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Regulating the Accounting Profession
What Distinguishes a CPA from an Accountant?

APRIL 2006 - Ask someone on the street what CPAs do and he will probably tell you that they prepare income tax returns, assist with financial planning, and keep financial records for businesses. Some people might have absorbed enough from the Enron debacle, in which the now-defunct Arthur Andersen played a key role, to tell you that CPAs audit the financial statements of public companies.

Substitute “accountant” for “CPA,” and the answer will be essentially the same; for the average person, there is no difference between a CPA and an accountant. “Well, don’t you have to be a CPA to be an accountant?” is the response most often heard, using the following analogies: A lawyer can’t practice law without passing a state bar exam, and a medical doctor can’t practice medicine without passing the medical boards. Why, then, are accountants allowed to practice accounting without passing the CPA exam?

Regaining Respect

The public looks to accountants for various types of financial services: tax preparation and planning, financial planning, business management consulting, financial statement preparation, and attestation services. Yet the only function that differentiates a CPA from any other accountant is that only a CPA can sign off on an audit report for a public company.

CPAs have worked hard to earn the level of recognition that other professions, such as medicine and law, have achieved. However, the accounting profession’s luster and prestige, not to mention compensation, still lag considerably behind. According to the 2006 Salary Guide from Robert Half International Inc., entry-level public accountants can expect to earn between $36,750 and $46,000, while the average salary for an entry-level attorney is from $61,500 to $85,750. Physicians’ Search sets the first-year starting salary for a general practice physician at $90,000 to $130,000.

In New York, the number of academic credits necessary to qualify for the CPA licensing exam will increase by 30 additional credit hours beyond the traditional baccalaureate degree, effective August 1, 2009. This significantly adds to an accounting student’s educational expenses, not to mention the opportunity cost of another year or two of school. Furthermore, after licensure, CPAs are required to complete 120 continuing professional education (CPE) credit hours every three years. And we wonder why we’re having difficulty attracting the best and the brightest to our profession? A simple cost-benefit analysis provides a clue.

If we use the medical profession as a model, an individual must complete postsecondary education (medical school), pass the medical boards, and complete an internship and residency to practice medicine. Subsequently, a doctor who wants to specialize in a particular area of medicine, such as pediatrics or orthopedics, must complete an additional course of study and another residency.

The CPA license should be the basic “general practice” requirement for entry into the accounting profession. Areas of specialization could subsequently be recognized as a result of further education or experience, with a relevant testing instrument in a specific field. Advanced proficiency would be validated by additional certifications and designations, such as certified information systems auditor (CISA), certified fraud examiner (CFE), and personal financial specialist (PFS).

Standards That Reflect Expectations

If we are to raise the stature of the accounting profession, regulation must apply to the entire profession, not just CPAs. Without restrictions and controls, maintaining standards and enforcing those standards is virtually impossible. There are several ways to ensure that the public’s expectations—that all accountants are competent and ethical—are met:

  • Establish separate schools of accountancy, comparable to medical schools and law schools. This would enhance the prestige of the programs and provide accounting educators with the autonomy to determine relevant curricula.
  • Require internships as part of the education process. Practical experience is an ideal way to expose students to professional issues. This element should also be considered part of the accreditation process, which would provide additional motivation for a school or program to provide access to hands-on experience.
  • Ensure that the professional licensing exam appropriately addresses the necessary knowledge, skills, and abilities to effectively work in the field.
  • Establish a minimum number of CPE credit hours to retain licensure and the ability to practice in the profession.
    n Strengthen the role of the state boards of accountancy to ensure that standards are maintained through effective peer-review and that enforcement is brought against those who do not live up to their professional and ethical responsibilities.

The creation of the PCAOB indicated the public’s willingness to assume the responsibility of regulating the accounting profession if we prove not to be up to the task. The proverbial ball is in our court.

I welcome your comments and suggestions on these and other issues.

Mary-Jo Kranacher, MBA, CPA, CFE
Editor-in-Chief
mkranacher@nysscpa.org