Institute execs discuss differential standards, credentials and what’s to come.
Arguably, no other professional organization has come under as much scrutiny from both its membership and the media over the past two years as the American Institute of CPAs.
In the wake of the spate of massive accounting scandals, the collapse of Arthur Andersen, the passage of Sarbanes-Oxley, and several expensive marketing projects that misfired, the institute has weathered a barrage of criticism from both members and an array of national publications.
Recently, AICPA president and chief executive Barry Melancon and 2003-2004 chairman Scott Voynich sat down with the editors of Accounting Today and Practical Accountant to discuss current institute initiatives such as differential standards, XBRL and the specialty credentials, as well as potential future projects and the evolving role of the organization in an era of increased oversight.
AT: Barry, at the AICPA Fall Council, there were two statements you made that were particularly interesting. One was your stance on how the AICPA is continuing to look at the non-Securities and Exchange Commission issuing community. And the other was about how you have streamlined your organization. Could you address both those issues?
Barry Melancon: First off, this profession has had debate after debate after debate about whether or not we should have two sets of accounting standards — public company and private company. ... Now we have the Financial Accounting Standards Board really having to focus on very sophisticated accounting issues for very large companies. And that’s what FASB should be doing. At the same time, they’re also facing the issue of convergence with international standards. And, so, I believe that the gap between large, multinational, multidisciplinary companies today and small private companies is greater than it’s ever been.
We have an economy that has a significant amount of small businesses and we obviously have some mega-businesses. And those two worlds are not necessarily worlds in which one answer fits both.
And so what we’re saying is that, over the next year, we should have a concentrated debate in the profession on the accounting standard side as to whether or not it is time to have two sets of standards, some level of differentiation. We don’t have an answer. You ask me if I think it will happen — I will tell you that I think if it’s going to happen that the next year is the opportunity for it to happen.
Scott Voynich: You might add that one of the reasons the timing so critical is that we’re talking about convergence of international standards by 2005, which means we’ve got to be dealing with this question and solving it in 2004. You’re talking about international standards that make sense for multinational companies but not necessarily to that small construction company or homebuilder or retailer who’s dealing with their regional communities. It’s creating a burden that is pretty much impossible to meet. And it’s not adding any value.
AT: What about the institute streamlining?
Melancon: In 1995, I think the high was like 827 people we had at the institute. Since that point in time, we have gone through numerous activities to improve our processes, change our processes. As a result of doing things more efficiently, doing things differently, today we’re under 600 people. And, you know, we’re continuing to look at everything we do.
For instance, we are physically moving from the 6th floor to the 19th floor in our offices in New York, which means that we’re going to be taking about two-thirds of the space. Since that time, we’ve opened an office in Texas. So we look at our operations very seriously, constantly. And we will continue to do that. Obviously things have changed and things are changing. How we go about working with the SEC practice area — that’s changing. We just created two new audit centers. We’ve got to staff up to be able to deal with those. So that’s an assignment of people, an assignment of resources. We are in the midst of a very soon-to-be-live new technology infrastructure.
AT: Has the AICPA taken a position on the phenomenon of numerous private companies adopting Sarbanes-Oxley type restrictions and regulations, apart from the cascading impact of state regulations?
Melancon: Well, obviously there are some marketplace forces that are happening where some types of entities that are not subject to Sarbanes-Oxley are choosing to be, to implement certain aspects of Sarbanes-Oxley. The most obvious ones are in the corporate governance arena, where you have companies — not-for-profits, for example, or other maybe large private companies that do have outside boards — that are trying to build some of their corporate governance structures to meet that.
The easy answer is to just say, “Apply Sarbanes-Oxley.” And people don’t understand the consequences of that. We do work with those agencies, wherever they are headed in that direction, to try to make them more aware. So, for instance, we had a state agency that in their bidding process said, “All respondents to a bid have to meet Sarbanes-Oxley.”
Well, that meant that the local contractor bidding on a particular engagement had to have an independent board, etc., even though they were a local, privately owned business. Well, obviously those things don’t work in that environment. And, so, we try to work through the state societies where appropriate or other organizations to try to communicate some those issues.
Voynich: I think that’s the real challenge. It’s easy in theory to say, “Sure, the highest and best standards should apply everywhere.” When, in fact, they might not make any sense in this particular situation. Not to suggest that there’s anything bad about these governance procedures, but let’s make sure they’re appropriate.
AT: Can you give us an update on what’s going on with the Personal Financial Specialist, the Accredited in Business Valuation and the Certified Information Technology Professional credentials? What does the institute plan to do differently this time to ensure the success of the credentials?
Voynich: I guess at the highest level, to me the difference between what we’re doing now and what we were doing a year ago and for the last 20 years — we sort of turned the process upside down. We’re focusing the resources at the discipline and membership level in such a way that you create a momentum that possibly wasn’t created in the past.
I think the biggest gain out of all of the turmoil of the last year in this area has been the listening process. I think we’ve discovered that there are some good, new, unique approaches to the process that are different. It was almost startling, I guess, when we came to the conclusion that if you’ve got the right amount of time and energy going into the discipline, you’re servicing a lot of membership, a lot of needs at once.
Melancon: The second thing is where we spend differently. Scott’s right. You know, one of the big dilemmas we face — we faced for many years particularly in PFS — is this debate of whether we were supposed to be spending a lot of dollars on branding the PFS, which, as you know, is a very expensive proposition. And, when you have a few hundred — or a few thousand in the case of PFS —people in that area, it’s difficult really to do a national branding campaign on a cost-effective basis. I mean that’s just pure business sense.
AT: In 2004, do you foresee the Public Company Accounting Oversight Board making an example out of some firm?
Melancon: I don’t think [PCAOB Chairman] Bill McDonough is sitting in that position with a charge of making an example out of anybody. I think he’s there — and he has said it — I think he wants the PCAOB to work to help rebuild financial reporting credibility in the marketplace, which impacts our profession.
It impacts corporate CFOs and CEOs and the whole gamut. And I don’t think that he comes to that position saying, “The only way I can achieve that is by making an example.” I have heard him say that that’s not what he’s there to do. What he’s there to do is to set reasonable and fair expectations. Expect people to deliver on them. And if they don’t, then they pay a price through discipline, etc.
AT: Can you talk a little bit about the need for the new audit centers and the Center for Public Company Audit Firms? How are they going to serve members?
Melancon: The Center for Public Company Audit Firms is really a reconstitution of the SEC Practice Section that historically had a self-regulatory role for firms that audited public companies.
That self-regulatory role primarily fell into the buckets of peer review and the QCIC, Quality Control Inquiry Committee. Any time there was an allegation of a lawsuit or anything against a firm it was a real-time evaluation as to whether there was anything wrong with the system of quality control in that firm and what lessons could be learned.
The two audit centers [for employee benefits and government] are in specific areas and they cut across all firm sizes. And they are an attempt by us to move the needle in improving the competency of all practitioners in those two areas. We know from our own peer review process that there are issues of quality in ERISA audits and governmental audits.
AT: In 2003, there was a lot of attention focused on some of your courses on forensics and fraud prevention. In 2004, any additional classes and educational efforts we might see expanding?
Voynich: One relationship that I think you’ll see continue to grow and expand is our relationship with the FBI. I’m sure you’re aware of the outstanding Web cast. Roughly 20,000 people signed up for that. That’s by multiples bigger than anything we’ve ever done before. I think members might have hoped that they were going to issue guns and badges.
I mean it’s heartening to know that they [the FBI] view accounting majors and CPAs as their best source of new agents. And Grant Ashley, the assistant director, said it something like this: “I’m not looking for people just to do white collar crime. I’m talking about hiring accountants and CPAs to kick down doors and do drug busts because they have a core set of values and an approach to their process that is ideal for us in the FBI.” Well, that’s music to our ears.
Melancon: We also have a strong relationship with the Association of Certified Fraud Examiners. We’ve done some joint courses with them. We will continue to do that. As you know, we’re sort of the two lead sponsors in the Institute for Fraud Studies at the University of Texas. That, hopefully, will produce, over the years to come, information that will be embedded in training.
AT: A frequent complaint from members is that the institute had what would be diplomatically described as kind of choppy marketing early on in CPA2Biz and the global credential. There had also been WebTrust and SysTrust. We haven’t heard much about them. What’s the status of those two programs?
Melancon: Probably the biggest negative that those two had, from a mass acceptance perspective, is that they tended to focus — particularly SysTrust — on larger enterprises; therefore, larger firms providing those services. But privacy is a huge issue and you can sort of throw XBRL into that whole gamut. On XBRL, for instance, which also ties into systems reliability in a lot of ways, I think it was PricewaterhouseCoopers just had like a $37 million contract with the Federal Deposit Insurance Corp. to embed XBRL onto their systems.
Voynich: I’m happy honestly to have a little bit of a problem of being first in a territory. So many times we’re trying to catch up in an area. This is one that you stake out some territory. You may not have immediate gains, but what you have done is establish yourself as an important player in that process. And I think that’s what we’ve done here.
Melancon: In a lot of ways, XBRL wouldn’t have been as successful because we learned a lot from [WebTrust and SysTrust], so we did XBRL differently, quite frankly. We did the consortium approach. So some of the lessons learned have really produced a very successful story in XBRL. If XBRL would have been the first step in that area, who knows how that would have been done? We can’t predict that, but maybe we wouldn’t have done it the way we did and maybe it wouldn’t have been as successful.
AT: And the institute moving forward?
Melancon: Clearly, our focus is on the issues of standards and the issues of performance, on the quality centers. The issue of values, and fraud detection. The small business issues and the small business standards. And that is taking the lion’s share of our priorities. If you look at our priorities, it’s repositioning the Auditing Standards Board, implementing these quality centers, repositioning the SECPS. And then the issue of debating the applicability of accounting standards, the differential standards. Those clearly have risen to the top, and appropriately so.
