values linked to the price of the company's stock (and therefore, it was believed, to earnings). To maximize their mounting compensation, CEOs began to take every advantage of the subjective judgments implicit in accounting choices, thus placing immense pressure on audit engagement partners.