Legislation, Regulation, and Change
by Cathy Lockman
Is the day coming when investors who want to know about a particular company's financial report will be able to go to the company's website, click on a link to the company's auditing firm, take out their charge cards, and for $1 or $2 be able to view specific data on accounts receivable or on whether certain information has been attested to? That possibility was raised by William Ezzell, national managing partner for legislative and regulatory relations at Deloitte LLP, as he discussed the future of the accountancy profession at the Department's first Lyceum presentation of the spring semester.
"This is a period of change for accounting and auditing," he said, referring to issues ranging from regulatory reform proposals to the impending adoption of IFRS. "And some people believe that our product has lost a bit of its luster. All of this together will require us to take a look at our current models and make changes where they're needed."
While a system where investors can access all parts of an audit for a fee may be a distant, or even unlikely, change, what can the profession and the public expect in the near term? The biggest change, according to Ezzell, will come in the area of financial reporting as IFRS is adopted. "This will be a huge issue for the profession," he said, "and one for which there is not much clarity right now." He pointed to the lack of a mandate on timing for IFRS implementation and the differences that exist among countries who already use IFRS.
A new regulatory framework is also a probability, although how far-reaching it will be remains to be seen, said Ezzell. He explained that "economic distress is the trigger for the current call for change." It's a familiar cycle that starts with a scandal, then an overreaction by Congress, then backlash from business at the overregulation, and then a less aggressive stance by the regulating bodies. The current call for change could follow the same pattern, he said.
With "transparency" as the national mantra, Ezzell predicted that "companies will have to provide much more information to the investor." He also said the profession can expect more regulation, more governmental oversight, and a more active PCAOB. In addition, Ezzell believes the SEC will become more pro-investor. "The SEC was extremely embarrassed by the Madoff scandal, and the current leadership is absolutely focused that it will not happen again. They will not be just a complaint-driven organization; they will be taking initiative."
Additional fallout from the financial downturn in 2008-2009 could result in the full implementation of Section 404 of Sarbanes-Oxley to include small businesses, according to Ezzell. "This is very controversial, and there will be huge resistance to it." He explained that one of the problems is that it will force many small businesses to spend their limited dollars on accounting rather than on essentials to grow their business. "This will be a very difficult choice for many businesses. They will see it as a huge cost for a small benefit."
While Congress continues to examine legislative and regulatory options, Ezzell, who Professor Ira Solomon described as "a person who represents the accounting profession to the power brokers in Washington," suggests that more accounting professionals need to make their voices heard. "We need to convince Congress that our ideas are best for America."
Ezzell also told students that despite the changes there is a constant that is central to the profession, and that is judgment. "Only you can see what you see," he said. "We're going to need you to bring judgment to the audit, and we'll rely on you early in your career. Just because you're new or you're not signing the audit doesn't mean you don't add value."
For Pin-Chu Wu, a senior in accountancy, Ezzell's advice hit home. "Before the presentation I had decided that I wouldn't pursue auditing, but he changed my mind," Wu said. "He gave me a different perspective of the career path, its value, and the opportunity to build on it as a professional."
Ezzell also advised students that as they move on in their career to remember that "we will be relying on you to exercise your professional judgment and to carry on the reputation of the profession. There will be times in your career when you will be challenged, but remember there is no amount of money and no stroking of your ego that is worth giving up your integrity for."