It seems that not only a lack of accounting competence but also possession of the same can be risky. Strong accounting competence combined with excessive remuneration of top executives may compromise the reliability of financial reporting.
A paper published by the American Accounting Association suggests accounting competence among top executives is not necessarily a virtue. Regulators, corporate directors and external auditors, plus anyone dealing with financial statements, should be aware of this fact.
Fights with external auditors
The research is based on findings generated by checking the backgrounds of top executives from more than 3,000 public companies. If an executive was a partner or manager of an audit firm in the past, this can substantially increase the likelihood of financial misstatements in the present, according to an article on the cfo.com website.
The reason is that such executives have gained extensive knowledge of audit procedures and negotiation tactics. As a result, they can deploy their abilities to conceal something or temporarily cover up certain modifications.
Compensation-based incentives induce misstatements
This not does not mean that accounting competence alone leads to misstatements: past experience in auditing in itself does not increase the likelihood of financial misreporting. The problem arises when this expertise meets with excessive executive compensation, a variable which, in the assessment of the researchers, is a paramount risk factor in this regard.
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