The Spirit of Accounting: Building a Better Belchfire 2.0
We're on a brief hiatus from writing new columns because of a major project that requires our full attention. While we're away, we'll be reprinting a few columns, starting with this one that dates back to October 2000 but still makes relevant points for today about accounting educators and their frustration with preparing students to enter a profession that hasn't kept up with the times. We think it will encourage you to assess our profession's unfortunate but seemingly inextinguishable resistance to meaningful change.
This first encore was motivated by an academic report that identified a multitude of factors allegedly responsible for a troubling decline in the number of university students choosing accounting. Its authors documented the scope of the problem and proposed solutions as if full responsibility belonged to educators. We certainly agree that the education system has ample room for improvement, both back then and still to this day. However, we put the blame for the declining enrollment on a different doorstep, namely poor-quality GAAP. Although enrollments have since picked up, the truth remains that accounting graduates face only a shadow of the opportunities they could embrace if financial statements were actually useful for something better than achieving minimum compliance with securities laws.
To make our point, we provided a simple allegory intended to jar accountants loose from the trap of dysfunctional patterned thinking that makes it hard for people to see their own problems, much less fix them. We hope you enjoy the column and are persuaded to look at the accounting world differently.
All attendees at the 2000 American Accounting Association's annual meeting were provided with a monograph called, "Accounting Education: Charting the Course through a Perilous Future." The authors are Steve Albrecht of Brigham Young University and Bob Sack, formerly of Touche Ross and the Securities and Exchange Commission, and now emeritus at the University of Virginia. They produced the book in only eight months with support from the AAA, the American Institute of CPAs, the Institute of Management Accountants, and the five largest accounting firms.
The dramatic title invokes fear in order to wake the academic audience to a dangerous crisis that threatens to engulf them. The authors make quite a few wonderful points, for sure, although their limited time allowed them to do little more than assess impressions and feelings gained through surveys and focus groups, instead of analyzing more concrete data.
Their basic message is that educators need to change literally everything they do because both the quality and quantity of accounting students are declining. That thought is worth considering but we'd like to offer up a fable to show what's missing in this picture. (Thanks to our friend and colleague Buck Dillon of Oakland University for planting the seed of this story a few years back.)
THE FABLE OF THE BELCHFIRE
Suppose that Acme Motors, the local franchisee for the Belchfire brand of cars, brings in a new general manager, Terry Jones. Upon arriving, Jones decides to do something about the showroom that was built around 1940 and most recently remodeled in 1950. The bare fluorescent light fixtures are flickering and fly-specked, the walls haven't been painted in years, the checkerboard linoleum tile has lost its sheen, and the furniture was purchased when the local Army base closed after WWII. The sales reps are also a bit seedy and tend to manipulate customers to earn their commissions. Of course, the service facility is equally dingy and can't keep good mechanics more than a few months.
After looking things over and seeing declining sales, Jones decides it is time for a total overhaul. Through tremendous effort, Terry raises a lot of money, guts the building, puts in new equipment and furnishings, hires new department managers, recruits new sales reps and mechanics, and outfits everyone in snappy outfits. Further, the compensation system is revamped to reward customer-oriented behavior. On re-opening day, everyone gathers to welcome the first shipment of new 2001 Belchfires.
Before long, the transport truck pulls up in front, music starts, and balloons are launched. To everyone's disappointment, the 2001 model is the same as the 2000 and little different from the 1960 model. The cars still have tailfins, gruesome colors, bright vinyl interiors, and 8-track tape players. They're all leaking oil and their tires were recently recalled for being unsafe.
The whole team suddenly realizes that their efforts were in vain. While the dealership was part of the problem, the Belchfire is the most significant issue, and sales won't occur unless it's fixed, too. It's no wonder the customers quickly move down the street to other dealers with not only nice facilities but also vehicles that meet their needs.
WHAT DOES IT MEAN?
In the same way, part of the problem of declining quality and quantity of accounting students can be blamed on educators. For various reasons, some of us academics are slow to abandon entrenched ideas and methods. Many teaching facilities are outdated and quite a few instructors are not exactly student-oriented, either by personality or because the compensation system rewards publishing and ignores teaching.
Of course, we need to fix a lot of things, and quickly, but let's not kid ourselves - even if we change everything, few students will come our way, and fewer still will stay, if all we have to sell is a ticket into a Belchfire kind of accounting profession.
Albrecht and Sack partially address this issue by talking about such things as the profession's low starting salaries and the onerous 150-hour requirement, but they really did not get to the heart of the problem. After all, like the Belchfire, the profession is the real force that attracts students into the major or repels them from coming our way.
(We've always done a slow burn over practitioners' smugness in forming the Accounting Education Change Commission in the early 1990s. Why wasn't an Accounting Profession Change Commission created as well?)
So, how should the profession improve? It could make some cosmetic changes, like higher salaries, shorter hours, beer busts on Fridays, and options in clients' stock, but those things wouldn't address the real problem.
Here's our main point -- accounting programs will never attract and keep the best and brightest as long as the profession's main product is financial statements prepared in accordance with today's GAAP. Today's statements are fundamentally worthless because they do not contain useful information, except for the amount of cash on hand at the balance sheet date. [See below.] Everything else is anachronistic, politically compromised, and grossly incomplete.
We're not impressed by arguments that investors seem to use the statements. If Belchfires were the only cars on the market, folks would have to drive them. (After all, East Germans drove Trabants until the Berlin Wall came down.)
So, before academics go into a tizzy and start remodeling and restructuring and otherwise re-inventing themselves, the auditing and accounting profession must create wholesale changes in what it offers society. As long as it puts all its hopes in the 1930s matching model and reports allocated historical costs once every three months, there will be little demand for its services, for new graduates, or for accounting education.
IT'S NOT A NEW ISSUE
This huge problem didn't just appear overnight. In fact, Kenneth MacNeal's classic book, Truth in Accounting, includes the following timely observation: "Financial statements today are composed of a bewildering mixture of accounting conventions, historical data and present facts, wherein even accountants are often unable to distinguish between truth and fiction." While the Financial Accounting Standards Board and its predecessors may have improved accounting practice incrementally, the overall system is still fundamentally the same as it was when MacNeal wrote those words in 1939! Vital changes in financial reporting are essential for restoring the profession's social significance.
Our hope springs eternal, and future columns will share our ideas on the changes that should occur. Until the leadership understands, though, it looks like everyone will just keep on driving their Belchfires.
Some things certainly have changed since we first wrote these words back in 2000. For one, we've come to realize the situation is much worse than we thought -- even the cash balance isn't necessarily descriptive of reality. We've written about those details elsewhere and won't risk getting sidetracked by rehashing them here.
Getting back to our key point, retooling the university experience for accounting students and even making the employees' environment more friendly will be putting lipstick on the pig. GAAP simply hasn't kept pace with changes in technology and our society's ever-growing, Web-fueled preferences for instant access to timely information. As a result, we're not surprised that many of the best and brightest continue to seek their fortunes elsewhere, especially those who want to do important work and get paid well for doing it. (Of course, we're told that more students are signing up these days, but how many more would there be if financial statements and audits were actually useful?)
The best way to create lasting significance for employees is to make their output worth the effort of producing it. At this point, financial reporting is not much more than a rote exercise, devoted to checking off the boxes of conformity with outdated standards and securities regulations. Instead, it should be about managers providing fully useful information to external investors and creditors. Nothing really good can occur until that happens. This failure to deliver useful information is an unfortunate disservice both to our society, which needs efficient capital markets to bolster living standards, and to all accountants who persist in plying the trade of this once-noble profession.
Paul B. W. Miller is a professor at the University of Colorado at Colorado Springs and Paul R. Bahnson is a professor at Boise State University. The authors' views are not necessarily those of their institutions. Reach them at firstname.lastname@example.org.