My Career in Accounting: Changes

This is the third of four parts about my career in accounting. Here are the four topics:

My Career in Accounting: The CPA Exam and Licensure

My Career in Accounting: The CMA Exam and the Becker Course

My Career in Accounting: Changes

My Career in Accounting: The State of the Profession

The Big Firms

During my career in accounting, CPA firms have changed dramatically. When I was in college, there were eight big firms that dominated the profession. The Big Eight were Arthur Andersen; Arthur Young; Coopers & Lybrand; Deloitte Haskins & Sells; Ernst & Whinney; Peat, Marwick, Mitchell; Price Waterhouse; and Touche Ross.

Mergers led to the Big Six, then the Big Five and, with the demise of Arthur Anderson because of the Enron scandal, the Big Four. Or, as I like to call them, The Final Four. They are KPMG (Peat Marwick and others); Ernst & Young (combining Ernst & Ernst and Arthur Young); Deloitte (Deloitte Haskins & Sells merged with Tohmatsu Awoki); and PricewaterhouseCoopers (obviously a combination of Price Waterhouse and Coopers & Lybrand with a NameThatIsTooLong).

Reviews and Compilations

While in college, we were taught about auditing, or what CPAs call the attest function. That is, attesting to the accuracy of financial statements. CPAs had other service offerings such as ‘unaudited financial statement engagements’ and ‘limited procedure engagements.’

This changed in 1978, when the American Institute of CPAs allowed two levels of service below an Audit, those being Reviews and Compilations.  Most readers of this blog will know that a Review is a lesser level of assurance than an Audit. And a Compilation is when an external accountant helps the client put their records in the form of financial statements but offers no assurances.

Advertising

Another big change was allowing CPA firms, and other professionals to advertise. While it seems quaint now, while I was in college, the ethical standards of the accounting profession did not allow accountants, lawyers and other professionals to advertise. CPAs could not approach another CPA’s clients offering services.

In 1977, the case of Bates vs. the State Bar of Arizona allowed lawyers, CPAs and other professionals to advertise and solicit clients served by others. To younger people, this probably sounds ridiculous and against the anti-trust laws. And you would be correct on both counts. But that’s the way it was. But after the Bates case, the professions changed.

Marketing and sales became things that CPA firms did, like every other business, although it was called ‘practice development’ rather than sales. MAP (Management of an Accounting Practice) became popular and spawned an industry of firms offering services to CPAs who previously had operated like members of a private gentlemen’s club.