August JofA Prompts Reader’s Response


The JofA, with its continuously varied, fresh outlooks in articles, seems to get better with each issue.

Two recent articles, “Learning to Love ABC (JofA Aug.99, page 37) and ”Yes, ABC Is for Small Business Too (JofA Aug.99, page 41), were excellent in their emphasis on the importance of breaking down costs by activities to provide better information for managers. However, their enthusiastic descriptions of ABC made it seem not so much a startling new approach as it is the use of decades-old cost accounting basics spruced up with a bright new acronym.

Common sense in cost accounting for efficient results has been essential since the 15th century when Luca Pacioli first practiced the art of accounting. Nevertheless, promoting basic accounting concepts intelligently for modern application is always necessary.

I agree with the observation by the authors of “What’s In a Name Change?” (JofA, Aug.99, page 71) that “profound changes” have affected the role of CPAs. I differ with them, however, over the need to change the CPA designation to one emphasizing “information management” capabilities. Changing names, like changing hats, does little to alter basic capabilities. The authors seem convinced CPAs need to give up their primary attest function, which provides an essential service to our economy and society, and take on a new role as “information consultants.” There is no harm in any CPA becoming a specialized business consultant, but unless the line dividing independent attest responsibilities and consulting conflict of interest is scrupulously observed, the CPA becomes just another seller of consulting services.

The authors favor a change in the profession as well as a change in name. It would seem that a more friendly environment for their proposed name change can be found in several existing consulting associations rather than in the CPA profession. The fact that CPAs often are carrying out more information management responsibilities in dealing with clients does not mean they have abandoned their basic attest function. The CPA has always stood apart in the eyes of the public as having an acknowledged integrity and independence not generally shared by other consultants.

In my opinion, a name change would move the profession in the wrong direction. However, broadening education and work experience to expand a CPA’s scope of knowledge is an advocacy I heartily second.

William N. McNairn, CPA
Palos Verdes Estates, California

Author’s reply: I agree with the observation that ABC is not so much “a startling new approach as it is the use of decades-old cost accounting basics spruced up with a brand new acronym.” Professor Robert Kaplan of the Harvard Business School did not invent ABC—he merely began to apply it seriously.

I disagree with the implication that Luca Pacioli, the father of double-entry bookkeeping, knew about ABC. ABC is in the family of absorption costing. Any ABC system’s design involves assumptions on how to assign expenditures to calculated costs and consequently is styled to reflect a managerial need. I don’t believe Pacioli got too far past a rule that everything should “foot and tie.” That’s OK for the “total” but not for the segments.

Gary Cokins
Bingham Farms, Michigan

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