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Ready for non-accounting accounting firms?

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There’s a massive shake-up in the way accountants will be trained going forward. Having accounting-only skills will not be sufficient. A range of other skills will henceforth be recognised for those planning to enter the accounting profession.

Here’s the view from the SA Institute of Business Accountants (Saiba): In November 2018 the world’s leading professional accountancy body, the American Institute for Certified Public Accountants (AICPA) announced that they are reviewing the way they license accountants.

Similarly, the Big 4 have changed the way they recruit new trainees. According to the Financial Times, having critical thinking skills and being tech-savvy (and a self-starter) is what counts more than formal qualifications.  

In South Africa we still follow a very rigid method to qualify accountants that is not suitable to the Fourth Industrial Revolution (4IR). Technological disruptions in the form of data analytics, robotics and AI will make the traditional role of accountants redundant meaning that we should stop educating our University students to think like traditional accountants. 

Much of the recent financial reporting scandals that has plagued our corporates and SOEs can be attributed to accountants being ill equipped to understand the complex business model and hence being unable to design and implement appropriate anti-corruption measures. 

Technology, analytical expertise, emotional intelligence, logic, and business management competencies are becoming more important components in comparison to auditing and financial reporting. Currently we deliver technocrats with very little understanding of humanities, management or thinking skills. Some of these skills may best be sourced from non-accountants.

The question then is: are we ready for non-accountant accountants?
In line with the developments in the US we are asking for a “degree of flexibility” in the education requirements of future accountants. This will mean that we will have to reduce the amount of coverage we provide to traditional accounting subjects in undergraduate studies and replacing this with 4IR competencies. 

This is what we propose:

  1. Universities and professional bodies need an urgent colloquium to identify and unify the education criteria required of future accountants.
  2. Universities should drop the current two-tier system of developing a BCom for Chartered Accountants and a BCom for other accountants. 
  3. Universities should move away from attempting to develop specialists in accounting and auditing within a limited four year period. This model is clearly not delivering learners that are equipped to deal with the 4th Industrial Revolution.  
  4. The one core commerce qualification we envision could be loosely structured as follows: 
    1. Year one and two: Humanities, Management, and Technology.
    2. Year three and four: Accountancy subjects. 
    3. Award first degree
    4. Year five and six: Workplace experience
    5. Award a general accounting designation
    6. Year seven and eight: Specialize in a selected area of accountancy such as audit, financial reporting, tax, management accounting, and law whilst obtaining workplace experience.
    7. Award a post graduate diploma.
    8. Award of a specialist designation by a professional body.  

Saiba will be engaging with the Department of Education, Fasset (Finance and Accounting Services Sector Education and Training Authority), the SA Qualifications Authority (SAQA) and the Departments of Finance and Trade and Industry to ensure SA adopts a common core qualification for all accountants in the country.  

Here’s what is happening in the US

By Donny C. Shimamoto, CPA Trendlines: I’ve been watching NASBA and the AICPA communicate the need for a change to the requirements to be CPA. While at a surface level their rationale makes sense, when I think further about the bigger picture of the accounting profession, I’m not sure I agree with their direction. I do however think that the accounting profession needs to be more cohesive and inclusive, and perhaps that is the better solution to pursue, rather enabling more non-accountants to be CPAs.

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One of the major premises of their rationale is that CPA firms are hiring an increasing number of non-accounting graduates so we need to enable more of these people to be CPAs. Well, just because they work at a CPA firm, does someone have to be a CPA? Or just because they help with a tax return audit, or consulting project, do they need to be a CPA?

Take a look at the medical profession. Not everyone that works at a hospital or clinic is a doctor. Yet the technicians, nurses, physician assistants, pharmacists, and many others involved in patient care are considered part of the medical profession. All of these other roles support the work of the doctor and the provision of care to patients, but in the end, it’s the doctor that makes the final diagnoses and writes the prescription for care.

Wouldn’t that be analogous to people from other disciplines being a part of a CPA firm and providing services to the firm’s clients? In the end, though, it’s the CPA who renders the final opinion (audit), finalizes the financial plan (tax), or delivers the recommendation (consulting/advisory). It’s the CPA who synthesizes the insights from the information provided by the other disciplines and works with the client to validate the final outcome or direction.

If we look at other professions like engineering, architecture, education, and law, we see the same parallels. None of these professions are moving to enable those that support the work of the core professional to be able to be licensed as equivalent as the professional themselves. So why would we do that in accounting?

The CPA-Centric Mindset in Public Accounting May the Problem

As I tried to figure out why we would want to enable more non-accountants to be accountants, I realized that this is really only an issue for the public accounting industry (not the accounting profession as a whole). The public accounting industry is the only aspect of our profession whose work and organizational structure is directly impacted by CPA licensure.

So I had to ask myself, what is it about the public accounting industry that would make them want to enable more non-CPAs to be CPAs? The only answer I could come up with is the CPA-centric mindset in public accounting.

I’m going to be a bit heretical and call out the elephant in the room: many CPAs in public accounting look down upon those who are not CPAs. In fact, I might even also be able to say that CPA partners in accounting firms look down on other CPAs who are not partners. Yes, I know this is a broad generalization and it is not true in every firm, but I’ve definitely seen this mentality myself as well as had others who have left public accounting share stories about this superior mentality issue. If this is indeed a core issue, then the fix would be to confront the egos of CPA firm partners.

Instead, all partners and employees of a CPA firm need to be treated with professional respect regardless of whether they aspire to be a partner or whether they decide they would rather be a career senior. This would also solve one of the other issues in public accounting: the up-or-out mentality. (But that’s an entirely different topic for another article.)

Diluting the CPA Could Weaken the Integrity of the CPA Firm

Another potential issue with allowing more non-accountants to be CPAs is that it could result in a weakening of the integrity of the CPA firm itself. As public servants, we must remain vigilant to ensure that our audit options are always independent and that we remain unbiased in the recommendations that we make to our clients. To help ensure that the firm always took this into consideration, the requirement that CPAs have majority control of public accounting firms was written into the Uniform Accountancy Act, which has been generally adopted by all of U.S. states and territories.

If we allow more non-accountants to become CPAs, these non-accountants would be included in the “CPA” count for ownership. The net effect of which would be that a majority of firm owners may not be true CPAs. I’m not saying that these others are necessarily less ethical than CPAs, but will they hold themselves to the same high standards that we do in ensuring the integrity of our profession?

As CPAs we are invested in the accounting profession, the chances of us leaving it are low since it is the core of our skillset. We are less likely to do something that would put our reputation or our firm’s reputation at risk. However, it’s much easier for a professional from another field to simply decide they are going to leave the firm and go back to their field where they won’t be constrained by independence and could take advantage of situations where they could make more money.

Let’s Make Public Accounting More Inclusive

Instead of diluting the CPA, let’s instead work to make public accounting more inclusive. And by inclusive, I’m not referring to gender, sexual orientation, or ethnicity—I’m talking about professional expertise and respect. As CPAs, we need to recognize that our work is moving beyond just finance and that we need to collaborate more with other professionals to deliver the best solutions for our clients, or to render a valid audit opinion.

By recognizing that we need the help of other professionals to best serve our clients, and by treating them as equals that are an integral part of the firm, we can both increase the attractiveness of our firms as a place to work, as well as increase our ability to retain non-CPA professionals in the future. This means that our human resource functions need to learn to create career paths for non-accountants, and that compensation plans need to be revisited to ensure that these professionals have the opportunity to earn as much (if not more) than a partner themselves. This may also mean revisiting traditional hierarchies and authority structures in a firm.

I recognize that this is not an easy change, and there are a lot of barriers to this change in partnership agreements, retirement compensation, and a lot of other traditional firm structures. However, if you’re really looking at the future relevance and sustainability of the firm, you need to figure out how to be more inclusive without diluting the integrity of the CPA itself.