Up to the Challenge: What’s Ahead for the Auditing Profession?

by Cathy Lockman

If conversations outside Deloitte Auditorium after the year’s first Accounting Lyceum are any indication, students have lots of questions about the changes and current challenges facing the auditing profession. Fortunately, Robert J. Kueppers, the deputy chief executive officer of Deloitte LLP and the speaker at September’s Lyceum, has some answers, and he shared them with the nearly 300 students who attended the presentation.

Much of the challenge, Kueppers said, has its roots in the current financial storm. “First it was the credit crisis, then the broader financial crisis, then the recession. We haven’t seen these kinds of changes in the economy since the 1930s, and that is fueling the talk about a broad retooling of the regulation of the financial system.” Proposed reforms include potential overhaul of the regulatory structure, a review of fair value accounting standards, the establishment of a Consumer Financial Protection Agency, an SEC proposal requiring surprise exams of investment advisors by independent public accountants, and wholesale rewriting of the federal securities laws.

Such sweeping reform possibilities, Kueppers said, will have a significant impact on the auditing profession. “Although this current crisis is much less about us than the Enron crisis of 2001, for instance, we as professionals have a very big role to play as the country moves forward.”

And, he said, University of Illinois students will be prepared to play a role. “Critical thinking skills are absolutely essential in this profession, and at Illinois the curriculum is driven by the goal of developing and refining those skills,” he told the students. “You are part of the premier program in the country. I consider Illinois to be the Holy Grail of accountancy.”

And that’s high praise coming from the deputy CEO of Deloitte. As Ira Solomon, professor and head of the department, told the audience during his introduction of Kueppers, “We’re proud to be the number one supplier of entry level professionals to Deloitte–the company Business Week recently named the number one place to start your career.”

As potential reforms are considered in the coming months, what role does Kueppers think accountancy professionals will play? He pointed to three issues that he believes will be part of the dialogue for the profession: (1) the significance of professional judgment and professional skepticism; (2) the effectiveness of the financial reporting model and values of the audit; and (3) continued globalization.

“Skepticism is critical,” he told the students. “The intuition to know that something isn’t right and the tenacity to get to the bottom of it is the essence of auditing. It’s what protects you and your company.” Kueppers also explained that the profession will have to grapple with “whether the current financial reporting model can be sustained and whether it is still relevant.”

The last issue, globalization, was of particular interest to the students as they anticipate the potential change to International Financial Reporting Standards. Kueppers offered this prediction: “IFRS will become the standard in the U.S. , maybe not before I retire but certainly before you students do.” He said the current financial crisis will keep it on the back burner for the next couple of years, but that “IFRS is very important, and we need to move forward in that direction as quickly as we can. We need to have a ‘date certain’ so people can prepare, can complete the conversion, and can spread the cost over time.”

He advised students that despite the unanswered questions that IFRS raises, such as implementation and certification, “the foundations you are receiving in your classes now will be completely relevant” when the transition is made.

That’s good news to Joshua Rapoport and Thomas Lew, students in the master’s of science in accountancy program. “Mr. Kueppers’ insights into IFRS were very interesting,” Rapoport said. “It’s great to have an opportunity to hear from someone with his experience in the field and his involvement in so many aspects of the profession.”

Lew agrees. “We spend a lot of time in the classroom learning the basics, so getting a big picture view of the challenges from someone who has had to make the judgment calls and has insight into the direction the profession is headed is really helpful.”

 Another potential issue raised by globalization, said Kueppers, is the structure of the global accounting network. “This is something that we rarely talk about, but we are going to need to. I think the focus will move toward a more global auditing structure in the next five years, but there are liability issues that will need to be resolved.”

In addition to offering his perspective on challenges to the profession, Kueppers challenged the students. “Auditors will play an important role in contributing to the ongoing debate. You’ll need to move the ball forward and give the energy to it that it deserves. I don’t think you understand how important you are in the process. It’s a high calling.”