January 2003

The Accounting Profession Then and Now

Philip B. Chenok, CPA (Retired), was AICPA President and CEO from 1980 to 1995 and has remained active and involved in the professional community, as befits one who has been both a witness to and a participant in the momentous changes shaping the accounting profession in the United States.

In late 2002, The CPA Journal editors asked Chenok to share his perspective on the current state of affairs for the profession.

The CPA Journal: How does the profession rate in serving the public interest, past and present?
Philip B. Chenok: Over the years, the public has generally had very high confidence in CPAs’ integrity, objectivity, and competence. Unfor-tunately, at present the public’s confidence in many of our institutions is very low. Wall Street, the business community, government, and the legal and accounting professions are all under the gun. In the wake of Enron and other recent disclosures of the lack of integrity in business, many investors have become distrustful.

Our system works on trust. Investors expect the management of public companies to behave honorably and openly, even when things don’t go right. They expect independent auditors to act as their watchdogs. Questions are currently being raised about our willingness to put the public interest over that of the client or oneself. I believe that while it will take a long time and a lot of hard work to regain the public’s respect, it is possible. The key to regaining trust is to work in the public’s interest.

I’ve been urging CPAs to put the public interest first, ahead of our clients and ourselves. We need to remember every day that by serving the public interest, we serve our clients, our employers, and, ultimately, ourselves.

CPAJ: Can the AICPA and the state societies be both professional organizations representing members’ professional interests and trade associations helping to promote members’ business interests?
Chenok: One of the first things we did after I became AICPA president was organize a strategic planning effort to help identify future issues that could impact the profession or the Institute. We concluded that we needed a mission statement to clarify the Institute’s role.

At that time two opposing points of view existed. One group felt that the Institute’s primary responsibility was to help members improve their quality of service, because CPAs served the public trust. The other side believed that as a membership organization, the AICPA should serve members’ business interests.

After much discussion and debate we adopted a mission statement that read, “to act on behalf of its members and provide necessary support to ensure that CPAs serve the public interest in performing the highest-quality professional services. In fulfilling its mission, the AICPA gives priority to those areas where public reliance on CPA skills is most significant.”

Recent changes, such as the creation of CPA2Biz, seem to suggest that the membership wants a more balanced approach, where the public interest and members’ business interests stand on a more equal footing. In my own view, the emphasis should continue to be on the Institute’s public interest role.

As for the Institute and the state societies, it always seemed to me that the Institute was in a better position to deal with public interest issues such as establishing requirements for peer review, CPE, and the 150 hours as prerequisites for membership. The state societies are, by their nature, closer to the grass roots and better able to mobilize members.

CPAJ: What are your thoughts about the political environment of the 1980s versus today? The accounting scandals in particular?
Chenok: Things are much tougher today. In the 1980s, our worst crisis was the savings-and-loan industry difficulties. Today’s problems seem to
run throughout the economy. It isn’t just accounting that’s at fault.

There’s plenty of blame to go around. Everyone became greedy. Shareholders were seduced by double-digit gains. Management sought to improve earnings by dubious means and to enrich themselves at the same time through stock options. Wall Street, the banks, the lawyers, and the accountants, along with companies, created ways to enhance earnings and reduce debt, thereby shoring up stock prices as the market was going south.

The recent, sharp drop in the stock market has made matters worse. No one knows what will happen if many more companies are forced to restate prior earnings reports.

It’s clear that Washington has had to act, but there is a danger of overreaction and overregulation. The Sarbanes-Oxley Act has the potential to be an overreaction. Only time will tell, but if we accept our public interest role, we may be able to achieve a more balanced response in Washington.

CPAJ: What is your assessment of CPA2Biz and XYZ and their implications for the credibility of the profession and the AICPA?
Chenok: The membership has already spoken with regard to the proposal for the so-called XYZ credential. The leadership thought enough of the idea to bring it to the membership for a vote, and the membership rejected it by a wide margin. On the positive side, neither the membership nor the public appear to be questioning the credibility of the profession as a result.

CPA2Biz represents a much bigger set of issues, and a lot of money is involved. Founded in March 2000, the company currently has approximately 70 employees, and has raised more than $100 million from investors. Strategic relationships have been established with a number of large companies, including Aon Corpora-tion, the Bank of America, Microsoft Corporation, and the Thompson Corporation. The AICPA established two wholly owned subsidiaries, one delivering web-based application services on behalf of CPAs to small business clients, the other helping CPAs diversify into insurance, investment products, and other financial services. The latter manages over $1.3 billion in assets and over $17 million in insurance premiums.

As a for-profit activity, CPA2Biz runs ordinary business risks. I understand the activity to be highly dependent on CPAs’ wanting to avail themselves of the services being offered. I suppose that the payment of commissions to members, frowned on in prior years, would be part of the attraction to the current membership.

The CPA2Biz website indicates that it is the exclusive online distributor of AICPA products and services, including CPE and conferences. It has its own executive team, none of whom are CPAs, as well as a separate board of directors. In prior years, the Institute’s revenue-producing activities were integrated with its other activities, and they were used to offset dues increases.

In the face of the business risk taken on, I would expect the returns to be greater than the revenue given up. If CPA2Biz were to falter, questions certainly would be raised about the Institute’s wisdom in moving into this area, though I doubt that the credibility of individual CPAs would be called into question. The CPA2Biz concept seems consistent with the idea that the Institute should support members’ professional obligations and their business interests on a more equal footing.

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