Accounting Education Changes Course

Del Lienemann Sr. knew an opportunity when he saw one. So when the 25-year-old accountant set up his own shop in Lincoln, Neb., in 1945, he made a conscious decision to specialize in providing tax and bookkeeping services for small Main Street business owners. Back then those clients often were snubbed by more established firms because “auditing was the primary business of the average accounting firm at that time,” he says. “Income tax and bookkeeping services were by-products.”

Upon graduating from the University of Nebraska in 1942, Lienemann had started out at a 10-person accounting firm. It wasn’t unusual for some small-business clients to get January financial statements in July, after the auditing work for bigger clients was completed—and he just didn’t think that was fair. Small businesses looked forward to knowing how they were doing and had no way to ascertain their position except to watch their bank accounts.

A lot has changed at the typical accounting firm in the 60-some years since Lienemann—the 179th accountant to earn the CPA credential in Nebraska—first hung out his shingle. But then, quite a lot had changed in the preceding 40 years, too.

IN THE BEGINNING:1905–1940
In 1905 the public accounting profession in America still was very young. Just nine years earlier, New York had passed the first state law to regulate the practice of accounting and establish the CPA credential, and by 1904 only six other states had followed suit. In big cities the largest and most important engagements generally went to British firms such as Price, Waterhouse & Co., which had established beachheads in the United States. But fledgling domestic firms were gaining ground, and—as yet unfettered by regulations against advertising—were eagerly courting the accounting business of a growing nation.

Their practices were limited compared with those of their British peers. They centered on audits and investigations, according to Richard Brown’s 1905 A History of Accounting and Accountants (reprinted in 2003 by Beard Books, Washington, D.C.). Three decades would pass before publicly traded companies would be required to have their books audited, although many companies were obliged by their investors and bankers to submit to the exercise anyway.

The early 1900s office. A typical CPA at work in the early 1900s would have been surrounded by wood—wood paneling, wooden desks, chairs, storage drawers and “pigeon-hole” cabinets for filing papers. The technological centerpiece of the office was its Burroughs Registering Accountant, a mechanical adding device that debuted in 1892 and was commonplace in American business by 1910. To use it, operators pressed number keys, then pulled and released a lever on the side of the machine to record and add a figure to the running total. To perform multiplication and division, there might have been a rudimentary, nonprinting calculator known as a Comptometer or a more expensive printing calculator known as a Comptograph.

Although a well-equipped office probably included a typewriter, most reports were written in longhand. Communication with clients was getting easier, though. Candlestick telephones were catching on, and soon the automobile would supplant the horse, greatly increasing mobility. (Henry Ford launched the Model T assembly line in 1913; three years later he was producing more than 500,000 vehicles a year.)

Office dress was formal and would remain so for many decades to come. The profession was exclusively white and male, although women were employed in support roles. Brown notes that one by-product of the mechanical adding machine was that large numbers of salaried men employed for their ability to tally four-digit numbers in their heads lost their jobs to lower-paid workers—primarily women—equipped with adding machines.

REACING MATURITY: 1940–1980
By the time Del Lienemann joined the accounting world, the profession was maturing. State licensing was widespread and about 30,000 CPAs were in practice across the country. Audits of public companies had become mandatory with the passage of the Securities Act of 1933 and the Securities & Exchange Act of 1934, which further institutionalized the auditor’s role in the life of the nation’s business affairs. State accountancy boards had buttressed the professional status of public accounting with prohibitions against advertising and competitive bidding, as had the AICPA (through its predecessor organization founded in 1887) by adding similar language to its code of ethics.

Still, the tools, technology and public face of accounting looked much as they had at the turn of the century. “Everything was formal. You came to work in a suit,” Lienemann recalls. “The only equipment I needed was a typewriter, an adding machine and a calculator, which was worthless to check anything because it didn’t have a printer.”

Public accounting still was dominated by white males. Of the nearly 27,000 CPAs working at the end of the 1930s, only eight were African American, reports author and accounting professor Theresa Hammond in A White-Collar Profession: African American Certified Public Accountants since 1921 (University of North Carolina Press, 2002). It would not be until the 1970s, with changing public mores and passage of the Civil Rights Act in 1964, that African Americans would gain a material, if small, role in the profession. As late as 1969, in an eye-opening article in the JofA, Bert N. Mitchell reported that of 100,000 CPAs, only 150 were African American (see “ Seven Voices From the Profession ”).

Women would enjoy greater success in breaking into the profession, although until the 1970s a female CPA still was a rarity. AICPA board member Bea Nahon, who runs a small firm in Bellevue, Wash., recalls that when she joined a midsize CPA firm in Seattle in 1975, shortly after graduating from college, she was one of the first two women ever hired for anything other than a support or bookkeeping job.

Through the ’70s the tools used by the typical CPA remained rudimentary. Nahon recalls being outfitted with a desk, a chair and an adding machine. Had she wanted a calculator, her employer would have contributed $50 toward its purchase. Many of the everyday items she and her peers used would have been as at home in a child’s toy box as in an accountant’s desk drawer. CPA Carolyn Sechler, who today employs Internet technology to operate a “virtual” CPA firm from a guest house behind her Phoenix home, recalls using “13-column paper, pencils, wiggly rulers and a calculator.” CPA Jim Metzler, AICPA vice-president for small firm interests, worked with “mechanical pencils, a giant nine-key adding machine, columned pads and colored pencils” when he joined the profession in 1970.

Much of the work done by accountants of that era was tedious and time-consuming, and long hours were common. “You worked when your employers thought you needed to,” recalls Bill Balhoff, CPA, CFE, audit director for Postlethwaite & Netterville in Baton Rouge, La. “Today we have people who want to leave the office by 5 p.m. every day. In 1976 that would have been frowned upon—at least 15% overtime for the year was expected.”

Then as now, incoming accountants typically cut their teeth on auditing work. Suits and ties remained the standard uniform for men, skirts for women. But radical change was in the offing.

THE TECHNOLOGY TEAR: 1980–PRESENT
In the 1980s technology transformed the accounting profession along with the rest of the business world, although it would be misleading to say it was embraced with enthusiasm. The retired IBM sales executive Hal Topper, who was instrumental in pushing computers into the profession, recalls that as recently as 1989, the level of technological expertise among accounting firms “was in a God-awful state. The only ones worse were lawyers.” Big business had begun using IBM tabulation machines as early as the 1950s, but computers wouldn’t find their way into small businesses—including the typical CPA firm—until well after the debut of the Apple II personal computer in 1977; VisiCalc, the first electronic spreadsheet, in 1979; and the IBM PC in 1981.

Once CPAs accepted computers, their productivity increased dramatically; vast quantities of data were more easily entered, manipulated and stored. “When I started in business in 1945, my practice consisted of me and a secretary in 360 square feet of space,” recalls Lienemann, who, though he has passed control of his firm on to his son, Del Jr., still goes to the office regularly. “Today we have 2,500 square feet of space but only three CPAs and two secretaries, plus some part-time help during tax season. Without computers, we would easily have a staff of 12 to 15 people.”

Recently, of course, the Internet and wireless technology have revolutionized the CPA firm again, releasing accountants from the physical ties that bound them to an office and allowing them to replace in-house libraries with online reference materials they can access from desktop or laptop computers. Visionaries such as Sechler have leveraged this technology to the extreme. Rather than lease an office in a commercial building when she went into business for herself in 1994, she established a Web site for her clients and works from her home office. She subcontracts work to other professionals, who similarly work from their homes. They “talk” during the day via e-mail and instant messaging. Sechler migrated her clients to QuickBooks Online so she can access their financial records via the Internet at any time. This lets her keep tabs on their performance and address problems as they surface, rather than waiting until year-end.

Technology hasn’t just changed the way CPA firms operate, it’s also changed what they do. With the widespread popularity of do-it-yourself software, many small businesses now do their own bookkeeping and payroll—bread-and-butter business for CPAs throughout much of the 20th century. But this has freed some CPA firms to offer clients higher-value services, including strategic planning, succession planning, business valuation, litigation support, retirement plan management and even technology consulting and information technology audit work.

WHAT WE’VE GAINED—AND LOST
In one sense today’s CPA firm is remarkably like those of 100 years ago. It is small in terms of the number of people it employs, and its primary mission is service—auditing and income tax work for the small business client. It is a more casual environment than it was a century ago, but the business of financial reporting remains serious and vital to the economic health of the country.

While few veteran accountants miss the tedium of working with pencil on paper, many recall fondly the days before cell phones, pagers, personal digital assistants, e-mail and instant messaging, when work couldn’t follow them home or on vacation. Although many firms have embraced a healthier work/home-life balance, the profession still thrives on hard work and occasional long hours. It is far more diverse by gender—women now account for about 31% of AICPA members—and by color, if not as fully on the latter score.

Some changes are lamentable. Many CPAs say that allowing advertising and competitive bidding have made public accounting a less collegial profession. “I miss a lot of the camaraderie and closeness in the local chapters and state societies,” Metzler says. “It was more buddy-buddy between firms,” agrees Balhoff, when they weren’t vying for each other’s clients. Relationships with clients lasted longer, too. “There are a lot more one-time projects today,” Balhoff says.

Young accountants coming out of college generally are better prepared and have a broader education, many CPAs acknowledge, but that development has not come without trade-offs. “Their education is much more technology- and thinking-centered vs. mechanically centered, which in many respects is a good thing,” says Richard Caturano, president of Vitale, Caturano & Co. in Boston and chair of the AICPA’s PCPS Executive Committee. “Sometimes the basics escape some of these people, but the advantages outweigh the disadvantages.” On-the-job training, always a big part of the profession, has changed, too. “Firms today are giving a little more training to new recruits than we got 30 years ago, and it’s more often Web-based. The subject matter is different, too. Thirty years ago, senior accountants and managers were trained solely on technical issues; today, a lot of firms are training on softer issues such as leadership, selling, and managing and motivating people—all skills you need to be a successful CPA.”

CPAs who have been practicing for decades cite the technology revolution of the past 25 years, the growing diversity of the people who serve as CPAs and the broadening range of services that firms can offer as important changes in the profession. But the most significant change, they say, is one that occurred just three years ago: the passage of the Sarbanes-Oxley Act. Prior to that it had become commonplace to hear accountants discuss how auditing had become the forgotten stepchild as the profession eagerly repositioned itself to take advantage of other, more lucrative opportunities.

“The single most significant part of Sarbanes-Oxley is the renewed emphasis on the quality of auditing,” Caturano says. “The trend away from auditing importance has been totally reversed in a very short period of time. The profession has gone back to its roots.”

The regulatory uproar that followed the accounting scandals also led, of course, to the creation of the Public Company Accounting Oversight Board, another significant development. “It moved us from being a self-regulated profession to being very much a government-regulated profession,” says CPA Steve McEachern, managing partner of Fitts Roberts & Co. in Houston and chair of the AICPA’s PCPS Technical Issues Committee.

TODAY AND TOMORROW
The most important issues confronting CPA firms today, practitioners say, are the ongoing fallout from Sarbanes-Oxley, which has overburdened firms that serve public companies and cascaded work down to smaller firms, and the question of whether the country should have separate accounting standards for public companies that file with the SEC and for privately held ones that do not. “We’re at a crossroads on this issue,” Nahon says. “There is compelling evidence that the accounting principles promulgated by the FASB have become more and more focused on public registrants and the third parties who use that information, and that that information has become less relevant and less cost-effective for small firms to produce.” At the same time Nahon is concerned a second set of standards might be mistakenly seen as less rigorous.

Whatever the outcome of that debate, CPAs believe the pace of technological and regulatory change will alter the nature of the typical CPA firm over the next 10 or 20 years. Specialization will be even more imperative, Nahon says. Sechler predicts small firms will get the opportunity to operate around the world, thanks to technology, converging international accounting standards and increasing globalization of clients’ businesses. Metzler envisions a world of virtual CPA firms that will need offices only to handle the occasional client meeting. Everything else will be done paperlessly, through wireless devices over the Internet. “We’ll spend all our time at our clients’ offices working with them—not in our own offices crunching numbers,” he says.

Roman Kepczyk, CPA/CITP, president of InfoTech Partners North America and chair of the AICPA’s IT Executive Committee, envisions a world in which CPAs will identify anomalies and clean them up in real time. “Instead of doing monthly look-backs at data, CPAs will have their fingers on the true pulse of information as it’s happening,” he predicts. “Firms doing advisory work will be able to check in on their clients every day; dashboards will allow us to look at the full health of our clients’ accounting information systems, identify trends and make recommendations.” Using XBRL-formatted data, software will automate so much of the bookkeeping and accounting process that information for income tax returns will flow directly to them, already organized. “The CPA will be doing a review as opposed to creating a whole tax return,” he says. Ultimately, says Metzler, clients will not prepare a tax return, they’ll simply receive a tax bill from the IRS.

Caturano’s vision is less futuristic but equally intriguing—and perhaps more reassuring. “When you look inside a CPA firm in 10 or 20 years,” he says, “it’s going to be the people who are different more than anything else, with more minorities, many more women in leadership positions and more emphasis on flexible schedules and work/life balance.”

That’s a future that any hard-working CPA can endorse.

Randy Myers is a freelance financial writer who lives in Dover, Pa.