CHANGES IN STANDARD SETTING
After a challenging period, the profession has demonstrated it maintains tremendous respect from the public it serves. A study earlier this year by the independent research firm of Penn, Schoen & Berland Associates found, among other favorable results, that CPAs received very high favorability ratings among key constituents: business decision makers, executives and investors. “We’ve just been through two of the most difficult years that perhaps any profession has faced in U.S. history,” says Barry C. Melancon, AICPA president and CEO, “but we’re coming out in an extremely strong place because of the quality of our members. You couldn’t bring together any 350,000 individuals in our country and find a better group of people.”
The recent crisis of confidence in the corporate world culminated in a new regulatory regime, with the PCAOB setting new public company standards for audits of internal control, audit documentation, engagement quality review and quality control for registered firms. “The inspection of registered accounting firms carries the potential for real-time improvement in the audits of public companies and will require the largest commitment of the board’s human and monetary resources,” says William J. McDonough, the inaugural chair of the PCAOB. “This powerful tool gives the board access to critical information relating to audit quality, ranging from competence and methodology to judgment and integrity.”
At the same time, the FASB and IASB have begun a joint project to develop a common conceptual framework, potentially bringing the profession closer to principles-based accounting, which relies on basic tenets more than detailed rules. “We want to improve and simplify the model,” says FASB Chair Robert H. Herz. “My hope is that the focus will be more on economics and finance than currently.”
While she believes the full impact of recent events remains to be seen, Colleen Cunningham, president and CEO of Financial Executives International, predicts the next decade will bring changes to standard setters such as FASB, GASB and the IASB. “As we head down the road to international convergence, we might question the need for more than one standard-setting body,” she notes. “If the regulations become redundant, companies might question whether having multiples adds any value.”
SMALL BUSINESS DEVELOPMENTS
Changes in the public company arena have raised questions about regulatory and reporting requirements for private companies. CPAs add tremendous value in their relationships with small business owners by serving as significant sounding boards and providing a spectrum of resources, including expert advice on how to run the business itself. “For bigger businesses the CPA’s role is in the attest, third-party, investor-protection role,” Melancon says. “But smaller businesses need a nurturing process with end-to-end services.”
But do these businesses benefit by having the same financial reporting requirements as SEC registrants? That’s one question that has been studied by the AICPA Private Company Financial Reporting Task Force as it examines the different information needs of closely held businesses and the cost/benefit to them of various existing GAAP requirements and disclosures.
“Private companies have fewer shareholders and there’s often significant overlap of owners and management,” notes James G. Castellano, chair of the task force and of Rubin Brown Gornstein & Co. LLP. “External stakeholders, such as the banker, venture capitalist or other investors, also have easier access to private company information that would be less accessible to investors in public companies.
The AICPA council approved the task force’s recommendation for the profession to work with FASB to identify and implement a process to develop GAAP for privately held, for-profit entities, which would result in recognition, measurement and disclosure differences, where appropriate, from current GAAP as applied by public companies. Castellano says, “A significant majority of those surveyed agree there’s great value in a generally accepted body of knowledge for financial reporting, but many also believe financial reporting by private companies can be more relevant for the users.”
INFORMATION THAT'S ENHANCED AND ACCESSIBLE
Outside the standard-setting arena, innovations such as the eXtensible Business Reporting Language (XBRL) also are expected to have a positive impact on the profession and all stakeholders. XBRL, which tags individual data elements of information systems and business reports, makes it easier and more effective to exchange, access and better analyze financial information. “XBRL is being embedded in information systems and financial reports and will satisfy small and large business reporting needs,” says Melancon. “It will affect the way data come over the Internet and even how individuals perform investment decisions for allocating their retirement assets. As an enabler, it’s not something most of the profession will focus on. Just as we don’t have to think about how Windows works when we boot up the computer, XBRL, too, will work in the background.”
Nonetheless, it is expected to transform business reporting as fundamentally as the Internet has transformed commerce and will require the profession to address assurance requirements under this new reporting paradigm. Most recently, the SEC has started a voluntary program for filing financial statements using XBRL and the PCAOB has provided guidance for auditors reporting on XBRL data. “XBRL holds great promise to make things faster and cheaper because we put things in the same language and enter data just once,” Cunningham says. “All systems will be able to share data easily and quickly internally and externally, enhancing transparency.”
Another important effort is the enhanced business reporting (EBR) initiative. For many years, it has been clear the marketplace is seeking more reliable, time-sensitive, future-oriented financial information. The AICPA has continued to take a lead in working to meet this demand, most recently by creating the AICPA Special Committee on Enhanced Business Reporting. This special committee established the Enhanced Business Reporting Consortium ( www.ebrconsortium.org ), an independent, market-driven, not-for-profit organization that plans to work to improve the quality, integrity and transparency of information used for decision making in a cost-effective, time-efficient manner. Its diverse international membership will include investors, creditors, analysts, management, directors, regulatory agencies, standard setters and other stakeholders. The EBR Consortium will develop a voluntary disclosure framework designed to be the “gold standard” in business reporting, providing structure around the presentation of nonfinancial components of business reports, including key performance indicators, and facilitating greater streamlining and integration of the financial and nonfinancial components of reports.
LOOKING AHEAD AT GOVERNMENT ISSUES
Leaders in government accounting are addressing the same changing environment as their peers in business. “We want to make government financial statements more understandable and more complete and, to the extent possible, to simplify the process for all involved,” says GASB Chair Robert H. Attmore. “We also want to increase the number of governments that adopt these GAAP standards, even if that means considering some accommodations for smaller units of government.”
GASB hopes to find a way to assist government officials to effectively report performance accomplishments focused on the achievement of their stated goals. “Because the overall goal of the government sector is to provide services and to maintain or improve the well-being of citizens, rather than to create wealth for shareholders, the understanding of value creation is different,” Attmore says. “We’re developing a conceptual framework for setting financial reporting standards appropriate to the government environment. As part of that effort, we are considering ways to better communicate information regarding economic condition, which will likely include specifics on a government’s current financial position, as well as its future service capacity and fiscal capacity.”
HONING NEW SKILLS, FOLLOWING NEW CAREER PATHS
CPAs’ skills and training also will change over the next 10 years due to new demands of the marketplace. Larger businesses will need different elements of service than smaller ones, driving greater specialization in the profession, Castellano predicts. If there is differentiation of accounting standards, “both accountants and financial statement users will need to know the differences between the financial reporting requirements for public companies and those for private businesses,” he says.
Despite such possible specialization, though, there also will be a need for basic skills and business acumen that span every category of client or employer. “Clients and users of financial reports want people with a CPA’s knowledge, competence and objectivity,” says Herz. CPAs’ unique perspective will continue to be valued as well. “Our skill is in evaluating and being skeptical about what we’re told,” says Arleen Thomas, AICPA senior vice-president of member competency and development. “That adds to CPAs’ skills in managing teams of people where each is an expert in a specific area.”
Advances in technology will put an almost universal demand on CPAs to be more computer-literate than ever before. “Technology is changing so much at the consumer level and behind the scenes at the corporation,” Thomas says. “Accountants and auditors have to understand how the processes work to be able to account for transactions and institute effective controls.”
Cutting-edge technology skills already are the key to a growing career path for CPAs at the FBI. “Evidence that used to be on paper is now on someone’s hard drive,” says Chris Swecker, assistant director of the bureau’s criminal investigative division. Even the thugs who might once have operated on a street corner now function in cyberspace, he notes.
Swecker, who sits on the bureau’s hiring committee, reports that all four of the FBI’s operating divisions—criminal, counterterrorism, counterintelligence and cyber crime—expect a significant number of new hires to be accountants. “We need agents who can do financial analysis and analyze trends in areas such as health care, insurance and Internet fraud.” His boss, Grant D. Ashley, executive assistant director of law enforcement services and head of the four operating divisions, says the FBI’s goal is for 15% of all hires to have accounting/finance backgrounds.
PROMOTING FINANCIAL LITERACY
Sound financial training will lead CPAs further into advisory roles as demand grows from baby boomers inheriting wealth and transitioning into retirement. “This is clearly a niche in which the American public could benefit from the CPA’s broad spectrum of skills, commitment to lifelong learning and objectivity,” Melancon says. “We’ll see growth of the CPA in the advisory role as the migration of the profession follows the demographics of society in general.”
The 360 Degrees of Financial Literacy campaign is one AICPA initiative that underscores CPAs’ competencies in this area. Carl R. George, chair of the financial literacy initiative and CEO of Clifton Gunderson LLP, understands the value CPAs can bring by promoting financial literacy. “The AICPA membership forms a massive distribution network,” he says. “Who better to understand the current crisis in financial literacy than CPAs?”
The initiative focuses the energies of AICPA members on increasing personal finance education in the schools, the workplace and the military, as well as for retirees. George notes that financial illiteracy is an acute crisis. Americans spend $1.22 for every $1 they earn, credit card debt is 53% higher than in 1990 and the average college student graduates owing $8,000 to credit card companies in addition to school debt. “We need to focus people’s attention today on the magnitude of the problem and come up with solutions for tomorrow,” he says.
To that end, the CPA Financial Literacy Commission offers resources for volunteers and consumers. Three Web sites contain turnkey materials CPAs can use to educate people in the 11 stages of their financial lives. “With these materials CPAs can talk to a kindergarten class or residents in a nursing home,” George says.
Through the program, CPAs can pay society back for its support of the profession and achieve the personal satisfaction of having made a difference in the nation’s future, says George.
The profession’s ability to manage change, acquire new skills and create new products and services to meet evolving demands will determine its position in the marketplace of the future. The prescription for future success is to clarify CPAs’ new role, says FASB Chair Herz. “The membership of the AICPA is very broad—it serves large and small practitioners and companies, and provides assurance, tax and business advice,” he notes. “To be all that accountants can and should be, the profession must serve the public interest with the right set of skills and services. I feel that the biggest contribution the profession can make is to provide objective assurance, insight and advice to all sorts of different parties.”
Keeping up with rapidly evolving business needs will be a challenge. “We need to continually improve the regulatory process as the business environment changes,” says Susan Coffey, AICPA senior vice-president of member quality and state regulation. “As firms develop service lines to respond to market needs, regulators need to be nimble enough to allow for this innovation while protecting the public interest.”
The sweeping changes are too new for anyone to predict their full impact. “We need an appropriate balance between market-driven changes and solutions and appropriate regulations,” Coffey says. “Investors will suffer if we land too often on one side or the other.”
Predicting the future with any certainty is risky business, but based on current circumstances one thing seems inevitable: In all these developments and others not yet identified, CPAs’ role and contribution will continue to grow. As the business environment changes, so will CPAs’ training, skill sets and specializations. New career paths will open and new demands will be made, but one thing will not change—CPAs will still be revered for their ability to remain objective, provide valuable analytical skills and deliver the high-quality services they have offered for the past 100 years.
Cynthia Harrington is a freelance business writer.