Speaking in the Public Interest

Randy G. Fletchall still remembers what attracted him to the CPA profession more than three decades ago—its focus on quietly and diligently serving clients, helping them solve challenging issues, and “getting it right,” while benefiting the public interest.

“We’re not the kind of people who seek attention,” Ernst & Young’s senior technical partner said of CPAs during a recent interview with the JofA, soon before he assumed the AICPA chairmanship at the Institute’s fall Council meeting in Tampa. “But one of the most valuable things I have learned during my career is the important role perception and relationships play in the profession’s ability to serve the common good.”

Fletchall should know. Over the course of 31 years as an auditor with his firm and extensive volunteer service with the AICPA, he’s worked closely with standard-setters, regulators and legislators. And he’s seen how much the profession can accomplish in the public interest when it has such leaders’ awareness, trust and confidence.

That’s why he’ll spend his term striving to enhance the profession’s visibility and leadership to those who set economic and social policy and the standards governing professional practice. He’ll also urge CPAs to work together more often, as they now do in the AICPA’s and state societies’ award-winning pro bono financial literacy programs. But his most important goal may be helping to recruit a dynamic new generation of CPAs.

A VOICE AT THE TABLE
By providing assurance on American companies’ financial statements, the profession plays a central role in fostering a stable supply of capital in the United States. “In fact,” Fletchall said, “the competitiveness of U.S. capital markets is quite dependent on the high-quality work CPAs do each day. Likewise our work is very important to the availability and cost of capital for private companies in the U.S.” For that reason, he says, it’s critical for the profession to communicate constantly—not just in a crisis—with policymakers and rule makers. “We have to make sure they understand the value of auditing and everything else we do, how well we execute, and our suggestions for improvements,” he added.

Two such opportunities arose when government panels recently were formed to learn more about matters in which the profession plays key roles. The AICPA will offer its views to both bodies and provide any information that will contribute to fully informed analyses and recommendations.

SEC Chairman Christopher Cox created the Advisory Committee on Improvements to Financial Reporting that by August 2008 will make recommendations on how the SEC, FASB or the PCAOB can, without legislation, help reduce unnecessary complexity in financial reporting and make the information more useful to investors.

Treasury Secretary Henry M. Paulson Jr. has established an Advisory Committee on the Auditing Profession, an integral part of his capital markets competitiveness initiative. “The Treasury’s focus on auditing illustrates how important the profession is,” Fletchall said. To strengthen the auditing profession, the committee will make recommendations on auditor recruitment and retention, audit market competition and concentration, the auditing profession’s financial resources and audit quality.

Fletchall and the AICPA will speak out internationally as well. Referring to the beginning, in 2008, of former AICPA Chairman Robert L. Bunting’s two-year term as president of the International Federation of Accountants (IFAC), Fletchall said, “As we move in the direction of a single set of international standards, it’s important that our voice be heard, whether it’s our own or in alliances with other accounting bodies around the world.”

PORTRAIT OF AN AUDITOR
The profession merits a voice at the table because of its members’ collective experience and wisdom in financial matters. To accumulate such insight and skill, each CPA follows his or her unique path to knowledge. Fletchall recalled the conceptually direct, but geographically circuitous, course that led to his present position and responsibilities.

In the 1980s, during the rapid expansion and ultimate collapse of numerous financial institutions in the Southwest, Fletchall was a young CPA with several years of experience performing commercial bank audits for Ernst & Young in Houston.

“I learned a lot by focusing on the banking industry,” he recalled. “Business was booming in Texas, and life was good.” Then the oil industry crash came, followed by a steep decline in real estate values, and Fletchall absorbed valuable lessons when some local banks suffered large losses and eventually were acquired by other financial institutions. “I became experienced in dealing with problem loan portfolios,” he said. “And I learned firsthand that our economy goes through cycles. Every day, we CPAs use experience like this to protect the businesses and individuals who depend on us.”

Meanwhile, Fletchall’s career flourished, albeit on an atypical path. Most public company auditors, particularly in their earlier years, work on engagements with clients from a diverse range of industries. But, spurred by his enduring interest in financial services, he spent most of his first 20 years in the profession auditing large commercial banks.

“I learned how banks operate, and what their accounting, reporting and tax issues are,” he said, adding that this understanding of business and industry enriched the quality of his service to clients. Drawing on his experience, he spent some of his time helping out Ernst & Young teams in other parts of the country. When the large Texas bank that he had been auditing for a decade was acquired, Fletchall accepted an assignment in Arizona, primarily providing auditing and other services to various subsidiaries of a large California-based bank. But a few years later, a corporate takeover also claimed that client.

Thus in the mid-1990s, as a seasoned interstate expatriate (and lacking clients), he didn’t hesitate to accept an offer to work in Cleveland, where one of Ernst & Young’s national offices is located. “I became very active in the design of our firm’s audit processes and quality controls at a time when we were reconsidering how to add more value for our clients and improve our service delivery,” he said. “My work was focused on making sure that we not only conformed to auditing standards but also were taking appropriate steps to further improve the quality of our audits. Over the years, I’ve continued this focus.”

In 1998, the Public Oversight Board established the Panel on Audit Effectiveness, and Fletchall worked with it, coordinating his firm’s interaction with the panel and then focusing on his firm’s efforts to implement the panel’s recommendations on how to improve audit quality.

Then, in 1999, Fletchall relocated to the New York national office of Ernst & Young to become more involved in the accounting and SEC reporting consultation functions, and when the firm’s senior technical partner left to become the SEC’s chief accountant, Fletchall moved into his current position as vice chairman of Ernst & Young’s professional practice and risk management functions for its audit practice.

POWER IN UNITY
The profession, regulation, financial reporting and auditing all underwent considerable changes soon after Fletchall’s transfer to New York. Once he became Ernst & Young’s senior technical partner, Fletchall joined the AICPA’s SEC Practice Section (SECPS), which ultimately evolved into today’s Center for Audit Quality. Like the SECPS, the Center was created to foster confidence in public company financial reporting and to facilitate the ongoing improvement of the audit process and auditors’ skills and knowledge.

Much of Fletchall’s volunteer work with SECPS related to the profession’s role of informing regulators and standard-setters and working with them in the aftermath of Enron and other financial reporting failures, and then Congress’ development and passage of the Sarbanes-Oxley Act and the establishment of the PCAOB to regulate the public company auditing profession.

It was during this period of great change that Fletchall became vice chairman of the SECPS Executive Committee, a position that led to an opportunity to serve as an at-large member of the AICPA Council. Because Fletchall found this volunteer work so fulfilling, he accepted a nomination to become a member of the AICPA Board of Directors. And after three years on the board, he enthusiastically made another three-year commitment, this time leading to his past year as AICPA vice chairman, his current term as chairman, and a coming year as immediate past chairman. “I’ve had the opportunity to help the AICPA develop the profession’s response to many important issues,” he said. “It’s been a privilege to make a positive and lasting contribution to the quality of the profession and the well-being of those we serve.”

SUPPORTING FELLOW MEMBERS
Besides his extensive firm experience working with members in business and industry, Fletchall has also interacted repeatedly with—and gotten to know the perspectives and concerns of—CPAs from small firms, government and education. “My work with the AICPA has helped me understand what CPAs in other practice areas need from the Institute to better serve their clients, employers and the public interest,” he said. “And it has improved my ability to represent them all during my term as AICPA chairman.”

Fletchall reminded members from smaller accounting firms and from business and industry to pay close attention to the evolution and applicability of global standards. “You may think it’ll be a while before International Financial Reporting Standards (IFRS) will affect you and your clients or the companies where you work,” he said. But because of rapid globalization, many American companies—as subsidiaries or owners of foreign entities—already prepare or receive IFRS-based financial statements that their CPAs must be able to interpret accurately. “It’ll probably affect your firm soon, so give yourself time for training and education,” he advised.

Acknowledging the resource challenges smaller firms face, Fletchall encouraged them to become members of the AICPA’s PCPS Firm Practice Center, which offers useful information and tools that help sole practitioners and managing partners run their practices profitably and stay in compliance.

Likewise, Fletchall recommended that his colleagues in public practice join the Center for Audit Quality. “As part of its mission to improve the audit process, it’s very focused on helping members improve their skills and knowledge,” he said. “And it’s added an overarching public policy objective: to identify and promote practices that meet the needs of investors and the capital markets.” The AICPA also has proactively established the Employee Benefit Plan Audit Quality Center and the Government Audit Quality Center to help members improve their performance in these practice segments.

Fletchall also wants to explore how the AICPA can provide even greater value to its members in business and industry and government, all of which constitute a large segment of the profession. “The AICPA is taking a fresh look at its value proposition for these members who are key to the quality of information in business and financial reporting and the catalysts who move their organizations forward.”

LOOKING TO THE FUTURE
“Many people now entering the profession approach careers and work/life differently than baby boomers, many of whom are in leadership positions today in firms, business and other organizations,” Fletchall said. “Differences between generations always occur, but that doesn’t take away from our need to make adjustments and find a middle ground. Then we can tap their talents and fresh insights, and at the same time they can learn from our knowledge and experience.” Fletchall applauded recent collaborative efforts by leaders from the accounting, finance and audit professions, including AICPA President and CEO Barry Melancon, in proposing innovative solutions to address these issues (see Checklist, “ Points for Retention”).

Fletchall expressed continued support for the AICPA’s efforts to increase the supply of accounting Ph.D.s and praised the AICPA’s highly successful “Start Here, Go Places” recruitment campaign and its well-received Young CPA Network. “We should expand the initiatives that are in place,” he said, “and capture even more students’ hearts and minds.”

“We also have to work hard on increasing diversity,” he said. “The profession should reflect society and tap every source of talent out there. It’s all about having the best people delivering high-quality services. That fosters growth and drives profitability.”

CPAs’ CONTRIBUTIONS
CPAs must be mindful of the consequences of their performance. “We’re judged on the quality of our work,” Fletchall said. “We can’t assume it’s good or even adequate. Instead, we must dispassionately assess how well we’re serving the public interest and meeting our clients’ needs. And we should make every effort to continually improve the value of everything we do.”

He acknowledged how complicated business and personal finance have become and how often businesses and individuals turn to their CPAs for help. “Those challenges make our profession personally and professionally rewarding,” he said. “But we won’t be able to keep pace with the demand for innovative and high-quality services unless every firm stays focused on attracting, retaining and developing top talent.”

When asked how the profession can best serve the common good, Fletchall stressed the importance of CPAs’ unique knowledge and skills. In his view, this skill set obligates CPAs to make certain their voices are heard. “If we succeed,” he said, “we’ll continue to earn respect and confidence, and policymakers will continue to seek our counsel about important matters on which we can shed much-needed light.” And that would be the profession’s crowning achievement—maximizing its contribution to the public interest.

Robert Tie is a freelance business writer. His e-mail address is bob@roberttie.com.