During his foray to Michigan to address educators and students at the Michigan Accountancy Foundation Educators Symposium, former AICPA Chair Bill Ezzell took time to talk with Leaders’ Edge Editor Marla Janness about the biggest challenges and opportunities in the profession. The following Q&A is excerpted from this discussion.

Q: You were chair of the AICPA during an especially difficult time – just after Sarbanes-Oxley was enacted. How far have we come in these past three years, and what has been its biggest impact on the profession?

Bill Ezzell: I think it’s important to recognize that the accounting profession really did support SOX and most of its provisions. If you really think back, the major goal of SOX at the moment was to restore confidence of investors in the public markets. That has been accomplished. Looking back, I think it’s done a great deal to improve corporate governance. The audit committee’s role has greatly improved to the benefit of investors. The quality of work that’s being done by audit firms is better than it was before SOX. We are seeing more and more things uncovered earlier in the process. But, that doesn’t mean we’re finished, that doesn’t mean there can’t be more improvements – there will be.

Q: There’s been a lot of discussion about the cost of implementing SOX. What are your thoughts about the cost, and where is it headed?

Bill Ezzell: SOX in general increased costs. No matter what you were doing before, now you’re doing more of it and doing it in greater depth in terms of an audit of any public company. So, there’s an incremental layer of more work, and more work equates to more cost.

The big costs getting so much publicity are for the internal control review – the Section 404 review of internal controls by management, management’s assertions about those controls and the external auditor’s review and attestation. We’ve looked at these numbers through the first year of experience, 2004 (the first full year of real implementation.) About 75 percent of the expense was the internal cost for a company to document and assess its own controls. The reason it was so high was there was a lot of “deferred maintenance.” A lot of documentation had never been done. The company thought it had controls and knew how things worked, but never documented it. No one had tested to the degree now required to test those things.

The other 25 percent of the cost was the outside audit firm attestation of internal controls. Additionally, in the first year, the guidance came out very late, so there wasn’t an opportunity to bake it into the process of the audit. It was more like two projects, the audit and the 404 internal control work, being done almost separately.

Now, in the second year, the audits are more efficient because we’ve combined steps – both audit-related and 404 control-related. There are a lot more efficiencies coming out of the process.

But it has been a significant cost. There is a cost to being steward of the public’s money as a public company. And there should be a cost.

Q: Another concern within the profession is the shortage of accounting professionals. What are the major factors causing the shortage, and why should CPAs be concerned?

Bill Ezzell: We’re a profession. And whether you have or use your CPA credential, or you’re a member in industry preparing financial information to be relied upon or if you’re auditing that information, or maybe you are a member in government or an educator – you want to have a robust profession. I’ve been all around the country in the last four years and I’ve talked to CPAs in every size firm from the small practitioner to the very largest of firms. If there’s one thing I’ve heard over and over again is an abiding concern for our profession. Not from the standpoint of the scandals we’ve talked about or heard about, but the future of the profession from the standpoint of our ability to bring in new talent to refresh the pipeline.

Q: Why is it of such concern right now?

Bill Ezzell: Right now, we have a bubble of practitioners – the baby boom generation – of an age where within the next 10 years they will begin their retirements. Couple that with what happened with SOX: one of its consequences was a significant increase in the amount of time required both by the company and its accountants and the outside auditors. These two factors together create a huge shortage.

It doesn’t just relate to big firms who work with public companies, although it starts there. A lot of clients were not able to find a big firm to do their work because they didn’t have enough people; so the clients go to a smaller firm. The smaller firms didn’t have any extra people either. So they might have gotten rid of their smallest clients to take on the next level of clients. It trickles down. There’s been a tremendous demand for people throughout all size levels of practitioners.

Q. What issues on the horizon concern you?

Bill Ezzell: There are some major issues today that are unresolved and will become the issues of great discussions and controversy in the profession in the next three to five years. For instance, we’ve become increasingly aware that investors don’t rely upon the financial information in the annual report and the audit opinion in the same way they used to. They want different information. And clearly, whatever that information is they want it on a more-timely basis and they want it to be more management driven, more operations driven. So we have a challenge in that we have a product – the audited financial statement – that users are not as well satisfied with. The question is, what do we need to do as a profession, to change the model so that it better meets the needs of the marketplace. We can have best buggy wheel, but if nobody has buggies, that’s not going to be very productive down the road.

Another issue is private company financial reporting. When you look at the U.S. economic activity, about half is from thousands of private companies – both small and large. Their financial information needs are quite a bit different than investors in the stock market. Private company financial information users are banks and bonding companies – perhaps venture capitalists. They sometimes don’t need the complexity of the system that’s been built, especially the smaller companies. The AICPA and FASB are looking at whether there should be a model for private companies that’s different. Not different for difference’s sake, but to meet the different needs. It’s a cutting edge issue.

We need to think it through. Here again, if the product – the financial statement as it’s put together today – is not appropriate for users of a private company, you have the same issue as I mentioned before: the marketplace will go in other directions.

Plus, this will have a profound impact on the accounting education curriculum. What would we teach in the universities? Would we teach both sets of accounting principles, if two emerged? What about the convergence with international standards? Should we be teaching U.S. and international standards in today’s global marketplace? That’s a whole other issue – should we be training accountants in the U.S. to be able to step onto a global platform.

Q: What do you tell young people about the opportunities in the accounting profession?

Bill Ezzell: I think the opportunities are boundless in this profession. They’ve always been to a degree, but they are more so today because business is becoming more complex, it’s moving at a faster pace. It’s more and more national, if not global. There’s just more opportunity because of the complexity, because of the needs and how dependent our society is on the information that flows out of the business world, whether it’s to produce the information or to test it. I think accounting is the most broadbased platform to whatever you want to do in business. Hopefully new students will stay in accounting and become CPAs, achieve the credential.

Q. You often spend time with accounting students in the classroom. In fact, you’re visiting two classes of Michigan accountancy students this week. What is your key message to these students?

Bill Ezzell: The students are particularly interested in fraud and they frequently ask why fraudulent financial reporting doesn’t get caught, or doesn’t get caught soon enough. Through a roleplaying activity, I challenge the students to make decisions on behalf of a mythical company with a mythical product that is struggling at the end of each quarter to make the numbers. While they start out with normal business decisions, they eventually cross the line. I explain that when we look back at the (fraudulent) things we’ve read about, most never started out with people going in to work one morning planning to commit fraud. They are people under tremendous pressure, trying to do some good things for their company. And as they cross the line of what’s appropriate, it’s difficult to bring it back. Many frauds happen incrementally over time, and often by well-intentioned people. But, they just go astray.

So, the main message is that you’ll face situations where people will challenge your value system and ask you to do things you don’t think you should do. Might be accounting, might be something else. You may not even understand why you shouldn’t, but you know you feel uncomfortable. That’s when you’ve got to be able to say, wait a minute. And, seek out help, consult, talk with other people. Don’t give in.

More about Bill Ezzell
From 1998 through 2004, Bill Ezzell was a member of the board of directors of the AICPA and served as its chairman from 2002-2003. As chair, Bill focused on restoring credibility to the accounting profession and emphasizing the profession’s core values of objectivity, integrity and independence. He was directly involved in the enactment of the Sarbanes-Oxley Act of 2002 and implementing regulations that have brought about significant change to the profession. He is a frequent speaker and panelist at corporate governance forums discussing the implications of the Act on audit committees, management, auditors and the renewed focus on business ethics.

Bill began his professional career with Deloitte & Touche in Greensboro, N.C., after receiving his B.S. degree in Business Administration/Accounting from the University of North Carolina at Chapel Hill. He has been with Deloitte & Touche for 31 years and currently manages the firm’s government relations program in Washington, D.C.

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