Threats to the CPA Credential in the International Marketplace

CPA Journal, The, Mar 2008 by Campbell, Michael C, Howard, C Randy

Over the past 50 years, the financial and accounting world has been facing new challenges and opportunities. Growing global trade and a greater emphasis on worldwide investment opportunities have increased demand for reliable accounting information that is comparable across countries. This has led to more emphasis on international accounting standards and a desire for an internationally recognized accounting credential. Although these trends have caused demand for accountants to soar and are generally positive for the accounting profession, they create serious challenges for the U.S. CPA credential. For example, at a time when the number of candidates for competing credentials is increasing dramatically, the U.S. Uniform CPA Exam, until very recently, has been experiencing a sharp decline in candidates. In fact, it seems the CPA "brand" could lose some of its stature in the worldwide marketplace if the U.S accounting profession fails to address critical issues soon. Up to this point, few would dispute that the U.S. CPA has been the credential of choice globally for individual accountants, employers, and the global financial community. Its status, however, is being challenged, both by the move toward international accounting standards and by aggressive competition from other credentialing organizations.

Addressing these issues will require support from the entire accounting community. Support from individual CPAs through their state CPA societies and state boards of accountancy will be critical. Input from the American Accounting Association can provide helpful insight and analysis of alternatives. Collective support from the National Association of State Boards of Accountancy (NASBA) and by the AICPA will be crucial. Developing and implementing appropriate solutions will require the efforts of all the aforementioned groups.

This article is intended to shed light on what the authors see as an important problem and to explore current challenges to the preeminent global status of the U.S. CPA credential. The authors also suggest possible strategies to preserve and enhance the stature of the U.S. CPA credential. The CPA is a license issued by governmental licensing jurisdictions to regulate the practice of the profession, an important distinction between it and competing credentials issued by private-sector organizations. At the same time, global trends that affect demand for the U.S. CPA credential impact U.S. CPAs in ways not experienced by other statelicensed professionals.

Demand for Comparable Standards and International Recognition

Increased global trade and investment drive demand for comparable accounting standards and for professionals capable of implementing them. Consider the following:

* According to world trade statistics by the International Monetary Fund (IMF), between 1993 and 2003, world exports nearly doubled, increasing from $4.7 trillion to $9.3 trillion.

* According to a presentation at NASBA's 2004 annual meeting, approximately 1,200 non-U.S. companies were operating in U.S. financial markets at that time.

* According to US-China Business Council reports, investment in China alone by U.S. and European companies increased from $41 billion in contracted investment in 1999 to $115 billion in 2003.

Individual corporations see significant advantages to moving toward a single set of accounting standards that promises to reduce reporting costs, increase access to worldwide capital, and facilitate global mergers and acquisitions. The interpretation of internal accounting information would even be enhanced by convergence, as evidenced by this quote from Thomas Jones, then CFO of Citigroup (Forbes, July 22, 2002): "We had problems figuring out the financials within our own company, as subsidiaries in 101 countries reported under various standards."

Movement Toward International Standards

Many countries are initiating changes to bring about convergence of their national accounting standards with International Financial Reporting Standards (IFRS). More than 7,000 companies listed on European Union (EU) stock exchanges were required to convert to IFRS as of January 1, 2005. Also in January 2005, the International Accounting Standards Board (IASB) and Japan began a project to reduce differences between Japanese accounting standards and IFRS.

In the United States, both the New York Stock Exchange (NYSE) and Nasdaq have been lobbying the SEC to allow foreign companies to submit their financial reports using IFRS without having to reconcile results to U.S. GAAP. In January 2008, the SEC began to take steps that would eliminate a requirement for foreign companies to reconcile their financial results with U.S. GAAP.

FASB and the IASB have agreed to work toward bringing U.S. GAAP and IFRS into agreement. In September 2002, these organizations signed the "Norwalk Agreement," in which each body "pledged to use their best efforts to (a) make their existing financial reporting standards fully compatible as soon as practicable and (b) to coordinate their future work programs to ensure that once achieved, compatibility is maintained."