By Paul B. Miller and Paul R. Bahnson

Last October, we were stunned to find nine different items in a single issue of Accounting Today about major controversies involving the American Institute of CPAs. Even six months ago, a siege mentality existed among the officers and others occupying leadership positions. Since then, Enron has certainly added to the pressure.

Although the origins of this rampant dissatisfaction with the institute predate the selection of Barry Melancon as its chief executive officer, it certainly has grown into crisis proportions on his watch. While we’re not attributing all the problems directly to him, the fact remains that they have escalated during his tenure and he must assume responsibility for them.

As evidence, here are 12 reasons that the institute needs a new tone at the top.

1. Over the last few decades, the ability of traditional audits to add value has steadily declined because of new competitive pressures wrought by ethics rules changes and the AICPA’s leadership’s unrelenting resistance to significant reform of generally accepted accounting principles to get away from irrelevant cost-based information.

As CPAs struggled against lost marketability, the institute’s managers have responded by encouraging members to face facts and develop new specialties, including the evaluation of elder care facilities.

2. In 1996, Securities and Exchange Commission chairman Arthur Levitt stepped into a conflict between the FEI and the Financial Accounting Foundation trustees and called on the heads of the largest accounting firms and the AICPA to protect the Financial Accounting Standards Board’s political independence.

When directly asked by Levitt, Melancon refused to act, thereby cooling the institute’s relationship with both the SEC and FASB while missing the chance to participate in shaping Levitt’s effort.

3. The AICPA implemented a 150-hour education requirement for membership and pushed states to adopt it. Almost all did, despite signs of plummeting accounting enrollments, stagnant demand for master’s degrees and declining competencies of decreasing numbers of CPA candidates.

Many, if not most, academic accountants now acknowledge the requirement as the leading cause for these declines and openly call it a mistake. The AICPA’s management responded by creating a multimedia CD-ROM and encouraging state societies to recruit high school students.

Maybe these younger students will feel differently about five-year accounting degree programs than those who are already in college, but we don’t think so. Furthermore, whoever hatched this strategy must not realize that 80 percent to 90 percent of incoming freshmen change their major before they graduate.

4. In 1998, the AICPA’s managers resisted the SEC’s efforts to strengthen auditors’ independence rules. When the Independence Standards Board was created, its compromise composition included four public representatives, three large firm managers and Melancon.

The buzz said that the equal-sized voting blocs ensured that the board would accomplish nothing of substance. The ISB was dissolved without fanfare or remorse last summer, after having accomplished, well, nothing of substance.

5. A couple years ago, the SEC announced that PricewaterhouseCoopers had serious independence problems. An

investigation surveyed 100 percent of PwC personnel and

uncovered thousands of violations. Even though the SEC offered amnesty, the individuals were not exempt from actions by others.

To our knowledge, the AICPA did nothing to initiate proceedings against the firm or the individuals, or affiliates with other national firms. So much for aggressive ethics enforcement as a distinctive hallmark of our formerly esteemed profession.

6. As everybody now knows, Levitt and chief accountant Lynn Turner announced a rule-making effort in 2000 to limit the non-audit services auditors could provide to their clients. The issue divided the profession, with two large firms supporting the measure and three against it.

The four public ISB members and many others testified in support of the limits. The AICPA’s managers condemned the proposal with truculent and dismissive language while presumptively claiming (falsely) to speak for all members.

Now, Andersen’s $27 million in non-audit fees from Enron makes the AICPA’s opposition look totally duplicitous.

7. The AICPA’s managers tried to develop a new credential to ostensibly create opportunities for CPAs in other markets. With great fanfare, the management proposed calling certificate holders "cognitors" and insolently brushed aside huge criticism while spending big bucks.

Even after the name flamed out, the idea continued consuming those in AICPA leadership positions, despite many questions and complaints - and despite withdrawn support from prominent organizations.

Embarrassingly, it was rejected by 63 percent of the members who voted, despite an

expensive and biased promotional effort.

8. In the midst of the Internet bubble, the AICPA management created a not-quite separate entity called CPA2Biz to (supposedly) help members access services and products. The institute bought virtually all the stock, except for a still-unpublished number that was issued to managers, especially Melancon.

A huge controversy erupted, characterized by name-calling and condescending responses to members’ questions. He subsequently tried to squelch the flap by impulsively promising to give his shares away. While doing so may soothe his conscience, it proves to the world that he knew he was wrong all along.

9. CPA2Biz is now open for business, publishing full-page ads (and losing money) while the membership stews and, in one case, sues. Specifically, BDO Seidman’s lawsuit accused the AICPA of illegally suppressing competition.

The institute’s management responded with this arrogant brush-off: "We believe that this lawsuit has no merit and intend to defend it vigorously." These words sicken us. Can any sign of trouble be more obvious than a lawsuit brought by the members that you are supposed to serve?

10. These issues have now divided the previously solid relationships between the institute and state societies. The organizations’ previous interdependence is crumbling, especially the important link between the AICPA and the New York society. Other state groups are confused and not sure what to do.

11. The latest controversy concerns the self-administered dissolution of the Public Oversight Board following SEC chair Harvey Pitt’s proposal to supplant it with a new group. The POB was the most prestigious jewel in the self-regulation crown, yet the institute management could not protect its status and mission against even a hasty regulatory


This situation shows how the managers’ are out of the SEC’s loop. Apparently, past posturing has used up so much of their political capital that they have become totally ineffective proponents for the profession.

12. Still waiting to be discovered and then displayed in the press is the long history of donations by the AICPA political action committee to members of Congress, especially in the effort to minimize auditors’ liability in cases like Enron’s. Institute management recently embarrassed the rest of us by descending on Washington like locusts to lobby against reforms that are clearly needed and demanded by the public in Enron’s wake.

Despite this long list of failings, the AICPA’s managers continue to act like they are in total control with an unquestioned mandate. Although these controversies prove that a major change is needed, nothing will happen until those who occupy AICPA leadership positions find other work more suited to their


As evidenced by the complaints, criticism, litigation and utter failures, surely a majority of the institute now believes that the current managers have totally lost sight of who should be serving whom. Therefore, keeping the status quo intact is unacceptable.

As for us, we’re content to summarize the problem and leave specific solutions to people who are more influential. However, we do believe that a huge number of CPAs join with us in wanting to put this protracted, and now highly contentious, era behind us by changing things at the top of the AICPA.

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