On Corruption and Accounting: No Panacea for a Modern Disease

By Zarb, Bert J. | The CPA Journal, December 2005 | Go to article overview

On Corruption and Accounting: No Panacea for a Modern Disease


Zarb, Bert J., The CPA Journal


If technological advancement is the hallmark of progress in modern society, then corruption is its bane. Along with prosperity and progress, globalization acts as an agent of change in international trade. This increased internationalization of business has propagated the dark side of domestic practices as well as raised the specter of corruption. Globalization has turned companies into global institutions; it has challenged daily economic life and national identity; and it has created a persistent movement toward cultural and business homogenization.

The tentacles of corruption have touched several sectors of society. Accounting, on both the national and international level, has not escaped unscathed. Although corruption is a social malaise that engulfs development and ravishes the fabric of society, steps can be taken to curb it. Adopting a set of universally accepted financial accounting standards, striving toward a high level of economic development, observing the cultural construct of uncertainty avoidance, operating within a country's legal system, and mandating the use of audit committees could be ways to fight corruption. The recent accounting scandals show how businesses of all sizes, in any location, are vulnerable to the malevolent intentions of corrupt individuals who create chaos and seek personal enrichment at great cost to others, leaving a legacy of financial ruin.

Corruption takes many forms, including bribery, fraud, illegal payments, money laundering, smuggling, extortion, and nepotism. Although fighting corruption covers an array of issues and occurs on many fronts, there is no panacea; the struggle to stop it entirely-or at least curb it-is one of Sisyphean proportions.

Defining and Justifying Corruption

Perhaps one of the first problems of corruption is defining what it really is. Some of the definitions found in the literature focus on the abuse of pubhe roles and resources for private gain. Others suggest that distinguishing between public and private corruption is difficult, and that the reasons for engaging in corrupt activities have become so ingrained in the system that nobody talks about them. While corruption's effect on the economic performance of a country varies with that country's individual conditions, its negative effects either force governments to intervene where they should not, or impede governments from promulgating laws and implementing policies.

Scholars have defined corruption based on rules and laws because of the stability, universal application, and relative precision that formal laws and rules offer. At times, however, laws are broken and lose their legitimacy. Consequently, the issue becomes whether corruption should be described in terms of its social significance rather than its nominal meaning. …

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