University Essay: Shaping Contemporary Accounting Practice

This essay delves into the evolution of contemporary accounting practices, identifying and analyzing the pivotal issues and problems that have driven significant changes in the field. The essay begins by highlighting the increasing complexity and ethical considerations inherent in modern accounting, emphasizing the impact of economic developments, financial crises, and corporate scandals on regulatory requirements. It then focuses on three critical areas: ethical issues, governance-related issues, and corporate social responsibility (CSR) concerns. The discussion on ethical issues examines the introduction of ethical codes and principles in response to accounting scandals, the importance of integrity, objectivity, and professional behavior, and the need for continuous improvement in ethical standards. The section on governance explores the role of corporate governance mechanisms in combating fraudulent financial reporting, highlighting the shifts in practices such as increased codes of conduct and the separation of auditor and related services. Finally, the essay addresses the growing emphasis on CSR, the impact of corporate scandals, and the integration of environmental and social considerations into business practices. The essay concludes by summarizing the impact of ethical codes, corporate governance rules, and CSR initiatives on the contemporary accounting practices, underscoring the need for constant supervision and companies' commitment to addressing their corporate and social responsibilities.

Running head: INTRODUCTION TO ACCOUNTING THEORY
Introduction to Accounting Theory
Name of the Student
Name of the University
Author’s Note

1INTRODUCTION TO ACCOUNTING THEORY
Introduction
The main aim of this essay is to explore and assess the issues and problems that largely
contributed towards the reform of today’s contemporary accounting practices. The accounting
profession is considered as a key part of the society and this profession has witnessed major
changes in it over the years. Accounting is the collection of extreme complex activities in the
presence of substantial ethical considerations and this has changed over the years. In today’s
business world, firms have to deal with enhanced challenging situations in order to comprehend
their impact on the environment and society. The occurrence of financial crisis along with the
collapse of large business organizations all over the world has put the business organizations
under more scrutiny and inspection. As an outcome of these aspects, there have been major
changes in the regulatory requirements in the areas like responsibilities of the auditors, disclosure
requirements of the directors and others. This essay discusses about three key issues and
problems that had large contribution towards shaping the contemporary accounting practices.
Issues and Problems Contribute towards Shaping Contemporary Accounting Practice
Development of the economy as well as businesses is largely dependent of the
contemporary accounting profession and practice. The shaping of development of the
contemporary accounting practice has to be explained through referring the economic
environment related changes. During the last quarter of the century, there have been major
changes or developments in the contemporary accounting practices; and the social and contextual
outcomes are being developed by the purely technical aspects of the profession. Now, the
contemporary professional accountants are required to take into consideration the aspects like
recognition of corporate social responsibility while facing internal pressure from corporate

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governance framework and codes of professional conduct. This essay identifies three crucial
issues and problems that have largely contributed to the shape of today’s accounting practice;
they ate Ethical issues, Governance issues and Corporate and social responsibility related issues.
Ethical Issues and Problems
In the accounting profession of most of the countries all over the world, there was the
introduction of certain ethical codes and principles for the accounting professionals and there
were two specific motives behind the introduction of these codes. The first motive was to ensure
self-regulation and engagement of the accounting professionals; and the second motive was to
ensure restoring reputation of the accounting profession which is to take into consideration the
demands of the general public. Introduction of these ethical codes has shaped the contemporary
accounting profession through delivering a self-regulation framework of the profession that puts
the obligation on the professional accountants in acting in the best of the public interest that
reflects large responsibility to the community instead of focusing on the needs of the
shareholders (Fiolleau and Kaplan 2017). Now, it needs to be considered that what could be the
reasons or issues or challenges that contributed to the introduction of these ethical codes and
principles. In this context, it requires to be mentioned that a series of accounting scandal all over
the world contributing to the collapse of large business organizations called for the introduction
of these ethical codes and principles. More specifically, different types of deliberate accounting
frauds caused the collapse of large corporations such as WorldCom, Enron, HIH Insurance,
Arthur Anderson, ABC Learning, OneTel, Satyam Computer and others; and these companies
were situated different countries all over the world (Betta 2016).
In addition to these large bankruptcies of these well-known corporations, professional
accountants of many companies were involved in several other accounting fraudulent cases. For

3INTRODUCTION TO ACCOUNTING THEORY
example, the accountants of Ahold, Netherlands were involved in the case of false financial
reporting; the accountants of the renewed corporation named Xerox were involved in the illegal
overstatement of the profit; the accountants of AOLTimeWarner were involved in writing down
the profits illegally. All these large corporate collapses and fraudulent activities showed that
importance of ethics in the accounting profession and this realization triggered the need for
introducing the ethical codes and principles in the accounting profession; these ethical codes and
principles put the obligation on the professional accountants to act in the most ethical manner by
maintaining integrity of the profession. In the codes of ethics and principles of most of the
countries have certain ethical principle in common; they are integrity, objectivity, professional
behavior, confidentiality and professional competence and due care. However, the introduction
as well as implantation of these codes of ethics both is critical in the contemporary accounting
practices. The presence of ethical orientation must be there in these codes and principles,
otherwise these would be considered as mere summarization of ethical standards. At the same
time, the accounting regulators as well as the accounting bodies in this contemporary accounting
profession need to find the ways to improve these ethical standards so that they can match with
the ever-evolving accounting profession of this present era. This will strengthen the profession
more (Jaijairam 2017).
Governance related Issues and Problems
Similar to the introduction of the ethical codes and principles, accounting professional
bodies introduced corporate governance rules and regulations and the main intention of this was
to fight the deliberate instances of false financial reporting, fraudulent accounting activities and
corporate scandal. These rules were designed by the respective supervisory authorities for
enhancing corporation acts and other acts. Introduction of the rules, principles and regulations of

4INTRODUCTION TO ACCOUNTING THEORY
corporate governance has played a crucial role in shaping the contemporary accounting practices
by taking into consideration the crucial governance related issues and problems (Abbadi, Hijazi
and Al-Rahahleh 2016). Now, it is required to ascertain the main issues and problems behind
introducing these corporate governance mechanisms. The main concern of corporate governance
can be seen in the rights and responsibilities of a company’s management, board of directors,
shareholders and other stakeholders. The crucial questions that arises from this situation are that
how well the corporations are managed and its impact on organizational performance and market
confidence. All the public companies are required to deliver a comprehensive, understandable
and dependable representation of their financial performance and financial position. However,
this critical aspect was violated again and again by the managements and accountants of the
companies by not faithfully and reliably displaying the actual financial performance and
position. As a result, this affected the key stakeholders associated with these companies and they
had to face serious consequences like corporate collapse.
For example, the accountants and managements of large corporations like Enron, Dick
Smith, WorldCom, HIH Insurance and others were involved in falsifying the accounting
information through fraud financial reporting and in the use of illegal accounting practices so
that good financial performance and position of their businesses could be portrayed (Dibra
2016). Due to the absence of any robust corporate governance mechanism, it was not possible to
expose these fraudulent and illegal activities. As a result, these corporations had to face serious
consequences like liquidation and all the stakeholders associated with these corporations had to
suffer losses. In this situation, introduction of the rules and principles of corporate governance
shaped the contemporary accounting practice through five major shifts. First, an effective
corporate governance mechanism focuses on certain procedures such as increase in code of

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conduct; second, this has demonstrated the importance of appointing an auditor who would be
large separated from related services; third, there has been more attention in the remuneration of
the directors; fourth, corporate governance principles have highlighted and separated the roles of
chief financial officers and company secretaries; and fifth, major focus has been shifted towards
internal control of the companies through the formation of different committees (Okike et al.
2015). Therefore, it can be said that the introduction of the corporate governance related
principles and rules has increased the supervision on different activities of the companies and the
aim is to reduce the chances of organizational and financial reporting related frauds.
Corporate and Social Responsibility related Issues and Problems
The introduction of Corporate Social Responsibility (CSR) can be considered as a crucial
part in the contemporary accounting practice and there is an increased obligation on the business
organizations around the globe to be socially and environmentally responsible. Now a day, it is
expected from the business organizations that they will contribute to sustainable development
and they will also have their CSR activities inspected. At the same time, it also needs to be
mentioned that there has been a major surge in the issue of reports by the companies all over the
world disclosing information on their CSR activities (Ackers and Eccles 2015). Now, it is
needed to explore the issue or reason that contributed to the introduction of CSR within the
reporting mechanism of the companies. The first part of this decade has witnessed that the
accounting professional was blemished through large business scandals where many large
companies were investigated in the charge of using doubtful accounting practices and corporate
governance approaches. There was major negative impact on the ethics and integrity of the
accounting profession because of the collapse of large corporations like Enron, Arthur Anderson,

6INTRODUCTION TO ACCOUNTING THEORY
HIH Insurance, Harris, Scarfe and others. As a consequence, these events have contributed
notable changes in the corporate and social responsibility related reporting of the companies.
In the year 2007, it was required for one of the largest toy manufacturing companies all
over the world to recall 20 million toys as they were contaminated with leads because of the fault
in quality control in its Chinese factories. This incident brought the fact to light that the
management and reporting of corporate social responsibilities widens beyond the reach of
ownership and direct control of the corporations. This particular incident contributed towards a
major development where the largest supply chain of the world, WalMart took into consideration
reforming its social and environmental responsibilities in its business operations. After that,
business organizations all over the world started accepting their corporate and social
responsibilities. The traditional view of the business organizations was to put emphasis in
business and profit generation and to consider only the economic performance. However, the
introduction of CSR in the contemporary business practice has shifted the focus of the business
organizations on both the environmental and social issues (Axjonow, Ernstberger and Pott 2018).
The main social issues considered by the companies include global warming, climate change,
negative impact of their operations on the environment and others; and the social issues include
gender equality, equal pay, community development and others. Along with the corporate and
social responsibility related initiatives, it is crucial for the business organizations to ensure
adequate disclosure of the information on their CSR initiatives. Moreover, the regulatory bodies
have put the obligation on the companies to consider the CSR initiatives and CSR through the
introduction of different environmental and social laws and regulations. The inclusion of CSR
has majorly shaped the contemporary accounting practice (Shafer 2015).

7INTRODUCTION TO ACCOUNTING THEORY
Conclusion
The above discussion explores and analyzes the main issues and problems that have
shaped the contemporary accounting practice. The analysis shows that there were three main
issues and problems responsible for the shaping of today’s accounting practice; they are ethical
issues, governance related issues and corporate and social responsibility related issues. In the
first part if this decade, many corporate collapse took place due to the absence of strict
professional ethics and robust corporate governance mechanism. The large corporate collapses
like Enron, WorldCom, Arthur Anderson, HIH Insurance and others showed the need for code of
ethic and principles along with an effective corporate governance framework; and these aspects
largely contributed to the introduction of ethical codes and principles along with corporate
governance laws and principles. With the introduction of these ethical and corporate governance
rules and regulations, it has become possible to supervise the financial reporting activities of the
companies for the reduction of corporate fraud activities. At the same time, it has also become
essential for the companies to address their corporate and social responsibilities along with
adequate disclosure. Therefore, these issues have contributed in bringing the necessary changes
in the contemporary accounting profession so that accounting and financial reporting related
frauds can be eliminated while ensuring adequate disclose of corporate and social
responsibilities.

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