Are Grads Ready for the New World of Accounting?

Five years ago, Sarbanes-Oxley (SOX) turned the audit side of the profession upside down.  Today, the pending adoption of interactive data tagging for financial statements and, more significantly, the push for a transition from U.S. Generally Accepted Accounting Principles (U.S. GAAP) to International Financial Reporting Standards (IFRS) is expected to usher in even greater changes to the skill sets new accountants will need to effectively guide their companies to compliance and financial solvency.

The challenge for academia is how to facilitate the curriculum changes required to fully prepare new accountants for a profession that, thanks in large part to IFRS, will be more principles than rules-based—a challenge exacerbated by the  lack of any firm transition dates for many of the expected mandates.

“Is the academic community ready?  The answer to that is no,” said Sue Haka, president-elect of the American Accounting Association and Michigan State accounting professor.

Haka’s comments came during a June conference on IFRS readiness sponsored by the Financial Accounting Standards Board (FASB).  She noted that because there is no perception among faculty or accounting students that IFRS is on the horizon, there is no demand for academic publishers to add it to textbooks or for accounting schools to incorporate it into their curriculum in a meaningful way.

 
“We need a stake in the ground.  Here’s the drop dead date and then people will get on board,” she said, adding that too many faculty members view IFRS as an intermediate accounting issue that will require the simple addition of a few course materials.  “…It is not just a financial accounting issue.  It is a business issue.  It goes across the curriculum.”

Haka also noted that because there is a wealth of literature to guide the rules-based approach to teaching U.S. GAAP, getting faculty comfortable with the incorporation of the principles-based approach required for IFRS will require “a more transparent way to present it based on the economics of the transaction,” she said.

That is not to say that accounting educators are not eager to begin incorporating IFRS into their course work.  However, until it becomes part of the CPA exam, there is little they can do to accelerate its inclusion into core curriculum.

That’s according to Linda Biek, National Association of State Boards of Accountancy, who also participated in the FASB forum in June.

“The educators are anxious to move forward with teaching IFRS.  They’re just waiting for that to be part of the state board consideration of requirements for sitting for the CPA exam,” she said.  “…It’s tough to push education if that particular topic isn’t going to be on the exam because so often the education is reflected on the exam.”

The problem is that new accountants must be equipped now to adapt to the changes IFRS and other mandates are expected to create.  For example, it is very likely that the incoming class of accounting students will need to understand new financial reporting standards when they enter the workforce in 2012.

That is why many believe that training new accountants to succeed in an evolving profession should not fall entirely upon the shoulders of academia.  In a May 2008 report, the U.S. Treasury Department’s Advisory Committee on the Auditing Profession called on private industry, educators, regulators and others to work together to implement market-driven, dynamic curricula and content for accounting students that continuously evolve to meet the needs of the auditing profession and help prepare new entrants to the profession to perform high quality audits.

It is a call to action that the Big Four is heeding.  Earlier this year, Ernst & Young LLP announced the formation of the Ernst & Young Academic Resource Center, a collaboration between the firm’s professionals and university faculty to develop curriculum and provide faculty members with learning materials initially focused on IFRS.

“The changes that are now clearly on the horizon around [IFRS] will create a seismic shift around the knowledge and content that U.S. students will need to learn in the coming years,” said Douglas Shackleford, Meade A. Willis Professor of Accounting at the University of North Carolina’s Kenan-Flagler Business School, in a release announcing the Ernst & Young initiative.

The Academic Resource Center will officially launch in September and expects to begin distributing curricula to campuses as early as January 2009.  In addition to developing or co-developing teaching materials, the Center will host subject matter conferences and provide on-campus speakers.

Although the initial focus will be on IFRS, the Center will also address significant developments impacting the tax and accounting profession.  As regulation or laws change, the Center will focus its resources on emerging topics and develop real-time materials to support faculty.

“We see the development of this Academic Resource Center as a way to step up and leverage our global experience and knowledge to help prepare tomorrow’s leaders to meet the changing demands of the global financial marketplace,” said Ellen Glazerman, Ernst & Young’s Americas Director of University Relations.

Deloitte has also stepped up, forming the IFRS University Consortium to assist Ohio State and Virginia Tech universities in developing IFRS curricula, including drafting course materials and providing Deloitte professionals as lecturers.

“Existing curriculum materials have scant amounts of IFRS content.  Textbooks normally publish on a three- to four-year cycle.  And faculty is pressed for time to create meaningful course materials that will help students understand IFRS and U.S. GAAP,” said D.J. Gannon, partner and leader of Deloitte’s IFRS Center of Excellence in the U.S.  “…At Deloitte, we recognize our responsibility to step forward and help academia educate and prepare tomorrow’s accounting professionals to apply this new language of accounting and financial reporting.”

As one in the education trenches, Joseph J. Oliveti CPA, a consultant and adjunct accounting professor, applauds the initiative the industry is taking to speed the introduction of IFRS and other regulatory and practice changes into the accounting curriculum.

The impact SOX had on accounting education will pale in comparison to those of IFRS, and the best way to manage the required education changes is through partnerships between universities and the profession.

However, he says there are steps both educators and students can be taking now to prepare for the new world of accounting that is on the horizon.

“Professors need to be doing some research, starting to redraft curriculums and looking at those they are going to change,” he said, admitting that “that’s all they can do at this point until there is an adoption date set.”

Students, meanwhile, should get in the habit of reading financial publications such as the Wall Street Journal, Forbes and magazines and online news sources that can help them expand their understanding of business.

They should also join student chapters of their state CPA associations, which offer a wealth of information and opportunities to learn from those who are already practicing many of the changes they will face as they move out into the professional world.

“It’s impossible for a person to be an expert in everything,” said Oliveti.  “You’re on a quest for knowledge.  Even though you get your degree, your learning doesn’t stop.  You need to keep absorbing and looking for avenues.”

Ultimately, he says, the profession will weather these new changes just as it has those in the past, including SOX and the adoption of the Committee of Sponsoring Organizations (COSO) framework for internal controls.

“It’s going to be a challenge, but it’s going to get done,” he said.  “It will be a new chapter to a profession that’s gone through many changes already…We’ve just got to be diligent in what we’re doing and we’ll get students trained properly.”
 

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