Title: How the U.S. Accounting Profession Got Where It Is Today: Part II by Stephen A. Zeff
1 How the U.S. Accounting Profession Got Where It Is Today Part II by Stephen A. Zeff
By Gabby Arciba and Kendra Hoffman
2 Gradual Degeneration of Professional Values
Stephen Zeff discusses in his article over the past few decades the factors that have led to the modern day decline in the Accounting profession
He theorizes that CPA firms increased focus on consulting services has compromised independence of Accountants in auditing their clients financial statements.
3 Implications of Firms Move Into Consulting Services
Consulting fees as a percentage of gross firm fees
1977 from 5 to 19
1984 from 11 to 28
Arthur Anderson was number one in the list of the top U.S. consulting firms. In 1990 consulting was 44 of total gross fees
4 Non-CPAs on the rise
1974 1 out of two consultants are CPAs
1988 1 of 4 consultants were CPAs
The hiring or takeover of boutique consulting firms non-CPAs increasingly were brought into the firms consulting practices.
By the 1990s non-CPAs were well represented in the top management of the Big Six firms.
5 Firms Expansion
1950s and 1960s aggressive expansion overseas to reach a broader clientele
1970s audit market becomes saturated then it became necessary to expand their scope of services to increase the firms revenue
The firms gross fees shifted from auditing and accounting to tax and consulting services
6 Pressures from Competition
A competitive environment led to Audit fees being driven down among firms.
In the struggle for profitability and growth business aims not professional aims.
7 (No Transcript) 8 Impact of S L and Bank Failures The Dingell Hearings
1985-Representative John D. Dingell launched three years of hearings into the adequacy of the accounting professions self-regulatory system
1980s S L failures and auditor fraud
E.S.M. Government Securities
9 Regulator Pressures
A major source of pressure on audit firms was that Regulators advocated the use of deceptive accounting practices in order to rescue failing institutions in the name of public interest
10 Do whatever the hell you have to do and do it quickly and discreetly
During the 80s Financial Reporting is Compromised
Industry Regulators using financial reporting to achieve public interest goals
Companies are lobbying FASB for preparer-friendly standards
11 Mergers Lead to Earnings Pressures
Mergers lead to a loss of clients
Increase emphasis on analysts earnings forecasts
Adds to pressure on CEOs to meet earnings targets
12 Impact of Heightened Client Pressure
the Auditor today is often a participant in aggressively seeking loopholes (on behalf of corporate clients)
Arthur Wyatt 1988
13 The SEC and Others Voice Concerns about Auditor Conduct
Business relationships with audit clients
Expectations of auditors are low
is there a role for auditors in the private sector
14 The Kirk Panel on Auditor Independence
Growing cynicism at the SEC about performance of the public accounting profession.
Consulting fees are outpacing audit fees for Big Six accounting firms
15 Tensions over Compensation Litigation and Scope of Services
Private Securities Litigation Reform Act of 1995
Led to aggressive accounting in the 1990s
Audit market is saturated must increase scope of services
Mergers and loss of clients audit market is saturated
Focus on earnings targets
Consulting revenues outpacing audit revenues
Protection from litigation
These factors have led to a compromise of independence and objectivity in the accounting profession
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