Every year or so, we check in with AICPA president Barry Melancon to take the pulse of the profession and the Institute. Since we last spoke, Sarbanes-Oxley has been passed, the Public Company Accounting Oversight Board has been established, and Melancon himself has weathered a number of personal media firestorms. In a wide-ranging interview with WebCPA editor Tracey Miller-Segarra, a portion of which was published in Accounting Today, Melancon answered some tough questions, and gave us his read on what the near future holds.
How will the passage of Sarbanes-Oxley change the Institute's focus?
The thing that every one of our members has in common is that they are a CPA and the credibility of that certificate is important to them. There are in fact different issues that largest firms face than the smallest firms. I think what you will see given the passage of Sarbanes-Oxley is whether there should there be a greater focus or differentiation for non-public enterprises within the AICPA. Based on what’s happening today, the audit process for public companies is likely to evolve in a way that might not make sense for a private company or non-public company. Under that environment, how the standard evolves for nonpublic companies will be governed or greatly influenced by those who operate in that environment, which are going to be the smaller firms. How the profession evolves in that area will probably be more influenced by those who have predominance of that area.
Since the Big 4 are widely perceived as being responsible for tarnishing the profession and controlling the agenda of the AICPA, why doesn’t the AICPA sever its ties with them and concentrate on the 55 percent of its membership consisting of very small public accounting firms?
In the last year and a half because of the high profile matters as far as the national media, I agree that the perception has permeated that the AICPA is the Big Four. But that perception just doesn't hold up in reality. Only two people from the Big Four accounting firms are on the board of the Institute and even on the technical committees, of the 15 committee heads, only four are members of the Big Four. The largest firms are in a minority on all the committees. However, influence can be delivered by a variety of different ways. People who are articulate, who are armed with facts, and are more active can exert greater influence than someone who is more passive. Influence is a measure of individual action.
Much of what we see in the news is related to large audits and large firms. If you get down to it today, some high percentage, maybe 90-95 percent of the world’s capital is audited by one of the 7 or 8 largest firms. So as a profession, it wouldn’t be appropriate to turn our back on that part of the practice. We have to be in both the public and private spaces.
Even the AICPA’s detractors agree that the idea of CPA2Biz was a good one, but people who worked there at the highest levels say the execution was bad, the technology didn’t work, the business plan was flawed and that timing with the dot-com bust just made it worse. What’s your response?
There were some execution issues, and we’ve made some changes as it relates to leading the organization. But I think the management of CPA2Biz is very quietly and very deliberately building a track record of proving that wrong. We have 125,000 CPA users who use it. Online sales of product are up significantly. CPA2Biz isn’t going out and saying we’re going to prove you wrong, they’re just keeping their nose to the grindstone and increasingly day after day making that point.
One of the errors we made was that given the environment, CPA2Biz was funded in January and in June it launched. I think in retrospect we rushed that date and caused execution issues up front. But it’s still less than two years old and is essentially a new business. It has addressed the technology questions and we’re hearing that the stability of the site and the modern aspects are causing people to give it a second look and much better feedback.
How do you explain the “going concern” language about CPA2Biz in the 2001-2002 AICPA annual report?
If you were looking at any business that’s less than two years old (given CPA2Biz’s financial situation at the time), the auditors would have to write that. It’s just a consideration in the footnote. That was at June year-end and here we are in April and we have reduced costs, and Web site usage is up.
While the original investors had losses, those people have not shown any less support. The people most familiar with these types of startups continue to be supportive. That’s not to say that there is no future risk.
It’s clear that the Institute is contemplating eliminating some or all three of its specialty credentials because the cost to make them a prominent, market-leading force is too great. If the Institute knew this was a requirement before developing them, why did it develop them in the first place?
When you’re an organization that does things to innovate and pushes the envelope in a membership as diverse and large as ours, people are going to be dissatisfied. The global credential was voted down, does that tarnish the organization? If you believe that, then what you are incenting the leaders of the organization to do is to never put anything forward unless you know the membership overwhelmingly supports it. If you can’t bring something forward that has a chance of not being supported, then you are doing the opposite of having the membership have a say in major policy issues.
It’s sort of ironic to say we’re being criticized because we’re looking at something that’s just good management. One of the hardest things associations have to do is to ever stop doing anything. If affecting any number of members, it means taking away a valuable service to those members and it’s hard to overcome.
If this were a for-profit company and we looked at this business unit, the decision on credentials would be easy, because they don’t have market predominance. But we’re looking at it much more holistically. We were careful at regional council meetings to tell them, ‘Do not look at this from just an economic standpoint.’ We asked them to focus on strategically whether the Institute should be in the credential area if that credential isn’t gaining market acceptance.
When the AICPA issued comments on internal controls in April, the SEC quickly stepped in and made it clear that the Institute doesn’t have any authority in this area. Some have interpreted this to mean the SEC and the PCAOB aren’t going to let the Institute have much say in such issues going forward.
If you read the press release we issued, we said we are issuing this because there needs to be guidance in this area and we fully acknowledged that the PCAOB has authority in these areas. It was developed as a thought piece and put forward. We did communicate (beforehand) with the PCAOB and the SEC that we were developing this and were going to expose it. We thought it was an appropriate role to provide guidance because quite frankly, we don’t have a PCAOB that’s staffed up and those provisions were required by April. We did it in the spirit of public interest.
So why did you get such a heated response from the SEC if they already knew about the release?
It’s important to understand that we live in a world today in which there are certain expectations of responses in a media environment. People end up in situations where they handle things in a certain way because they just have to, not because deep down that’s the way they feel. We know at the AICPA if we do the right things, the things that are necessary, that because of the environment we are operating in, people will choose to be critical. We bear that in mind in decision-making, that sometimes we have to do this, even if someone sees it as an opportunity to be quoted or position themselves in a certain way.
Many CPAs think the AICPA should spend lots more of its time – and money – on public relations. Why are you only allocating a small amount to a national advertising campaign?
Nothing is ever enough money in the PR area. Quite frankly, whether it’s $5 million or $10 million, on a national basis, that’s not a lot of money. What we have done is not hire a PR or ad firm and will engage appropriate counsel on a case-by-case basis. We just completed detailed market research of business decision-makers and investors as to what they think of the profession relating to the scandals, post-Enron, so we can understand what it is we need to do and how best to do it. We learned some interesting things. For instance, they said we still rank highly as far as prestige and trust. It showed very strongly that people have very high levels of trust for their CPA.
So one of the key decisions we made is that while people may believe that running ads are the answer and we have developed some for state societies to use, we’ve decided on a different approach. Which is not to say we’ll never run an ad in the Wall Street Journal, but for now we’re going to marshal our resources in a grassroots image approach so that the messages of profession can be delivered by the faces of the profession in a real environment. I think for the amount of resources we can muster, this will pay a much better dividend.
Most industry people say that you’re a brilliant man, a great strategist and someone who cares deeply about the profession and the Institute. You’ve still got a couple years left as president, and it certainly looks like you’re staying on. What can/should you do personally in the next couple of years to prove some of your critics wrong and to revitalize not just the profession but the Institute as well?
I do believe I have the passion for the profession and I live it and I work very hard at it and I’m totally committed to it. I do feel unbelievably positive about the role the profession has on a going forward basis. I have committed to dealing with the changes that are necessary to make sure our members in small firms that service private businesses do so in way that will best serve the economy and the American public. I’m committed to the vision that our members affirmed for our profession. In today’s world, it’s still absolutely applicable.
Secondly, this profession has to dialogue and communicate with regulators and the PCAOB in a meaningful way so the profession can meet its obligations to the public interest. We’re going to have to be more effective at dealing through others to achieve those concerns. We have to be very articulate when something is proposed about why it can’t work. And when it can work, we need to find ways to be supportive. Sometimes things sound right at the 50,000-foot level, but at execution, it’s not always that clear cut. We have to be strong enough and committed enough to say that.
To that extent, I’m best positioned for that. I’ve proven that I can take criticism. It bothers me, but at the same time, I try to take points of difference and internalize them within the Institute to make the profession and the Institute better.
