ABSTRACT
This chapter examines accounting scandals in the history of corporate financial reporting that threaten its credibility as a viable means of protecting stakeholders from corrupt senior managers. The first section addresses the effectiveness of accounting as a system of governance instrumentation. Corporate failures provide impetus for successive revisions of accounting standards intended to remove perceived malpractices. Paradoxically, however, they appear to have had the opposite effect. Instead of increasing the extent to which financial statements reveal wealth and financial progress, they have spawned greater problems, institutionalising tensions in the social function of accounting. The second section examines recurring issues, evaluating the effectiveness of auditing in detecting material fraud by senior corporate managers. It analyses the responses of the state and the public accountancy profession to accounting scandals over many decades and in several jurisdictions, examining the credibility of audit as a means of protecting stakeholders from corrupt senior managers. Through instances of fraudulent reporting, it reveals auditors denying or limiting their responsibility to detect material accounting misstatement by dominant senior managers upon whose honesty they rely.
