Accounting Misdeeds Prompt Improved Curriculum
Balance of Academics, Skepticism, Practical Training Urged
BY DANA BASNEY and SUZAN DENNIS
Special to the Business Journal
The recent failures of the “Big 5” audits have focused the certified public accountant profession on fraud, management integrity, and forensic accounting.
The current wave of accounting scandals cannot be blamed on the new technology, the new economy, or even new accounting errors.
Accounting educators need to incorporate the late philosopher George Santayana’s common sense insight, “Those who cannot remember the past will be condemned to repeat it,” into the education of future auditors and accountants.
Today’s business education has simply failed to emphasize the lessons of past corporate accounting failures. The WorldCom hearings showcased the lead auditor comically defending the audit program and procedures that did not find the fraudulent reclassification of $3 billion in expenses to the fixed assets account.
Both Congress and the general public are baffled when an auditor states that it was not his job to find fraud and that he asked management about fraud and accepted management’s representation letter stating that there was no fraud.
There is an expectation gap between what the public believes an auditor’s job entails and a CPA’s actual audit in accordance with professional audit standards. The CPA profession has distanced itself from the responsibility for finding fraud.
Instead, CPAs have focused more on applying and interpreting the numerous professional pronouncements that are known as “Generally Accepted Accounting Principles.”
– Internships And The Value
Of ‘Real World’ Experience
In the past, CPA candidates had to spend several years in an internship, doing audit procedures under the guidance of an experienced CPA. Recent licensing requirements have downplayed the importance of this internship concept and substituted formal education in its place.
Accounting education needs to focus on the practical, as well as the statistical and theoretical aspects of auditing. The general public wants the CPA to look for fraud and the management of a company to prevent fraud. The universities and the professional continuing education providers for accountants are responding with more classes on fraud examination, ethics, and forensic accounting. These educators are attempting to augment the current academic education with a more pragmatic and practical training that analyzes past audit failures and highlights the role of skepticism and the practical applications of accounting knowledge.
In addition, the accounting field has a crisis in staffing engagements. Fewer and fewer students are entering the field of accounting. Experienced CPAs are finding fewer young CPAs to pick up the slack. Many older CPAs have discontinued their auditing practices due to liability issues, continuing education demands and peer review requirements.
Many top students have opted for the information technology field and the world of consulting firms. These students are shunning the accounting profession due to the long hours, low pay, and arduous regulations to become certified. Statistical auditing of past data of a corporation is not a sexy field of work.
Students would rather be setting up Web sites with cool graphical, audio and textual interfaces for businesses. It is hoped that emphasizing the more practical aspects of accounting will slow this trend and make accounting more attractive to top students.
– Skepticism A
Valuable Tool
The most critical element an auditor can bring to the job is a healthy sense of skepticism. A growing number of accounting educators feel that a healthy sense of skepticism is even more important than memorizing the detailed rules promulgated by the CPA’s self-regulating boards.
These instructors are questioning the adequacy of the training methods that reward students who regurgitate rules and apply mathematical formulas without any emphasis on understanding the client’s overall financial situation or management bias. These auditors are checking the math and losing the auditor’s greatest asset , a strong sense of skepticism.
California CPA certification has recently been modified to include more accounting and auditing training with mandatory ethics classes. While this trend is still in its infancy, it is catching on at many educational institutions charged with training the next generation of accountants and auditors.
Many feel this is an important and necessary movement. To regain public opinion, CPAs need to reclaim their role of financial watchdogs.
Basney is a principal at Nation Smith Hermes Diamond and teaches advanced accounting topics at UCSD. Dennis is managing partner at Dennis & Dennis, LLP and an adviser for the UCSD accounting certificate program.
