1. Profession - 1 Is Accounting a Profession? What difference does it make?

2. Profession - 2 Examples of “Professions” Prepare a list of fields (other than accounting) which you consider “professions”

3. Profession - 3 Definitions of a “Profession”  Profess –To declare or admit openly –To declare in words or APPEARANCE  Profession –An act of openly declaring or publicly claiming a belief, faith, or opinion (RELIGIOUS VOWS)

4. Profession - 4 Characteristics of a “Profession” What essential features identify a field as a “profession?”

5. Profession - 5 What is a “Profession”? Vocation requiring advanced training and  generally recognized by universities and colleges as requiring special training of an advanced character leading to degrees distinct from the usual degrees in arts and sciences  requiring principally mental rather than manual or artistic labor and skill for its successful prosecution by reference to a common body of knowledge  recognizing the obligation of public service and of the public interest  having a code of ethics generally accepted as binding upon its members Kohler’s Dictionary for Accountants (6 th ed. ), Prentice-Hall, 1983.

6. Profession - 6 CHARACTERISTICS OF A PROFESSION  ESSENTIAL SOCIAL FUNCTION  SPECIALIZED BODY OF KNOWLEDGE  REQUIREMENTS FOR ADMISSION  SELF-REGULATED  ADAPTABILITY

7. Profession - 7 ESSENTIAL SOCIAL FUNCTION  Recognition by society –Presence of problems –Grant of monopoly –Image or prestige  Recognition by employers  Recognition by members –Individuality –Acceptance of responsibilities

8. Profession - 8 SPECIALIZED BODY OF KNOWLEDGE  Formal education –Long and rigorous preparation  Conceptual rather than practical –Mental more than physical  Unique language

9. Profession - 9 REQUIREMENTS FOR ADMISSION  Demonstration of technical competence –Education  Hurdle for monopoly rights  Usually requires examination and experience  Licensing often required

10. Profession - 10 SELF-REGULATED  Code of Ethics –Character –Ability to make difficult decisions  Concern for “interests of society” –Willingness to accept responsibility  Procedures for discipline

11. Ethics & Accounting  There is a ‘structural problem’ in modern auditing, in that auditors are not paid by those whose interests they are supposed to represent  Accountancy is a profession that arose so recently (approximately years ago) that it lacks the history, tradition, and self-understanding which corresponding to a traditional profession  Accountants must take care to state the truth in a way that is adequate to particular circumstances – and thus they need an inner orientation to the truth  Accountants must serve as ‘watchdogs’ for the marketplace, and thus they must be especially able to resist greed and greediness CHEFFERS – p. 23 Profession - 11

12. Profession - 12 ADAPTABILITY  Continuing professional education  Awareness of changing social conditions  Significance of broad “liberal education” –Breadth

13. Profession - 13 ADAPTABILITY

14. Profession - 14 U.S. Accounting Profession 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

15. Profession - 15  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 Profession 1930’s

16. Profession - 16 U.S. Accounting Profession 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

17. Profession - 17 U.S. Accounting Profession 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

18. Profession - 18 U.S. Accounting Profession 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”)

19. Profession - 19 U.S. Accounting Profession 1970 to 1980  AICPA reforms (1977-1978) –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

20. Profession - 20 U.S. Accounting Profession 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

21. Profession - 21 U.S. Accounting Profession 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)

22. Profession - 22 U.S. Accounting Profession 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”

23. Profession - 23 U.S. Accounting Profession 2000 to Today  Major stock market volatility  Significant number of business frauds and related accounting issues –Enron, WorldCom, Global Crossing, etc. –Elimination of Arthur Andersen –MaDoff  Sarbanes-Oxley  IFRS

24. Profession - 24 Professional Reflections “Reflections on a Half-Century as An Accounting Professional” Frank C. Minter, CPA VP of Trustees Financial Accounting Foundation Strategic Finance December 2007

25. Profession - 25 What Went Wrong? Frank C. Minter  1980’s –Accounting frauds (ZZZZ Best, Crazy Eddie, etc.) –Treadway Commission COSO Standards on internal control Emphasis on “tone at the top”

26. Profession - 26 What Went Wrong? Frank C. Minter  1990’s –SEC Chairman, Arthur Levitt criticized accounting profession on various accounting practices –“Cookie jar reserves, Big Bath Accounting, Improper revenue recognition”

27. Profession - 27 What Went Wrong? Frank C. Minter  2000 – 2002 –Major corporate scandels –Enron, World Com, Global Crossing, etc. –Fall of Arthur Andersen –Sarbanes-Oxley Act Federal regulation of the profession

28. Profession - 28 Cause of Latest Failures Frank C. Minter  Vast increase in number of stock options –Esp. due to lack of “expensing” until recently  Public accounting firms emphasized consulting & total revenue growth – auditing became a “commodity”  SEC made lots of noise but took little action

29. Profession - 29 Cause of Latest Failures Frank C. Minter  “Corporate greed” led to emphasis on growth through inflated stock values and acquisitions accounted for as “pooling of interests”  Investment community’s short-term focus on the next quarter’s earnings –Earning expectations became KING

30. Profession - 30 Is Accounting a Profession?  Yes or No  Is your answer different for specialties within accounting –Financial reporting Profit oriented entities Not-for-Profit entities –Management accounting –Auditing –Tax services –Consulting