The Evolution of Accounting – Part 1

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By Charles F. Benton, CPA, CEO

Stephen Hawking, when asked how he could still work with complex mathematical equations while confined to his immobile body, responded that numbers were nothing more than a way to portray reality. Since he no longer had the ability to physically work with numbers and equations, he must rely on his ability to mentally work with them—in other words, to think in reality.

We accountants use numbers to portray the reality of an entity in financial terms. The portrayal to some is not understandable. To others who are well versed in accounting, the picture is precise and accurate in every detail. For the most part our clients are more in the former rather than in the latter category.

It is said a good definition of an accountant is someone who assists management in operating a business in a more efficient and profitable manner. Steven Covey defines a professional as “a highly skilled and caring individual.” I don't think these definitions are at odds with one another. They are just viewing business relationships from different perspectives. If we combine these definitions of accounting and professionals, we might come up with the following:

"A professional accountant is an ethical, caring, skilled technician who paints a realistic picture of where an entity currently is and has been, using numbers.”

Over the years accountants have been put under obligation to paint a realistic picture for not only their business clients, but to the government and to the public. Regulation and the current version of Generally Accepted Auditing Standards (GAAS) have been promulgated to provide the profession with uniform tools to verify the accuracy of financial statements of audited organizations. The Sarbanes-Oxley Act requires public corporations to become transparent to the public and have a CPA firm attest to this fact. The Generally Accepted Accounting Principles (GAAP) provides guidelines for painting reality in numbers. All these are examples of how the accounting profession has evolved.

Today, because of the rapid changes in technology and the global economy, the accounting profession will continue to evolve. Here are some reasons why this phenomenon will take place:

  • The Need for Technical Skills - Accountants spend a great deal of time and effort upgrading technical skills. Some say that the volume of knowledge required exceeds the ability of a professional to maintain an adequate level. With the volume of new products and information being developed by a World marketplace, the proposition of creating specialties in accounting will again be visited. The Big Four accounting firms are able to create specialty departments within the scope of one firm.
  • Size of Businesses - The World economy is growing at a fantastic pace. There are big businesses such as General Electric, Wal-Mart, Southwest Airlines and Microsoft that are characterized by top quality management, sales and a treasury as large as many developing countries. Large business growth continues and most small business comes and goes like the seasons. Do accountants owe these embryonic small businesses some assistance so that they may not wither and die in the fall? I believe that we do. This is part of our caring philosophy.
  • Presence of Global Economy - Most accounting firms will have to get used to the fact that their clients will become part of the Global Economy. Even the smallest firms will have to learn some of the basics of international trade. Most small to medium size accounting firms are going to have to form alliances in order to be able to compete with larger firms to maintain their clientele.
  • Lack of Accounting Graduates in U.S. - The production of accounting graduates by colleges and universities has slowed significantly since the 1990's. Within the next several years, baby boomers that are currently partners at professional accounting firms will begin to retire. The public accounting profession is having a difficult time in attracting accounting graduates away from private industry. Only one-third of accounting graduates will, in fact, join public accounting firms. Small firms are having a difficult time attracting new staff.
  • The Supply of Accounting Professionals Offshore – Currently, countries such as India, whose native business language is English, are producing accounting graduates in phenomenal numbers. The quality of education in India is improving daily and schools have started teaching US accounting standards. With the advent of the Internet, the ability to communicate and work in alliances that cover great distances has arrived. Already, some US firms are tapping this supply. For example, it is estimated that over 250,000 2004 tax returns will be processed using offshore resources.

Copyright © 2005 CFB Associates. All rights reserved. May not be reproduced without prior written consent of CFB Associates.

Next month Part 2: How will accounting evolve in the future?

By, Charles F. Benton, CPA
CFB Associates, Inc.
705 South Ninth Street, #105
Tacoma WA 98405

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