Profession - 1 Is Accounting a Profession? What difference does it make?
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Transcript of Profession - 1 Is Accounting a Profession? What difference does it make?
Profession - 1
Is Accounting a Profession?
What difference does it make?
Profession - 2
Examples of “Professions”
Prepare a list of fields (other than
accounting) which you consider “professions”
Profession - 3
Definitions of a “Profession”
Profess– To declare or admit openly– To declare in words or APPEARANCE
Profession– An act of openly declaring or publicly
claiming a belief, faith, or opinion (RELIGIOUS VOWS)
Profession - 4
Characteristics of a “Profession”
What essential features identify a field as a “profession?”
Profession - 5
What is a “Profession”?
Vocation requiring advanced training and
generally recognized by universities and colleges as requiring special training of an advanced character leading to degrees distinct from the usual degrees in arts and sciences
requiring principally mental rather than manual or artistic labor and skill for its successful prosecution by reference to a common body of knowledge
recognizing the obligation of public service and of the public interest
having a code of ethics generally accepted as binding upon its members
Kohler’s Dictionary for Accountants (6th ed. ), Prentice-Hall, 1983.
Profession - 6
CHARACTERISTICS OF APROFESSION
ESSENTIAL SOCIAL FUNCTION
SPECIALIZED BODY OF KNOWLEDGE
REQUIREMENTS FOR ADMISSION
SELF-REGULATED
ADAPTABILITY
Profession - 7
ESSENTIAL SOCIAL FUNCTION
Recognition by society– Presence of problems – Grant of monopoly– Image or prestige
Recognition by employers
Recognition by members– Individuality– Acceptance of responsibilities
Profession - 8
SPECIALIZED BODY OF KNOWLEDGE
Formal education– Long and rigorous preparation
Conceptual rather than practical– Mental more than physical
Unique language
Profession - 9
REQUIREMENTS FOR ADMISSION
Demonstration of technical competence– Education
Hurdle for monopoly rights Usually requires examination and
experience Licensing often required
Profession - 10
SELF-REGULATED
Code of Ethics– Character– Ability to make difficult decisions
Concern for “interests of society”– Willingness to accept responsibility
Procedures for discipline
Ethics & Accounting There is a ‘structural problem’ in modern auditing, in that
auditors are not paid by those whose interests they are supposed to represent
Accountancy is a profession that arose so recently (approximately years ago) that it lacks the history, tradition, and self-understanding which corresponding to a traditional profession
Accountants must take care to state the truth in a way that is adequate to particular circumstances – and thus they need an inner orientation to the truth
Accountants must serve as ‘watchdogs’ for the marketplace, and thus they must be especially able to resist greed and greediness
CHEFFERS – p. 23
Profession - 11
Profession - 12
ADAPTABILITY
Continuing professional education
Awareness of changing social conditions
Significance of broad “liberal education”– Breadth
Profession - 13
ADAPTABILITY
Profession - 14
U.S. Accounting ProfessionPrior to 1930
American Assoc. of Public Accountants (1887) – becomes AICPA
No regular audits
1913 – 16th Amendment (Income tax)– Demand for complete accounting records– Acceptance of depreciation
Early consulting = management accounting and information systems
Profession - 15
Great depression
Formation of the SEC– Regular audits– Standardized audit report
Committee on Accounting Procedure (AICPA)– Establishes accounting standards– Cooperation with the SEC
U.S. Accounting Profession1930’s
Profession - 16
U.S. Accounting Profession1940 to 1970
Establishment of GAAS (1947)
Uniform CPA Exam
CPAs become public figures
Development of computer information and MAS
Formation of APB (1959)– Standard setting body– Addition of permanent research staff– Dominated by CPAs
Influence of partners of major CPA firms– Speak out on accounting standards– Possess “tenure” and support from firms
Profession - 17U.S. Accounting Profession
1940 to 1970Continued
SEC overrules APB on Investment credit (1963)
Accounting scandals and lawsuits– Webtec, Nat’l Student Marketing, etc.– Firms begin to adopt “defensive posture”
Continued criticism of APB– “Brush-fire” approach– Highly technical opinions– Debate over pooling vs. purchase
• APB 16 & 17
Profession - 18
U.S. Accounting Profession1970 to 1980
Further accounting scandals (Stirling Homex, Equity Funding, etc.)
– Moss and Metcalf Congressional Committees– Issues of auditor responsibilities– Firms begin to help clients prepare responses to
FASB proposals
Formation of Wheat Committee
Establishment of FASB (1973)– Independent body to establish accounting standards
• Full-time, highly compensated, no CPA requirement– FAF retains influence (later reduced)– Formal recognition by SEC
SEC proactive on financial reporting issues– Chief Accountant – “Sandy Burton”– Agency assumes lead on issues of accounting
measurement and disclosures (“inflation reporting”)
Profession - 19U.S. Accounting Profession
1970 to 1980
AICPA reforms (1977-1978)– SEC Practice Section
Peer reviews
– Private Companies Practice Section– Public Oversight Board
Dept. of Justice and FTC regulations (1979)– AICPA must eliminate rules against direct,
uninvited solicitation, and advertising– Allow receipt of commissions from nonaudit
clients
Beginnings of criticism of MAS work for audit clients
Profession - 20
U.S. Accounting Profession1980 to Today
“Professional” accounting firms become business firms– Emphasis on growth and broad “scope of
services”– Acquisition and retention of audit clients is key
(price competition is keen)• Withdrawal of accounting firms from dialogue on
accounting principles• Perception that audit partners are less willing to
“challenge” a client’s aggressive accounting practices
– “Low-performing” partners are removed– No longer identify themselves as public
accountants or auditors– Revenues from non-audit services grow to over
50% by 1999
Profession - 21
U.S. Accounting Profession1980 to Today
Internationalization and merger of major accounting firms
Significant litigation against accounting firms
Crisis in S&L and banking industry– Congressional committee hearings – John D. Dingell
Other business/auditing failures (ESM Securities, Wedtech, ZZZZ Best)
Profession - 22
U.S. Accounting Profession1980 to 2000
Assaults on independence of FASB
Aggressive accounting practices – Pressure for continued rapid growth in
earnings– Significance of “hitting” analysts
forecasts– Dot Com market of 1990’s– “Opinion shopping” by CEOs & CFO’s
Significant concerns about auditors’ independence because of “scope of services”
Profession - 23
U.S. Accounting Profession2000 to Today
Major stock market volatility
Significant number of business frauds and related accounting issues– Enron, WorldCom, Global Crossing, etc.– Elimination of Arthur Andersen– MaDoff
Sarbanes-Oxley
IFRS
Profession - 24
Professional Reflections
“Reflections on a Half-Century asAn Accounting Professional”
Frank C. Minter, CPAVP of Trustees
Financial Accounting Foundation
Strategic FinanceDecember 2007
Profession - 25
What Went Wrong?Frank C. Minter
1980’s– Accounting frauds (ZZZZ Best, Crazy
Eddie, etc.)– Treadway Commission
• COSO Standards on internal control• Emphasis on “tone at the top”
Profession - 26
What Went Wrong?Frank C. Minter
1990’s– SEC Chairman, Arthur Levitt criticized
accounting profession on various accounting practices
– “Cookie jar reserves, Big Bath Accounting, Improper revenue recognition”
Profession - 27
What Went Wrong?Frank C. Minter
2000 – 2002– Major corporate scandels– Enron, World Com, Global Crossing,
etc.– Fall of Arthur Andersen– Sarbanes-Oxley Act
• Federal regulation of the profession
Profession - 28
Cause of Latest Failures Frank C. Minter
Vast increase in number of stock options– Esp. due to lack of “expensing” until recently
Public accounting firms emphasized consulting & total revenue growth – auditing became a “commodity”
SEC made lots of noise but took little action
Profession - 29
Cause of Latest Failures Frank C. Minter
“Corporate greed” led to emphasis on growth through inflated stock values and acquisitions accounted for as “pooling of interests”
Investment community’s short-term focus on the next quarter’s earnings– Earning expectations became KING
Profession - 30
Is Accounting a Profession?
Yes or No Is your answer different for
specialties within accounting– Financial reporting
• Profit oriented entities• Not-for-Profit entities
– Management accounting– Auditing– Tax services– Consulting