Accounting Quality, Auditing, and Corporate Governance

SYNOPSIS: To achieve orderly capital markets around the world, corporations must provide investors and creditors with relevant, reliable, and timely information. Accounting, auditing, and the structure of corporate governance that they operate within are essential components in the flow of information to capital market participants. However, recent accounting failures have pointed out the need for substantive improvements in these components. The academic accounting community can play a role in stimulating change aimed at enhancing market efficiency through commentary and scientific-based research that provide direction for change. The purpose of this commentary is threefold. First I review the historical development of accounting, auditing, and corporate governance in an effort to identify and understand salient features of the past that have led to the current state of affairs. I then propose changes in accounting, auditing, and governance that I believe will address the current problems with the underlying quality and integrity of the financial reporting process. The third purpose of these comments is to stimulate further debate and empirical research aimed at enhancing the future quality and integrity of the financial reporting process.