Looking Back on 40 Years of Changes in the Accounting Profession

Looking Back on 40 Years of Changes in the Accounting Profession

by Tom Hanlon

Imagine a world with no cellphones, no voicemail, no laptops.

To most students, that’s like imagining a world without air. It’s like imagining a fish surviving in a world without water.

For Jim Cook, it was a way of life as he entered the accounting profession in 1971.

Jim, a partner at Ernst & Young, and his daughter, Pam Cook, a senior auditor for Deloitte, provided accounting students an eye-opening whirlwind tour of the changes in the accounting profession over the past 40 years.

“There was a lot of change going on in our society in 1970,” Jim, a 1971 accounting graduate of the University of Illinois, said at a recent Department of Accountancy Lyceum. He pointed to both cultural and societal changes, some serious, some not: The green movement emerged in 1970, with the first Earth Day being held; four students who were protesting the Vietnam War were shot and killed by National Guardsmen at Kent State; bar codes and the microprocessor were introduced; and Monday Night Football entered the scene, while the Beatles exited.

Those changes presaged the transformation of the accounting profession. For example, when Jim graduated from Illinois in 1971, there were just 19 female undergraduate and graduate accounting students. By 2009, that number had increased to 288. Diversity had increased significantly as well. And the sheer numbers of accounting degrees awarded in the US have skyrocketed, from 26,000 degrees awarded in 1971 to more than 66,000 in 2009. That’s a 250 percent increase – which has been more than matched by CPA hires over the same period.

 And in that time, Jim said, “The profession has adjusted to many other changes.” Those alterations include:

  • More flexible working arrangements and two-career households. “The accounting profession has been a leader in adapting to two-career households,” Jim remarked, noting that many accountants work two- or three-day work schedules.
  • The influx of technological advances. “We evolved from pencils and mainframes to cellphones, laptops, the web, and cloud computing,” Jim said. “Most of the work we were doing in the early ‘70s was basically handwritten. A single page of a fax took five minutes to send when I started out.”
  • Globalization of business. “There were international companies in the ‘70s, but they were fewer and not globalized the way they are today,” Jim remarked.
  • More litigation and regulations. Jim noted that the federal register, a good gauge of the extent of federal regulations, was about 20,000 pages per year in the early ‘70s. Today, it is 80,000 to 100,000 pages per year. “You not only have a four- or five-fold increase in the federal laws,” he said, “but a much more complex environment from a legal point of view.”

Jim also spoke of the formation of audit committees in the mid 1970s, a practice that was championed by R. K. Mautz, a former University of Illinois auditing professor, and the shrinking of the Big 8 audit firms to the current Big 4. Those mergers, most of which took place in the ‘80s, accelerated the globalization that is a fixture in the industry today.

“We didn’t foresee those changes in the 1970s,” Jim said. “Which makes me wonder what changes we will see in the next 40 years.”

When asked what aspects of accounting had remained the same over his 40 years in the profession, he replied, “The preservation of the independence of the auditor hasn’t changed. Regulations have grown more complex over the years, but they haven’t really changed. The apprentice model is still in place. Young accountants still get to take on real-world training under senior accountants and learn how to apply their knowledge in a real-world environment. And the team model is still in place.”

Pam Cook, who received her BS in 2007 and MAS in 2008 from the University of Illinois, noted that the Sarbanes-Oxley Act of 2002, which established internal control reporting and ended self-regulation, has had a significant impact on the profession. The bill was enacted in the wake of corporate and accounting scandals at Enron, Tyco International, Adelphia, and WorldCom. “Sarbanes-Oxley has become a way of life for us,” she said. The act led to the formation of the Public Company Accounting Oversight Board and to mandatory rotation of lead and reviewing audit partners after five consecutive years of engagement.

Among hot topics in the industry today, Pam said, are the auditor’s reporting model and International Financial Reporting Standards (IFRS) “condorsement,” a term coined by SEC Deputy Chief Accountant Paul Beswick, who combined the ideas of convergence and endorsement. The US has not yet decided to switch from Generally Accepted Accounting Principles (GAAP) to the IFRS code.

In addition, Pam said, mandatory firm rotation is being scrutinized and will likely remain a lively topic for debate. People who agree with firm rotation believe auditors can get too close to their clients (citing Enron’s relationship with Andersen auditors as an example, which some argue contributed to the demise of both companies); lack of attention to detail, due to familiarity; and an audit firm’s desire to please the client, leading to an unhealthy relationship.

“There are arguments both ways,” Jim acknowledged. “On the other side, it’s believed that there are enough checks and balances in place” to offset the concerns of those who believe firm rotation is the appropriate protocol.

Jim noted numerous trends in reporting, with substantial emphasis placed on balance sheet accounting, greater expectations for auditors to consider future impairment, fair value, and valuation accounts, and the development and expansion of management discussion and analysis (MD&A). In 1971, Jim told the audience, Ford’s annual report was 36 pages, with 1 page devoted to MD&A. In 2009, that same report ballooned to 171 pages, with a 55-page section on MD&A.

Today, Pam said, the profession is fully invested in

  •   integrated global organizations,
  •   aggressive use of the latest technologies,
  •   increased team power, and
  •   talented professionals who think analytically and strategically.

“The technology has freed us up to think more analytically, and to identify and assess risk,” she said. As for teamwork, “There are some days when I don’t spend an hour at my desk,” she said. “I’m in meetings with staff, with partners, with clients. My experience in college, where I regularly collaborated on teams, was great preparation for my work today.”

Pam closed by saying, “You are in control of your career, much more than you think you are. You need to understand your career goals and communicate them to your senior managers. They can help you get to where you want to go – and you’d be surprised at how supportive they can be.”