31/01/2008 - Extracts from International Accounting Bulletin United States Survey dated 25th January 2008
The International Accounting Bulletin reports that the largest of the associations of independent firms within the US in terms of combined fee income of participating firms is the newly established Praxity AISBL, which recorded fee income of nearly $1.3 billion.
Praxity chair Bill Fingland says it has been a year of development for Praxity North America (including Canada) also “ Many of the things that we have talked about wanting to do for years and years are finally able to come together under the Praxity umbrella. Praxity’s current US members are all former MRI members although Bill Fingland says many new firms are enquiring about joining and he is currently in discussions with a $225 million firm and a $25 million firm.
One major step Praxity is about to take is hiring an executive director for North America. “Ten years ago the MRI organisation in North America was predominately facilitated by the managing partners,” Fingland says, “However the firms have gotten so big and the opportunities have gotten so great for them, that the managing partners are having a difficult time staying actively involved in all the details of everything they have going on.” The executive director position is expected to facilitate inter-firm activities and marketing
Staffing Challenge
Everyone who spoke to the IAB for this US survey agreed that staffing remains one of the key challenges facing the profession. Fingland says the staffing shortage is evolving. “When you talk about [staffing] it used to be, how do we recruit enough people off campus? Now it is more how do we develop the future leaders of our firm? If we’re going to take care of all of these opportunities that are presenting, we have to develop leaders to do it.”
Fingland says another challenge, linked mainly to the smaller firms, is succession planning. ”In the next five to ten years I think [succession planning] will cause a number of firms to merge together… all our Praxity North America firms are seeing opportunities in the merger fields that they haven’t seen before in terms of the numbers and the qualities and the urgency. I think the word’s getting out that you have to address the succession issue within your firm.”
Global Standards
In response to the likelihood of a move towards a single set of global accounting standards Fingland says IFRS is a “tremendous problem on the horizon”. “Not from the standpoint of should we converge or should we not. I think eventually we will converge and that is the right answer,”
“But here’s the issue,” he continues “You can’t just say ‘ok we’re going to go to IFRS in 12 months’. Who’s going to teach everybody in the US what IFRS is? Second, IFRS obviously is much more principles-based as opposed to rules-based, which we have in the US, so professional judgement is critical in that regard and when you have a litigious environment that we have in the US, somebody’s going to have to protect the guy that’s using his best professional judgement. Now I’m not talking about the guy that is intentionally misrepresenting something, that’s a different issue, but complex issues under a principle-based accounting system, because of professional judgement, could have different treatments and I’m sure that exists in IFRS countries right now. So the education process must be beefed up well in advance of any convergence so we can start teaching not just the young people in colleges, but the people out in practice today.”
“If you look at the responses from the firms [contained in PCAOB inspection reports], one of the things that is consistent with almost every response is the statement ‘well it’s the professional judgement of our auditors that we did enough work’ and when the PCAOB comes in they say ‘well its our professional judgement that you didn’t’. We are going to have to be willing to accept that difference and not accept it with the implication that one is right and the other wrong.”
Changing Standards
It’s not just regulators that will have to adjust their standards, Fingland says: “The courts are going to have to determine where professional liability stands; it may even take a congressional law to get that effect. But I think practitioners [will need to adjust too]. I’ve been in this profession for more than 30 years; all I’ve known is rules-based, so how do I get to where we are comfortable with principle-based standards?”
He also suggests the conversion to IFRS is going to present a similar challenge to the next generation of accountants to the technology challenge that faces his generation “When I started in BKD 37 years ago, I got a calculator and it was not an electronic fancy calculator. And now we give every staff member who walks in a brand new computer, two monitors, a scanner, a printer and a calculator that they never use. Today we have made that transformation and it’s been the generation that I’m in that’s predominantly led that… I think the next generation of accountants, when they look back in 30 years, it will be the convergence of the international marketplace that is their ‘technology’. “
A better understanding of what exactly convergence means is required and also the potential affect the current global liquidity crisis could have on the profession. Fingland cautiously says, “ I think the accounting industry has to be very, very careful that we don’t become scapegoats for the liquidity crisis and the loan crisis that’s going on right now. I think that we have done a good job in setting the stage and saying these subprime loans, variable rate loans, you have to be very careful at he consumer level,” he says.” I think the key thing for us is to be alert and continue to inform the public as to the risk of these issues and let the subprime market work its way out because I’m not sure it’s done yet.”
