Our profession is built on the public interest. When we talk to regulators about change in the profession and about standards, the public interest is always the underlying concern. What is more in the public interest than being the advisers to 8.2 million small businesses, in helping them be more successful and more profitable, in creating more employment in a fluid economy? What is more in the public interest than understanding the marketplace, what is occurring and how we, as CPAs, can meet those demands?Why Change?
There is no escaping change. As Yogi Berra said, When you come to a fork in the road, take it. Well, we are at a fork. The old CPA profession would have come to that fork in the road, sat there, looked at it, thought about it, determined which one was a little smoother and then made it as perfect as it could be and thought some moreand then maybe retreated because it was too hard a decision to make. But that is not the profession today. We are working very hard to reposition the profession so we do not hesitate to choose the fork in the road that will lead the profession in a different direction.
We've conducted a lot of research to learn how the marketplace sees us. Here are some positive things people say about CPAs: very reliable, highly intelligent, competent, ethical, honest. I can name you a whole host of professions that would love to have those words attributed to them. But the marketplace also says CPAs are conservative, too slow to act, not technologically advanced, unaware of the big picture and behind the times. Before Im finished, you probably are going to hear things that will make you uncomfortable, so consider this the surgeon generals warning; I understand that in the future cigarettes may come with a label saying theyll kill you. Well, what I am about to tell you is not going to kill you, but it will tell you what the marketplace thinks.
The marketplace says the worst thing we have going for us is the A in CPA. It says we can do taxes and accounting but, with a few exceptions, we are limited in scope. Yet, when we look at the 8.2 million small businesses, their most common denominator is a relationship with CPAs. So while we have marketplace acceptance because of the trust level we have with those small businesses, we also have a marketplace image that limits us.
Accountants in Canada did research that clearly showed businesses thought about small and large firms differently. Large businesses tended to turn to large CPA firms for a wide array of services, and small businesses tended to turn someplace other than a CPA firm for those services. The big companies looked to large CPA firms as professional service firms; the smaller ones looked to smaller firms only as accounting firms. We have a responsibility as a profession to change that mind-set; the AICPAs ongoing image campaign is one way of changing perceptions.
Like It or Not, Change Is Already Here
Some organizationsAmerican Express is an examplealready are looking at the CPA profession in a different way and are acquiring CPA firms. A lot of people think this is horrible for the profession. Yet, American Express views the marketplace and says what the profession itself has been saying: one-stop shopping. The key lesson here is that the American Express response is a marketplace response. Basically, the publictypically two working spouses who dont have time for multiple professional services relationships or small businesses that want single relationships with one trusted adviserwants one-stop shopping; the broader the array of services that trusted professional services adviser can bring, the better life will be for the public.
Another optionwhich is different from the American Express model, where a group of venture capitalists puts together a network of firmsis the simultaneous roll-up of firms resulting in a public offering. The firms remain intact; they are owned by the CPAs, but a contractual relationship with the public entity allows each firm to expand its services in its own community.
As we look at marketplace issues, it is important to understand that the profession itself not only has to change but it already has begun to change. A key factor contributing to the changes in the profession is the attitude of the AICPA, which is that we need to represent a profession that sets a different course.
Old Services, New Problems
We are not going to abandon traditional services, but these also have to change, particularly from the value-added standpoint. Take the financial statement. It is historically based, delivered long after the fact and has limited future tie-ins to the world we live in. We will always have audited financial statements, but they have to constantly improve to maintain their value. In the not-too-distant future, do we really believe an investor will dial up a set of financial statements on the Internet and then wait for 90 days after yearend for the CPA to give some form of assurance? Ninety days after yearend is an eternity in a technology-driven world.
Take government audits. The smallest local entity probably has a hundred-page report with numerous opinions from the CPA firm and pages of footnotes and numbersand we as CPAs wonder why the users of that report spend just 10 minutes on it. Government reports are probably issued six or maybe even nine months after yearend. What value is added there to the government entity?
Another old problem that will need a new approach is tax compliance. In this age of digital television, voice interactivity and expanded bandwidth, we will soon talk into our television sets to prepare our tax returns. Not all clients will do that but I bet very few of todays 13 year-olds will prepare their tax returns in a traditional way. I bet a lot of 20 and 25 year-olds and maybe even 30 or 40 year-olds will perform these transactions in different ways, too. Banks, too, are changing the way they do business. They are saying: If you bank with us as a small business, we wont send you a bank statement; we will send you a downloadable file that will tie into your general ledger package to create a financial statement.
A New Mind-Set for the Way You Practice
The profession must react to the marketplace. Weve been what weve been for 110 years because of near-monopolistic regulatory control over the audit function. That is not going to be the future of the CPA profession. We wont be able to go to legislatures and say CPAs are the only people who should provide technology consulting. But if we are willing to get into the battle and to think of ourselves differently in the marketplace, we can achieve our goals.
The AICPA used to think of itself as providing services to CPAs, and if it couldnt do it by itself, it probably wasnt worth doing. That is not our attitude today. We wouldnt be working cooperatively with Microsoft and others if it were. Were undergoing a complete shift at the AICPA. Thats how the world works today.
I hope the Institute continues to change with the times in the exemplary way it responded to the call for change earlier this year, when our governing council voted for a new regulatory structure. (See JofA, Sept.97. ) The fact that our volunteer leadership, CPAs representing every state, would vote so overwhelmingly for a different structure for the profession is an indication we are ready throughout the Institute and throughout the profession to change.
That change clearly acknowledges that CPAs will practice public accounting in a variety of ways and provide services outside the traditional areas. It will be perfectly fine for CPAs to say they provide technology consulting or other services, even if they do not work in traditional CPA firms. Also, CPAs will provide services across state lines without having to get licenses in every state.
And the Way You Learn To Practice
Another forthcoming change involves the Uniform CPA Examination. We cannot tell the public we are broad-based professionals when our exam essentially tests only auditing and accounting principles. We have to broaden the exam, and we have to change its delivery. We cant say we are technology professionals when the only technology tool we use in taking the exam is a $1.99 calculator. We must and we will continue to test attest skills, but we must test a variety of other skills as well.
Theres another change that will make you uncomfortable as CPAsanother surgeon generals warningonly this time from testing experts. Psychometricians tell us we need only a two-hour test to evaluate CPA candidates. A lot of CPAs who took the standard multiday exam are probably saying, Over my dead body is somebody going to become a CPA in two hours. However, with progressive questioning and a secure exam format we can make decisions in two hours on 80% of the candidates. Only about 20% on the margin would require further testing. While we are not proposing this change, we are looking at the creation of a technologically delivered exam covering the broader skill set that matches the skill set CPAs currently use.
Assurance: Wave of the Future
The last new services we as a profession brought to the marketplace were the compilation and review services in 1979. Now, however, CPAs are beginning to offer new services called assurance services in areas other than financial. Fifteen years ago, financial information was a big piece of the pie. Today, it is a smaller piece. How can we move from financial information to a wider array of general information? Through the assurance services vehicle, we are developing 6 new services, with about 40 in the pipeline. We also redesigned the committee structure so it wont take years to get the absolute perfect answer to a question. We have 6 service groups, with experts in the 6 new assurance areas, which are charged to produce results very quickly.
One of these areas is electronic commerce, which involves providing assurance on the content of the information on the Internetthe historical content, the business practices content and the security content. Our objectivethrough marketplace activity and marketplace acceptability, not regulationwas to create an assurance-type brand seal that CPAs could place on their clients Web sites. We did that with CPA WebTrust. Businesses will now be able to show the public, via the CPAs seal, that the information on their Web sites is reliable. (See In CPAs We Trust , JofA, Dec.97.)
At a time in our not-too-distant past we could have done something like this but were too slow to respond. When ATMs first were on the market, people said, Im going to put a little plastic card in that slot and ask the machine to produce $100. But what if it gives me only $60? I dont trust that machine. If CPAs had helped convince the public by providing assurance those machines were okay, the acceptance level would have increased greatly. Today, the marketplace has not fully accepted the Internet yet. But by responding quickly, we are now providing a huge service to the electronic commerce that is developing worldwide.
Business and industry changes. That is not the only area of change. Although many CPAs are in public practice today, 42% of the CPAs in the country are employed in business and industry. In the olden daysfive years agosenior managers who wanted to know something about the financial aspects of their business would knock on their financial management staffs door and the staff would generate information, put it in a report, help interpret it and deliver it to senior management. Today, with the accounting systems available and the way information is accumulated, senior managers sit at their computers and pull up the information they want in the format they want it. The role of financial managers has changed and there are tremendous technology pressures on them for modernizing the traditional delivery of services. The AICPA is addressing this changing role with the Center for Excellence in Financial Management. AICPA Online ( http://www.aicpa.org ) contains the CEFM as a virtual resource center leading the charge for CPAs in business and industry.
Taking Charge of Our Fate
I could give you more examples of changes in the works, but the important part is that we have to change. The AICPA is in the middle of a major Vision Process, a project in which we are going to the grass-roots of our profession. We are conducting Future Forums in every state. Our hope is to create momentum and enough collective wisdom to move the profession forward.
Our profession is 110 years old; what brought us here was core values. We dont want to kick those core values out, but we dont want to be blinded by the history either. A lot of members say, I would really like to finish my career the way I started it. Some people actually have that optionnot many, but some. But those people cant prevent this profession from setting off in a different direction. We have tremendous marketplace presence, but we have to be willing to change in order to go forward.
Im not going to say that if we dont change we will disappear. There still will be traditional audits and other traditional services, but we will be a shadow of our former selves and our marketplace value will be far different.
Look at what happened to the Swiss watch companies. They were so certain their reputation as the finest timepiece manufacturers would carry them forward that, when their own engineers developed the quartz crystal, they didnt even bother to patent the invention. As a result, some manufacturers in Japan capitalized on it. The Swiss manufacturers are still in existence, but their market dominance is a fraction of what it was.
Individual CPAs have a responsibility in moving the profession ahead as well. The messagethat we will grow and change and add value to our serviceshas to be brought to thousands of people. You have to communicate that within your firms and your peer groups. We have to create a momentum that takes us to the correct fork in the roadand quickly.
Barry C. Melancon, CPA, is president of the American Institute of CPAs. This article is based on a speech he delivered at the Microsoft Partners Conference, in which he talked about changes to the CPA profession and how the profession should react.