CPAs and Financial Crisis
The financial crisis of 2007-2008 in the US economy was a financial calamity that involved the gradual decrease in the value of numerous financial assets in the global economy. There was a plummeting of stock markets, and various sectors of the economy were greatly affected, such as the real estate, banking among others. Due to its severity, it has taken a significant period for the world to recover. Certified Public Accountants (CPAs) could have helped the world prevent the global crisis due to numerous reasons.
First, CPAs in the US follow a specific code of professional conduct, which presents the bylaws which govern their profession. In Section 53 Article II- The Public Interest, CPAs are obligated by law to conduct their profession in a manner that serves the interest of the public (Mintz, 2014). Since the global crisis greatly affected members of the public and its warning signals were witnessed early enough, it was an obligation for the CPAs to give an early warning to the public, regarding the oncoming peril.
Secondly, as the housing values began to fall, and the stock market started to fall, a clear warning was there for everyone to see. The CPAs were in a better position to understand what was happening, and they could have made better preparations, concerning giving better advice to the finance sector. In February 2007, the chairman of the Federal Reserve, Alan Greenspan, issued a stern warning regarding the possibility of a recession later in the year (Frankel, 2010). CPAs, having a better understanding of the consequences, could have seconded Greenspan’s statement. Instead, the statement was widely ignored, like his counterparts even stating that the economy would experience growth of about 3% in the same year (Czarniawska, 2012). Even though the market rebounded after this, the fate of the economy was already set.
CPAs are tasked with the management of the financial status of business entities (Ainsworth, 2019). It is their sole purpose to know the possibilities of a crisis soon, by paying attention to the behavior of the stock markets. This is why they would have been able to prevent the global financial crisis in 2007-2008.
References
Mintz, S. (2014). Revised AICPA Code of Professional Conduct. The CPA Journal, 62-71.
Ainsworth, P., & Deines, D. (2019). Introduction to accounting: An integrated approach. John Wiley & Sons.
Frankel, J. A., & Saravelos, G. (2010). Are leading indicators of financial crises useful for assessing country vulnerability? Evidence from the 2008-09 global crisis (No. w16047). National bureau of economic research.
Czarniawska, B. (2012). New plots are badly needed in finance: accounting for the financial crisis of 2007‐2010. Accounting, Auditing & Accountability Journal.