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Barry Melancon, dubbed “the most important man in accountancy” for his 30 years leading the US professional body, has issued a stark warning to his successors that they should not compromise standards in an effort to attract more people to the profession. .
Melancon retires this month as the longest-serving executive director of the American Institute of Certified Public Accountants, overseeing a profession that has been transformed by new technology and private equity investment but is in the throes of a hiring crisis.
As young people are attracted by higher salaries and lower entry requirements into finance and technology, the number of people taking the institute’s CPA exam has increased suddenly felland accounting firms demanded reforms to make it cheaper and faster to qualify.
In a wide-ranging interview with the Financial Times, Melancon expressed skepticism about some of the companies’ claims and said the race for the “lowest common denominator” could come back to haunt the profession.
“We are a highly trusted profession and we live in a world that does not have many trust criteria,” he said. “We have to respect the respect we get from the public, the business community and regulators.”
Some companies blame a shortage of accountants for potential flaws in their financial statements, and some US local governments and businesses complain that auditors are harder to find.
After initially resisting pressure from the profession, the AICPA proposed in September to drop the requirement that accountants have the equivalent of five years of college education, known as the 150-hour rule — one year more than the 120 hours of coursework for a typical undergraduate degree.
Melancon made it clear that he doubted the need for such a change. “The 150-hour rule elevated our profession, which in the 1970s was more craft-oriented than vocational. It raised the quality of people in our profession and the reputation of our profession, and to deny that is to deny history.”
Melancon was the AICPA’s youngest chief when he took the helm in 1995 at age 37, and he hasn’t shied away from pushing for change in the past. He insisted on computerizing the CPA exam when some in the profession resisted it, and made the qualification available internationally. He also pushed for the creation of auditing systems and other technology that could be shared among companies. Accounting Today magazine consistently ranks him as the most influential person in the profession.
The new focus is around the details of the on-the-job training that the AICPA designed as an alternative to a fifth year of college education for CPA candidates.
The FT reported that a group representing major accountancy firms wanted a simpler system than the proposed one, which would require supervisors to certify that new hires have acquired dozens of specific skills or “competencies.”
Critics say the plan is overcomplicated, expensive and subjective, but Melancon said ensuring new accountants have specific competencies is essential to prevent a “lowest common denominator problem” where an unqualified practitioner could bring the profession into disrepute.
“Companies don’t take their investment in the people they hire lightly, so it really shouldn’t be a big change for the vast majority of companies,” he said.
The proposed changes come in the context of a rapidly evolving workplace, with less need for armies of junior employees performing repetitive tasks and new opportunities for accountants to use their business and financial acumen to help clients.
“The starting positions in our profession will be reduced. . . because of technology, and the traditional pyramid shape of the public accounting firm will not be the structure of the future,” predicted Melancon.
“We need to develop investments in improving competencies that bring people more quickly into that middle part of the company or the finance function, where the profession is so valuable.”
Also changing the shape of the profession is the arrival of private equity, which has taken over a third of the 30 largest US firms by 2022. In addition to promising funding for technology investments, the deals provide windfalls for senior partners and capital to boost younger ones. . Regulators, however, have warned that private ownership threatens the objectivity of audit work, while the need to maximize profits could lower standards.
“I don’t think the traditional partnership structure is the only way our profession can function,” Melancon says. Although he welcomed experimentation, he added that “anyone who thinks [private equity deals] all will be marriages made in heaven is not right”.
Ultimately, accounting firms are likely to find investors who can hold them for the long term rather than rip them off, he said.
For a final prediction before retiring, Melancon uses a quote he’s kept in his office for decades. “Change,” he says, “will never be as slow as it is today.”
