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Accounting Education: Charting The Course Through A Perilous Future Authors:Steve Albrecht Robert Sack Sponsors:Institute of Management Accountants American.

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Presentation on theme: "Accounting Education: Charting The Course Through A Perilous Future Authors:Steve Albrecht Robert Sack Sponsors:Institute of Management Accountants American."— Presentation transcript:

1 Accounting Education: Charting The Course Through A Perilous Future Authors:Steve Albrecht Robert Sack Sponsors:Institute of Management Accountants American Institute of CPAs American Accounting Association Big 5 Professional Service Firms

2 Sponsors Task Force IMA: C.S. Bud Kulesza Keith Russell AICPA:Bea Sanders Karen Pincus AAA:Michael Diamond Jan Williams Big 5:Ellen Glazerman Brent Inman

3 Introduction….Results not what expected We didnt volunteer for this assignment We were committed to let data speak for itself and to use our backgrounds to interpret what we found We didnt believe that things would be as bad as they ended up being--report is more negative than we would like it to be We didnt have an agenda--werent out to represent anyones interests--not IMA, not AICPA, not Big 5, not AAA Some things we say offend sponsors

4 We are long-time supporters of accounting education Steve Albrecht Former AAA President Former Accounting Department Chair Current Chair of AACSB Accounting Accreditation Committee Former President, APLG President-Elect, Beta Alpha Psi Audit/Financial teacher Bob Sack Former AAA Director of Publications Former partner of Touche Ross & Co. (Deloitte & Touche) Former Chief Accountant of Enforcement Division, SEC Financial accounting teacher

5 We want accounting programs to succeed We dont like much of what we have to say any more than you will Our goal is to make accounting education better and more successful As educators, we want to do two things for the accounting profession: Provide a pipeline of high-quality students Provide a high value-added education Not 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 future of accounting education. Timetable: 6 months

7 Previous Warnings & Studies IMA Studies ( Counting More, Counting Less ) AICPA Vision Study AAA Committee Reports Bedford Report Changing Environment Committee AECC Monographs Big 8 White Paper The 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 Accountants who remain narrowly educated will find it more difficult to compete in an expanding profession.… The committees analysis of accounting practice has indicated that accounting education as it is currently approached requires major adjustments between now and the year 2000. Quote from the Bedford Report, 1986

10 Research Methodology Read everything possible, especially past reports Interviewed key leaders Focus group meetings (4 plus 1) Surveys Practitioners Educators Department Chairs

11 Our Conclusion While 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. 1 2 3

13 Customers down! Can It Get Much Worse? Educational model is broken and needs fixing Inputs down! Past majors would go elsewhere! Complaints about products Dont shop there! Accounting Education Retail Store

14 Major Problem Accounting Education has not kept pace with changes in the business world. Changes in Business World Accounting Education

15 Changes in Business Increased Competition Inexpensive Information 1.Faster pace of change 2.Shorter product life cycles and competitive advantages 3.Need for better, quicker, and more decisive actions by management 4.Emergence of new companies and industries 5.Emergence of new services 6.Outsourcing of non-value added services 7.Increased uncertainty and recognition of risk 8.Increasingly complex business transactions 9.Restructuring of rewards (lower rewards for services replaced by technology, same rewards for non-value added services, higher rewards for leveraging technology and globalization) 10.Changes in financial reporting and reporting relationships 11.Increased regulatory activity 12.Increased focus on customer satisfaction GlobalizationTechnologyConcentration of Market Power

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 beforethey 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 deliverablethe financial statementis 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; theyre 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 of students Capacity for educating students Demand by firms to hire students Supply Capacity Demand

23 New Educational Environment Accounting Strategy Others Finance I/S Tax Own Business Audit Consulting Capacity to Educate Students

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 Consulting Audit & Assurance Tax Professional Service Firms Type of Service19931999Growth Rate Consulting27%49%27% Accounting & Auditing51%33%9% Tax22%18%13%

26 Industry Changes The 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 Havent We Changed Faster? Traditions of the Academy Professional Programs Changes in Business Compared to the rest of the university, we have changed significantly and rapidly! Compared to the business world, we have changed only slightly and are getting further behind!

28 Customers down! Educational model is broken and needs fixing Inputs down! Past majors would go elsewhere! Complaints about products Dont shop there! Accounting Education Retail Store Can It Get Much Worse? Lets focus on inputs!

29 The Number and Quality of Accounting Students has Decreased! Yearly Graduates Dropped from 60,000 to 47,600 (1995-96 to 1998-99) Currently Enrolled Dropped from 192,000 to 148,000 (1995 to 1998-99) Percent of college students who are studying accounting Dropped from 4% to 2% (1990 – 1999) Percent of high school students who say they will major in accounting Dropped from 2% to 1% (1990 - 1999)

30 Survey Respondents Educator Response Practitioner Response 80.1% 16.6% 45.7% 42.5% Are there (fewer, same or more) qualified students today?

31 So the bad news is... The number of accounting majors is down and...

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 Quality of accounting majors is down. Quality of accounting minors is constant. Quality of non-accounting business majors is constant. Quality of Students

34 Resource Decisions are Based on… Decreased StudentsDecreased ResourcesFewer Faculty RankBasis for Ranking 1Number of students enrolled 2Schools internal assessments of needs 3Accreditation of programs 4Other ways 5Rankings in business periodicals

35 Budget Allocations to Accounting Programs Resources have… Department Chair % Increased relative to other business programs 5.7 Decreased relative to other business programs 32.5 Stayed about the same percentage relative to other programs 61.8

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 interviewingand thats 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! 1.Decreased starting salaries. 2.More attractive career alternatives than in the past. 3.Increased willingness to choose risky majors and career tracks. 4.Lack of information and considerable misinformation about accounting profession. 5.150-hour program rule has increased opportunity costs to become an accountant.

39 Why are Enrollments Down? Reason Why the Number of Qualified Students is Down Most Important Reason Educator Responses Second Most Important Reason Educator Responses Most Important Reason Practitioner Responses Second Most Important Reason Practitioner Responses Starting salaries are lower than in other disciplines, such as information systems 39.3 32.325.4 Accounting is perceived as less challenging and rewarding than other fields of study 10.921.123.213.4 Students dont understand how challenging and rewarding the accounting profession is 18.313.06.313.4 Accounting is not perceived as having the growth opportunities that other disciplines have 9.614.311.017.4

40 Reason Why the Number of Qualified Students is Down Most Important Reason Educator Responses Second Most Important Reason Educator Responses Most Important Reason Practitioner Responses Second Most Important Reason Practitioner Responses Accounting is perceived as being backward looking, while information systems and finance are perceived as being forward looking Accountants are not as respected as other business professionals University professors dont do a good job of getting students excited about accounting Why are Enrollments Down?

41 Reason No. 1: Salaries are Down! Average Undergraduate Salaries Information Systems $41,402 Finance 35,500 Accounting 35,090 Average Graduate Salaries Masters of Information Systems$60,000 MBA48,200 Masters of Taxation43,800 Masters of Accountancy41,800 These 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 dont. We have a monopoly on the attest function. Only CPAs can do attest. But, our monopoly service we discount the most. I mean, were selling jobs at 50 percent. Ill 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 cant pay the salaries. So the firm says, well pay more when the realization is higher. Their realization is higher in consulting. I had a discussion with a partnera major player at one of the firmsand he believes that when the pain hurts enough, well start paying more.

43 Why Salaries Havent Kept Pace Lower Relative Salaries Dont leverage global Dont leverage technology Education is outdated Realization of fees is down Necessary but non- value added Attractiveness of other majors

44 Reason No. 2: More Attractive Options Information systems e-business Logistics/supply chain management Strategy Consulting Various finance specialties International business Etc.

45 Reason No. 3: Students are Willing to Choose Risky Majors 1.Strong economy (never seen a bad job market). 2.Show me now generation. 3.More concerned about getting rich than safety and security. 4.Expectations have changed. 5.Stability is stultifying, not reassuring. If this opportunity doesnt work out, Ill come back in a couple of years.

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 its 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! 1.Misunderstanding of what accounting careers are like by high school counselors and teachers. 2.Bad definitions of accounting on aptitude tests administered to high school students. 3.High school accounting classes that give the impression that accountants are scorekeepers. 4.Introductory accounting classes that perpetuate the perception that accountants are scorekeepers.

48 High School Accounting (considered a vocational course) Take college accounting Dont take H.S. accounting Take college accounting Take H.S. accounting Offer accounting Dont offer accounting High School High School Take college accounting 65% 35% 25% 75% 15% 9% 17%

49 Reason No. 5: 150-hour Rule to be a CPA 1.The 150-hour rule increases the opportunity cost to be a CPA. 2.150-hour programs have added more of the sameresults in increased specialization at a time when generalization is preferred. 3.Other 4-year business majors earn higher starting salaries than accounting students with 150-hour degrees.

50 150-hour rule isnt 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 accounting High school students22% College students15% Requirements to be CPA seem fairGeneral150-hour High school students71%74% College students81%95% Switchers away from accounting80%91%

51 Rather, the problem is…. Not broad enough More of the same Not enough skill focus Just an add-on

52 Customers down! Educational model is broken and needs fixing Inputs down! Past majors would go elsewhere! Complaints about products Dont shop there! Accounting Education Retail Store Can It Get Much Worse? Lets look at graduates…

53 Type of Degree % of Educators Who Would % of Practitioners Who Would Earn a bachelors degree in something other than accounting and then stop 0.07.9 Earn a bachelors degree in accounting, then stop 4.36.4 Earn an MBA Degree 37.736.4 Earn a Masters of Accountancy Degree 31.55.9 Earn a Masters of Information Systems Degree 17.921.3 Earn a Masters Degree in Something Else 5.46.4 Earn a Ph.D. 1.64.4 Earn a J.D. (Law Degree) 1.611.4 Accounting Majors Wouldnt Major Again!

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 youre going to do that, you should plan to work for the SEC as one of their generalsas 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 theyre the trainers. My mentor wants me to get a CMA, but I want to learn about information systems.

55 Why Accountants Wouldnt Major in Accounting Again Business world has changed while accounting education has not Much of what we teach has been replaced by technology Teaching lower-level skills Attractiveness of accounting work has diminished Technology has replaced what we do Less attractive financially Less psychic income

56 Lack of Change in Education KSAs needed Accounting Education The KSAs are moving away from accounting, as historically taught, toward finance, strategy, and information systems.

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 youre seeing now is a difficulty in differentiating majors coming out of schoola 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 financially Starting salaries Independence rules Less psychic income CPA brand is worth less Much of what we did is no longer valued Technology has replaced much of what we do

59 Type of Career Percent of EducatorsPractitioners who agreed or strongly agreed Consulting work in CPA firm 92.588.6 Consulting firm 89.986.7 Accounting/finance area 92.982.6 Tax area of CPA firm 72.762.1 Audit/assurance servicesCPA firm 66.359.1 Investment banker 66.359.1 College professor 84.354.9 Internal auditing 58.039.3 Governmental accountant 30.225.1 Challenging and Rewarding Careers

60 Representative Quotes What used to be a skill is no longer an important skill and that is true whether its outsourced or internal. No matter where its done, it is done by somebodys 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 firmmaking partneris changing, and note greater lengths of time to become partner.

61 Customers down! Educational model is broken and needs fixing Inputs down! Past majors would go elsewhere! Complaints about products Dont shop there! Accounting Education Retail Store Can It Get Much Worse? Lets look at education…

62 Accounting Education is Broken We teach accounting as if information were still costly. $10/hour $30/hour $100/hour $300/hour $1,000/hour Teach too much here! Teach too little here! Introductory Accounting Intermediate Accounting Cost Accounting Other Specialized courses 1 Turning information into knowledge Converting data into information Summarizing recorded events Recording business events Making value-added decisions 2 Major culprits

63 Problems with Accounting Education 1.Teach outdated stuffreplaced by technology teach to past, not future 2.Too narrow and specialized 3.150-hour programsmore of the same 4.Ph.D. programs reinforce specialization 5.Dont cover important topics in the right ways a.Globalization b.Technology c.Various business models Financial & Managerial Financial & Managerial Fast Specialization

64 Problems with Accounting Education 1.Rule-based, memorization, test-for-content, prepare for certification model, doesnt add significant value 2.Does not expose students to ambiguity enough 3.Lacks creativity a.Not enough teaching of skills b.Not enough out-of-classroom activities c.Not enough focus on technology Technology has changed everything

65 Type of Pedagogy Percentage who use Too much Too little Assignments with companies 40.84.352.7 Case analysis 69.38.537.5 Quizzes (feedback exercises) 75.610.511.7 Lecture 90.641.41.5 Oral presentations 62.48.434.3 Reading textbooks Role playing Group work 74.620.427.8 Team teaching 11.14.348.5 Technology assignments Videos 37.65.412.9 Writing assignments 78.42.445.8 Perceptions of Pedagogies

66 Accounting… Percent of EducatorsPractitioners who agreed with the statement is more attractive than Finance 38.649.5 is more attractive than I/S 22.831.1 and I/S should be combined 57.552.0 and finance should be combined 41.258.6 and Business majors are too isolated 62.347.3 Accounting is integrated enough 25.036.4 Perceptions About Accounting Programs

67 Representative Quotes If you recruit from a lot of schools like I do, youre going to see that some have good experiences that their schools provide and others dont. And, when you put them together, you notice the differences right away. Weve 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 Change Percent of Schools Combined accounting with another major5.7 Totally revised curriculum and/or requirements24.6 Added several new classes39.3 Made changes to pedagogy in selected classes24.6 Made essentially no changes in 10 years5.8 Added skill development components64.9 Added technology components73.1 Require interaction with businesses and professionals20.9 Added group-work components67.9 Added service-learning assignments7.5 Changes Made to Undergraduate Programs

69 Change Percent of Schools Combined accounting with another major11.2 Totally revised curriculum and/or requirements14.3 Added several new classes26.5 Made changes to pedagogy in selected classes39.8 Made essentially no changes in 10 years8.2 Added skill development components31.0 Added technology components47.8 Require interaction with businesses and professionals15.7 Added group-work components43.3 Added service-learning assignments6.0 Changes Made to Graduate Programs

70 Change Percent of Under- graduate Programs Percent of Graduate Programs Combined accounting with another major 5.711.2 Totally revised curriculum and/or requirements 24.614.3 Added several new classes 39.326.5 Made changes to pedagogy in selected classes 24.639.8 Made essentially no changes in 10 years 5.88.2 Added skill development components 64.931.0 Added technology components 73.147.8 Require interaction with businesses & professionals 20.915.7 Added group-work components 67.943.3 Added service-learning assignments 7.56.0 Changes Made to Accounting Programs

71 Topics Rated Higher By… Educators Financial Accounting Finance Taxes Managerial Accounting Audit/Assurance Technology Statistics Marketing Practitioners Information Systems Strategy Law Global E-commerce Ethics Research methods

72 Response Percent Didnt have one 10 years ago and still dont8.0 Added new Masters program during past 10 years31.8 Had Masters program, but have revised it47.7 Have same program we had 10 years ago12.5 5th year most accounting courses for specialization27.2 Mostly broad background courses7.4 Mixture of broad background and specialization65.4 150-hour Programs

73 Skills Rated Higher By… Educators analytical thinking written communications computing technology decision making interpersonal continuous learn measurement foreign language Practitioners oral communications teamwork leadership project management customer oriented change management negotiation research entrepreneurship

74 Technology Skills Rated Higher By… Educators spreadsheet word processing windows WWW presentations terminology data base e-commerce security and controls Practitioners project management technology management other operating systems operations management

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 accountants eyes. But then, the course goes off into a study of paragraph 114 of SFAS 131, and all that perspective is lost. New graduates dont know anything about business. They dont understand manufacturing. They dont understand distribution. They dont understand banking. They dont understand insurance. And yet, they get thrown right into, in some cases, very large organizations, in some cases small organizations, and they dont 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 thats 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 Technology and other business changes Other business majors Distance education Decreased students and budget Accounting Education Under Attack

79 Accounting Education Technology and other business changes Other business majors Distance education Decreased students and budget Accounting Education Under Attack Is the biggest problem our unwillingness to change?

80 Minimum Changes Needed 1.Less teaching of financial statement preparation. 2.Less emphasis on learning detailed standards and rules. 3.Less emphasis on how to prepare budgets and do cost accounting. 4.Less specializationtoo many audit, tax, etc. courses. 5.Less teaching of things software can perform. 6.More recognition that information is cheap and anyone can be an accountantit no longer takes expertise to prepare financials. 7.More emphasis on a broader education. 8.More understanding of global, technology, and industries (business models). 9.More skill development, less content. 10.More analysis, planning, interpretation, and decision making.

81 Minimum Changes Needed 1.Must develop school-specific mission playing to your strengths. Copycat mentality wont work anymore (too much information available that exposes weaknesses). 2.Consider your environment. 3.Consider carefully every degree offeredmaybe consolidate. 4.Consider carefully every course offeredis it still relevant or has technology, globalization, etc. rendered it obsolete? 5.Consider carefully the pedagogy of every course. 6.Invest in faculty developmentwe 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 is our environment and resources? Who are our students and employees? What kinds of programs should we have? Any joint program? What should be our course content? What courses should we offer? What kinds of pedagogies should we employ? How do we develop faculty?

83 Our Options Your programs future? Value-added stand-alone programs Combine with Finance or I/S Become a Service department Requires pro-active initiatives Requires pro-active initiatives The default option

84 Types of Programs All of these require substantial revision! Accounting Minor 4-year degree 5-year Masters program MBA specialization 1-year Masters program Ph.D program

85 How Will We React? Titanic Accounting Education Problems ahead Icebergs ahead

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