History - 1 Is Accounting a Profession?

History - 2 Examples of “Professions”

History - 3 Characteristics of a “Profession”

History - 4 What is a “Profession”?

History - 5 CHARACTERISTICS OF A PROFESSION

History - 6 U.S. Accounting History Prior to 1930  American Assoc. of Public Accountants (1887) – becomes AICPA  No regular audits  1913 – 16 th Amendment (Income tax) –Demand for complete accounting records –Acceptance of depreciation  Early consulting = management accounting and information systems

History - 7  Great depression  Formation of the SEC –Regular audits –Standardized audit report  Committee on Accounting Procedure (AICPA) –Establishes accounting standards –Cooperation with the SEC U.S. Accounting History 1930’s

History - 8 U.S. Accounting History 1940 to 1970  Establishment of GAAS (1947)  Uniform CPA Exam  CPAs become public figures  Development of computer information and MAS  Formation of APB (1959) –Standard setting body –Addition of permanent research staff –Dominated by CPAs  Influence of partners of major CPA firms –Speak out on accounting standards –Possess “tenure” and support from firms

History - 9 U.S. Accounting History 1940 to 1970 Continued  SEC overrules APB on Investment credit (1963)  Accounting scandals and lawsuits –Webtec, Nat’l Student Marketing, etc. –Firms begin to adopt “defensive posture”  Continued criticism of APB –“Brush-fire” approach –Highly technical opinions –Debate over pooling vs. purchase APB 16 & 17

History - 10 U.S. Accounting History 1970 to 1980  Further accounting scandals (Stirling Homex, Equity Funding, etc.) –Moss and Metcalf Congressional Committees –Issues of auditor responsibilities –Firms begin to help clients prepare responses to FASB proposals  Formation of Wheat Committee  Establishment of FASB (1973) –Independent body to establish accounting standards Full-time, highly compensated, no CPA requirement –FAF retains influence (later reduced) –Formal recognition by SEC  SEC proactive on financial reporting issues –Chief Accountant – “Sandy Burton” –Agency assumes lead on issues of accounting measurement and disclosures (“inflation reporting”)

History - 11 U.S. Accounting History 1970 to 1980  AICPA reforms ( ) –SEC Practice Section Peer reviews –Private Companies Practice Section –Public Oversight Board  Dept. of Justice and FTC regulations (1979) –AICPA must eliminate rules against direct, uninvited solicitation, and advertising –Allow receipt of commissions from nonaudit clients  Beginnings of criticism of MAS work for audit clients

History - 12 U.S. Accounting History 1980 to Today  “Professional” accounting firms become business firms –Emphasis on growth and broad “scope of services” –Acquisition and retention of audit clients is key (price competition is keen) Withdrawal of accounting firms from dialogue on accounting principles Perception that audit partners are less willing to “challenge” a client’s aggressive accounting practices –“Low-performing” partners are removed –No longer identify themselves as public accountants or auditors –Revenues from non-audit services grow to over 50% by 1999

History - 13 U.S. Accounting History 1980 to Today  Internationalization and merger of major accounting firms  Significant litigation against accounting firms  Crisis in S&L and banking industry –Congressional committee hearings – John D. Dingell  Other business/auditing failures (ESM Securities, Wedtech, ZZZZ Best)

History - 14 U.S. Accounting History 1980 to 2000  Assaults on independence of FASB  Aggressive accounting practices –Pressure for continued rapid growth in earnings –Significance of “hitting” analysts forecasts –Dot Com market of 1990’s –“Opinion shopping” by CEOs & CFO’s  Significant concerns about auditors’ independence because of “scope of services”

History - 15 U.S. Accounting History 2000 to Today  Major stock market decline  Significant number of business frauds and related accounting issues –Enron, WorldCom, Global Crossing, etc. –Elimination of Arthur Andersen –MaDoff  Sarbanes-Oxley  IFRS