Accounting in Extraordinary TimesPosted: July 30, 2018
One of the highlights of TSCPA’s Annual Meeting of Members was a presentation by Bill Reeb, CPA, CITP, CGMA and Vice Chair of the AICPA. Bill covered several issues impacting the profession in this age of ever accelerating change and progress. I was pleased to hear Bill say one of his goals is to make sure we leave our aspiring and recently certified CPAs a profession that is as good as or better than the profession that was left to us by our predecessors. That desire is one of the reason I am active at the international, national, state and local levels of the profession.
In many aspects, the profession is doing as well as ever today. Our members are financially successful with skills and services that are in high demand. Such a position tends to make one complacent, but instead we need to take our current success and build on it. We need to disintermediate ourselves before someone else does it to us. Change is happening. By 2027 (that is only eight and a half years away,) 75% of the companies in the S&P 500 may no longer be there. Companies that are unwilling to change don’t continue to be successful, they go away. In fact, disruption used to be seen as a challenge to companies but now 74% of CEOs say their businesses aim to be disruptors, and 65% of CEOs say disruption is an opportunity. There are many external forces driving changes in the profession including:
- Global insatiability
- Regulatory complexity
- Technology and cyber issues
- Workforce changes
- Financial challenges worldwide
We live the profession every day and it looks the same to us, but someone looking in from the outside sees the change. Think of the time you had a puppy. You don’t really see the changes because you live with the puppy every day, but your friend who only comes over every couple of weeks notices how much change has occurred each time she visits. The profession is changing radically in both what is expected from it and what it does. The top three skills finance executives now look for in auditors include:
- Technology skills (67% say they are necessary)
- Communication skills (66% say they are necessary)
- Critical thinking/judgment skills (65% say they are necessary)
The percent of CFOS saying these skills are necessary have all increased by double digits since 2014.
When it comes to reporting, the future is moving beyond just financial reports. While not big in the U.S. yet, globally there is a lot of interest in integrated reporting. But even in the U.S., reporting on topics such as sustainability is growing exponentially with 82% of the S&P 500 publishing a sustainability report in 2016. Even more to the point, 73% of portfolio managers consider sustainability when making investment decisions, and 69% believe sustainability reporting should be subject to independent assurance. The question for the profession is are we going to be the ones to provide that assurance or are we going to leave it to others?
Another area where our existing skills provide us an edge, but we need to develop more skills, is around valuation work. Eighty-seven percent of the S&P 500 value consists of intangible assets; something that is not consistently measured in financial statements. And even when intangibles are measured and subject to audit, we don’t always get it right. Thirty-one percent of the deficiencies cited by the PCAOB in 2017 related to fair value measurements. We can argue that valuations shouldn’t be a big part of financial reporting, but if valuation of intangibles is what is driving the value of companies today, we can decide as a profession to either ride the wave or get beat up by it. As one who has spent a decent amount of time at the beach, I can tell you riding the wave is much more fun.
There is so much more I can talk about, but I think you get the idea that these are exciting times for the profession. We are privileged to be part of a successful profession with a bright future, but it will stay that way only if we keep changing with the times.