Presentation on theme: "Accounting Education: Charting The Course Through A Perilous Future"— Presentation transcript:
1 Accounting Education: Charting The Course Through A Perilous Future Authors: Steve AlbrechtRobert SackSponsors: Institute of Management AccountantsAmerican Institute of CPAsAmerican Accounting Association“Big 5” Professional Service Firms
2 Sponsor’s Task Force IMA: C.S. “Bud” Kulesza Keith Russell AICPA: Bea SandersKaren PincusAAA: Michael DiamondJan WilliamsBig 5: Ellen GlazermanBrent Inman
3 Introduction….Results not what expected We didn’t volunteer for this assignmentWe were committed to let data speak for itself and to use our backgrounds to interpret what we foundWe didn’t believe that things would be as bad as they ended up being--report is more negative than we would like it to beWe didn’t have an agenda--weren’t out to represent anyone’s interests--not IMA, not AICPA, not “Big 5”, not AAASome things we say offend sponsors
4 We are long-time supporters of accounting education Steve AlbrechtFormer AAA PresidentFormer Accounting Department ChairCurrent Chair of AACSB Accounting Accreditation CommitteeFormer President, APLGPresident-Elect, Beta Alpha PsiAudit/Financial teacherBob SackFormer AAA Director of PublicationsFormer partner of Touche Ross & Co. (Deloitte & Touche)Former Chief Accountant of Enforcement Division, SECFinancial accounting teacher
5 We want accounting programs to succeed We don’t like much of what we have to say any more than you willOur goal is to make accounting education better and more successfulAs educators, we want to do two things for the accounting profession:Provide a “pipeline” of high-quality studentsProvide a high “value-added” educationNot sure how much of each we are doing right now
6 Our Charge “Write a high-level thought piece, supported by evidence where possible, about the futureof accounting education.”Timetable: 6 months
7 Previous Warnings & Studies IMA Studies (Counting More, Counting Less)AICPA Vision StudyAAA Committee ReportsBedford ReportChanging Environment CommitteeAECC Monographs“Big 8” White PaperThe difference is “this time it is survival we are talking about!”
8 Quote from the “Bedford Report,” 1986 There is little doubt that the current content of professional accounting education, which has remained substantially the same over the past 50 years, is generally inadequate for the future accounting professional. A growing gap exists between what accountants do and what accounting educators teach.…
9 Quote from the “Bedford Report,” 1986 Accountants who remain narrowly educated will find it more difficult to compete in an expanding profession.…The committee’s analysis of accounting practice has indicated that accounting education as it is currently approached requires major adjustments between now and the year 2000.
10 Research Methodology Read everything possible, especially past reports Interviewed key leadersFocus group meetings (4 plus 1)SurveysPractitionersEducatorsDepartment Chairs
11 Our ConclusionWhile we have been long-time supporters of accounting education, if we were starting a new business school today, we would not have separate accounting programs, at least not structured the way they are today.
12 Our Rationale The number and quality of accounting students is down. Our constituents tell us that our educational model is broken and needs to be fixed.Previous majors would elect other majors if starting over again today.123
13 Can It Get Much Worse? Past majors would go elsewhere! Accounting EducationPast majors wouldgo elsewhere!Educational modelis broken and needsfixingInputs down!Retail StoreComplaintsabout productsCustomers down!Don’t shop there!
14 Changes in Business World Major ProblemAccounting Education has not kept pace with changes in the business world.Accounting EducationChanges in Business World
15 Changes in BusinessGlobalization—Technology—Concentration of Market PowerIncreased Competition — Inexpensive InformationFaster pace of changeShorter product life cycles and competitive advantagesNeed for better, quicker, and more decisive actions by managementEmergence of new companies and industriesEmergence of new servicesOutsourcing of non-value added servicesIncreased uncertainty and recognition of riskIncreasingly complex business transactionsRestructuring of rewards (lower rewards for services replaced by technology, same rewards for non-value added services, higher rewards for leveraging technology and globalization)Changes in financial reporting and reporting relationshipsIncreased regulatory activityIncreased focus on customer satisfaction
16 Representative Quotes by Participants Technology has been an enabler, allowing us to do accounting more efficiently, but what is driving change is the whole global competition and the demand the customer has for more responsiveness and more efficiency.
17 Representative Quotes by Participants There are lots of new services that we never even thought about historically. People want information much faster than ever before—they want instant feedback and gratification. The world is much more global than it used to be. Technology has changed the way we work and the way we think about things.
18 Representative Comments Because we have all this technology in the business world, models are becoming much more complex. There are very complex transactions that get invented in business and businesses get invented around these things very quickly. Accounting has trouble keeping pace with what should be the right answers for these kinds of transactions and sometimes, by the time we figure them out, the transactions or business becomes obsolete.
19 Representative Comments The way things have changed is that our clients no longer need us to crunch numbers the way we used to because technology now does that for them. What, in the past, used to be our deliverable—the financial statement—is now coming 60 to 90 days after year-end. It loses a lot of its importance because our clients (and their investors) no longer care what happened 60 or 90 days ago; they’re looking for something to affect the bottom line in the operations of the business today!
20 Representative Comments Today, product life cycles are much shorter than they were before. Technology, in addition to being an enabler, is fueling all this dynamic change that is rippling through our clients, which in turns, impacts us and our people.
21 Representative Comments About six months ago, I received the annual report of KPMG. And, as I was kind of skimming through it, it struck me that the term “accounting” did not appear in their annual report. So, I took it as a challenge and read the 40 pages only to see if the term accounting appears there. It appears twice.
22 Historical Educational Environment Supply Capacity DemandSupply ofstudentsCapacity foreducatingstudentsDemand byfirms tohire studentsEverything was in Equilibrium
23 New Educational Environment I/SConsultingFinanceAuditCapacity toEducateStudentsAccountingTaxStrategyDot.comOthersOwnBusiness
24 Reactions to Change“Big 5” Changed from accounting to professional service firms.AICPA Vision study, new technology certification, XYZ certification, XBRL, etc.IMA Strategic Finance, CFM certification, major studies, etc.Education Major changes at a few schools (not pervasive nor substantive enough).
25 Professional Service Firms Type of Service19931999Growth RateConsulting27%49%Accounting & Auditing51%33%9%Tax22%18%13%ConsultingAudit & AssuranceTax
26 Industry ChangesThe role of management accountants has evolved from serving internal customers to being a business partner. A business partner is an equal member of the decision-making team. As a business partner, a management accountant (finance professional) has the authority and responsibility to tell an operating executive why particular types of information may or may not be relevant to the business decision at hand and is expected to suggest ways to improve the quality of the decision.
27 Why Haven’t We Changed Faster? Compared to the rest of the university, we have changed significantly and rapidly!Traditionsof theAcademyChangesinBusinessProfessionalProgramsCompared to the business world, we have changed only slightly and are getting further behind!
28 Can It Get Much Worse? Let’s focus on inputs! Accounting EducationPast majors wouldgo elsewhere!Educational modelis broken and needsfixingInputs down!Retail StoreComplaintsabout productsCustomers down!Don’t shop there!
29 The Number and Quality of Accounting Students has Decreased! Yearly GraduatesDropped from 60,000 to 47,600 ( to )Currently EnrolledDropped from 192,000 to 148,000(1995 to )Percent of college students who are studying accountingDropped from 4% to 2%(1990 – 1999)Percent of high school students who say they will major in accountingDropped from 2% to 1%( )
30 Survey RespondentsAre there (fewer, same or more) qualified students today?16.6%42.5%45.7%80.1%Educator Response Practitioner Response
31 The number of accounting majors is down and... So the bad news is...The number of accounting majors is down and...We are losing market shareto other business majors!
32 But the good news is...While the number of accounting majors is down, the number of students may not be down much because:Non-business majors enrolled in accounting courses is constant.Students enrolled as accounting minors is constant.Students enrolled as non-accounting business majors has increased.
33 We are teaching poorer students Quality of StudentsQuality of accounting majors is down.Quality of accounting minors is constant.Quality of non-accounting business majors is constant.We are teaching poorer students
34 Resource Decisions are Based on… RankBasis for Ranking1Number of students enrolled2School’s internal assessments of needs3Accreditation of programs4Other ways5Rankings in business periodicalsDecreased StudentsDecreased ResourcesFewer Faculty
35 Budget Allocations to Accounting Programs Resources have…Department Chair %Increased relative to other business programs5.7Decreased relative to other business programs32.5Stayed about the same percentage relative to other programs61.8
36 Some Representative Quotes by Participants By January this year, we had only reached 75% of our (hiring) goal. For the first time, we are back on the campus interviewing—and that’s because of the quality and quantity (of students). To stay with our standards, we are digging deeper.
37 Some Representative Quotes by Participants What has clearly happened at our school is that the best students have turned toward finance.I was at a career fair yesterday and the line for every booth to talk to the consulting people was fifty people long. Every so often we would get one lone accounting major who would come over and talk to us who represented assurance and tax.
38 Why Enrollments are Down! Decreased starting salaries.More attractive career alternatives than in the past.Increased willingness to choose risky majors and career tracks.Lack of information and considerable misinformation about accounting profession.150-hour program rule has increased opportunity costs to become an accountant.
39 Why are Enrollments Down? Reason Why theNumber of Qualified Students is DownMost Important Reason—Educator ResponsesSecond Most Important Reason—Educator ResponsesMost Important Reason—Practitioner ResponsesSecond Most Important Reason—Practitioner ResponsesStarting salaries are lower than in other disciplines, such as information systems39.332.325.4Accounting is perceived as less challenging and rewarding than other fields of study10.9184.108.40.206Students don’t understand how challenging and rewarding the accounting profession is18.313.06.3Accounting is not perceived as having the growth opportunities that other disciplines have9.614.311.017.4
40 Why are Enrollments Down? Reason Why theNumber of Qualified Students is DownMost Important Reason—Educator ResponsesSecond Most Important Reason—Educator ResponsesMost Important Reason—Practitioner ResponsesSecond Most Important Reason—Practitioner ResponsesAccounting is perceived as being backward looking, while information systems and finance are perceived as being forward looking220.127.116.111.2Accountants are not as respected as other business professionals18.104.22.168University professors don’t do a good job of getting students excited about accounting22.214.171.124.5
41 Reason No. 1: Salaries are Down! Average Undergraduate SalariesInformation Systems$41,402Finance35,500Accounting35,090Average Graduate SalariesMasters of Information Systems$60,000MBA48,200Masters of Taxation43,800Masters of Accountancy41,800These salary data are from a copyrighted study of NACE.
42 Representative Quotes We used to pay the highest. I remember when I graduated in 1980, I got paid a lot more than my finance friends or other graduates. Now we don’t. We have a monopoly on the attest function. Only CPAs can do attest. But, our monopoly service we discount the most. I mean, we’re selling jobs at 50 percent. I’ll go in for a bid for a client at $100,000 and somebody will come in and underbid me by $50,000. And then, I can’t pay the salaries. So the firm says, ‘we’ll pay more when the realization is higher.’ Their realization is higher in consulting. I had a discussion with a partner—a major player at one of the firms—and he believes that when the pain hurts enough, we’ll start paying more.
44 Reason No. 2: More Attractive Options Information systemse-businessLogistics/supply chain managementStrategyConsultingVarious financespecialtiesInternational businessEtc.These majors prepare studentsfor "our" former employers
45 Reason No. 3: Students are Willing to Choose Risky Majors “If this dot.com opportunity doesn’t work out, I’ll come back in a couple of years.”Strong economy (never seen a bad job market).“Show me now” generation.More concerned about “getting rich” than safety and security.Expectations have changed.Stability is stultifying, not reassuring.
46 Reason No. 4: Misinformation “A CPA is someone who works for the government.”“For students, accounting is most often associated with money, numbers, math, and taxes. These are not positive attributes. Accountants are seen as doing boring, tedious, and monotonous number-crunching, by themselves, in a cubicle. ‘If you are a detailed-oriented person who likes to work by yourself, then it’s for you.’ ‘Accounting is a necessary evil.’”“Accounting is something that is in demand because no one wants to do it.”
47 Misinformation About Accounting! Misunderstanding of what accounting careers are like by high school counselors and teachers.Bad definitions of accounting on aptitude tests administered to high school students.High school accounting classes that give the impression that accountants are “scorekeepers.”Introductory accounting classes that perpetuate the perception that accountants are scorekeepers.
48 High School Accounting (considered a vocational course) Take collegeaccounting15%25%Take H.S.accounting65%Take collegeaccounting9%OfferaccountingDon’t take H.S.accountingHighSchool75%Take collegeaccounting17%Don’t offeraccounting35%
49 Reason No. 5: 150-hour Rule to be a CPA The 150-hour rule increases the opportunity cost to be a CPA.150-hour programs have added more of the same—results in increased specialization at a time when generalization is preferred.Other 4-year business majors earn higher starting salaries than accounting students with 150-hour degrees.
50 150-hour rule isn’t problem--graduate school is preferred Practitioners who would recommend graduate school85.7%Educators who would recommend graduate school95.7%High school students who plan on graduate degree76%College students who plan on graduate degree (57% in 1990)80%Additional year would deter studying accountingHigh school students22%College students15%Requirements to be CPA seem fairGeneral150-hour71%74%81%95%Switchers away from accounting91%
51 Rather, the problem is…. The way 150-hour programs have been implemented.Just an“add-on”Not broadenoughMore ofthe sameNot enoughskill focus
52 Can It Get Much Worse? Let’s look at graduates… Accounting EducationPast majors wouldgo elsewhere!Educational modelis broken and needsfixingInputs down!Retail StoreComplaintsabout productsCustomers down!Don’t shop there!
53 Accounting Majors Wouldn’t Major Again! Type of Degree% of Educators Who Would% of Practitioners Who WouldEarn a bachelors degree in something other thanaccounting and then stop0.07.9Earn a bachelors degree in accounting, then stop4.36.4Earn an MBA Degree37.736.4Earn a Masters of Accountancy Degree31.55.9Earn a Masters of Information Systems Degree17.921.3Earn a Masters Degree in Something Else5.4Earn a Ph.D.1.64.4Earn a J.D. (Law Degree)11.4
54 Representative Quotes I would not recommend a Macc degree. The degree better be broad. Students should be studying other courses and not just taking as many accounting courses as possible. If you’re going to do that, you should plan to work for the SEC as one of their generals—as an enforcer.I always felt like accounting people were part of the central role of the company. Now I see us moving away from that. The information systems department was smaller than ours when I started. Now their department is way bigger than ours, and they’re the trainers. My mentor wants me to get a CMA, but I want to learn about information systems.
55 Why Accountants Wouldn’t Major in Accounting Again Business world has changed while accounting education has notMuch of what we teach has been replaced by technologyTeaching lower-level skillsAttractiveness of accounting work has diminishedTechnology has replaced what we doLess attractive financiallyLess psychic income
56 Lack of Change in Education The KSAs aremoving away fromaccounting, as historicallytaught, toward finance,strategy, and informationsystems.Accounting EducationKSAs needed
57 Representative Quotes The other majors that are coming out of school today are bringing to bear the things that accountants have traditionally done in the past. I think what you’re seeing now is a difficulty in differentiating majors coming out of school—a finance major from an accountant, for example. As a result, it continues to be a challenge for us as a firm as to what we are looking for in the qualities of graduates and the approach we take when looking for people to join our organization.The systems-trained people we see can run circles around the accounting-trained people. The top 20% of accounting folk are okay, but on the whole, the systems people are more interested, more alert, and just smarter.
58 Accounting Careers are Less Attractive Less attractive financiallyStarting salariesIndependence rulesLess psychic incomeCPA brand is worth lessMuch of what we did is no longer valuedTechnology has replaced much of what we do
59 Challenging and Rewarding Careers Type of CareerPercent ofEducatorsPractitionerswho agreed orstrongly agreedConsulting work in CPA firm92.588.6Consulting firm89.986.7Accounting/finance area92.982.6Tax area of CPA firm72.762.1Audit/assurance services—CPA firm66.359.1Investment bankerCollege professor84.354.9Internal auditing58.039.3Governmental accountant30.225.1
60 Representative Quotes What used to be a skill is no longer an important skill and that is true whether it’s outsourced or internal. No matter where it’s done, it is done by somebody’s data processing system.If I had to pick one term, I would call myself a finance professional, not a corporate accountant.The opportunities in public accounting are changing, with less perceived gain for continued demands and commitment. Many CPAs note that the traditional path within a CPA firm—making partner—is changing, and note greater lengths of time to become partner.
61 Can It Get Much Worse? Let’s look at education… Accounting EducationPast majors wouldgo elsewhere!Educational modelis broken and needsfixingInputs down!Retail StoreComplaintsabout productsCustomers down!Don’t shop there!
62 Accounting Education is Broken 1We teach accounting as if information were still costly.$10/hour $30/hour $100/hour $300/hour $1,000/hourRecordingbusinesseventsSummarizingrecordedeventsConvertingdata intoinformationTurninginformationinto knowledgeMakingvalue-addeddecisionsTeach too much here! Teach too little here!Introductory AccountingIntermediate AccountingCost AccountingOther Specialized coursesMajor culprits2
63 Problems with Accounting Education CurriculumProblemsTeach outdated stuff—replaced by technology—teach to past, not futureToo narrow and specialized150-hour programs—more of the samePh.D. programs reinforce specializationDon’t cover important topics in the right waysGlobalizationTechnologyVarious business modelsSpecializationFinancial& ManagerialFinancial &Managerial“Fast”TypicalCurriculum
64 Problems with Accounting Education PedagogyRule-based, memorization, test-for-content, prepare for certification model, doesn’t add significant valueDoes not expose students to ambiguity enoughLacks creativityNot enough teaching of skillsNot enough out-of-classroom activitiesNot enough focus on technologyTechnology has changed everything
65 Perceptions of Pedagogies Type of PedagogyPercentage who useToo muchToo littleAssignments with companies40.84.352.7Case analysis69.38.537.5Quizzes (feedback exercises)75.610.511.7Lecture90.641.41.5Oral presentations62.48.434.3Reading textbooks84.012.17.8Role playing126.96.36.199Group work74.620.427.8Team teaching11.148.5Technology assignments77.053.0Videos37.65.412.9Writing assignments78.42.445.8
66 Perceptions About Accounting Programs Percent ofEducatorsPractitionerswho agreed withthe statementis more attractive than Finance38.649.5is more attractive than I/S22.831.1and I/S should be combined57.552.0and finance should be combined41.258.6andBusiness majors are too isolated62.347.3Accounting is integrated enough25.036.4
67 Representative Quotes If you recruit from a lot of schools like I do, you’re going to see that some have good experiences that their schools provide and other’s don’t. And, when you put them together, you notice the differences right away.We’ve been revising the curriculum significantly over the last several years, trying to react to the market place demands. Now we are beginning to realize that the changes needed may be far more significant than previously anticipated.
68 Changes Made to Undergraduate Programs Percent of SchoolsCombined accounting with another major5.7Totally revised curriculum and/or requirements24.6Added several new classes39.3Made changes to pedagogy in selected classesMade essentially no changes in 10 years5.8Added skill development components64.9Added technology components73.1Require interaction with businesses and professionals20.9Added group-work components67.9Added service-learning assignments7.5
69 Changes Made to Graduate Programs Percent of SchoolsCombined accounting with another major11.2Totally revised curriculum and/or requirements14.3Added several new classes26.5Made changes to pedagogy in selected classes39.8Made essentially no changes in 10 years8.2Added skill development components31.0Added technology components47.8Require interaction with businesses and professionals15.7Added group-work components43.3Added service-learning assignments6.0
70 Changes Made to Accounting Programs Percent of Under-graduate ProgramsPercent of Graduate ProgramsCombined accounting with another major5.711.2Totally revised curriculum and/or requirements24.614.3Added several new classes39.326.5Made changes to pedagogy in selected classes39.8Made essentially no changes in 10 years5.88.2Added skill development components64.931.0Added technology components73.147.8Require interaction with businesses & professionals20.915.7Added group-work components67.943.3Added service-learning assignments7.56.0
72 150-hour Programs Response Percent Didn’t have one 10 years ago and still don’t8.0Added new Masters program during past 10 years31.8Had Masters program, but have revised it47.7Have same program we had 10 years ago12.55th year most accounting courses for specialization27.2Mostly broad background courses7.4Mixture of broad background and specialization65.4
75 Representative Quotes The tremendous benefit that comes from an accounting education is the organization and the structure and the discipline and the understanding you gain from looking at the business from an accountant’s eyes. But then, the course goes off into a study of paragraph 114 of SFAS 131, and all that perspective is lost.New graduates don’t know anything about business. They don’t understand manufacturing. They don’t understand distribution. They don’t understand banking. They don’t understand insurance. And yet, they get thrown right into, in some cases, very large organizations, in some cases small organizations, and they don’t have a grasp of what the business does.
76 Representative Quotes The 150-hour rule is about not only what we are going to add on, but about how we should approach the students’ entire education so that we can make it integrated and stop teaching those things that are no longer relevant. We need to teach them in a different way and look at it as a whole program rather than just an add-on. Too many of the 150-hour programs merely added on more accounting at the 5th-year and that’s not what we wanted.
77 Competition is Coming“If we are right, we will create a product that will challenge the product being generated in their classrooms.”(Herbert Allen Jr., talking about his new company, Global Education Network, that has programmers and film crews already assembling a slate of “beta” education courses to compete with higher education. WSJ, July 28, 2000.)“The next big killer application on the Internet is education.”John Chambers, Cisco Systems, Inc. (On-line education is expected to be a $250 billion market, competing head-to-head with brick-and-mortar colleges and universities. WSJ, July 17, 2000.)
78 Accounting Education Under Attack Technology andother businesschangesDistanceeducationOtherbusinessmajorsDecreasedstudentsand budget
79 Accounting Education Under Attack Is the biggest problem our unwillingness to change?Technology andother businesschangesDistanceeducationAccountingEducationOtherbusinessmajorsDecreasedstudentsand budget
80 Minimum Changes Needed Less teaching of financial statement preparation.Less emphasis on learning detailed standards and rules.Less emphasis on how to prepare budgets and do cost accounting.Less specialization—too many audit, tax, etc. courses.Less teaching of things software can perform.More recognition that information is cheap and anyone can be an accountant—it no longer takes expertise to prepare financials.More emphasis on a broader education.More understanding of global, technology, and industries (business models).More skill development, less content.More analysis, planning, interpretation, and decision making.
81 Minimum Changes Needed Must develop school-specific mission playing to your strengths. Copycat mentality won’t work anymore (too much information available that exposes weaknesses).Consider your environment.Consider carefully every degree offered—maybe consolidate.Consider carefully every course offered—is it still relevant or has technology, globalization, etc. rendered it obsolete?Consider carefully the pedagogy of every course.Invest in faculty development—we can only do what we know how to do.What can your school and program do better than anyone else?
82 Strategic Planning Exercise What kinds ofprograms shouldwe have? Anyjoint program?What is ourenvironment andresources? Whoare our studentsand employees?What should beour coursecontent? Whatcourses shouldwe offer?What kinds ofpedagogies shouldwe employ? Howdo we developfaculty?Failure to change could be fatal!