Honesty is the first chapter in the book of wisdom.

                                             - Thomas Jefferson

Well, it’s a New Year!  Ed’s and my letter to Santa last year was ignored again this year, so I’m taking another angle and bypassing Mr. Claus entirely.  In the hopes of restoring the glory of my beloved accounting profession, I am proposing some New Year’s resolutions for the “major players” and “heavy hitters” in accounting.

The Securities and Exchange Commission (SEC)

Those of you who have been following the Grumpies know how we feel about IFRS…no we are not wild about them.  However, the SEC did do a great job on its Final Staff Report summarizing its work plan for global accounting standards.  However, it apparently missed one big point.  Increasingly, accounting research from across the pond shows that that IFRS has failed to deliver on its promise for one set of accounting standards. Several recent studies (Kvaal and Nobes 2010 in Accounting and Business Research, Vol 40. No. 2 pp. 173-187; and Wehrfritz and Haller, forthcoming in the Journal of International Accounting Auditing and Taxation) report that different national versions of IFRS currently exist which reflect pre-IFRS country-specific national GAAP.  What does that mean?  It means that in Australia, France, Germany, Spain, and the UK, companies that are now using IFRS, continue to use the same accounting policies they used before “adopting” IFRS which were either permitted or required by their own unique national GAAP. So much for the touted benefits of achieving comparability with a single set of global standards.  Instead, the real possibility exists that investors might be misled by the “apparent” uniformity implied by IFRS, when no real comparability exists.  So, SEC…your resolution for 2013 should be not to succumb to the political pressure of those IFRS proponents…those promoting IFRS likely do so for their own monetary gain.  If you don’t believe that, just check out the AICPA’s IFRS website and note all the training and publication opportunities promoted. Please give up on IFRS once and for all.  

The Public Company Accounting Oversight Board (PCAOB)

In a December 2012 speech at the AICPA National Conference, PCAOB Chairman James R. Doty made two huge points with which most of us would agree.  First, “high quality, independent auditing is critical to our economic success” and second, “audit firm culture must support auditors’ work.”  My hope is that the PCAOB’s New Year’s resolution will be to focus its 2013 efforts on three points: promoting high quality audit work, monitoring “real” auditor independence, and incentivizing the development of appropriate firm cultures, but with a more aggressive approach.  What do I mean by aggressive?  Check out the Grumpies’ prior rants in The Auditor’s Expectations Gap where we called for a clearer description of the “audit product” that the Big Four firms currently deliver. Ed and I also provided some clues in Who Really Cares About Auditor Rotation where we outlined some ideas on how to detect audit quality.  Another good start to the New Year would be to release all (both parts I and II) of the PCAOB’s firm inspection reports.  As Chairman Doty indicated, auditors have been inspected by the PCAOB for a decade now.  Time is up for big firm auditors…PCAOB it’s time to play hardball.

The Financial Accounting Standards Board (FASB)

The FASB’s resolution for the New Year should be not to squander their opportunity to improve the effectiveness of financial statement note disclosures via its Disclosure Framework project.  Not surprisingly, the AICPA’s Financial Reporting Executive Committee recently has raised “significant concerns” about the framework, a possible delaying tactic to preserve the status quo for the largest accounting firms and their clients.  As you may recall, the Grumpies worried about whether or not the FASB could “make the ‘hard’ decisions” in Improving Transparency in Note Disclosures.  We actually proposed a few very simple ways to improve the organization and understandability of note disclosures.  Yet, the “gurus” at the AICPA continue to be focused on form and process, rather than substance…no wonder the profession is in decline…

The Center for Audit Quality (CAQ)

This organization’s resolution for the New Year is relatively simple and straightforward: it should dissolve itself! It is no surprise that the so-called  Center for Audit Quality (CAQ) is headquartered in Washington, D.C., after all it is little more than a formal lobbying and/or marketing group for the largest public accounting firms and the American Institute of CPAs (AICPA). Interestingly, the CAQ is “affiliated with the AICPA.”  One wonders why the CAQ’s membership can’t work through the AICPA, and one of its sections or committees…why is the CAQ necessary?  If you think I am being too hard on the CAQ, just check out the “rigor” in its publications…my personal favorite is “Deterring and Detecting Financial Reporting Fraud”…long on concepts, short on detail. Maybe this is why the PCAOB is finding so many errors in its public company auditor inspections…

The Big Accounting Firms

The big accounting firms should resolve to redo their budgets for 2013.  Here are a couple of recommendations:

  • Plow the money you save from dissolving the CAQ into creating a new audit model that works.
  • Don’t build brand awareness through professional golf tournament sponsorships.  Use the monies you save to create a new audit model that works…now that would build brand awareness!
  • Stop contributing money to academic organizations and universities and invest it in something with a real payoff…the academics will continue to send you their students regardless of your funding.  Use the monies you save to create a new audit model that works.
  • Stop wasting your limited funds on student recruiting. Students will continue to seek you out for jobs because you offer the best prospect for their actually paying off their outrageous student loans.  Use the monies you save on recruiting to create a new audit model that works.

Do you sense a common theme here?

National and State Accounting Societies

Yes, this is the first time that one of the grumpies has actually picked on this poor group of accountants which includes the AICPA, Institute of Management Accountants (IMA), American Accounting Association (AAA), and a host of state CPA societies.  That’s because their situation is just so dire.  These organizations are finding it increasingly difficult to justify their existence in the face of rising costs (and dues) and increased competition for services they once exclusively offered to their members.  In short, it is unclear what the value proposition of these organizations is in today’s society.  Take the case of the AICPA.  The organization has largely been relieved of its rule-making authority by the FASB and PCAOB.  More troubling is its recent desperate attempt to poach IMA membership through its introduction of the Chartered Global Management Accountant designation.  And a quick review of its website (as well of those of most state CPA societies) reveals that this organization is mostly about publications and professional development…not even insurance sales make the homepage anymore. And membership pressures plague state accounting organizations as well, prompting them to search for ways to broaden their bases, including eliminating experience requirements to become licensed CPAs.  While this might bring industry, governmental, and academic accountants into their societies, have these organizations considered the “unintended consequences?” Most of these organizations will NOT be around in 20 years (by then the old guys in my generation will be long gone having dramatically shrunk their membership rolls).  So, in 2013 this segment of the profession should resolve to figure out how they will add long-term value to their members (which by the way overlap SIGNIFICANTLY, if not entirely).

Well, not a chance you say?  I remain hopeful for these resolutions.  After all they don’t appear on the top 10 commonly broken New Year’s Resolution list…unless you consider a “new audit model” learning something new.


This essay reflects solely the opinion of the author.


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AuthorAnthony Catanach