Why Is Business Law Is Important? Interview Example

Introduction

This paper is an attempt to present a glimpse of almost a 30 minute long interview with Mr. Chandler Stewart, who serves as the senior executive in the accounting department of IBM. The interview was aimed at asking Mr. Stewart about the role of business law in the accounting profession and various related questions.

Rationale for choosing Mr. Stewart

Mr. Stewart has an experience of over 15 years working with IBM. He started as an assistant manager in the accounting department and slowly but firmly climbed up the ladder. He has also served in various accounting institutions and groups and contributed to the research in the field as well. More importantly, he also has a degree and several diplomas in the field of corporate and business law meaning that he has knowledge of both law and accounting and due to this experience, he also knows how these two fields interact with each other.

What do you think is the importance of understanding, learning and implementing business law for accountants?

First and foremost, possessing the knowledge of business law is important for accountants and all the managers because “ignorance of law” is not valid excuse. You cannot claim or innocence or even plead guilty by saying that I was unaware of those regulations or they were not in my knowledge. The fact is that it would just make it worse in front of the jury. Therefore, having adequate know how of business law for accountants is important (Jeffrey, 2011).

Second, accountants with prudent knowledge of business law are also important because in the absence of the same, your stakeholders are most likely to take away their business from you. For example, suppliers, who are aware of your inability to operate within the boundaries of law and manage the requirements laid down by the policymakers effectively, would be hesitant in doing business with you because it would be difficult for them to trust you. Furthermore, they would also know that in case of any discrepancy, it is highly likely that they would have not be able to sue the organization since the organization does not even the basic laws and the blame for that same would come over the claimant. The customers, on the other hand, would also refrain from forming long term partnerships with the company knowing the fact that it legal accounting practices are fraudulent and the company may go down at any moment. Despite the fact that company may be posting huge revenues but they would not be trusted since that just could pure fabrication. More importantly, the company would not be able to find any investors or creditors since they are the ones that require the most transparency of the financial results of the company (Miller & Jentz, 2009).

Third, the costs of litigation and legal consequences of not obliging by letter and spirit of law could be disastrous. The fines and legal proceedings could cost the business a fortune and even worse, the judges may end up forcing the organisation to close to the business if it does not meet the legal requirements (Duska, et al., 2011).

More importantly, one cannot even think of performing the job of an accountant without having adequate knowledge of business law. For example, law tells you that whether you would go for cash based or accrual based accounting. It is the business law which lays down the principles for defining even the basic terms such as net income, losses, retained earnings, bad debts, expenses, cash flows and others (Miller & Jentz, 2009). Furthermore, the law tells us when to report the earnings, how to report them and how to interpret them as well. Business law sets the limits for the capital structure and the degree to which one firm could acquire debt or equity. Law has set up requirements for limited companies as to how would they offer their shares to the companies. Taxation, an entity that accountants handle, is in fact a mixture of law and accounting (Previts 2008). Tax exemptions, clubbing of income, tax credit, defining salary, admissible and inadmissible expenses and others are all defined by law and no accountant could deal with tax issues without comprehensively knowing the business law. Law even defines the scope of responsibility of the directors and accountants of a company (Jeffrey, 2011). Right from the day a company is incorporated to the day the company dissolves or come to an end, business law has already defined the scope of all the activities which the accountants would perform.

Then there is that ethical and moral responsibility on firms to act in the best interests of all the stakeholders and refrain from actions that harm anyone or which are out of the ethical and moral domain. In fact, business law in itself moves forward with the objective or ensuring ethical and moral standards in corporations and this is what comes at the top. If you look at it from a macro level, business law is an attempt to enforce ethical and moral values in the hearts and minds of the managers and their accountants (Duska, et al., 2011).

In the recent years, the importance of business law has increased or decreased for accountants?

The role of business law and its scope has in fact increased in the field of accounting and the degree to which accountants were scrutinized has increased over the past decade or so. The fall of Enron and WorldCom and their faulty and fraudulent accounting practices put all the accountants of the world into spotlight and the law makers decided to firm their grasp on their practices with more legislation so that they could avoid any such incidents in the future (Previts 2008). Both these corporations were appearing so strong on the paper and their financial strength on the accounting statements was impeccable. However, it turned out that it was just extremely smart piece of accounting fraud which created an illusion of financial viability about companies which were completely hollow from the inside (Miller & Jentz, 2009).

Furthermore, when the Financial Crisis Inquiry Commission presented its report in January 2011, it became inevitable that the current accounting system needed more legislation in order to control it in such a way that firms do not take too much risk than they could handle (Jones, 2011). Prior to the recession, accountants and their firms would continue to take on risk because they had this idea in their mind that they were “too big to fail”. However, the recent financial crisis showed that no one is too big to fail and every single firm and corporation whether on the Wall Street or any other part of the US is just as vulnerable as other corporations and accountants are the ones that are increase or decrease the degree to this vulnerability. Therefore, it further increased the need of lying down strong principles and guidelines for accountants to follow because they are the ones that shape the company’s picture of financial strength in the short and medium term (Duska, et al., 2011).

References

Duska, Ronald., et al. 2011. Accounting Ethics. John Wiley & Sons.

Jeffrey, Cynthia. 2011. Research on Professional Responsibility and Ethics in Accounting. Emerald Group Publishing.

Jones, Michael. 2011. Creative Accounting, Fraud and International Accounting Scandals. John Wiley & Sons.

Miller, Roger LeRoy., & Jentz, Gaylord A. 2009. Fundamentals of Business Law: Excerpted Cases. Cengage Learning.

Previts, Gary. 2008. Research in Accounting Regulation. Elsevier.