On the Future of the Accounting Profession

By Edwin J. Kliegman

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The assembly was coordinated by the crème de la crème of government, finance, education, and accounting, including Paul Volcker, William Donaldson, Arthur Levitt, David Tweedie, and William McDonough—people renowned and revered for their knowledge, intelligence, ability to resolve difficult problems, and involvement in public affairs. That being the case, I find it amazing that the report does not address areas vital to the future of accounting firms and the accounting “profession.”

The overriding difficulty with the situation is that there is little understanding by Congress, the public, regulators, the American Assembly, and the media of what the accounting profession is. When one tries to assess blame for the travesties of Enron, WorldCom, and others, where does one look for the culprits? To the accounting profession, of course! Isn’t it reasonable, then, in trying to correct the condition, to apply the solution to the entire profession?

First and foremost is the question: What is the “accounting profession”?
Bloom writes:

The report seems to equate the “accounting profession” with the Big Four, and does not address itself to the many accounting practitioners who do not work for the Big Four, have no SEC clients, and have not been implicated in scandals. By its omission, the report seems to suggest … that the small accounting practitioner, or non–Big Four auditor, does not play a significant role in American business. This is hardly the case. [emphasis added]

The small accounting practices serve millions of the country’s small businesses, which are the backbone of the United States’ economy. These small practice units are currently subject to the mandates designed to correct the misadventures of the larger firms. Peer review, self-regulation, GAAP, and the Sarbanes-Oxley Act: all were invented to stop the disgraces of the Big Eight, Six, or Four over the past 35 years.

It would appear that the illustrious attendees of the American Assembly live in a different world than the common folk. The everyday situations that practitioners work with and are affected by don’t seem to be recognized by the Assembly. They live in the theoretical world and are concerned with the large actions of big organizations, while the smaller practitioners are in the practical arena dealing with everyday problems of small business. It would have been refreshing for the Assembly to state outright that self-regulation of the Big Eight, Six, or Four has failed. Self-regulation was a farce from the beginning, except for small practice units. Small practices must self-regulate themselves because otherwise they would go out of business. A business failure or a loan default soon after an audited or reviewed report is doomsday for a smaller practice unit because its relationship and reputation with the credit lender are ruined, and word will get around. Self-regulation was a ploy that the AICPA dreamed up to counter the pressure from Congress to regulate the “profession.”

It is remarkable that the American Assembly has only recently begun to conclude that peer review isn’t effective. One would think that after the AICPA initiated peer review, the massive, well-publicized audit (oops—business) failures of the 1970s, ’80s, and ’90s, and the new century would have disappeared, or at least been drastically reduced. After all, who, if not the major firms, has the best and the brightest people in their employ? They have the brain power, the money, and the facilities to accomplish, train, create, and install the best, most effective peer review methods for partners and staff. But peer review lives on, largely ignored by the “Final Four.” I’m sure they go through the motions but sort of wink at the rules. If they botch an engagement and have to arrange a multimillion-dollar settlement (admitting no wrongdoing), they will find ways to continue.

What happened? How did this proud and able profession fall from the heights? An oversimplified version of the disaster would encompass the AICPA’s bending to the will of the largest firms, dismissing ethical considerations, and diminishing the high standards that CPAs adhered to “in the olden days.”

Any real discussion of the future of the accounting profession must be preceded by a definition of what the “profession” is. In discussing the future of the accounting profession, organizations such as the American Assembly should seek knowledge of the entire accounting profession.

As now constituted, the powers that be seem to consider the profession to be the Big Four. The Big Four serve a valuable purpose in that they audit most of the public companies of the nation. But, again, they are not the profession. Smaller practice units must be recognized as a vital partner in the entire profession.

It may well be time to consider again the value of two sets of accounting standards and rules. As it now stands, small practice units are forced to comply with regulations designed for the Big Four. Those regulations are often a waste of time and money for the smaller client, but, for the time being, they are a necessity.

Somehow, the AICPA and the state CPA societies must find a way to get the public, Congress, educators, and the media to recognize that the “profession” includes the 47,000 CPA firms serving the millions of small business entities in our great country. Somehow, there has to be a way to differentiate between these two aspects of the “profession.” How to accomplish this is a subject for discussion at another time.