A Tour of Tomorrow’s Technology

Don’t let the future sneak up on you.

BY RANDOLPH P. JOHNSTON

Imagine you’re a CPA from 100 years ago who’s just been zapped into 2005. Would you understand even half of the technology the profession now uses to conduct business? Probably not. But that’s just a fantasy, you might say.

Well, think again. Today’s lightning-quick rate of technological innovation could turn you into a dinosaur in no time. That’s because the interval between once-new technologies and their more advanced successors has been shrinking rapidly (see “Sooner Than You Think”). As a result it’s easy to fall out of touch. This article will show you what to focus on today and in the near future.

“While technology’s impact on the profession has been considerable, it doesn’t come close to what’s ahead,” says Dana R. (Rick) Richardson, CPA/CITP, president of Richardson Media & Technologies LLC and former national director of technology for Ernst & Young. “CPAs must be technologically proactive so they can help their clients anticipate change and manage technology to their advantage.”

Note that being up to date doesn’t mean you reflexively implement new products as soon as they’re released. Aim instead to develop a clear understanding of whether the latest developments can satisfy the business needs of your clients, your firm or your employer. A tech-savvy, discriminating CPA can be a client’s most valuable adviser.

WHAT SHOULD YOU BE USING NOW?
The following products are reliable, affordable and available. CPAs should consider what these technologies have to offer.

Voice over Internet Protocol (VoIP) and other new telephony services are catching on as companies see the benefits of switching their telephone systems from wired to wireless. By transmitting calls via the Internet rather than phone lines, VoIP offers two advantages: low cost and high efficiency. VoIP call charges are a result of open-market competition, unlike the higher, heavily regulated rates for traditional phone services. And new products, such as computer telephony integration, boost efficiency by passing information seamlessly from a telephone to a customer service representative’s computer. Regardless of whether you’re planning a smaller phone system for an office or a larger one for an entire organization, a VoIP system will cut per-call costs and reduce reliance on hardware that must be replaced periodically.

Paperless technologies are an increasingly common feature of every accounting system. Some applications eliminate data entry by scanning invoices. Others reduce dependence on paper in public accounting firms’ tax and audit operations. And many paperless systems are inexpensive enough to be deployed in small or home offices. The cost benefits and speed and ease of retrieving, storing and backing up critical data and documents will ensure the continued growth of this technological trend.

Videoconferencing disappointed many organizations in the past because it was complicated to use and expensive. But today’s systems are user-friendly and have convenient tools. They’re economical, too, because they communicate inexpensively over the Internet instead of over costly dedicated phone lines. If you’re looking for an effective way to minimize staff travel without impairing teamwork, the expected reductions in the cost of this technology may move you to implement it sooner rather than later.

XBRL is coming of age. The eXtensible Business Reporting Language makes it possible to collect and exchange data between systems over the Internet without rekeying. Many products, such as Microsoft Office and much accounting software, already are XBRL-compatible. Also, there are several software applications designed specifically for creating and using XBRL-formatted documents (www.xbrl.org/productsandservices). CPAs should encourage and help their employers and clients to implement XBRL if they frequently exchange data among multiple systems.

Storage area networks, or SANs, are high-speed networks that connect large-capacity data storage devices with powerful computers serving communities of users. Companies are rapidly implementing SANs to ensure they have enough storage to support their video- and audio-recording processes, paperless initiatives and the vast quantities of electronic files they often produce. CPAs will find that as business-related use of scanners and digital cameras proliferates, their employers’ and clients’ need for SANs also will grow rapidly.

High-definition digital video disks and Blu-Ray disks make up the latest generation of rewritable optical media. The former, also known as HD-DVDs, hold 15 gigabytes of data—more than three times as much as regular DVDs. One HD-DVD can store the complete text of nearly 8,000 novels the length of War and Peace. And Blu-Ray disks, which are read by a colored laser beam, have a capacity of 25 gigabytes. “Double-layer” versions of each format hold twice as much data.

Wireless technology has improved with the near elimination of former problems such as static interference and security gaps. Worldwide Interoperability for Microwave Access (WiMAX) and Ultra-Wide Bandwidth (UWB), new data transmission protocols, make online connections so much cheaper, faster and easier to use that it’s possible to simultaneously cut costs and improve employee productivity by converting offices to wireless connectivity.

THINGS TO COME
Good as each is, every current technology will be supplanted by its successor in a surprisingly short time—and these changes in turn will engender entirely new technologies. Consider the following works in progress that likely will make it to market sooner than you think.

RFID, or radio frequency identification, tags contain important tracking and descriptive information about the objects—for example, freight packages, vehicles or pieces of luggage—to which they are attached. This helps companies and government agencies better perform a broad range of functions, from shipping and inventory management to highway toll collection and passenger baggage tracking. Word of these advantages has encouraged a bevy of organizations to emulate Wal-Mart’s well-publicized RFID implementation. And now that EPCglobal, the RFID industry trade group, has updated its electronic product code (EPC) standard—the RFID version of the bar code—software developers are working on more powerful applications. Nearly every CPA will need to understand this important technology.

Broadband over power lines (BPL) may bring high-speed Internet access to every home. This new communications technology was approved by the FCC late in 2004. It offers ultrafast Internet services that outperform current wire-based links by using modems that plug into any electrical outlet. As new participants in the broadband communications market, BPL companies will help telephone and cable-TV companies improve communications in many underserved U.S. markets.

Stratellites are high-altitude, lighter-than-air ships being developed to provide a variety of communications services. Floating in the stratosphere at about 13 miles above the earth, they hover over a particular location and relay radio signals to and from the ground. Each airship typically covers an area the size of Texas. Stratellites can outperform satellites and are cheaper to launch and maintain. Among other things, they’ll offer telephone, paging and wireless broadband services over large areas.

Grid computing soon will become a reality. It consists of linking the processing power and data storage resources of many computers in networks dedicated to fulfilling joint goals such as serving a community of users. Grid computing will offer secure, reliable access to huge quantities of shared computer power, much as electrical utilities operate today. As a result businesses and individuals will find owning computer servers to be no more necessary than having their own power generators.

System security will vastly improve over the next decade. Security tokens—small, key-like devices that fit into a computer port—will replace passwords as the means by which users identify themselves to a system. Improvements in other areas—such as virus prevention and antihacker measures—also are in the works. The result will be simultaneous advances in safety and convenience.

A BRIGHT FUTURE
I continue to be excited about what technology can do to help people and businesses, and I hope all CPAs will view the coming changes as the true opportunities they are—for personal and professional fulfillment and improved service to clients.

Randolph P. Johnston, executive vice-president of K2 Enterprises in Hutchinson, Kan., is a technology consultant.

Playing a Leadership Role
in International Convergence

A chance to set an example on the world stage.

BY CHARLES HORSTMANN

Convergence of international financial reporting standards has received enormous attention over the last decade and particularly over the last few years. Earlier this year, the leaders of the International Accounting Standards Board and the Financial Accounting Standards Board and key regulators from the European Commission and the SEC agreed on a road map and timetable. It now seems appropriate to focus an equal amount of attention and effort on convergence of international auditing and independence standards. The U.S. profession has a unique and important opportunity to play a key role in the global community in making substantial progress on that road.

In recent years there have been significant changes to international auditing and independence standard-setting processes. These changes, reflected today in the standard-setting activities of the International Federation of Accountants (IFAC), include greater direct public input, more rigorous and transparent processes and international public interest oversight. The standards set by the International Auditing and Assurance Standards Board (IAASB—an independent standard-setting body under the auspices of the IFAC) and the IFAC Ethics Committee also have been updated and made more specific.

THE WORLDWIDE PROFESSION
IFAC is an organization of 163 member bodies—including the AICPA—in 119 countries with more than 2.5 million professional accountants. IFAC’s primary mission is to continue to strengthen the worldwide profession and to develop strong international economies by establishing and promoting adherence to, and furthering the international convergence of, high-quality professional standards.

The challenges and opportunities for the IFAC standard-setting bodies include balancing public interest concerns with difficult implementation issues and addressing concerns about clarity, complexity and relevance. Meeting these challenges will enhance the usability and acceptance of standards, increase the likely success of international convergence and, ultimately, lead to greater public understanding of and investor confidence in the information and assurance provided by the world’s accountants.

Many of IFAC’s member organizations have already adopted its international standards on auditing (ISAs)—more than 70 bodies currently—and its independence standards, which are part of the IFAC Code of Ethics for Professional Accountants. Thus, the process of convergence is well under way. In addition, the adoption by the European Union of the 8th Directive on Company Law will likely result in an EU mandate for auditors to use IFAC’s auditing and independence standards in 2007, pursuant to an EU endorsement process, when conducting statutory audits that already are required for nearly all companies in the 25 EU member states.

U.S. CONSIDERATIONS
Here in the United States we obviously have a much different environment in many respects. We have two primary bodies with authority to establish auditing and independence standards: the Public Company Accounting Oversight Board for public company audits and the AICPA for non-public-company audits. This dual arrangement certainly creates some unique challenges but also increases the need to seek convergence to avoid creating unnecessary differences. In the government area, the Government Accountability Office (GAO) also establishes rules through the “Yellow Book.”

Seeking international standards convergence is an important challenge given the large number of U.S. companies listed on European stock exchanges, the huge number of SEC-registered entities operating outside the United States, the interaction of the capital markets in the EU and the United States, and the likely adoption of international standards throughout the EU in the near term. It therefore is prudent for both U.S. bodies to focus on international convergence as an integral part of their processes.

To be sure, there are currently some differences between U.S. auditing and independence standards and IFAC international standards. Within auditing standards, for example, some differences are the time horizon for going concern considerations (one year in the United States vs. a longer time horizon in ISAs); the scope of responsibilities for detection of illegal acts (limited to those with a direct and material effect on the financial statements in the United States vs. a wider approach in ISAs); and a standard that allows divided responsibility among multiple auditors in the United States vs. a proposed new IAASB standard that may eliminate that option. Dealing with important differences of this kind—which reflect fundamental variations in legal environments—is certainly necessary. However, moving to eliminate other historical differences to the greatest extent possible on a timely basis also seems prudent to achieve global convergence.

Both the PCAOB and the AICPA are keenly interested in IFAC’s international standards. The PCAOB agreed to play a key role on the Consultative Advisory Group of the IAASB and provides direct input at IAASB meetings as a nonvoting observer. The chairs of the IAASB and ASB are also official observers at meetings of the PCAOB’s Standing Advisory Group. Finally, leaders of the AICPA audit and independence standard-setting bodies are actively participating on the IAASB and IFAC Ethics Committee, and the ASB is committed to a process of convergence to IAASB standards.

It appears these mechanisms are paying dividends already. For example, the IAASB is proposing to publish a standard on documentation similar to one issued by the PCAOB. The PCAOB also has been studying new IAASB standards on audit risk and quality control. This evidence of early cooperation is commendable, and continuation is essential to avoid significant differences and to move toward timely convergence.

A UNIQUE OPPORTUNITY
While these early signs of cooperation are encouraging, there is much heavy lifting ahead. The challenges are significant, particularly given the PCAOB’s statutory mandate to focus on protecting investors of SEC-registered companies, and the commitment of the ASB and the AICPA Professional Ethics Executive Committee to be responsive to the public and the many unique issues in the United States (including requirements of the GAO and the Department of Labor, and concerns that may differ for private businesses). Regardless of these challenges, I believe the U.S. profession should seize the unique and important opportunity to show leadership by pushing for an accelerated roadmap to convergence. The rest of the world is watching closely to see the U.S. profession’s commitment to this effort. We can set an example that may greatly influence the pace of convergence activities and timetables in many other countries and at the same time ensure the global standard-setting process fully considers our views.

Charles A. Horstmann, CPA, is managing partner, global independence, for Deloitte Touche Tohmatsu and a member of the IFAC board nominated by the AICPA.

Exploring the Global Marketplace

Succeeding locally involves thinking globally.

BY SUSAN JONES

Walking through the spice markets of Tashkent or down the Champs-Elyses in search of something unique that I can’t find at home, I am struck by two things:

Nothing has changed in hundreds of years. Marco Polo, Christopher Columbus and other explorers couldn’t resist the urge to trade in goods that they could not find at home, such as precious metals, spices and silks.

Everything has changed. The world has become a much smaller place. It is more and more difficult to find things that are unique. I can explore the world’s offerings and gather my trinkets via the Internet without ever leaving my living room.

The globalization of the markets is not limited to trinkets. Multinational corporations of all sizes take advantage of the availability of raw materials and lower labor costs overseas to provide us with a wide array of goods and services at lower cost. Foreign companies in growing numbers routinely raise money in U.S. financial markets, and U.S. investors increasingly seek to diversify through foreign investments. As of April the 48 major world stock exchanges listed 39,152 companies, of which 2,648 were cross-border listings.

The clients we serve, the companies we work for and the students we educate are all affected by the world economy. They will increasingly take advantage of the international opportunities that await them. There is no doubt this globalization of the world’s markets has been enabled by technology, which allows us to reach millions of people around the world in a matter of seconds. That has created new opportunities for businesses and investors and new sources of capital for issuers.

Is this a good thing? My answer is “yes.” We need to embrace the world economy. It is a powerful force for raising living standards around the globe. The free flow of goods, labor and capital lowers costs as it increases investment and provides jobs. Higher living standards around the world would contribute to economic, political and social stability. Whether we like it or not, globalization is happening. The real question is: How can we take advantage of the opportunities?

DISPELLING MYTHS
It is a misconception that international opportunities are available only to large, multinational organizations or that access to large amounts of capital and global reach are necessary to be successful. In fact, smaller and more nimble organizations can do quite well in the international markets. They can act quickly and focus on niche markets—such as specialized computer software or equipment or one-of-a-kind consumer goods—that larger companies may overlook or not be interested in serving. Furthermore, the financing needed is often less than anticipated.

We also need to remember that not all exports are physical goods. In fact, companies in the service industries make up the fastest-growing sector of the global economy, and the United States is the largest exporter of services. CPAs in public practice can advise clients interested in exporting the services they offer—and also can export their own services.

The advantages to exporting are many, including increased profits and the chance to take advantage of idle capacity and certain tax incentives, as well as expand the company’s market. But, of course, there are risks. Small and midsize businesses or practices considering going international need to hire advisers familiar with laws and regulations, trade restrictions, distribution requirements and other business practices and standards in the countries where they will be working. Depending on the country, the business environment can be quite different from our own.

CONVERGENCE OF STANDARDS
Here in the United States, we are accustomed to an infrastructure with national rules that reduce risks—giving us the confidence to enter into transactions—and contribute to a smoothly functioning economy within our borders. The global markets require a similar set of international rules to achieve a smooth functioning of the market economy. These rules should protect things such as physical and intellectual property rights and privacy and ensure trustworthy digital transactions and ethical advertising.

In addition, globalization of the capital markets has increased the need for high-quality financial information. It is widely agreed, for example, that doubts about the reliability of corporate financial statements contributed to the breadth and depth of the financial crises in the 1990s affecting Asia, Latin America and Russia. Businesses, auditors, regulators and investors also would benefit from a common set of accounting standards characterized by consistency, coherence and ease of implementation and understanding.

Progress in this area has been made. In fact, the European Union has passed a regulation that requires listed European companies to comply with international financial reporting standards (IFRSs) in 2005 for their group financial statements. This EU regulation is an important step toward a single set of global accounting standards. For now, there are two major sets of standards being applied globally: U.S. GAAP and IFRSs. Regulators in other countries—Canada, Australia, Hong Kong and India, to name a few—also are working toward adoption of the IFRSs.

What does this mean for the U.S. accounting profession?

In the near term, it may appear that only large, multinational corporations and entities listed on stock exchanges in other countries are affected by IFRSs. However, this is not the case. For example, European parent companies may require their American subsidiaries to adopt international accounting polices. More important, any business that is engaged in transactions with entities that have already adopted IFRSs will need to understand the implications of international accounting. For example, a business in Iowa can access capital in Europe as easily as it can in Chicago. However, if differences in accounting standards create uncertainty about the Iowa business, a German bank will charge the company higher interest rates or origination costs to cover its risk. Variations in accounting standards raise the costs of capital for both U.S. and international companies by creating barriers to market entry.

In the longer term, global accounting will transition to a single platform. This may be several years away. However, in October 2002, FASB and the IASB issued a memorandum of understanding (the Norwalk Agreement) marking their commitment to the convergence of U.S. and international accounting standards. Further, FASB has undertaken several key initiatives to make convergence of U.S. GAAP with the IFRSs possible.

The SEC has affirmed its support for the convergence program and has developed a “roadmap” that highlights the steps needed to eliminate the U.S. GAAP reconciliation requirement for foreign private issuers that use IFRSs. The goal is to eliminate the requirement, possibly as soon as 2007, but in any case by 2009. This means that U.S. investors, even those that limit their investments to the U.S. capital markets, soon will have to understand the implications of international accounting standards.

Along with the accounting standards, international standards for audit and attest services are becoming more and more accepted worldwide. They commonly are used in cross-border operations and financing. As a result, U.S. CPAs, including small firm practitioners, are being asked to perform engagements in accordance with international standards to serve international businesses.

The AICPA’s Auditing Standards Board is aligning its standard-setting process with that of the International Auditing and Assurance Standards Board (IAASB—an independent standard-setting body under the auspices of the International Federation of Accountants). The IAASB mission is to establish high-quality auditing, assurance, quality control and related service standards and to improve the uniformity of practice by professional accountants throughout the world, thereby strengthening public confidence in the global auditing profession and serving the public interest.

PREPARING FOR THE FUTURE
There are opportunities today for U.S. CPAs to increase their knowledge of international accounting and auditing issues in order to advise their clients and the companies they work for as those entities engage in more international business and consider greater international investment. The world is spinning faster and faster. Accountants overseas are becoming experts on the financial reporting standards that will be in effect in the United States before we know it. With continuing improvements in technology, they won’t even have to leave the continent to serve our clients. For us to wait until tomorrow might be just too late.

Susan Jones, CPA, is partner in charge of auditing standards at Grant Thornton LLP. She was previously director, international, at the AICPA.

Take a Seat in the Boardroom

A new role in corporate governance.

BY DENNIS R. BERESFORD

CPAs are beginning to see some familiar faces in corporate boardrooms—including their own. Until recently, most boards were made up largely of CEOs of other organizations. In the past few years though, board members’ backgrounds have become more diverse, and more CPAs are serving as directors, in part because of concern over corporate fraud and other accounting and auditing issues. The Sarbanes-Oxley Act requires all public companies to have an audit committee made up solely of independent directors. All members must be financially literate, and the company must identify at least one “audit committee financial expert” or explain why it doesn’t have one.

This new rule should have resulted in large numbers of companies adding board members with these skills, particularly former audit partners and current or former CFOs. That hasn’t happened yet, but I believe this will change and more such appointments will follow in the next five years. In this article I’ll share my experiences as a corporate board member and explain some of the dos and don’ts for CPAs who want to join the ranks of accountants heading to the boardroom.

A SEAT AT THE TABLE
I joined my first board in the fall of 2001, and I’m now a member of three: Kimberly-Clark Corp., Legg Mason Inc. and MCI Inc. (formerly WorldCom). I am chairman of the audit committees of all three companies and also serve on the governance/nominating committees of two.

Being a board member has been the most interesting experience of my professional career. I get involved with a broad range of business matters and have the opportunity to learn about many new areas. It’s like getting a real-world MBA through on-the-job training. Beyond the interesting nature of the work, there’s also the prestige. And it’s not a bad part-time job; director fees already are generous and are getting better as responsibilities increase.

Quite a few accountants have spoken to me about becoming directors. They are interested but don’t know how to get started. After all, director positions just don’t appear in newspaper help-wanted ads. So how do you go about becoming one? Two of my opportunities came through personal contacts; they were referred to me by a retired senior partner of an accounting firm who was unable to consider them himself. So the message is to keep in touch with the high-profile people you know who already serve on boards and make sure they know you are interested.

My third position came through an executive search firm specializing in board searches that contacted me. In addition to search firms, the AICPA, Financial Executives International, the National Association of Corporate Directors and other similar groups keep registers of interested CPAs. But the best approach is to network with business associates, law firms, investment bankers and other professionals.

Of course, it’s important to remember being a director can be a stressful job if the company gets into trouble. And if things really get bad, you could be sued and lose your entire net worth. But doing your homework and generally taking this responsibility seriously will protect most directors from serious legal exposure.

EXPLORING OPPORTUNITIES
Good news: A company has contacted you to gauge your interest in a board position. Assuming you’ve had some initial interviews and the company has shown a strong interest in having you join its board, the nature and amount of due diligence you undertake has to be a personal judgment. There’s no specific approach that fits all circumstances. However, a few steps you should consider taking are

Meet with the company’s senior officers and as many board members as possible. Are these people you’d feel comfortable working with? Do they seem genuinely interested in having you join the board? Do they have a specific role in mind for you?

Introduce yourself to the accounting firm engagement partner and ask him or her about the company’s accounting practices.

Discuss the directors and officers insurance coverage with the company’s general counsel as well as provisions in the articles of incorporation or bylaws that call for indemnification of directors in appropriate circumstances.

Discuss your possible appointment with your own legal counsel to make sure there are no conflicts with your business or personal life.

And, of course, read everything you can get your hands on about the company. Start with the latest annual report, 10-K, proxy statement and analyst reports. Review management letters and other correspondence from the outside auditors. It’s also a good idea to type the company’s name into your Internet search engine to find out what others are saying and writing about it.

In one instance I had some preliminary discussions about joining a board and met with several current directors. After those meetings, I received feedback from the CEO that some of the directors were concerned I didn’t have broad general management experience as most of them did. They knew I could contribute in my “narrow area” but felt I might not be able to participate effectively in discussing strategy and other big issues facing the company. Hearing that, I decided I might not be considered an equal partner with other directors and withdrew from further consideration.

SEC rules on auditor independence are complicated, so be sure any current or former relationships you have with a company or its independent audit firm will not create an independence problem that disqualifies you from board membership.

HOW CPAs CAN CONTRIBUTE
Shareholders elect directors to serve as their representatives in overseeing a corporation. Thus, all directors have general oversight responsibility. CPAs shouldn’t join a board with the expectation of concentrating only on accounting or auditing matters. With their analytic skills and experience working with a variety of businesses, accountants have much to contribute in the boardroom.

Corporate governance is, of course, a broad topic. While CPAs won’t be expected to be expert in all of those subjects, they can certainly contribute in many areas.

Corporate governance practices involve adherence to regulations or company policies, and CPAs have great experience designing and performing compliance tests.

Accountants have expertise understanding and evaluating the financial effects of complex contracts, a skill often necessary on board compensation committees. Recall the Walt Disney Co. and New York Stock Exchange situations in which some directors claimed they didn’t know how lucrative a senior executive’s employment contract was until it was too late to change it.

An important aspect of governance is ethical behavior, and CPAs have experience complying with their own ethical standards as well as seeing that their clients or companies do the same.

AUDIT COMMITTEE ISSUES
Notwithstanding the need for all directors to be generalists, it would be unusual for a CPA to join a corporate board without also being added to the audit committee. That committee’s principal responsibility is oversight of the company’s financial reporting process. This involves a review of the annual report, 10-K and 10-Q before those documents are finalized. Audit committees also are responsible for hiring and compensating the outside auditing firm.

Carrying out these and other assigned responsibilities involves a careful balancing act. This still is a part-time activity, and audit committee members must resist the temptation to micromanage the finance function, external audit or related activities. At the same time, an effective audit committee can enhance a company’s financial reporting function. CFOs and controllers usually prefer to deal with qualified audit committee members who understand and will support a strong financial reporting activity.

An effective audit committee also can be an important contributor to internal control over financial reporting. PCAOB Auditing Standard no. 2, An Audit of Internal Control Over Financial Reporting Performed in Conjunction With an Audit of Financial Statements, recognizes this and requires external auditors to evaluate the effectiveness of audit committees as part of their audit of internal control under section 404 of Sarbanes-Oxley. Earlier this year the AICPA issued a paper, Management Override of Internal Controls: The Achilles’ Heel of Fraud Prevention—The Audit Committee and Oversight of Financial Reporting, that helps explain how such committees can contribute to internal control compliance.

AUDIT COMMITTEE FINANCIAL EXPERTS
I believe the biggest reason corporations will continue to add accountants to their boards is the Sarbanes-Oxley/SEC requirement that all audit committees have a financial expert. The SEC’s implementing regulations left the qualifications quite broad, and many companies have designated individuals with only a very general understanding of accounting and auditing as their audit committee financial expert.

The expert is supposed to understand GAAP, internal controls and audit committee functions. He or she also should have experience with financial statements and accounting issues generally comparable with those the company in question might face. However, rather than requiring hands-on experience with these matters, the SEC decided others who analyze or evaluate financial statements, or who actively supervise individuals who perform any of these functions, would qualify as well. Most CEOs who actively supervise a CFO would be eligible to be considered financial experts for audit committee purposes. In fact, it appears a large number of companies have settled on such people as their experts.

One critical reason for CPAs to seek these positions is that most CEOs can’t really “speak accounting.” They don’t have specific knowledge of GAAP, SEC accounting regulations, PCAOB auditing standards and similar requirements. Thus, they must depend heavily on the finance executives and outside auditors of the companies on whose boards they sit. One CFO told me she was concerned that audit committee members may not have understood her explanations but she had no way of knowing without embarrassing them.

As the need to designate an audit committee financial expert becomes better understood, I think it is inevitable both the individuals and the companies involved will rethink some of these appointments, creating more opportunities for CPAs. The SEC specifically said it doesn’t intend to inflict more liability on experts, but it is not clear how the courts will interpret the requirement.

STEP FORWARD
Accountants historically have contributed to corporate governance through external audits and internal financial management roles. Now in the 21st century it’s time for more CPAs to enhance their role by taking a seat in the boardroom and offering companies their significant financial expertise in a way that will benefit both the company and its shareholders.

Dennis R. Beresford, CPA, is the Ernst & Young Executive Professor of Accounting at the J.M. Tull School of Accounting at the University of Georgia, Athens, and a former chairman of the Financial Accounting Standards Board.

Accounting Education Changes Course

Communication skills and real-world cases broaden the syllabus.

BY RANDY MYERS

Twenty years ago detractors of accounting education were plentiful among practitioners and academics alike. The heart of their complaint was that university accounting curricula drilled students in rote technical memorization at the expense of the broader business, communication and analytical skills they needed in a real world changing at warp speed. Even recently such critics were easy to find. For example, five years ago in their widely read monograph “Accounting Education: Charting the Course through a Perilous Future,” professors W. Steve Albrecht, CPA, CIA and CFE, and Robert J. Sack, CPA, said accounting education was so “outdated and broken” that failure to embrace reform could be fatal.

Their findings were controversial, but few argued with the thrust of Albrecht and Sack’s report: Educators needed to better align accounting curricula with workplace realities and alter their teaching methods to encourage critical thinking. The AICPA credited the pair with presenting “a compelling case for dramatically restructuring accounting education” and urged educators to “boldly reengineer their curriculums and programs using the roadmap provided by Professors Albrecht and Sack.” Three years later, in “Educating for the Public Trust,” PricewaterhouseCoopers said despite advances there still were important educational gaps, from not teaching university students interpersonal and communication skills to not inspiring a commitment to continuous learning.

Fortunately, there are signs the harsh rap against accounting education may no longer be justified. Not only academics think so (though some say their curriculum and teaching improvements have gone largely unnoticed)—so do the firms hiring recent graduates.

“They’re better educated today than when I came out of college,” says Bill Balhoff, CPA, CFE, audit director at the public accounting firm Postlethwaite & Netterville in Baton Rouge, La. CPA Jim Metzler, AICPA vice-president of small firm interests, agrees: “Young professionals are smarter, more business attuned vs. numbers attuned and good at being able to see the forest and not just the trees.”

Even Albrecht, now an Andersen Alumni professor of accounting at Brigham Young University, Provo, Utah, and associate dean of its school of management, sees some improvement. “It’s not universal across all schools, but a lot of them have done some good things,” he says. More ethics and fraud courses are being taught now, and there is increased attention to writing skills and class presentations. “There is a lot more case-based teaching, and a lot more of what I would call field studies, where students do projects in the real world. And the cases that are studied require more analytical skills.”

Of course there still are schools where professors prefer to rely on lecture-based teaching and textbooks (a content-only approach), but their numbers are dwindling. “We recognize that our students need better development of critical thinking, analytical and communication skills, and we’re working on it,” says CPA Karen Pincus, chair of the accounting department at the University of Arkansas, Little Rock, speaking for the academic community at large. She says colleges don’t always have the freedom to reengineer their curricula, however. In zealously supporting technical knowledge “a lot of state licensing agencies specify courses students should take. While that might be good for the curriculum at that moment, it quickly becomes cast in stone” and a roadblock to needed change.

CPA Tom Schaeffer, professor and chair of the department of accountancy at the University of Notre Dame’s Mendoza College of Business, Notre Dame, Ind., says many outside observers, even academics who’ve studied the issue, miss some of the real change that has taken place if they merely look at course titles or individual programs. Professor James Benjamin, CPA, head of the accounting department at Texas A&M University, College Station, agrees that many college-course titles have remained static while the teaching approach and content have changed for the better. “In my last six and a half years here at Notre Dame,” says Schaeffer, “the set of expanded pedagogies is really remarkable—going from a content-driven to a skill-focused approach, and from passive learning to active learning. We get into all types of things: teamwork, case studies, research-skills development and presentations. A lot of progress has been made, and I don’t think it’s unique to Notre Dame.”

CPA Jerry Trapnell, executive vice-president and chief accreditation officer of the Association to Advance Collegiate Schools of Business International, predicts that in the years ahead accounting curricula will continue to become less rules-obsessed and to encourage more critical and analytical thinking. In short, he argues, professors will spend less time drilling students in accounting knowledge and more time teaching them how to apply it. He expects universities to offer more ethics and forensic-accounting courses. He also foresees an uptick in the number of students specializing in the attest function—a reflection, no doubt, of the increased emphasis placed on that art by the Sarbanes-Oxley Act, which mandates that outside auditors attest to the quality and effectiveness of the internal controls of public companies.

CPA Belverd Needles Jr., professor of accountancy and MIS at DePaul University in Chicago, says students also can expect their schools to make greater use of technology to transform the teaching experience. Over the Internet he taught a course in managerial accounting simultaneously to students in Chicago and in Prague, where he was. He and the DePaul students used e-mail, computer chat rooms, blackboard software, spreadsheets, PowerPoint presentations and videotaped lectures that were streamed back to the United States via the Web—and U.S. students earned grades as good as or higher than those of their Prague counterparts.

Still, Albrecht warns the road may not be as smooth as educators hope. Electronic tools may make education widely accessible, but distance learning’s reliance on independent reading and videotaped lectures harkens back to a content- rather than skills-based approach. Meanwhile, Albrecht frets, the growing importance of MBA program rankings by the media may prompt some schools to pour money into them at the expense of accounting programs at a time when funding already is problematic.

“There are schools, especially state schools but even some private ones, that are really cutting costs, so that a bigger and bigger percentage of the teaching at the undergraduate level is being done by part-timers and untenured faculty. I perceive that as a threat to the quality of the education they can offer,” Albrecht says. He also worries that fewer university professors are entering the CPA profession before turning to teaching, which will compromise their ability to infuse their classrooms with important real-world experience.

The result, he cautions, may be a widening of the divide between the top accounting schools and those that lack the financial resources to attract the best professors and fund the most innovative curricula. Already, he says, the Big Four accounting firms flood the campuses of the top accounting programs with recruiters while bypassing many of those with lesser reputations. “At selected schools in this country, the firms and their recruiters start tracking students from the day they’re admitted,” he notes. “They go to the campuses and hold ski days, sponsor golf tournaments, 5K races—anything to connect with the students. Those kids are going to have great internships and great jobs, but it’s just not going to happen at a lot of schools.”

Of course, great schools always have offered great job prospects. None of this is to say that accounting graduates elsewhere won’t be able to find work. Indeed, demand for accountants in the post-Sarbanes-Oxley world is strong (see “Accounting Enrollments Swing Higher as Job Demand Soars,” below). If current trends in accounting education continue, tomorrow’s graduates should be well-equipped for the challenges they’ll face in the working world.

Randy Myers is a freelance financial writer who lives in Dover, Pa.