Reflections on a half-century as an accounting professional

Strategic Finance, Dec, 2007 by Frank C. Minter

DECEMBER 31, 2007, will bring to an end my more than 54 years of involvement in the accounting profession. On that date I will complete six years as a trustee of the Financial Accounting Foundation (FAF), and earlier in the fall I taught my last graduate class in Financial Accounting Theory at Samford University. I feel fortunate in having had two long and rewarding careers in different areas of accounting. First, for more than 33 years I was involved as an accountant and later a financial officer with AT&T Company and its subsidiaries. I was a management accountant; i.e., my people prepared bills to customers and processed their collection, issued paychecks to employees, paid supplier invoices, and prepared internal and external financial reports. After retiring from AT&T, I began a teaching career that lasted another 20 years, 10 of which were full-time.

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Involvement in my chosen profession has enabled me to play a role in many different areas and activities. Rather than list them, however, I will list the two blanks in my resume. I never performed an audit of a public company, and I never served as a member of the Financial Accounting Standards Board (FASB). But I testified at the public hearing in favor of Statement of Financial Accounting Standards (SFAS) No. 2, "Accounting for Research and Development Costs," and I have known every Board member personally for the past 20 years. In the past six years, I have participated in the selection and appointment of every FASB member.

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I also had the privilege of serving as the national President (now called Chair) of the Institute of Management Accountants (IMA [R]) for 2000-01, and before that I had served on its Financial Reporting Committee for a period of nearly 10 years and as Committee chair for three years.

But the purpose of this discussion isn't to recap or identify the things I have done. My intention is to leave some thoughts (not necessarily wisdom) for those who are in the profession today or will enter it in the future. The information in this list isn't in any order of priority or importance.

PROFESSIONAL CERTIFICATION

To those who are just entering the profession, I say get the "union card." If your career is in public accounting, become a Certified Public Accountant (CPA). If your career is in business or industry, become a Certified Management Accountant (CMA [R]). If you are entering the academic world, the Ph.D. is essential. Even if you've been out of school for a time, it's never too late to become certified. I didn't become certified as a CPA until 13 years after graduating from college and beginning my career. Should you decide to enter the academic world after a career in business or public accounting, you still should pursue the doctorate. It may not make you a better teacher, but it will certainly enhance your standing and perception among your peers.

WHAT WENT WRONG

Three times in the last 25 years the accounting profession has come under attack--and deservedly so. In the 1980s, accounting transgressions such as ZZZZ Best and Crazy Eddie, among a number of others, led to the formation of the Treadway Commission and eventually a compilation of internal control processes under the auspices of the Committee of Sponsoring Organizations of the Treadway Commission (COSO). One major finding at that time was the criticality of the "tone at the top" or the emphasis on proper and ethical behavior by those at the very senior levels of an entity.

In the 1990s, Securities & Exchange Commission Chairman Arthur Levitt criticized the profession for a number of improper actions, including such matters as "cookie jar" reserves, "big bath" accounting, and improper revenue recognition. We didn't learn from these experiences, however, and the excesses of the late 1990s led to the well-known failures of Enron, Arthur Andersen, MCI, and Global Crossing, among others. The result was that we lost the ability to regulate and manage our fine profession, so we now must operate under the federal rules of the Sarbanes-Oxley Act of 2002 (SOX).

I am sometimes asked what major events caused this last failure on the part of the profession. I will suggest five:

1. Vast increase in the number of stock options issued by companies after the FASB withdrew its proposal to record such issuances as compensation expense.

2. The auditing profession placed its emphasis on consulting and revenue growth and assigned little value to audits.

3. Although the SEC made a lot of speeches dealing with such subjects as "cookie jar" reserves and "big bath" accounting, little action took place.

4. In what some might call "corporate greed," companies tried to grow rapidly using inflated stock values for acquisitions under the "pooling of interests" accounting method for business combinations. A classic example was Lucent Technologies (now Alcatel-Lucent) making a number of such unfortunate acquisitions using the inflated value of its stock and later narrowly avoiding bankruptcy.