When did the accounting profession become known as the accounting industry? What happened to change it so dramatically? And what does the future have in store for tomorrow’s accountants?
“Industrial Era” Tactics
The Chicago Tribune reports, it all started with the savings and loan crisis fifteen years ago (“Accounting Industry Counts on its Clout,” February 6, 2002). Accounting firms were facing mounting lawsuits and decided to fight back with three powerful but controversial “industrial era” tactics:
- Accounting firms formed a lobbying coalition and poured millions of dollars into political campaigns. The first major payback was the Private Securities Litigation Reform Act of 1995, a controversial act that passed only after Congress overrode President Clinton's veto. The act was followed by intense lobbying against auditor independence reforms suggested by Arthur Levitt, former Chairman of the Securities and Exchange Commission. These efforts were so controversial the profession later voluntarily adopted the same reforms they fought so hard to prevent -- and at no small cost. Altogether, the Big Five contributions to political parties and federal candidates are double compared to 10 years ago.
- Accounting firms gained more seats on state regulatory boards. The National Association of State Boards of Accountancy reports that more Big Five members are being appointed. Like the lobbying, this effort is also steeped in controversy. Dennis Spackman, a former association chairman, says he thinks the Big Five are trying to get as many seats as possible to protect their interests. He said he fears that Big Five board members might deflect complaints against their firms, “and that’s a risk that should never take place.” In general, governors appoint the board members, but some states report pressure to appoint representatives from Big Five firms.
- Accounting firms supplemented the salaries of professors, in some cases having input on who was hired in those positions. Over the past 20 years, there has been a marked increase in accounting firms creating professorships. The Foundations for Andersen, KPMG and Deloitte all report funding about 40 professorships each. KPMG said it provided each professor with about $10,000 to $30,000 annually. These outlays have proven controversial because critics challenge the objectivity of the research conducted by these professors. They question whether professors should accept money from accounting firms that they may be called upon to criticize or study. Equally controversial are research grants from the Accountants Coalition lobbying group.
Next Push: The “Information Age”
These steps have clearly left their mark on the nation’s laws, regulatory bodies and college campuses. While they are not uncommon moves for large corporations, the Tribune says, the effort was so intense that it dramatically transformed the accounting profession. Critics say these steps culminated the industrialization of the accounting profession and set the stage for the ethical lapses that led to the Enron debacle. In the face of criticism like this, it’s no wonder AICPA CEO Barry Melancon wants to push accounting from the industrial era into the “information age.” For many accounting practitioners, students and professors, this is one evolution that can’t come soon enough.