Profession - 1
Is Accounting a Profession?
What difference does it make?
Profession - 2
Examples of “Professions”
Prepare a list of fields (other than
accounting) which you consider
“professions”
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)
Profession - 4
Characteristics of a “Profession”
What essential features identify
a field as a “profession?”
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
public interest

having a code of
upon its members
service and of the
ethics generally accepted as binding
Kohler’s Dictionary for Accountants (6th ed. ), Prentice-Hall, 1983.
Profession - 6
CHARACTERISTICS OF A
PROFESSION
 ESSENTIAL SOCIAL FUNCTION
 SPECIALIZED BODY OF KNOWLEDGE
 REQUIREMENTS FOR ADMISSION
 SELF-REGULATED
 ADAPTABILITY
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
Profession - 8
SPECIALIZED BODY OF KNOWLEDGE
 Formal education
– Long and rigorous preparation
 Conceptual rather than practical
– Mental more than physical
 Unique language
Profession - 9
REQUIREMENTS FOR ADMISSION
 Hurdle for monopoly rights
 Usually requires examination and
experience
 Licensing often required
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
Profession - 11
ADAPTABILITY
 Continuing professional education
 Awareness of changing social conditions
 Significance of broad “liberal education”
– Breadth
Profession - 12
U.S. Accounting Profession
Prior to 1930
 American Assoc. of Public Accountants (1887)
– becomes AICPA
 No regular audits
 1913 – 16th Amendment (Income tax)
– Demand for complete accounting records
– Acceptance of depreciation
 Early consulting = management accounting
and information systems
Profession - 13
U.S. Accounting Profession
1930’s
 Great depression
 Formation of the SEC
– Regular audits
– Standardized audit report
 Committee on Accounting Procedure (AICPA)
– Establishes accounting standards
– Cooperation with the SEC
Profession - 14
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
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
Profession - 15
U.S. Accounting Profession
1970 to 1980
Profession - 16
 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”)
U.S. Accounting Profession
1970 to 1980
Profession - 17
 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
U.S. Accounting Profession
1980 to Today
Profession - 18
 “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
Profession - 19
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)
Profession - 20
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”
Profession - 21
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
Profession - 22
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
Profession - 23
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”
Profession - 24
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”
Profession - 25
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
Profession - 26
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
Profession - 27
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
Profession - 28
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