Realignment, in fact, has been under way for some time, but the changes are so subtle that we can read the signals and monitor the course only by taking a macro-view and analyzing long-term trends. The alignment is largely de facto. No grand policy statement or planning document has emerged to mark the path of accounting in a changing world. But by assembling the scattered evidence we can begin to construct the mosaic of the accounting profession reborn to the present age.
It would be a profound error to view the thrust in accounting as something which does or should emanate from the top. As Lerner observes, "the great dramas of societal transition occur through individuals involved in solving their personal problems and living their private lives." In this, as in other periods in the development of the profession, real progress hails not so much from the generals but from the infantry in practice and education who continually wage war against the tide-forces of convention. Indeed, the giant steps of mankind are marked not by power groups or supermen but by pedestrian feet!
These closing pages diagnose briefly the syndrome of adaptation in accounting and invite you to take part in shaping and improving the profession. For this period is pregnant with meaning to the profession. It looms as a pivotal era in the long history of accounting. As accountants we are privileged to be part of a strategic change process which is at least as significant as the emergence of record-keeping in the fifth millennium BC, double-entry in the early Renaissance, or corporate financial reporting and cost accounting as spin-offs of the Industrial Revolution over the past century.
The imperatives for accounting have never been clearer. As a society and world community we face the necessity for conserving scarce resources, protecting the natural environment within which we live and breathe, waging war against social injustice and inequity, and improving the quality of life for people everywhere. Against these needs the profit motive becomes servant to the more primitive instinct of survival. Great moments are born by the confluence of needs and the willingness and ability to respond. The needs are apparent and the profession is willing and able to respond.
Coping with the Legal Environment
The courts have taught the profession some harsh lessons. While many legal actions brought against public accountants lack merit, some have proved to be beneficial to the profession over the long term, even though the medication was intolerable at the point of administration. More importantly, while some spokesmen call for the retrenchment of accounting practices in order to avoid exposure to litigation, the majority viewpoint supports continued progress and expansion. The prevailing mood among CPAs is to push forward with the work of the profession, to defend strongly against litigation, to be less willing to settle out of court to avoid adverse publicity, and to change accounting and auditing practices to conform to meritorious standards and procedures which sometimes emerge from these legal cases.
The McKessons & Robbins case in 1938 was among the first major lawsuits against a CPA in the United States. By the time the case had run its course the president of McKesson & Robbins had committed suicide, the auditing firm of Price Waterhouse & Co. had settled out of court in the amount of $522,402 and two new procedures in auditing became standardized: the physical observation of inventories and the confirmation of receivables.
Other cases have established precedent in other areas. In its 1972 decision on Rhode Island Hospital Trust National Bank v. Swartz, the U.S. Court of Appeal held that AICPA rules constitute minimum standards for the profession. National Surety Corp. v. Lybrand defined the auditor's responsibility to uncover fraud in cases where the auditor's negligence is involved. In 1136 Tenants' Corp. v. Max Rothenberg & Co., the so-called "robot case," the accountants were held liable in matters involving undiscovered fraud even though they were engaged only in "write-up" work and did not audit or attest to the financial statements of the client.
Ultramares v. Touche established that public accountants are liable to third parties for deceit but cannot be liable to unidentified third parties for negligence. Escott v. Barchris Construction Corporation and SEC v. Texas Gulf Sulphur Co. have helped to shape the principle of materiality in terms of the effects of nondisclosure on the average prudent investor and the market price of the security respectively. In United States v. Benjamin, criminal liability was assessed where grossly misleading statements were found to exist. The court rejected the AICPA position which held that accountants can be held liable only for failure to adhere to generally accepted accounting principles as determined by expert witnesses. The court ruled that lay jurors are in a position to evaluate the liability of accountants (and, presumably, other professionals). Judge Friendly's observations on this case are worth noting: "In our complex society the accountant's certificate and the lawyer's opinion can be instruments for inflicting pecuniary loss more potent than the chisel or the crowbar. Of course, Congress did not mean that any mistake of law or misstatement of feet should subject an attorney or an accountant to criminal liability simply because more skillful practitioners would not have made them. But Congress equally could not have intended that men holding themselves out as members of these ancient professions should be able to escape criminal liability on a plea of ignorance when they shut their eyes to what was plainly to be seen or have represented a knowledge they knew they did not possess."
The recent case of Equity Funding, which featured computerized fraud involving millions of dollars of phony insurance policies and went undetected by the auditors over a time period of several years, may well direct the profession toward more definitive auditing procedures as applied to computerized management information systems. While litigation is never pleasant-and there is no intention here of making it appear glamorous-the profession has been able to cope and even benefit from its interactions with the legal environment.
Coping with Technological Change
Keeping abreast of technological change has posed serious problems for the profession at several points in its development. Computed technology in particular is impacting strongly on accounting education and practice. Accountants were slow to recognize the potential if not the threat of the computer. But the hiatus is over! Education is incorporating the tools of modern technology, as are most CPA firms, in rendering tax, auditing, and management services. For example, not content with auditing around or through the computer, CPA firms now audit with the computer. The trade deficit in computer skills may well have shifted to a net export balance in the early 1970's. The accounting profession is coping with technological change.Coping with Obsolescence
Accountants are caught up in the vortex of the knowledge explosion which Alvin Toffler and others have portrayed so vividly. The half-life in accounting knowledge today is around five years. This high rate of potential obsolescence necessitates a heavy emphasis on educational renewal.
In Training by Objectives, George Odiorne emphasizes that continuing education is the major agent of change in organizations. Accordingly, most major CPA firms have extensive professional development programs ranging vertically from junior staff to senior partners, and horizontally across a variety of different fields of specialization. Both large and small CPA firms participate actively in the extensive continuing education programs offered by the AICPA and many of the state societies. Continuing education for accountants is also provided by the American Management Association, National Association of Accountants, American Accounting Association, and National Industrial Conference Board, among others.
Colleges and universities are assuming a greater share of the mounting burden of continuing education and offer selected courses and seminars in addition to degree programs geared to the fully employed.
The accounting profession was among the first to institute a requirement of continuing education. This requirement springs from the Beamer Report of 1969, which led in turn to the following resolution by the Council of the AICPA in the same year:
- WHEREAS, the explosion of knowledge and the increasing complexity of practice make it essential that certified public accountants continue to develop their competence, and
- WHEREAS, the public interest requires that certified public accountants provide competent service in all areas of their practice, and WHEREAS, formal programs of continuing education provide certified public accountants with the opportunity to maintain and improve their competence
- THEREFORE BE IT RESOLVED that the Council of the American Institute of Certified Public Accountants urges each of the several states to institute a requirement, by legislation or regulation as may be appropriate, that certified public accountants demonstrate that they are continuing their professional education as a condition precedent to the re-registration, renewal of permit to practice, or other validation of a CPA's designation.
- FURTHER BE IT RESOLVED that the National Association of State Boards of Accountancy be asked to consider this resolution with a view to lending its support.
- FURTHER BE IT RESOLVED that in the interest of uniformity the Council urges each of the several states to adopt the guidelines attached to the report of the committee on continuing education.
Compulsory continuing education is now law in eight states (Alabama, California, Iowa, Kansas, Nebraska, North Dakota, South Dakota, and Washington), while legislation is pending in seven other states (Arizona, Colorado, Florida, Hawaii, Nevada, Oregon, and Wyoming). In time, the requirement will extend to all jurisdictions of the United States.
In the important area of coping with obsolescence the accounting profession is leading the way in requiring continuing education as a condition for the renewal of license. This action recognizes that education is a life-long process and that formal education should address the need of learning to learn in addition to imparting skills which have immediate application.
Coping with the Demands for Equality of Opportunity
Minorities are underrepresented in all professions, including accounting. Mitchell observed that in 1969 there were only 136 black CPAs among a population of over 100,000, of whom 108 were employed by CPA firms (only one black was in the top echelon of a CPA firm).
The profession is taking strenuous action to improve its image in this quarter. CPA firms are donating advisory services to minority businesses; offering part-time employment, internships and other incentives; giving financial aid to educational programs for the minorities; sponsoring conferences and workshops; and taking policy steps which will effectuate equal opportunity.
