A Radical Proposal for Accounting Education

By Bruce H. Nearon

In Brief

A Professional Argues for Higher Education Standards

Education has been a core concern for accountants since 1896, when Charles Waldo Haskins secured regulation of the CPA license by the Regents of the State University of New York, which regulated the learned professions (those requiring college degrees), even though there was no college degree requirement for CPA licensure. The schism between practice and academia also began in the early days of the profession, around 1914, when the American Institute of Accountants decided to exclude academic members, leading to the creation of the American Accounting Association. The author, in response to the CPA Journal Forum on Accounting Education (which was reported in the August issue), argues that the future development of accountancy as a profession will depend on unifying the various constituencies through a common educational background. In the article that follows, a professor argues the counterpoint.

The recent string of large business failures and the increased frequency of accounting restatements have led to a crisis. Critics focus on the failures of the accounting “industry,” and accountants wonder whether their services constitute a profession. Even before the recent failures, Albrecht and Sack’s monograph, Accounting Education: Charting a Course Through a Perilous Future, proclaimed an equally grave crisis in accounting education. While some blame the 150-hour rule for accounting education’s ills, it is not the root of the problem; rather, each element of the entire accounting education process has serious deficiencies. Understanding these deficiencies leads inexorably to the conclusion that a radical proposal for changing accounting education and certification now makes sense.

Background

The 150-hour rule has been under attack from all sides and is blamed for the accounting industry’s problems in attracting quality entry-level personnel. According to Albrecht and Sack (“The Perilous Future of Accounting Education,” The CPA Journal, March 2001), most academics and practitioners see the 150-hour rule as a failure. Marginal corrections to this program, which has taken more than 40 years to implement in its current form, simply do not make good sense.

According to Albrecht and Sack, accounting education is in such dire straits and plagued by so many serious problems that it may not survive. Even as the quantity and quality of accounting students plummet, accounting department budgets fall, and accounting faculty lines shrink, the profession is also under siege in the wake of the financial disasters of 2001 and 2002.

A fundamental obligation and privilege of a profession is its responsibility for its own practice and education. The recent financial failures, as well as the dot-com meltdowns of 2000 and 2001, should cause accountants to consider whether collectively they have failed in their responsibility to investors. Millions of dot-com investors lost billions of dollars, but rather than relying on CPAs’ financial statements, they ignored them. Accounting standards (GAAP) failed in their first objective: to provide financial information that is useful to investors, creditors, and others when making rational investment, credit, and similar decisions. Why weren’t accountants more vocal in warning that dot-coms’ financial statements—which almost without exception showed increasing losses, decreasing cash flow, and miniscule revenue—foretold disaster?

Auditing standards (GAAS) have also failed in their primary objective: to express an opinion on whether financial statements are presented in conformity with GAAP. Auditors’ opinions were useless to Enron, Global Crossing, WorldCom, and failed dot-com investors, creditors, and employees. Andersen, formerly one of the world’s most trusted and respected accounting firms, was found guilty of criminal obstruction of justice for destroying thousands of documents related to the Enron investigation and ceased auditing public companies on August 31.

Congress, ignoring its own complicity, has now relieved accountants of the responsibility for their own practice. No amount of money spent on public relations by our trade organizations will buy the respect needed to restore professionalism. Accountants have lost the privilege of respect, and now must earn it back, a task that will be impossible without radically addressing the root cause for the demise: the schism between accounting education and accounting practice.

The Accounting Education System

If the crisis in accounting is genuine, then the education system may be a good place to start trying to understanding why accounting practice has failed. Accounting education is composed of inputs, processing, and outputs. The inputs are accounting professors, new PhD students, new undergraduate students, the subject matter, and funding. Processing encompasses research and instruction. The outputs are graduate PhDs, research, and entry-level accountants.

Inputs

Accounting professors and PhD students. The goals of most accounting professors are to earn the respect and esteem of their colleagues, be promoted, and acquire tenure status. In a 1983 study, Cambell, Gaertner, and Vecchio surveyed accounting educators and concluded that the bases for achieving these goals are the number and quality of journal articles published, the theoretical-empirical studies conducted, and the academic degrees obtained (see the Sidebar for further reading on this and other topics).

Has the path to tenure changed since 1983? Have the goals of accounting professors changed? In 1999, when the NYSSCPA Emerging Technologies Committee discussed entry-level accountants’ lack of understanding of the impact of information technology on accounting, an accounting professor indicated that, at least in his experience, “publish or perish” still reigns supreme in academia. One professor’s comments cannot be generalized; however, this emphasis on research likely exists.

The goal of new PhD students is to publish their dissertations and become accounting professors. PhD students are taught that graduation is based on their dissertation’s methodology and rigor. Are good classroom skills rewarded as well? Is it possible that neither accounting professors nor new PhD students are rewarded for being good educators? If this is the case, why should they be interested in teaching accounting?

Whether or not PhD students are rewarded for teaching well, they are educated quite differently than practitioners. In a 1990 article, Bricker and Previts concluded that PhD students are taught the social-science research model. This model may attract top-quality students with no previous accounting experience, who see accounting academia as a path to social-science research, but with the potential for greater compensation. PhD programs in accounting do not require accounting experience for admission.

Undergraduate students. Another key input in accounting education is the undergraduate student. Accounting firm recruiters, as well as professors, say that the quality of new students is down and that accounting programs no longer attract the best and brightest. Albrecht and Sack also reported that the quality of accounting students is declining along with accounting department funding. Recently, the head of an undergraduate accounting department at a leading university stated that the figures speak for themselves: Enrollment is down. As for the quality of entering students: It used to be that the students at his business school with the highest SAT scores majored in accounting. Now he finds no accounting students in the top 10, and only a few near the bottom of the top 20.

The issue of accounting student quality first came to the author’s attention at a meeting of the Florida Institute of CPAs’ Relations with Accounting Educators Committee in 1996. In 1988, the year the author received his Masters of Accountancy, there was no question that accounting students were the best and the brightest at the Warrington College of Business at the University of Florida.

In meetings with several former professors in 1998, however, they agreed that the best students at Warrington no longer majored in accounting, and that enrollment and related funding was substantially down as well. Whether the cause is the 150-hour rule or better opportunities elsewhere should not be the focus of concern, because both imply that there is nothing to do but wait. We must instead examine how we can improve the quality of entry-level accountants when the quality of entering accounting students is not the best.

The subject matter. The current subject matter of accounting education is accounting and auditing standards and practice, not accounting research and theory. A Masters of Accountancy program with one required course in auditing research and one required course in accounting theory is the exception; most programs do not offer such courses. Part of the problem may be that accounting and auditing standards-setters rarely consider research when they set new standards. They are, however, affected by business and political pressure.

More than 10 years ago, Bricker and Previts (1990) and Lee (1989) independently concluded that accounting practice rejects research as irrelevant. As far as theory is concerned, Bedford pointed out in 1978 that scant accounting theory actually underlies either standards or practice. Except for FASB’s concept statements, Bedford’s observation is still valid: What passes for accounting theory in most programs is not actually theory.

Management-to-Standards-to-Practice-to-Education Progression

The progression by which academia performs research, and discovers and reports new knowledge that practitioners believe and accept in order to improve their practices prevails in science, engineering, medicine, and most other professions. Why is accounting an exception?

A more powerful intrusion into the practice-to-education-to-practice paradigm occurs in contemporary accounting: the desire for businesses to appear successful on paper. Accounting standards increase in number, length, and complexity because of the demand for more options to portray financial results. The more complex the standards are, the harder they are to understand, and the more ways there are to interpret them. According to Sterling, with few exceptions the progression observed in 1973 is the following: Business interests want a certain accounting treatment; standards-setters codify what business wants; accountants practice what is codified; and education teaches what is practiced.

There are several reasons why research is not included in the accounting education progression. First, accounting research is based on the social-sciences model rather than the applied-sciences model. In the social-sciences model, accounting researchers may not be interested in current practice issues; rather, they employ a creative process in discovering new ideas by means of explanation, understanding, and prediction. According to Abdel-Khalik (1983), in order to qualify as research, this process must be innovative, defendable, reproducible, and publicly disseminated. It may take as long as 20 years from the time research introduces a new idea until it is incorporated into practice. In contrast, the applied sciences model seeks to find practical applications of basic research within a shorter timeframe.

A second reason practitioners ignore accounting research is that the current codification appears to work in most situations, making money for firms and partners. Finally, fundamental research is rejected because it could threaten the status quo, including the market share of incumbent CPA firms.

The schism between academia and practice. The gap between academia and practice is not new. In 1980, the opening remarks at a roundtable discussion at NYU between accounting professors and practitioners noted that the two groups did not appear to be working in the same direction. In 1989, renowned accounting educator Stephen Zeff said that accounting education programs were not designed to prepare students to meet the requirements of future accounting practice. Are many schools still using a model of rote learning and memorization directed toward preparing students for a certifying exam? If so, then accounting education fails even to this end, because almost all students must take a CPA exam preparatory course upon graduation and even then most candidates do not pass all four parts of the exam on the first try.

The Process and the Entirety of Accounting

Commentators have suggested that accounting edcuation has not changed in 20, 30, or even 60 years. A process that has remained unchanged for so long is probably incapable of producing currently useful output. Could a business be competitive if it processed and communicated information with typewriters, punch-card tabulators, and telegraphs—the state-of-the-art information technology of the 1930s?

Although a few schools are exceptions, the model most programs use to teach accounting consists of learning the rules of accounting. Sixty years ago, this method worked because the information necessary to learn was comprehensible within the limits of the average mind. In 1956, The Accountants’ Handbook, a reference that covered “the entire field of commercial and financial accounting,” reflected the authority of American accounting. It was widely used by university accounting programs in its entirety, and consisted of a mere 29 sections within 1,476 pages. At that time, GAAP consisted of 47 Accounting Research Bulletins, and GAAS consisted of 26 Statements on Auditing Procedures. All of this information could be mastered in the junior and senior years of a baccalaureate program and still leave room for economics, management, finance, and statistics. Contrast this with the impossible task of trying to teach today’s students the entire field of accounting (excluding government accounting), which consists of the Original Pronouncements, 145 Statements on Financial Accounting Standards in more than 3,500 pages, the AICPA Professional Standards, 95 Statements on Auditing Standards, and thousands of other pages.

A New Educational Model

In a new educational model, the only accounting standards a student should be required to understand in depth are the Statements of Financial Accounting Concepts. These concepts are as close as anything to underlying principles and theories of financial reporting. In terms of auditing, all a student should be required to know in detail is the Code of Professional Conduct (ET 50) [in particular, the rules for independence, integrity, and objectivity (ET 100)], the new comprehensive fraud standards, evidential matter (SAS 80), and the Internal Control–Integrated Framework (COSO, 1994). In the Information Age, it is critical to understand COSO, which is the currently accepted underlying theory of internal control. Understanding how digital financial information is controlled—when almost all audit evidence is electronic, and increasing amounts of information are delivered and used in real time—may be more important and useful than auditing the resultant financial statements.

As for the hundreds of standards and thousands of pages, the student need only know how to find the applicable standard pertinent to the issue at hand—a relatively easy task with today’s technology—and how to read between the lines based on an underlying theory (which is difficult unless one has been taught this by good teachers).

Needs in Entry-Level Accountants

Most practitioners can state in simple terms what they value in an entry-level accountant. They need someone who can read, write, and overcome obstacles with innovative solutions. They need an individual able to locate, understand, and apply voluminous complex technical material. They need a person who can ferret out the facts of a transaction or process and communicate them through concise and coherent writing. They also need a “people person” who understands human motivation and behavior, and who can sell ideas. The real question is, how long should it take students to learn these higher-level, yet fuzzier, skills? Can it be done in a four-year bachelor’s program? A five-year master’s? Or does it take longer?

If the accounting education system is truly as broken as Albrecht and Sack contend, and if our industry continues to be held in such low esteem by Congress, the press, and the public, then a disruptive innovation is needed in order to change accounting’s course and begin promoting a new approach to trusted professionalism.

A Radical Proposal for Disruptive Innovation

My radical proposal is this: First, elimate undergraduate accounting programs and replace them with four-year liberal arts, pre-accounting programs similar to pre-med and pre-law programs, which stress reading, writing, mathematics, research, critical thinking, and problem-solving skills. Second, complement the undergraduate program with a three-year Doctor of Accounting (DAc) program, similar to the graduate programs that lawyers and medical doctors must complete before sitting for their professional certification exams. The DAc would be required in order to sit for the CPA exam. Finally, emphasize the applied-research model rather than the social-sciences model in academic accounting research.

A comprehensive general education for accountants. The most important benefit in this disruptive program would be the increase in the value of entry-level accountants. If the value of entry-level accountants is increased, then firms can offer higher starting salaries commensurate with entry-level lawyers and medical doctors. Hence, accounting programs can better compete with these professions and other fields for the best and brightest students.

Doing away with undergraduate students learning tasks now performed by technology leaves time for students to acquire solid foundations for building critical-thinking skills and preparing them for lifelong learning. A full college experience of general subjects gives students a basis for tackling the kinds of difficult and complex problems that must be mastered in graduate programs. After obtaining a comprehensive general education, accounting students will ultimate better understand and respond to society’s needs. Perhaps most important, a general or liberal approach to the accountant’s undergraduate studies will result in greater intellectual achievement than that can be achieved by narrowly focusing on antiquated methods and rules. By focusing on the pursuit of knowledge and the capacity to think rather than on practice techniques, we will develop professionals rather than technicians. Without the knowledge gained in a general education program, accountants are not likely to have the perspective needed to solve information-age problems and deal with constant change in the social context where they work.
The advantages of a terminal doctorate degree. One issue on which most practitioners agree is that academic accounting research is impossible for them to understand, and, as a consequence, irrelevant to their work. The fields of medicine and law, on the other hand, do not suffer from this problem since practicing medical doctors and lawyers share a common terminal degree, and possess the educational training required to understand research published in their field. Over time, unifying accounting with the same terminal degree would close the schism between academics and practitioners.

The advantages of applied research. Some academics do not believe that research is irrelevant, and they can point to several studies showing that, at least for auditing, some academic research has made a difference because it has shown auditors how to apply knowledge in focused areas. Applied research seeks to commercialize new knowledge. In accounting, this means advancing practice by making it more efficient or more effective. Academia’s lack of focus and reward for applied research seems self-defeating in a group that suffers from so many academic and practical problems. Indeed, to paraphrase Carey (1974), how can we even call ourselves a profession, when accounting practitioners are at “sword’s point” with accounting professors?

Deal with the Root Problem

The 150-hour rule is not the root of the many problems facing accounting education and practice. Resolving the differences between academia and practice can go a long way in solving what ails the accounting profession. This is impossible as long as the status quo prevails. Moving to an undergraduate general-education model followed by a three-year Doctor of Accounting program for CPAs, and a corresponding emphasis on applied research, is an innovation desperately needed to deal with the seriousness of the issues we face.