Live and learn: is history repeating itself?

So the current financial crisis poses a problem in that there is an
underlying feeling of history repeating itself.

The accounting profession too, has been here before ­ balance sheets with
inappropriate valuations and apparently financially healthy companies being
nationalised, forced into fire-sales or bankruptcy. So what has the profession
learned from past experiences?

Tony Tinker’s book ‘Paper Prophets’, published in 1985, opens with case
studies of accounting failures and examples that illustrate the limits of
accounting practice drawn from the previous decade. One example stuck out ­ the
California pyramid or Ponzi schemes.

A few weeks after I read the book, former Nasdaq chair Bernard Madoff
confessed to operating a Ponzi scheme, nearly a hundred years after such schemes
were identified and with the experience of California schemes in the 1970s.

Why do these accounting failures keep happening? Where is the generational

What is it we need to learn and how is this learning to influence the

It is clearly not sufficient to limit our learning to a question of
increasingly technical methods and standards. This has been the trajectory of
accounting regulation since 1970 culminating in IFRS, which recent events have
shown to be both ineffectual and overly complicated.

As for who should lead this debate, those in charge of the professional
bodies have thus far avoided it.

However, academics have the potential here. We are the ones writing the books
and researching the failures but, to date, we have tended to accept the
syllabuses set by the professional bodies rather than trying to influence them.

The current economic crisis presents an opportunity for a new debate between
those in-charge of training the next generation of accountants and those
researching the accounting failures of the past and present.

Given the potential impact of the current crisis and the reduction of the
Big Eight to the Big Four over the course of 40 years, it may not be too big a
statement to make that the future of the accounting profession as we know it
depends on its willingness to engage in such a debate.

Stewart Smyth is senior lecturer, accounting and finance
division, at Manchester Metropolitan University Business School

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