The North American Free Trade Agreement (NAFTA) and Full Disclosure: Accounting for Stakeholders

Barbara Brokie Leonard (Loyola University Chicago, 820 N. Michigan Ave., Chicago, IL 60611)

Managerial Finance

ISSN: 0307-4358

Publication date: 1 April 1996


The accounting profession has been charged by Supreme Court Chief Justice Warren Burger with a public responsibility to fulfill a “public watchdog” function. This function demands that the accountant maintains total independence from the client at all times and requires complete fidelity to the public trust (Briloff, 1990). The accounting profession also fulfills a monitoring and enforcing role in society in that the monitoring of contracts is considered a necessary cost of contracting (Jensen & Meckling, 1976). The North American Free Trade Agreement is viewed as a coalition of participants who interact through a system of contracts and agreements regarding trade between Canada, Mexico, and the United States. Explicit in the agreement is the recognition of the individual rights of the labor sector. This article discusses the rights of labor acknowledged by NAFTA, and the role accounting should play as a response to these agreements. Previous papers have called for the creation of a value theory in accounting that is socially conscious (Tinker, Merino, and Neimark, 1982) and for the development of a political economy of accounting which explicitly considers the relationships between accounting and the institutional structure of the economy (Cooper & Sherer, 1984). The Economist (4/9/94, p.14) calls for social disclosure as a means of advancing the cause of human rights in the third world. Following this literature, which calls on the accounting profession to become actively involved in setting accounting policy that is socially conscious, this article recommends making changes to the existing U.S. and North American accounting systems to facilitate fair economic growth and resource allocation between the North American countries. Recommendations include encouraging accounting standard setters and governmental bodies to require publicly traded companies doing business under NAFTA to provide additional disclosures concerning labor and other NAFTA agreements, such as environmental disclosures, in order to provide socially relevant information to stakeholders in all three countries. Additionally, an international group of auditors should be formed and funded by the NAFTA countries to monitor and publish compliance with the NAFTA agreements on labor and other issues, and to provide credibility to the required disclosures.


Brokie Leonard, B. (1996), "The North American Free Trade Agreement (NAFTA) and Full Disclosure: Accounting for Stakeholders", Managerial Finance, Vol. 22 No. 4, pp. 38-52.

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Copyright © 1996, MCB UP Limited

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