During SCACPA’s CPA Summit last November, Ron Baker, an influential and nationally recognized leader in the public accounting profession, suggested that competition for auditing services from non-CPA, non-professional firms may be not too far in the future. If or when that happens, he predicted the disruption within our profession might be similar to that being experienced by the taxi cab industry because of UBER.
Barry Melancon, president and CEO of the AICPA, believes the accounting profession must evolve into something else to be successful in the future. He warns: “If you think your competition is the CPA firm down the street, you’re missing the real threats… competition is no longer defined by the traditional ground rules.” (Accounting Today, December 8, 2015)
David Bergstein, a strategic account manager with the Accountant and Advisory Group at Intuit, believes it is time to rebrand and reposition the CPA because new business models are already doing what CPAs typically did in the past, minus financial statement preparation and attestation. Looking at the messaging of their web sites, he observes public accounting firms of all sizes leading with advisory services rather than emphasizing their status as CPAs. He sees marketing strategy being focused on helping clients become more successful rather than on the profession’s higher calling to serve the public interest. (Accounting Today, December 27, 2015).
Baker, Melancon and Bergstein are people in the know; and, they see the future of the accounting profession much different from its past. Everything changes; it always has; it always will. Bob Dylan’s lyrics to The Times They Are a-Changin' are as apropos today as they were fifty years ago:
Come gather ’round people Wherever you roam And admit that the waters Around you have grown And accept it that soon You’ll be drenched to the bone If your time to you is worth savin’ Then you better start swimmin’ or you’ll sink like a stone For the times they are a-changin’
Melancon says even though the profession is changing and we need to change, we don’t have to throw away the qualities that have made us successful in the past. The qualities he is talking about are: our specialized skills and knowledge, our adherence to a very high-minded Code of Professional Conduct, and most importantly our commitment to serving the public interest. Whether we remain a profession or de-professionalize depends upon how we uphold those qualities.
As change occurs, it cannot be given short shrift that a public accountant’s primary role is to serve the public interest. We must own this fundamental principle and exemplify it across all service lines. To do that, we must be clear about what it means to serve the public interest. The United States Supreme Court described it in United States v. Arthur Young & Co. as follows:
“By certifying the public reports that collectively depict a corporation’s financial status, the independent auditor assumes a public responsibility transcending any employment relationship with the client. The independent public accountant performing this special function owes ultimate allegiance to the corporation's creditors and stockholders, as well as to the investing public. This ‘public watchdog’ function demands that the accountant maintain total independence from the client at all times and requires complete fidelity to the public trust.”
Although the public watchdog tag may be an overstatement as far as being descriptive of any legal duty owed the public, it does express the public’s expectations for public accountants. We should not complain that those expectations are too high because it is our own Code that creates them, even requiring service “beyond the requirements of laws and regulations.”
Most public accountants understand and honor the primacy of the public interest when performing attestation services. But some do not realize the same primacy applies with respect to non-attest services. For example, the Code of Professional Conduct requires public accountants to resolve a conflict between a client’s interest and the public interest in favor of the public interest, regardless of the type of service being performed. That means we really are not free to advise clients to take actions not in the public interest just because there is no rule or law preventing such action or because a rule or law is unclear. Those who do not resolve conflicts in favor of the public interest are either misinformed about the Code or only want to rent the reputation of those who have bought-into and own the principle.
As is true of all professions, membership in the accounting profession is composed of owners and renters. The owners have a long-term perspective and the renters have a shorter-term perspective. The owners are guided by the old saying of the wise that “a good name is rather to be chosen than great riches…” Proverbs 22:1. In contrast, renters are susceptible to exploiting the profession’s reputation for high-principled conduct to achieve short-term profits. Renters are much less concerned about residual values than are owners. When we consider the profession’s most embarrassing public failures, it is easy to see conflicted renters at every turn and owners in the background who were unable or unwilling to intercede for the sake of the profession, let alone the public interest.
As we change, as competitive and demographic pressures result in more public accounting firm combinations, and as the quest for greater profits intensifies, we are likely to see more renters in the strategic management positions of our firms. Successful firm management may become more defined by how much this year’s revenues, new client additions, and profits exceeded last year’s rather than how well the firm has served the public interest. Simply put, firms may begin to measure success based more on efficiency than effectiveness.
Noam Scheiber in his January 10, 2016 New York Times article “Defying the Medical Machine” describes how that sort of business model is playing out in the medical profession. He reports that hospitalists (doctors who supervise patient care inside of hospitals), can find themselves in an emotional debate in which a hospital’s imperative to increase efficiency (see more patients and increase revenues) is often at odds with the deference traditionally accorded to doctors. Scheiber describes how some hospitalists have become demoralized over the loss, to some extent, of their ability to exercise their professional judgment. He quotes one hospitalist as saying: “we’ve trained to be leaders, but they [hospital administrators] treat us like assembly line workers.” It is not that administrative procedures and controls are unprofessional; it is that they sometimes do exact a toll on personal professional autonomy; i.e. a toll on the capacity to make informed un-coerced decisions without subordinating one’s professional judgment to others, including other professionals and non-professionals.
Professor T.J. Fogarty, one the most prolific authors of scholarly research in accounting, has written that: “as personal, professional autonomy is diminished, the distinctiveness of the profession declines, perhaps to the point when the transcendent obligation of being a moral actor seems quaint and superfluous.” Does service in the public interest seem quaint and superfluous to you?
Is the public accounting profession on the road toward de-professionalization? Although we tend to believe that our behavior is and always will be acceptable and compliant with the Code of Professional Conduct, it is more likely that we really don’t know how we will actually behave as the profession evolves.
In The Lucifer Effect (Random House 2007), Philip Zimbardo explains “how situational forces and group dynamics can work in concert to make monsters out of decent men and women.” He observes that “most of us know ourselves only from our limited experiences in familiar situations that involve rules, laws, policies, and pressures that constrain us. We go to school, to work, on vacation, to parties; we pay the bills and the taxes, day in and day out.” Zimbardo asks the question we might ask ourselves in the face of all the changes being predicted by the experts: “what happens when we are exposed to totally new and unfamiliar settings where our habits don’t suffice?” His answer, based on the “Stanford Prison Experiment” which he conducted at Stanford University in August 1971, is that situational circumstances and systemic factors can easily combine to bring out the worst in each of us.
If you intend to remain an owner throughout your career, you may want to double-down on your commitment to serve the public interest because it is likely to get tougher. It is going to take some courage because most clients prefer to pay us for looking after their interests first rather than the public interest (e.g. think big corporate tax inversions). Most clients want us to follow the rules but interpret and apply them in their favor rather than as intended (and we do know the difference). Beware that putting the public interest first may cause you to be perceived as quaint and superfluous by your peers who have chosen to be renters. Know this though: the future of the profession as a profession depends on you demonstrating your values, principles and moral reasoning with the renters before they bring out the worst in all of us.George DuRant is a member of DuRant, Schraibman & Lindsay, LLC in Columbia, South Carolina. George is a past president of the Central Chapter and has been a member of SCACPA and AICPA since 1975. He currently serves as a member of the AICPA’s Joint Trial Board.