Change in the CPA Profession



Change in the CPA Profession

and the Challenge of the Future

James H. Macklin

Lecturer in Accounting, California State University, Northridge

Developments in the CPA Profession

Such dramatic events and rapid changes in the CPA profession have been occurring that many in the profession are feeling overwhelmed. Many feel that the profession is over stepping its traditional role and want to stay in the tried and true practices relating to audit, tax and consulting. However, the realities of today’s global economy are demanding an expanded and multidisciplinary role for the profession. Global forces compelling this change are at work. In response to these realities, the American Institute of CPAs has undertaken several initiatives.

CPA Vision Project

In 1997 the AICPA and the state CPA societies initiated the CPA Vision Project. The goal of this project was to define a widely accepted vision of what the profession intended to be fifteen years into the future. By defining where the members of the profession wanted to be, the profession could better decide what steps should be taken to get to that point. It also should help to avoid missteps in the path to that goal.

After significant research and approximately 180 daylong future forums held all over the country, common features about the future began to emerge. Over ten of these forums were held in California incorporating the thinking of a wide spectrum of the professionals here. In January of 1998, the Vision Project delegates met to work out a statement of the core purpose and the vision for the CPA profession based upon the input of the participants of the future forums. Senior members of the AICPA staff and leadership did not participate in these discussions. They wanted to ensure the product reflected the true thinking of the grass roots level of the profession and was not dictated by the leaders.

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After minor changes to refine the wording of the core purpose and the vision, the final version reflected here was adopted by the AICPA Council in October 1998 as the strategic objective to guide future efforts of the organization. Likewise, most state societies adopted the vision. The board of directors of the California Society of CPAs did not adopt it but decided there was no significant difference between the vision and the strategic objectives it defined previously. The final report of the CPA Vision Project, published in the Journal of Accountancy in December 1998, contains a valuable discussion about the changes in thinking needed to deal with the future of the profession.

In working toward the vision, the AICPA has undertaken the following four initiatives, among others:

1. Development of a vertical Web portal currently called “.”

2. Development of a global professional credential for knowledge management professionals. This credential is currently referred to as “XYZ” because an appropriate designation with universal meaning has not yet been determined.

3. The adoption of a revised Uniform Accountancy Act providing for “substantial equivalency” for licensing and certification of CPAs.

4. The Core Competency Framework for Entry into the Accounting Profession.

Vertical Web Portal

The AICPA is well into the process of creating a Web-based portal for the CPA profession. The concept of a vertical portal involves a Web site that has in depth multiple functions for a narrowly defined group. In contrast, a horizontal portal like Yahoo is a shallow content, unfocused Web portal with a broad subscriber base. The portal will include a wide range of capabilities including:

1. Technical information resources.

2. A nationwide database of CPA members and their technical specialties.

3. Communication vehicles for communities of interest.

4. Administrative functions, like billing and collection of dues, for the AICPA and all the state societies.

5. A vehicle for delivery by the AICPA and the state societies of services, like CPE, customized for each member quickly and more efficiently.

6. Content and purchasing networks to provide purchasing power to CPAs and their clients/employers.

A good example of a vertical portal is WebMD. WebMD was developed by Healtheon, which is headed by the founder of Netscape. It provides a one-stop communication source for the medical profession, medical researchers, hospitals, drug companies, insurance plans and patients. It includes on-line information reference sources, communication links, marketing capabilities and similar services. For instance, a doctor might be able to direct prescriptions to a patient, the drug store and the patient’s insurance plan all at the same time. WebMD is expected to quickly become the primary communication vehicle and knowledge repository for the medical industries.

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To facilitate the development of the portal, the AICPA and the state societies are creating a jointly owned separate corporate entity. In addition, because of the substantial financial resources needed to fund this enterprise, several corporate partners, including Microsoft, will make significant investments. The AICPA and the state societies will transfer some of their functions and services to this new entity. The plan for the new entity includes, if it is appropriate, a potential public offering of stock.

One interesting concern here is that, if the AICPA and the state societies do not take the initiative in building this portal, someone in the private sector will do it instead. In the CPA Vision Project, one of the results of the global forces at work creating the future discussed was the breakdown of influence of traditional institutions that were inflexible to change. Apparently, in the beginning stages of WebMD, Healtheon invited the American Medical Association to partner in the enterprise with regard to knowledge content. The AMA is said to have turned down the offer because it was reluctant to involve outside entities in its activities. Consequently, the AMA now has no input to, or control over, the technical content delivered on WebMD, and doctors who formerly looked to the AMA for technical knowledge are now bypassing it by going to WebMD. This is not an acceptable outcome for the AICPA.

The AICPA expects that this portal will provide a vehicle to serve its members better, more quickly and cheaper. It will also provide a foundation for responding promptly and effectively to additional changes in technology and the global economy as they develop.

XYZ Global Credential

A second response to the vision is the effort to establish a global knowledge management professional credential. In working toward the vision, the AICPA has learned the limits of the CPA credential. The most important aspect is that the CPA brand image can only be stretched so far. At a certain point in a CPAs career path up in the business world, the CPA designation becomes a liability instead of an asset. The market permission given to CPAs is limited to certain aspects of accounting, finance and management. Although the profession may attempt to stretch what abilities CPAs are known for, the ability to stretch these market permissions is limited. Likewise, the lines between many traditional business roles are blurring.

One problem is that the term CPA means something different in different countries. Other countries may also call CPA professionals by other names like chartered accountants. So the brand name of CPA is not global.

Another problem is that the name CPA in the United States is owned by 54 different regulatory bodies in different jurisdictions and is dictated to some degree by statute in each of those jurisdictions. Therefore, the profession is not under its own control.

Research by the AICPA and accounting profession organizations in other countries indicates that there is significant market demand for a global professional designation in

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this area. If this designation is not developed by established professional organizations, other sources will do it without the accounting profession’s participation. Consequently, the AICPA has taken the lead in working with its counterparts in other countries to develop the credential. Since a name for the designation has not been adopted, the credential is currently referred to as ”XYZ.” The name must be meaningful in the widest possible global context.

The plans anticipate the establishment of a global licensing and standard setting organization. This approach is consistent with the trend toward “governance without government” identified as one of the global forces impacting the future during the CPA Vision Project. The global organization will then license national professional organizations like the AICPA to grant the credential. Because of the nature of the credential, it is likely to be granted to other disciplines as well as accounting. In addition to educational and entrance examination requirements, credentialed individuals will have to take continuing education and provide evidence that they have maintained their skill sets.

The AICPA has made significant progress on this initiative and is already working with the professional organizations in a number of countries. The AICPA anticipates that established CPAs who are members will be grandfathered into the XYZ credential, if they choose to use the new designation. The plans anticipate the new credential may begin to be issued as early as mid 2001.

Substantial Equivalency

The National Association of State Boards of Accountancy (NASBA) and the AICPA agreed a couple of years ago to a new version of the Uniform Accountancy Act (UAA). A model state accountancy act has been in existence in various forms for over seventy years; however, the legislatures in the states and the four other jurisdictions which issue CPA licenses in the United States have never totally adopted the model legislation. So the latest agreement between NASBA and the AICPA provides for the concept of substantial equivalency. If a particular state’s licensing and certification requirements are deemed to be substantially equivalent to the UAA, then CPAs licensed in that state will be permitted to provide professional services temporarily in other states without having to become licensed in those other states. This would also facilitate the issuance of licenses by reciprocity when a CPA moves to another state. Approximately half of the states have adopted the significant provisions of the UAA and have been accepted as substantially equivalent.

California’s accountancy act does not conform to the UAA. The two most significant variances are the 150-unit education requirement and the one-year experience requirement. California basically requires a 120-unit degree and two years of experience.

California is the only large state that has not adopted the 150-unit education requirement. Some of the handful of states that have not adopted it are smaller states around

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California. In some cases, these states’ legislators are waiting to see if California’s legislature adopts the UAA.

The California Board of Accountancy (CBA) and the California Society of CPAs (CalCPA) are cooperating to have the necessary changes in the accountancy act introduced to the legislature in 2000 in connection with the CBA’s sunset review in 2001. The legislation will probably provide for a transition period of up to five years before the 150-unit education requirement becomes active. This has been the approach adopted by most states. Although passage may be difficult, the CBA and CalCPA expect that the changes will pass. The legislature cannot afford to isolate California’s CPAs from the rest of the country. Some of the CPA firms are already circumventing California’s requirements by having their staff certified in other states.

One of the main hurdles for obtaining a CPA license in California has been the CBA’s regulation requiring 500 hours of audit experience. This requirement has been in existence only since 1988 and is a regulation adopted by the CBA. It is not part of the California statute. Under the UAA, competency in auditing is shifted from the individual CPA to the licensed practice unit. Any practice unit, whether it is an individual, a partnership or another entity, which issues audit or review reports on financial statements will have to be enrolled in a quality assurance program and assure that those who sign audit reports meet experience and competency requirements. Thus, a CPA license in California would no longer give a CPA the right to issue audit reports. However, candidates who never intend to perform audits would be able to obtain their CPA license. It is interesting to note that only about one fourth of the CPA practice units in California report performing audits or reviews.

In summary, accounting educators in California will soon be providing a curriculum that permits those who want to become CPAs to meet the 150-unit requirement.

Core Competency Framework

An AICPA task force developed a summary of the skill set needed for success as an entry-level CPA. This summary is called the Core Competency Framework for Entry into the Accounting Profession. It was distributed as a draft document in 1999 and has been adopted in final form basically unchanged in 2000. It breaks down the competencies into three main categories. Since skills related to using information and communication technology were considered so pervasive, they are incorporated into all three categories.

This document represents a real challenge to accounting educators. The focus is on competencies as opposed to curriculum content. Competency implies a usable skill. This goes beyond awareness of, or exposure to, educational material. Being able to use knowledge in a practical context in a focused way is much more difficult than a vague awareness of that knowledge. The competencies related to leadership, complex decision

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modeling and technology are particularly troubling. A review of the document makes clear that the competencies included apply to all accounting professionals – not just CPA candidates.

This document does however provide a useful benchmark against which educators can measure the entire accounting curriculum and in assessing material used in particular classes. It should become more important than the CPA exam in designing course content for accounting students. It can also helps us in assessing the outcomes of our efforts.

Challenge of the Future

Implicit in all these developments is change. Change in the profession – as we are all aware – is accelerating and intensifying. However, the CPA profession has always responded in a positive way. It emerged during the industrial revolution in response to more complex business organizations and capital markets. Its audit function intensified in the 1930s in response to society’s attempts to regulate those capital markets. At the end of World War II, there were only 9,500 CPAs in the United States. All of them were auditing, tax and consulting experts. The relative simplicity of business at that time permitted them to be broad generalists.

The profession responded again in the 1950s to help society deal with the complexities introduced into income taxation in that decade and again with the development of consulting services later on. After very rapid expansion of its size and influence in the 1960s and 1970s, it is now faced with unbelievably complex technological and economic developments on a global scale.

This imperative for change has already changed the profession. Not just the Big 5 but most firms have already become multidisciplinary professional services firms. The traditional boundaries between accounting and other business professionals have become blurred. The traditional stovepipe definition separating the professions no longer works. Reality is demanding a broader, more holistic perspective from us. National definitions of CPAs no longer work in a truly global economy.

Some CPAs resist this redefinition of the profession. They want CPAs to remain just audit and tax professionals. While these functions will continue to be important to the profession, its members have already voted, by their practice and career decisions, to respond to the broader imperative. So that issue was addressed by the profession and has already been decided. Any decisions by the AICPA or the state CPA societies are irrelevant to this issue. Either the professional organizations respond to the reality that already exists or they will become irrelevant and in time will wither and die.

Likewise, the individual professionals and the educators who prepare them for the profession must respond to the imperative. Educators have the additional responsibility

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of anticipating the CPA profession of the future and helping their students prepare for it. Many of today’s CPAs have the luxury of doing what they’ve always done for the few years until they retire. This effect is sometimes referred to as the race between incompetence and retirement.

One of the interesting aspects that arose in the Future Forums conducted during the CPA Vision Project was the concept of the levels of leadership. This discussion was loosely based upon the levels defined in studies by Professor Elliott Jaques. His conceptual model distinguished eight levels of leadership demonstrated by individual leaders. The distinguishing characteristic among the levels was the span of time between decisions made by the leaders and the manifestation or outcome of their decision.

At the lowest level, the time span between decision and out come was, say, from one day to two months. At the top levels, the time span was 20 years or more. Most CPAs activities would be in the lowest level. For instance, deciding the taxable income and tax due on a tax return involves analyzing the fact circumstances that already exist, applying professional knowledge of statute, regulation and case law, and calculating the result. The outcome of the decision process is immediate. The market value of this kind of professional service is relatively low and lots of people can do it, so the CPA is locked into a relatively low pricing model – and, if he is lucky, can bill on an hourly basis for those services. This type of service is most easily replaced by artificial intelligence systems like Turbotax, so much of this type of service has already disappeared from the CPA profession. The same thing is true of traditional write-up and bookkeeping services, which have been largely replaced with low-end bookkeeping software.

Higher levels in the model involve longer periods of time. For instance, helping a client develop a technology plan may involve a time span of up to five to ten years and involves more than just an understanding of what technology is available today and how the client’s business operates in today’s environment. The outcome of the decisions made may not occur until years later. The CPA can charge significantly more for this type of service and is not locked into a per hour or per diem billing rate.

At the very top level are those who engage in global geopolitical gaming theory and such pursuits that are beyond most CPAs’ practices.

Many of the CPAs in the Future Forums were interested in this model, and a section of the Vision Project final report is devoted to it.

Another important aspect of this is that the leaders of the CPA profession see that it is important to move it up the scale of leadership as it applies to professional services and to the emerging practices of its members. Also, the need for the XYZ credential becomes more apparent.

But the most important aspect of the model is that the skill sets and competencies inherent in the different levels are dramatically different. At the lower levels, the most

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obvious skill is the ability to analyze. The correct answer is inherent in the fact circumstances that already exist. Therefore, the ability to analyze the facts, extract those relevant to the decision and apply a decision model correctly is what is needed to reach the correct solution. However, at the higher levels, since the outcome will not occur until possibly years later, the ability to analyze today’s circumstances is not sufficient. The ability to imagine, speculate, anticipate and make decisions with significant ambiguity are as important, and sometimes more important, than analytical ability. In fact, a person who has been successful at an analytical level and has become locked into an analytical mindset, can assure his failure at higher level decision making.

This aspect is another factor that accounting educators must take into account in designing the accounting curriculum. Does the curriculum prepare yesterday’s CPA or tomorrow’s CPA? What kind of person do we attract to the accounting major via the first course in accounting principles? Is it the narrow, rigid, conformist, analytical type or is it the creative, imaginative, risk taker type?

Also, it challenges us to consider our own mindsets as professors. Are we psychologically prepared to deal with the new CPA profession and the XYZ profession? These are some of the challenges for the future with which we must deal.

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CPA Core Purpose

CPAs …

Making sense of a changing and complex world.

CPA Vision Statement

CPAs are the trusted professionals who enable people and organizations to shape their future. Combining insight with integrity, CPAs deliver value by:

• Communicating the total picture with clarity and objectivity.

• Translating complex information into critical knowledge.

• Anticipating and creating opportunities, and

• Designing pathways that transform vision into reality.

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