CPAs … It’s Complicated
Where did we come from and where are we going?
February 1, 2010
Much has changed since Joseph Hardcastle became the first person to pass the CPA exam in 1896. Yet, a lot in our profession has remained the same. While we focus on adapting to continuous change, it is refreshing to look back on our consistent principles, mission and purpose. Those undoubtedly provide a clear vision of where CPAs are going.
As reported by Dale L. Flesher in his 1996 article, The First Century of the CPA, the accounting profession came about during the past century in response to the transformation of American society from mostly rural and agricultural to urban and industrial. The adaptation to the complex and sophisticated financial needs brought about by the Industrial Revolution was neither smooth nor easy.
For better or worse, complexity brings with it the opportunity to abuse “the system.” At the turn of the 20th century, manipulating financial reporting and financial markets abounded. Sweeping legislative changes were implemented, along with the need for oversight in the form of audit services came in response to the proliferation of business scandals and financial crises. Over time, rules governing the accounting profession evolved to provide a more stable and reliable foundation to prosperity.
In 1913, the door to a whole new world of further financial complexity was opened wide by the 16th Amendment to the U.S. Constitution, permitting a federal income tax. In 1928, IBM stepped up accounting technology and therefore the speed of change, with the 80-column punched card. Until the mid-1930s, CPAs struggled to organize into a coherent and unified group. The prospect of government control over accounting and auditing standards — mandated by the Securities and Exchange Act of 1934 — motivated the profession to pull together and seek some degree of self-governance.
From there, the mission was clear, the stage was set and the profession was organized to grow, commensurate with the financial challenges to come. They arrived exponentially, courtesy of the Technological and Information Age. Through cycles of scandals, financial crises and subsequent government reforms, CPAs have delivered on their mission: helping to make sense of a changing and complex financial world.
Today, the reliance on CPAs still builds on its original foundation: right knowledge (expertise) and right action (ethics). Looking forward, everywhere we see increasing financial complexity we will see growing roles for the CPA.
Technological, regulatory and legislative change will continue to impose on us the continuous need to adapt. Our legacy demonstrates our ability to make sense of change. Yet, we can be most effective when we are proactive in making changes that make sense. It is therefore incumbent upon each of us to choose a path of involvement for advocacy. Supporting the AICPA and state societies’ efforts is a starting point. Only two CPAs ever ran for U.S. president, versus the hundreds of attorneys who fill influential political offices. Doesn’t it make sense to populate the positions of the peoples’ trust with members of the most trusted profession?
In the arena of personal finance, the Tax Code has been tremendously influential in furthering the involvement of CPAs with individuals. Nowadays, the relationship individuals have with their CPA is often their primary financial relationship and their most trusted. Unfortunately, our services to families have too frequently been focused on compliance requirements, rather than on overall financial needs. This will continue to change as the Personal Financial Planning Center and the PFS credential offer resources to help us grow our holistic practices.
However, that change may not come fast enough, as the personal financial landscape has transformed itself into a minefield of complexity. Last month, at the AICPA Personal Financial Planning conference, David Solie reported that baby boomers face “complexity on steroids.” “Today, we face more complex, urgent and unpredictable circumstances; forcing us to make more sophisticated decisions in less time,” he explained. Wise counsel (the art of transforming complexity) was his prescription. This sounds like a job CPAs have been gearing up to for over a century.
As many of us enter tax season, we will find many clients battling to maintain stability in a world of increasing volatility. Solie suggests we ask more questions of our clients to get a holistic overview of where they are today. Where you take that important conversation depends on your chosen level of involvement (see Being a CPA Is So Cool).
Several years ago, the CPA Vision Project took on the task of bringing together CPAs from public practice, education, government, business and industry to define a common mission and goals for the future. The following vision statement emerged from the process:
CPAs are the trusted professionals who enable people and organizations to shape their future. Combining insight with integrity, CPAs deliver value by:
CPAs from all areas of the profession can use Economic Platform models from the Project to review their own company and organization structures, to align themselves with the profession’s vision of delivering greater value. The key drivers of change outlined in the AICPA Strategic Plan (PDF) can also help your strategic planning.
The CPA profession arose from chaotic societal change to bring order and help make sense of complexity spiraling out of control. Our responsiveness and reliability transformed us into a multi-faceted group bound by common principles, purpose and mission. As complexity rapidly infuses every aspect of personal financial life, we will find our roles expanding beyond the legislative and regulatory requirements which dominantly propelled our growth. Our mission will require us to increasingly participate in public and personal financial life. And, of course, our legislature will continue to provide us with a CPA Full Employment Act.
Jean-Luc Bourdon, CPA, PFS is a wealth manager with Walpole Financial Advisors, LLC (WFA) in Goleta, CA. His opinions and comments expressed within this column are his own, and may not accurately reflect those of WFA. This information is being provided for informational purposes only and does not constitute investment or tax advice. Nothing in these materials should be interpreted as implying the performance of any client accounts, or securities recommendations. Bourdon volunteers as financial literacy advocate. He also currently serves on the UW-Platteville’s Distance Learning Alumni Advisory Board. The AICPA’s PFP Section provides information, tools, advocacy and guidance to CPAs who specialize in providing tax, retirement, estate, risk management and investment advice to individuals and their closely held entities. All members of the AICPA are eligible to join the PFP section. For CPAs who want to demonstrate their expertise in this subject matter apply to become a PFS Credential holder.