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Accounting Education: Charting The Course Through A Perilous Future

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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 Sponsor’s 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 didn’t volunteer for this assignment We were committed to let data speak for itself and to use our backgrounds to interpret what we found We didn’t believe that things would be as bad as they ended up being--report is more negative than we would like it to be We didn’t have an agenda--weren’t out to represent anyone’s 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 don’t 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 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 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 Can It Get Much Worse? Past majors would go elsewhere!
Accounting Education Past majors would go elsewhere! Educational model is broken and needs fixing Inputs down! Retail Store Complaints about products Customers down! Don’t shop there!

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

15 Changes in Business Globalization—Technology—Concentration of Market Power Increased Competition — Inexpensive Information Faster pace of change Shorter product life cycles and competitive advantages Need for better, quicker, and more decisive actions by management Emergence of new companies and industries Emergence of new services Outsourcing of non-value added services Increased uncertainty and recognition of risk Increasingly complex business transactions Restructuring 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 relationships Increased regulatory activity Increased 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 Demand Supply of students Capacity for educating students Demand by firms to hire students Everything was in Equilibrium

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

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 Service 1993 1999 Growth Rate Consulting 27% 49% Accounting & Auditing 51% 33% 9% Tax 22% 18% 13% Consulting Audit & Assurance Tax

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 Haven’t We Changed Faster?
Compared to the rest of the university, we have changed significantly and rapidly! Traditions of the Academy Changes in Business Professional Programs Compared 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 Education Past majors would go elsewhere! Educational model is broken and needs fixing Inputs down! Retail Store Complaints about products Customers down! Don’t shop there!

29 The Number and Quality of Accounting Students has Decreased!
Yearly Graduates Dropped from 60,000 to 47,600 ( to ) Currently Enrolled Dropped from 192,000 to 148,000 (1995 to ) 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% ( )

30 Survey Respondents Are 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 share to 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 Students Quality 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…
Rank Basis for Ranking 1 Number of students enrolled 2 School’s internal assessments of needs 3 Accreditation of programs 4 Other ways 5 Rankings in business periodicals Decreased Students Decreased Resources Fewer Faculty

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 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 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 32.3 25.4 Accounting is perceived as less challenging and rewarding than other fields of study 10.9 21.1 23.2 13.4 Students don’t understand how challenging and rewarding the accounting profession is 18.3 13.0 6.3 Accounting is not perceived as having the growth opportunities that other disciplines have 9.6 14.3 11.0 17.4

40 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 Accounting is perceived as being backward looking, while information systems and finance are perceived as being forward looking 6.6 6.7 9.8 11.2 Accountants are not as respected as other business professionals 1.3 1.8 3.5 University professors don’t do a good job of getting students excited about accounting 2.2 14.6 1.2 4.5

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 MBA 48,200 Masters of Taxation 43,800 Masters of Accountancy 41,800 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 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.

43 Why Salaries Haven’t Kept Pace
Education is outdated Don’t leverage global Realization of fees is down Lower Relative Salaries Don’t leverage technology 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. These majors prepare students for "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 college accounting 15% 25% Take H.S. accounting 65% Take college accounting 9% Offer accounting Don’t take H.S. accounting High School 75% Take college accounting 17% Don’t offer accounting 35%

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 school 85.7% Educators who would recommend graduate school 95.7% High school students who plan on graduate degree 76% College students who plan on graduate degree (57% in 1990) 80% Additional year would deter studying accounting High school students 22% College students 15% Requirements to be CPA seem fair General 150-hour 71% 74% 81% 95% Switchers away from accounting 91%

51 Rather, the problem is…. The way 150-hour programs
have been implemented. Just an “add-on” Not broad enough More of the same Not enough skill focus

52 Can It Get Much Worse? Let’s look at graduates…
Accounting Education Past majors would go elsewhere! Educational model is broken and needs fixing Inputs down! Retail Store Complaints about products Customers down! Don’t shop there!

53 Accounting Majors Wouldn’t Major Again!
Type of Degree % of Educators Who Would % of Practitioners Who Would Earn a bachelors degree in something other than accounting and then stop 0.0 7.9 Earn a bachelors degree in accounting, then stop 4.3 6.4 Earn an MBA Degree 37.7 36.4 Earn a Masters of Accountancy Degree 31.5 5.9 Earn a Masters of Information Systems Degree 17.9 21.3 Earn a Masters Degree in Something Else 5.4 Earn a Ph.D. 1.6 4.4 Earn 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 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
The KSAs are moving away from accounting, as historically taught, toward finance, strategy, and information systems. Accounting Education KSAs 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 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 Challenging and Rewarding Careers
Type of Career Percent of Educators Practitioners who agreed or strongly agreed Consulting work in CPA firm 92.5 88.6 Consulting firm 89.9 86.7 Accounting/finance area 92.9 82.6 Tax area of CPA firm 72.7 62.1 Audit/assurance services—CPA firm 66.3 59.1 Investment banker College professor 84.3 54.9 Internal auditing 58.0 39.3 Governmental accountant 30.2 25.1

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 Education Past majors would go elsewhere! Educational model is broken and needs fixing Inputs down! Retail Store Complaints about products Customers down! Don’t shop there!

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

63 Problems with Accounting Education
Curriculum Problems Teach outdated stuff—replaced by technology—teach to past, not future Too narrow and specialized 150-hour programs—more of the same Ph.D. programs reinforce specialization Don’t cover important topics in the right ways Globalization Technology Various business models Specialization Financial & Managerial Financial & Managerial “Fast” Typical Curriculum

64 Problems with Accounting Education
Pedagogy Rule-based, memorization, test-for-content, prepare for certification model, doesn’t add significant value Does not expose students to ambiguity enough Lacks creativity Not enough teaching of skills Not enough out-of-classroom activities Not enough focus on technology Technology has changed everything

65 Perceptions of Pedagogies
Type of Pedagogy Percentage who use Too much Too little Assignments with companies 40.8 4.3 52.7 Case analysis 69.3 8.5 37.5 Quizzes (feedback exercises) 75.6 10.5 11.7 Lecture 90.6 41.4 1.5 Oral presentations 62.4 8.4 34.3 Reading textbooks 84.0 12.1 7.8 Role playing 15.3 5.1 34.1 Group work 74.6 20.4 27.8 Team teaching 11.1 48.5 Technology assignments 77.0 53.0 Videos 37.6 5.4 12.9 Writing assignments 78.4 2.4 45.8

66 Perceptions About Accounting Programs
Percent of Educators Practitioners who agreed with the statement is more attractive than Finance 38.6 49.5 is more attractive than I/S 22.8 31.1 and I/S should be combined 57.5 52.0 and finance should be combined 41.2 58.6 and Business majors are too isolated 62.3 47.3 Accounting is integrated enough 25.0 36.4

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 Schools Combined accounting with another major 5.7 Totally revised curriculum and/or requirements 24.6 Added several new classes 39.3 Made changes to pedagogy in selected classes Made essentially no changes in 10 years 5.8 Added skill development components 64.9 Added technology components 73.1 Require interaction with businesses and professionals 20.9 Added group-work components 67.9 Added service-learning assignments 7.5

69 Changes Made to Graduate Programs
Percent of Schools Combined accounting with another major 11.2 Totally revised curriculum and/or requirements 14.3 Added several new classes 26.5 Made changes to pedagogy in selected classes 39.8 Made essentially no changes in 10 years 8.2 Added skill development components 31.0 Added technology components 47.8 Require interaction with businesses and professionals 15.7 Added group-work components 43.3 Added service-learning assignments 6.0

70 Changes Made to Accounting Programs
Percent of Under-graduate Programs Percent of Graduate Programs Combined accounting with another major 5.7 11.2 Totally revised curriculum and/or requirements 24.6 14.3 Added several new classes 39.3 26.5 Made changes to pedagogy in selected classes 39.8 Made essentially no changes in 10 years 5.8 8.2 Added skill development components 64.9 31.0 Added technology components 73.1 47.8 Require interaction with businesses & professionals 20.9 15.7 Added group-work components 67.9 43.3 Added service-learning assignments 7.5 6.0

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

72 150-hour Programs Response Percent
Didn’t have one 10 years ago and still don’t 8.0 Added new Masters program during past 10 years 31.8 Had Masters program, but have revised it 47.7 Have same program we had 10 years ago 12.5 5th year most accounting courses for specialization 27.2 Mostly broad background courses 7.4 Mixture of broad background and specialization 65.4

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 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 and other business changes Distance education Other business majors Decreased students and budget

79 Accounting Education Under Attack
Is the biggest problem our unwillingness to change? Technology and other business changes Distance education Accounting Education Other business majors Decreased students and 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 of programs should we have? Any joint program? What is our environment and resources? Who are our students and employees? What should be our course content? What courses should we offer? What kinds of pedagogies should we employ? How do we develop faculty? Failure to change could be fatal!

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

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

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


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