Home Accounting and Auditing Why accounting education needs a complete overhaul

Why accounting education needs a complete overhaul

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There’s been a lot of discussion at the SA Institute of Business Accountants (Saiba) about the future of accounting.

Says Saiba CEO Nicolaas van Wyk: “If there’s anything we can say with confidence it’s that the accountant of the future will be a completely different animal, skilled in technology and able to use it to the maximum. The accountant of the future will be more analyst than bookkeeper.”

Computers are taking over the grunt work, posting entries to the correct journals, and even lunch receipts (through apps like Receipt Bank) can be photographed on your smart phone and, bingo, posted to the entertainment journal. There’s less and less manual intervention in recording transactions and building the month end trial balance.

The real skill comes in setting up your business accounting system. After that it becomes routine. For a glimpse into the future accounting practice, look at the article we wrote last week on Wingman. That gives you a sense of where the accounting practice of the future is headed.

Van Wyk adds that one of the problems the accounting profession faces is the need to standardise the way accounts are reported, as defined in Generally Accepted Accounting Procedures (GAAP) and now IFRS (International Financial Reporting Standards).

Professor Joel Litman has built a system that reconstructs the accounts for 32,000 stocks around the world to show what investors are really interested in: the real worth of a company. He strips out more than 100 distortions that are built into published accounts. For example, why should a great brand be depreciated on a balance sheet when it is actually growing in value and adding to sales? And, as we saw in the Tongaat debacle, why count revenue that hasn’t been banked yet? In Tongaat’s case, land sales were counted as revenue before they were due, and inventory appears to have been misreported.

Jason Ackerman at the CPA Journal recently wrote an article on why the accounting profession needs a complete overhaul.

The curriculum of most universities and accounting colleges is focused on “basic accounting (i.e., debits and credits, T-charts) and too heavily focused on cost accounting, as if it’s still 1960….”

Almost no technology is taught, neither modern accounting systems such as Quickbooks Online, Xero, Intaact and Netsuite, nor modern tax software.

The current accounting curriculum does not prepare accountants for the world they are entering.

Ackerman recommends that colleges need to stop teaching with ledger sheets and pen and paper. This is all part of ancient history.

Accountants need to become consultants, interpreting data, finding out why things don’t balance, and focusing especially on where fraud is likely to be found.

More than 20 years ago the US Institute of Certified Fraud Examiners released its “Report to the Nation” and found nearly half of accounting fraud involved manipulations of inventory. Inflating inventory benefits a company that is looking to boost asset values as it approaches the bank for a loan. It can also boosts earnings. One of the most common ways to create fictitious revenues is to inflate sales that didn’t occur, with a credit to sales ledger and a corresponding debit to accounts receivable. Auditors can easily be fooled where this is backed up with fake invoices, and even a stock count can miss the fraud when the inventory is shipped between locations to make it seem fatter than it is.

Ackerman says professors need to teach to where the accounting industry is now and where it’s transitioning to, which is consulting and advising. “There should be many more tax classes and many more CFO/controllership classes. Cost accounting and government accounting should be made electives; these classes might be important to some, but most of the students are likely never going to see or do this type of work.”

The accountants of tomorrow are going to have to become trusted advisors to companies, illuminating threats as much as opportunities. They will be required to delve into the minutiae of company accounts to unearth the nuggets of gold that lie buried within.

Accounts as they are currently presented have limitations. Bankers looking at lending to a company do their own account reconstructions, noting the strength of cash flows and the likelihood of a loan being repaid. What is left for company owners once a debt is serviced is of lesser concern to the men in suits. Investment analysts, too, reconstruct publish accounts looking for hidden value or value destruction. Earnings before interest, tax, depreciation and amortisation (Ebitda) was supposed to address this, but even this has limitations. The cash flow statement likewise offers an obscured view of financial health since it does not reflect non-cash items (which are reflected in the income statement), nor does it provide an insight into company solvency or profitability.

Different users of financial statements have different needs. The accountant of the future will have to fulfill these.

The accounting curriculum will have to reflect these needs. Unless the profession embraces technology, it faces the danger of irrelevance. Adriaan Basson of Wingman points out that having an accounting background in the new type of firm he has built can be a disadvantage. Lawyers, tech specialists and consultants are the accountants of the future.

Far more emphasis will be placed in Continuous Professional Development, webinars and regulatory updates and tax workshops of the kind offered by Saiba. The profession is moving at such a pace that what was relevant last year has been superseded by new information and regulation.

That’s not to mention the licences being offered by Saiba for immigration specialists, business rescue practitioners, independent reviews and accounting officer engagements at schools, churches, farms and the like. This is where the profession is headed. Those who blink could find themselves consigned to irrelevance.