Getting Up To Speed: The Academic Response to the Challenge of Change

1. Getting Up To Speed: The Academic Response to the Challenge of Change Belverd E. Needles, Jr. Vice-President Education-Elect American Accounting Association DePaul University

2. Disclaimer The views expressed in this presentation are solely those of the author and do not represent the views of the AAA or any other organization.

3. Objective • To summarize efforts of the AAA and other organizations to address emerging developments in accounting • To assess the readiness of accounting educators to address the issues of International Financial Reporting Standards (IFRS)

4. AAA Education Committee • Coordinates various AAA activities that involve education, including: • Monitor and incorporate education efforts of outside constituents and organizations with those of the AAA • Respond and provide input on education issues • Assess the portfolio of education activities of the AAA for breath and adequacy

5. AAA Activities • The AAA has long played a critical role in transforming accounting curriculum. • Treasury ACAP Committee (Gary Previts, President of AAA) • AACSB-Ethics throughout the curriculum equivalent to a course • AICPA-The CPA Profession: Opportunities, Responsibilities, and Services • Fair Value Accounting Education Report • AICPA IFRS Roundtable

6. Challenges Facing Accounting Educators • Fair value accounting • Forensic accounting • Ethics and professional responsibilities • International Financial Reporting Standards (IFRS)

7. Recommendation Five of Treasury ACAP Committee • AAA and AICPA will form a commission to study Accounting and Auditing Higher Education • A broad-based study • To explore such areas as faculty development, Ph.D supply, and model curricula • To consider developments in accounting standards, auditing needs, regulatory framework, globalization, international pool of candidates, and technology • To study educational structure including long-term market consequences, academic governance, operations, programs, funding and resources, role of accreditation, and experimental learning processes

8. Accounting Educator Response • Accounting Educators have shown an ability to respond quickly to important changes in the profession • Sarbanes-Oxley was passed in 2002 • By 2004-2005 the effects of this law were fully incorporated into the textbooks and the curriculum

9. Who Should Teach Ethics Courses? 9 • Hurtt and Thomas (2008) report a mixed model in Texas: • 57% say the course should be housed in Accounting Dept. (48% are currently outside of Accounting Dept.) • 60% favor both a separate and an integrated approach • No school used an instrument such as DIT to measure effects of teaching ethics • Faculty teaching the courses have little training in ethics (39% either did not answer or selected the option that they had zero hours of training)

10. Who Should Teach Ethics Courses? The preference seems to be toward joint teaching: • Accounting faculty in Blanthorne, et al. (2007) rated themselves as the most appropriate faculty to teach ethics • Over 72% of faculty, students and professionals in Abdolmohammadi (2008) indicated that ethics courses should be taught jointly by accounting and philosophy professors • Only 3.5% said philosophy professors only • Only 24.2% said accounting professors only : • This indicates a staffing problem: “Few, if any [faculty], are trained for this in our doctoral programs. (AAA Education Committee response to NASBA, 2006 proposal).

11. What Should Be The Content Of Ethics Courses? Jennings (2004) provides a reading list and a discussion of seminal and other important works. Thomas (2004) presents a list of texts and reference works, commercial books, academic and professional articles, and electronic resources such as film and Internet Web sites for teaching ethics in a stand-alone or an integrated ethics training program. In addition to covering integrity, objectivity, and independence, NASBA proposes ethical reasoning.

12. What Should Be The Content Of Ethics Courses? • Hurtt and Thomas (2008) report that in Texas: • 85% incorporate a mixed-model approach (ethical theory, decision making, codes of conduct) • Top content issues are: • Components of codes of conduct [of AICPA and TSBPA] such as integrity, honesty, independence, objectivity, impartiality, confidentiality • Ethical reasoning • Making correct choices under pressure • Moral exemplars

13. What Should Be The Content Of Ethics Courses? • In a survey of a large number of professional accountants, Abdolmohammadi & Reinstein (2008) find the subjects to somewhat agree or strongly agree to the following issues as content of ethics courses: • Current ethical issues • Professional codes of conduct (not just AICPA) • Ethical judgment and decision making process/models • Corporate codes of ethics • Whistle blower protection • Record retention • Philosophical theories of ethics, such as theories of justice and human rights • Theories of ethics, such as developmental theories from psychology

14. What Can Be Done Outside the Classroom? Create an ethical culture in the business school and Department/School of Accounting Develop Student Honor Codes and/or Codes of Ethics Teach students about plagiarism and classroom cheating; enforce rules Invite college/school-wide guest speakers to talk about ethical leadership Help faculty learn to teach ethics (e.g., AACSB holds ethics seminars)

15. IFRS Timetable • 2005 European Union Adopted IFRS followed by Japan, Canada, Israel, and Australia • 2007 SEC allows foreign registrants in the U.S. use IFRS • 2008 SEC issues a Roadmap for public comment • 2011 Decision as to go forward • It’s not a done deal.

16. SEC Proposal • Part I allows a small number of U.S. public companies to early adopt IFRS (110 companies-14% of U.S. capitalization) in 2009: Must reconcile to U.S. GAAP • Part II identifies four milestones to be evaluated in 2011, at which time a further time table will be set

17. Milestones • Continued development of IFRS and convergence with U.S. GAAP • Revenue recognition • Financial statement presentation • Lessee accounting • Post-retirement benefits • Consolidation • De-recognition • Fair value

18. Milestones • Progress on accountability and stability including (regulatory) oversight body and stable funding • Continued development of IFRS XBRL consistent with SEC Taxonomy • Progress on IFRS related education, including integration of IFRS into accounting curriculum

19. KPMG/AAA Education Committee Faculty Survey • 530 faculty responses • Summary conclusion: Overall faculty expectations are quite encouraging and very much in line with the SEC timetable.

20. Some Faculty Expectations • 55 percent believe IFRS will be integrated into the curriculum by 2010 • 48 percent believe IFRS will be incorporated into the CPA exam by 2011 and 77 percent by 2012 • 54 percent believe graduates will having a working knowledge of IFRS by 2011 and 78 percent by 2012

21. How Will IFRS Be Incorporated in the Curriculum? • 89 percent believe textbooks will be the main source of IFRS in the curriculum • 74 percent believe this will be accomplished by 2011 and 94 percent by 2012 • Most believe IFRS will be taught with a compare and contrast approach with U.S. GAAP

22. How Will Faculty Come Up to Speed? • Most believe it is the existing individual faculty members’ responsibility to come up to speed on IFRS • Accounting faculty have met these challenges before: • Sarbanes-Oxley and the PCAOB • Modern managerial accounting topics such as balanced scorecard, value chain, activity-based costing, etc. • Textbooks will play a major role in changing the curriculum

23. Role of AAA in Incorporating IFRS into the Accounting Curriculum • A special issue of Issues in Accounting Education prepared in conjunction with the International Accounting Section of the AAA (November, 2007) addressed the issue of IFRS education • Joint Project with Grant Thornton developing IFRS cases • At its Annual Meeting in August, which had the highest attendance in its history, more than 20 sessions were devoted to IFRS

24. AAA IFRS CPE Sessions • IFRS – U.S. GAAP Comparison • FASB/IASB Update – Part 1 • FASB/IASB Update – Part 2 • Incorporating International Financial Reporting Standards (IFRS) in Intermediate Financial Accounting — How to Proceed

25. IFRS Main Sessions and Panels • IFRS Is Here, and What To Do About It • The IFRS of the Academic World • Academic Open Forum: The FASB-IASB Conceptual Framework Project • Incorporating IFRS in Intermediate Accounting • Challenges of Regulators and Practitioners if IFRS is Adopted for Domestic Issuers • How to Successfully Integrate IFRS into the UG Accounting Curriculum • A Globally Converged Conceptual Framework

26. More IFRS Sessions • SEC Update--Regulators Discussion of IFRS Issues • The Expanding Role of IFRS--Research Issues • IFRS I • IFRS II • IFRS III • IFRS IV • Incorporating IFRS in the Financial Accounting Curriculum • Integrating an IFRS Module into the Master’s Curriculum • FASB-IASB Update • SEC IFRS Reporting ISSUES

27. IAAER Role • Promotes Excellence in accounting education • Maximize the contribution of academics to the development and maintenance of high quality, globally recognized standards of accounting practice

28. IAAER Promotes IFRS • IAAER Members (including students) receive access to eIFRS • University members enable access by all faculty: forty universities currently • Fifty-one academic and professional association members around the world • Congresses, conferences, and globalization roundtables

29. Other Organizations • Other organizations are making extensive efforts to bring faculty up to speed, including • The major accounting firms • AICPA • IASB • SEC • IMA • Other professional organizations

30. Conclusion • Accounting educators will meet the challenge of change • They will do this in multiple ways • Many organizations, including the AAA, will work together to achieve this objective