Several years ago, I wrote an article entitled "Is Accounting Becoming a Naughty Word?" (New Accountant, February 1998), in which I described how the big national firms had abandoned the labels of "CPAs" and "accountants" and were instead calling themselves such things as "professional services organizations" and "global business consultants." They were trying very hard to shed the image of technical "bean-counters" and "number-crunchers," wanting instead to project an image as "savvy practitioners" who "strategically contribute directly to the bottom line."

At the time, the large accounting firms were making a lot of money doing consulting services, which had a much higher profit margin than that of traditional accounting services. Intense price competition had caused audit fees to stagnate, as auditing services moved towards a commodity market. The firms began to view auditing as a "loss leader" that was sold at little or no profit in order to "get their foot in the door" for lucrative consulting contracts.

The fact that accounting had taken a back seat to consulting was manifested in many ways, some of which directly affected accounting students. For example, to acquire the expertise they needed for consulting work, the firms employed large numbers of non-accounting graduates. Because they wanted the convenience of "one-stop shopping" for all their new hires, they pressed for - and received - a concession from the honorary accounting fraternity, Beta Alpha Psi, to open its membership to systems and finance majors.

The emphasis on consulting and eschewing of the word "accounting" were so prevalent that the chairman of the Board of Directors of the American Institute of Certified Public Accountants (AICPA) went so far as to propose a change in the meaning of "CPA". He argued that "Certified Public Accountant" no longer described the profession because it was too narrow in scope to accurately describe what CPAs did. Among other things, he argued that CPAs were "not the traditional auditor(s) and attestor(s) of financial statements, but trusted financial-services and business-strategy adviser(s)." He advocated changing the meaning of CPA to "Certified Professional Advisor" (Stuart Kessler, CPA/PFS; Chair, AICPA Board of Directors; The CPA Letter; November 1997). Because the CPA is a license issued under 50 different state laws rather than a certification issued by a single organization, and because the domain of that license is specific to auditing, his proposal was impractical. So instead, the leadership of the AICPA proposed a new professional designation (tentatively called the "XYZ"), intended to connote broad business knowledge and expertise, that would have been promoted as being "a step above" the CPA. Although that proposal failed to receive the vote of a majority of AICPA members, the intense marketing by the top leadership of the AICPA was an indication of strong support from the largest firms.

Not everyone was comfortable with such a state of affairs. Some warned that the de-emphasis on accounting and auditing by the largest firms was leaving the external auditing of the largest corporations in the USA at risk. Many also perceived an inherent conflict of interest because CPA firms were performing extensive consulting services for the managements of the very companies they were auditing. How could the firms be "independent" when there was such a cosy relationship between them and the management of the companies? Wouldn't they be more likely to "rubber stamp" questionable accounting practices when under threat of losing not only the audit fee but the enormously profitable consulting fee as well?

Some regulators believed that independence was indeed being compromised. In 1999, the Securities and Exchange Commission (SEC) proposed new rules that would have placed significant limits on the nature and amount of non-auditing services that independent auditors could do for the companies they audited. The Big Five firms were incensed. They and the AICPA engaged in an unprecedented, extremely spirited, lobbying campaign to block implementation of the proposed rules. Their efforts were largely successful; by the time the new independence rules went into effect, they had been "watered down" significantly from what had originally been proposed.

The Pendulum Swings Back

In the wake of the Enron, World Com, Tyco, Qwest, and other colossal financial reporting fiascos of the last two years, the accounting profession has been shaken to its core. Surveys of public attitudes indicated that before January 2002 (the month when Enron hit rock bottom) the accounting profession had ranked near the top of all fields of endeavor in "trustworthiness," but after January 2002 it ranked near the bottom. The CPA profession's most valuable asset - the public trust - had been severely damaged.

In testimony before the Senate Hearing on the Collapse of Enron (January 24, 2002), the former head of the SEC, Arthur Levitt, accused the CPA profession of a "culture of gamesmanship" in which the objective was not to ensure the reality of the numbers, but rather to allow management to get away with as much as possible. He further asserted that "Rarely, of all the groups that the Commission (SEC) oversees, has this group (the accounting profession) spoken of the public interest." For a profession whose very reason for existence is supposedly to protect the public, it is difficult to imagine a more scathing condemnation.

In the ensuing months, as Arthur Andersen imploded, the remaining four largest firms were stunned. One could almost hear a collective sigh of relief from them, all of whom had been as guilty as was Andersen of compromising independence by "advocating for the client" (acting as cheerleaders for management, rather than as watchdogs of management) and pursuing lucrative consulting deals with the companies they audited. It is reasonable to speculate that luck not better auditing played the largest factor in determining which of the firms collapsed and which others survived. (In point of fact, prior to the Enron scandal, Arthur Andersen had enjoyed a very long and stellar reputation for integrity.) Andersen's demise served as a very loud wake-up call to the profession. As the public turned to Congress demanding answers and solutions, the very survival of the accounting function as a private, professional endeavor was at risk.

As the markets and the public reacted to the situation, the profession's initial response was one of damage control. A public relations campaign proclaimed that "restoring the public trust" was its top priority. Unfortunately, however, its actions did little to restore public trust. In deep denial, the AICPA insisted that nothing was wrong and resisted meaningful reforms. Superficial window-dressing proposals were floated by the profession such as minor modifications to the peer-review process. In the summer of 2002, as Congress debated the Sarbanes-Oxley Act, the AICPA and the firms were once again busily lobbying against key provisions of the act. However, because of public outrage, they found few sympathetic ears, and were relatively unsuccessful in staving off reforms. Most of the key provisions of the bill that the profession had lobbied against were passed into law. One of the profession's few successes was to strike down a requirement for mandatory auditor rotation. The bill's sponsors felt that having a fresh set of eyes look at the books periodically would be a good idea. More importantly, mandatory rotation would strengthen independence. Despite the persuasiveness of these arguments, however, the law as passed merely required the government to study the potential benefits and costs of auditor rotation.

To its credit, since the passage of the Sarbanes-Oxley Act, the profession has done some deep introspection. The AICPA has initiated a project to develop a new conceptual framework for independence standards. All the major firms and many state CPA societies have engaged in initiatives aimed at emphasizing ethics and restoring public trust, with themes such as "Stand and Be Counted," "Stand UP and DO the Right Thing," "Maintaining Your Trust," and "Integrity: Exceptional People, Unimpeachable Values."

Within the "Final Four" largest accounting firms, there has been a definite reversal in the trend away from traditional accounting services. Ironically, the firms have voluntarily instituted policies regarding consulting services for audit clients that are more restrictive than the rules the SEC had proposed just a few years before, against which they had railed so hard. Some of them have sold their consulting services divisions outright.

During the course of my research five years ago in preparing to write my previous article, I surveyed the web sites of the five largest CPA firms and found absolutely no references to accounting, auditing, or anything even remotely related to the services traditionally offered by the accounting profession. One could have viewed those web sites and not had any clue that these were public accounting firms. During the process of writing this article, I again surveyed the web sites of the surviving four largest firms and found numerous references to accounting, auditing, and related topics. Although they still call themselves "professional services" firms, the shift in emphasis is obvious. With the exception of tax services which have long been a traditional service provided by CPAs the firms have essentially exited the consulting market. Furthermore, I discovered on their home pages links to topics such as codes of conduct, doing the right thing, ethical behavior, living by our values, commitment to integrity and restoring trust.

The Future Looks Bright

I believe the return to its core values and renewed emphasis on its traditional services are just what the accounting profession has needed. The early results are very encouraging. After years of declines, many colleges are reporting surges of interest in accounting courses and careers. Recent surveys find that the profession has started to regain much of its pre-Enron reputation and trust. The Big Four are bigger and busier than ever, with auditing revenues and margins up significantly, and they are once more hiring substantial numbers of accounting graduates. For the first time in decades, an honest discussion of truthfulness, transparency, and integrity in financial reporting is taking place in the profession. The FASB has announced its intent to move away from compliance-driven accounting standards towards principles-based ones. CPAs seem less reticent to put the letters "CPA" after their names on business cards.

In short, there has never been a better time to major in accounting. The need for competent, fair-minded, ethical CPAs has never been greater. The career opportunities for those entering the profession are excellent. And who knows; you may even want to call yourself an "accountant" (instead of a "new finance professional" or "strategic business consultant") when you graduate! Suddenly, it's cool to be an accountant again. Let's hope it stays that way. In large measure, it will be up to you. The degree of integrity, objectivity, independence, and absolute truth-telling of future accountants will determine the health of the profession in decades to come.