Accounting Education: Charting The Course Through A Perilous Future

1. Accounting Education: Charting The Course Through A Perilous Future Presentation to the NASBA Sixth Annual CPE Conference – March 18-20, 2001 San Diego, California Basis for Presentation: Monograph by Steve Albrecht & Robert Sack A Study Sponsored by: IMA, AICPA, AAA and “Big 5”

2. Our Charge “Write a high-level thought piece, supported by evidence where possible, about the future of accounting education.” Timetable: 6 months

3. Sponsor’s Task Force Steve and I greatly appreciate the help of Bud Kulesza and Keith Russell (IMA), Bea Sanders and Karen Pincus (AICPA), Michael Diamond and Jan Williams (AAA), and Ellen Glazerman and Brent Inman (Big 5). But we are the authors of the Report

4. Research Methodology • Read everything possible, especially past reports about accounting education • Interviewed key accounting leaders • Held focus group meetings • Conducted surveys • Practitioner Survey • Educator Survey • Department Chair Survey

5. Previous Warnings about the need to Change • IMA Studies (Counting More, Counting Less, etc.) • AICPA Vision Study • AAA Committee Reports • Bedford Report (1986!) • Changing Environment Committee Report • AECC Monographs • “Big 8” White Paper

6. Our Conclusion While we have been long-time supporters of accounting education, if we were starting a new business school today, we would not have separate accounting programs, at least not structured the way they are today.

7. Our Rationale The number and quality of accounting students is down. Previous majors would elect other majors if starting over again today. Our constituents tell us that our educational model is broken and needs to be fixed. 1 2 3

8. Our Conclusion Fundamentally, the Accounting Education Community is in trouble

9. Our Conclusion Our Research was directed to the future of University-based Accounting Education However, it seems to me that our findings have serious implications for the future of Continuing Professional Education

10. Our Rationale The number and quality of accounting students is down. Previous majors would elect other majors if starting over again today. Our constituents tell us that our educational model is broken and needs to be fixed. 1 2 3

11. Decreases in Enrollments • A few schools have reported stable enrollments but most are down by 20% or more. You would be well advised to read and study: • The AICPA Supply/Demand Study - 2000 • The Taylor Report commissioned by the AICPA • And, of course, our Report which cites other data

12. Why Enrollments are Down! • Accounting salaries haven’t kept up. • More attractive career alternatives . • Profession has lost some of its gloss • Increased willingness to choose risky majors and career tracks. • Lack of information and considerable misinformation about accounting profession. • 150-hour program rule has increased opportunity costs to become an accountant.

13. Accounting Salaries Haven’t Kept Up In 1989, salaries to accounting grads averaged $25,223, second only to their MIS peers – and only $1,500 behind By 1999, salaries to accounting grads ranked fourth in the business school, and $7,000 behind their MIS peers Data summarized from annual reports issued by the National Association of Colleges and Employers

14. The Profession has lost some of its gloss

15. Profession has lost some of its Gloss • This add offers On-line Learning • Coaching to pass the CPA exam • CPE to maintain your standing • MBA for your next job the ad is from the April issue of the Journal of Accountancy!

16. 150-hour rule isn’t problem--graduate school is preferred

17. Eliminating the 5th-year Requirement Eliminating the 150-hour requirement would result in “dummying down” the profession It would be absolutely the wrong thing to do! The Problem isn’t the extra 30 hours, it’s the nature of the 30 hours we have offered

18. Our Rationale The number and quality of accounting students is down. Previous majors would elect other majors if starting over again today. Our constituents tell us that our educational model is broken and needs to be fixed. 1 2 3

19. Accounting MajorsWouldn’t Major Again!

20. Representative Quotes I would not recommend a MAcc degree. The degree better be broad. Students should be studying other courses and not just taking as many accounting courses as possible. If you’re going to do that, you should plan to work for the SEC as one of their generals—as an enforcer. I always felt like accounting people were part of the central role of the company. Now I see us moving away from that. The information systems department was smaller than ours when I started. Now their department is way bigger than ours, and they’re the trainers. My mentor wants me to get a CMA, but I want to learn about information systems.

21. “Accounting” Careersare Less Attractive • Less attractive financially • Starting salaries • Wealth accumulation • Less psychic income • True of all professions? • Much of what we did is no longer valued • Technology has replaced much of what we do

22. “Accounting” careers are less attractive • Our friends in industry are leading the way • NACA=NAA=IMA= ?? • Management Accounting=Strategic Finance • The “Accounting” Function is either insourced or outsourced • either way it’s a dead end job • Technology has isolated accounting in favor of information

23. “Accounting” Careers are less attractive The scratching sound you hear is the sound the bright people are making, as they scramble to avoid the “Accounting” trap Instead, I’m a “finance professional” or an “information provider”

24. Our Rationale The number and quality of accounting students is down. Previous majors would elect other majors if starting over again today. Our constituents tell us that our educational model is broken and needs to be fixed. 1 2 3

25. Accounting Educationis Broken 1 We teach accounting as if information were still costly. $10/hour $30/hour $100/hour $300/hour $1,000/hour Recording business events Summarizing recorded events Converting data into information Turning information into knowledge Making value-added decisions Teach too much here! Teach too little here! Introductory Accounting Intermediate Accounting Cost Accounting Other Specialized courses Major culprits 2

26. Changes in Business Globalization—Technology—Concentration of Market Power Increased Competition — Inexpensive Information • Transition to data base systems • Shorter product life cycles and competitive advantages • Demand for better information , to make better decisions • Emergence of new companies and industries • Outsourcing of non-value added services • Renewed recognition of risk, and the importance of managing it • Increasingly complex business transactions • Relentless restructuring of rewards (lower rewards for services replaced by technology, same rewards for non-value added services, higher rewards for leveraging technology and globalization)

27. What Change Means For Us Globalization—Technology—Concentration of Market Power Increased Competition — Inexpensive Information • Too many of us teach Accounting as it was practiced in the good old days. • Recording, Processing, Reporting as the end all, be all • Debits & Credits, Standard Cost, Financial Reporting • But Its Different Than It Was - • - and we risk becoming an anachronism

28. A Helpful Analogy Accounting is like Dentistry Practitioners Can’t Live by “Filling Teeth”/ “Preparing Financials” Technology has changed the market place forever We can train people to become “Hygienists” / “Processors” or We can raise our sights and educate people to become “Orthodontists” / “Analysts”

29. Accounting… Percent of Educators Practitioners who agreed with the statement is more attractive than Finance 38.6 49.5 is more attractive than I/S 22.8 31.1 and I/S should be combined 57.5 52.0 and finance should be combined 41.2 58.6 and Business majors are too isolated 62.3 47.3 Accounting is integrated enough 25.0 36.4 Perceptions AboutAccounting Programs

30. Perceptions of Pedagogies

31. Representative Quotes The tremendous benefit that comes from an accounting education is the organization and the structure and the discipline and the understanding you gain from looking at the business from an accountant’s eyes. But then, the course goes off into a study of paragraph 114 of SFAS 131, and all that perspective is lost. New graduates don’t know anything about business. They don’t understand manufacturing. They don’t understand distribution. They don’t understand banking. They don’t see the business’ reason for being. Students don’t have the luxury of learning about business on the job - They have to be productive from day one.

32. Minimum Changes Needed • More emphasis on skill development, less emphasis on content • Less emphasis on statement preparation, more emphasis on analysis, planing, interpretation and decision making • Change focus from rule based learning to conceptual understanding • Less specialization in accounting , more understanding of business • Breakdown the silos - teach accounting/information as an integral part of business - and of the market place • Emphasize the role of accounting and information in the management of a GLOBAL enterprise • Bring the best of the practice world into the classroom - and vice versa • Bluntly said, teach what students need, not what we want to teach - or are comfortable teaching

33. The prize will go to... The team that can quickly teach the process (this is a hammer, and you hold it by the handle) But move promptly to the use of the information (here is how you build a house)

34. Minimum Changes Needed • Must develop school-specific mission playing to your strengths. Copycat mentality won’t work anymore (too much information available that exposes weaknesses). • Consider your environment. • Consider carefully every degree offered—maybe consolidate. • Consider carefully every course offered—is it still relevant or has technology, globalization, etc. rendered it obsolete? • Consider carefully the pedagogy of every course. • Invest in faculty development—we can only do what we know how to do. What can your school and program do better than anyone else?

35. Summary of our Problem • At best we are losing market share • At worst we are losing in absolute terms • Loss of students = loss of positions = loss of budget and resources

36. Reactions to the Report • Little disagreement about the problem • Lots of disagreement about the reasons • The 150 hour rule • The greed of the big firms • The emphasis on student evaluations • The exam, the textbook, the regulators, etc. • The Accounting Review, etc. • The dean, the department head, etc But it is - in the end – the educators’ problem

37. Reactions to the Report Some argue that students will come back, when the economy returns to “normal” But it seems clear to us that the technology genie is out of the bottle, and that we will be forced to re-define “normal” The practice of Accounting will never look the same, like it or not

38. How Should a school Respond? The report carefully avoided any attempt to tell a school what to do. It seems clear that every school must think through its own response, after a careful analysis of its environment • Strengths and weaknesses of the department • Expectations of the University and the Community • Present and potential student body

39. For Example…U Maryland,College Park • Majors dropped from 250 to 125, and the pipeline is similarly depressed • Strategic Planning Committee, with the Dean and the Advisory Board • Great Location in an unusual market • Considering a “Diffusion Strategy” • Small Professional Program • Intense MBA participation • Service to the rest of the Business School

40. For Example... U VirginiaMcintire School • Majors dropped from 120 to 60 with similar pipeline problems • Major Info Systems Department - great reputation overall with the major firms • Dean aheming, about tax staff • Is considering a “Redefinition Strategy” • Working in Risk Management • Marketing Exec Ed Programs - to the big firms!

41. How Should a School Respond? Some evidence of a growing demand for accounting courses from non-majors Some evidence of a need to fill the (somewhat reduced) demand for 150 hour education Some evidence of a demand for courses that combine accounting and info systems Some evidence of a demand for executive education, as people try to enhance their careers with a CPA/CMA degree

42. Implications for CPE?? • What’s sauce for Academia is surely sauce for CPE Providers?? • Help the practice world increase their value-adding skills • More focus on skills, less on content • Business instead of silo-isolated accounting • Doing business globally • Technology as a transformer • Room in the regulations/Change the regulations?

43. Implications for CPE? • What happens if we migrate toward a Law school model? • What happens if the schools move toward CPE as a vehicle to use their resources?

44. Implications for CPE?? • If we succeed, you will see a more broadly educated practitioner who will • need technical reinforcement • expect broadly scale CPE programs • If we don’t succeed, you will see a more broadly educated practitioner who will • need technical reinforcement • expect broadly scale CPE programs