Your accounting expertise may contribute to financial misreporting

A study has shown that executives with accounting competence are more likely to make misstatements.

A recent study titled “Do Auditors Recognize the Potential Dark Side of Executives’ Accounting Competence?” published in the November issue of the American Accounting Association Journal The Accounting Review has delivered the surprising conclusion that accounting expertise can compromise financial reporting. 

The study carries important implications for executives, directors, regulators and auditors charged with certifying the accuracy of client companies’ financial statements. 

Accounting professors Anne Albrecht, Texas Christian University; Elaine Maulding, University of Missouri; and Nathan Newton, Florida State University, found that the backgrounds of executives as partners or managers in audit firms can increase the probability of financial misstatements. 

They wrote that: 

“Their prior experience provides extensive knowledge of audit procedures and negotiation tactics. As a result, executives could use their higher-order ability to hide misstatements or to avoid current-period adjustments when the external auditor finds misstatements.”

They don’t believe that accounting competence alone leads to misstatements. “Accounting competence may provide the ability to produce reliable financial reports, and we have no reason to expect more or less integrity from executives with accounting competence than from those without it.” 

Instead they believe accounting competence interacts with other fraud-risk elements to increase the risk of material misstatements.