We’re all constantly learning. For example, early this morning while reading The Wall Street Journal, I was informed that the name of the Quaker Oats man is “Larry.” Who knew?
One guy we can all learn from (not “Larry”) is Ron Baker. The following Q&A from the founder of the VeraSage Institute, explains why the industry is on the verge of becoming irrelevant.
Question: What is the biggest risk to the accounting profession?
Answer: People are not going to like this, but I see the biggest risk to the accounting profession as irrelevancy. They’re high-priced bookkeepers and unless they move away from the idea that they’re historians with bad memories, who can only report on the past, who can only report on lagging indicators (they’re in trouble). You go into a lot of these firms and they’re doing very low-level work and then they sit around and complain and moan that it’s a commodity. Well, sure. It’s low-value stuff, and if that’s all you’re doing, then you’re going to be stuck with government regulation revenue, and I see that as the biggest threat to our profession. I actually question whether CPAs are a profession anymore. We don’t have self-regulation. We don’t have autonomy. We’re ruled by peek-a-boo, we’re ruled by state boards of accountancies in a lot of states that are a majority regulated by non-CPAs. That’s not the definition of a profession. A profession stands for something. I don’t know what the CPA profession stands for anymore.
Q: You’ve mentioned that another big problem is a monopoly among auditors.
A: I don’t think we should have a monopoly. I think we should open it up. I think insurance companies, banks, other people should come in and be able to do test work. If an investor wants to buy financial statement insurance, Lloyd’s of London is completely capable of doing that. And they could probably do a better job than the auditors because, let’s face it, actuaries price risk. Auditors just charge by the hour for their audit, which isn’t a test service. It’s an insurance product to some extent, and they’re not pricing it based on risk, so you get problems like Enron and Tyco, and all the others.
Q: So what do you think of auditor term limits?
A: I think term-limiting the auditors is the wrong question. We’re not dealing with the 900-pound elephant in the room. This kind of goes back to irrelevancy. How can an auditor be independent if they’re paid by the people they’re auditing? And, so, when economists look at this, they just laugh. There’s no independence there. The system, the incentive system is set up wrong. What we should do is open it up: Let the stock markets hire the auditors and pay the auditors for their listed companies, and then we’ll get some true independence. And maybe the stock exchanges would hire Lloyd’s of London or an insurance company, or somebody else, or maybe it would be the Big Four. But they would have control over it because they’re the ones who can best capitalize on the information in the audit reports.
(Q&A conducted with Chip Cutter, Content Editor at LinkedIn)
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