The AICPA's Melancon: ‘The profession that constantly reinvents itself’

Melancon: ‘The profession that constantly reinvents itself’

December 6, 2021 11:57 PM

While the accounting profession can be proud of its essential role in helping the country through its recent trying times, that doesn’t mean it can rest on its laurels, according to Association of International Certified Professional Accountants president and CEO Barry Melancon.

“It's very important that our profession evolve. We can choose not to embrace technological changes and service expectation changes, or we can choose to rethink and to be the actual profession that constantly reinvents itself,” he told attendees at CPA.com’s annual Digital CPA conference, being held this week in Nashville, Tennessee. “Now I know that there are people that you probably go to cocktail parties with who might say the stereotypical typical CPA is not innovative and they're risk-averse and they’re even really old — you know, the symbolism of the green eyeshade — but each and every one of you actually defeat those stereotypes.”

“Almost everything that we do is in some element of transformation right now,” he added. “And, you know, transformation can be scary, but you can also see it as incredibly opportunistic. We are — you are — in the midst of redefining our profession."

“For our profession to be successful for the next two years, in five years, in 10 years, in 50 years, in a hundred years, we have to constantly evolve,” he said.

As an example of the kind of reinvention accountants need to consciously embrace, he cited evolving attitudes toward tax services.

Melancon Digital CPA 2022.jpg — Barry Melancon addressing attendees at the 2021 Digital CPA conference

“The next generation of entrepreneurs will not view a tax return as a product that they get from you,” Melancon said. “They will, in fact, view the tax return as a by-product of the entire relationship that they have with you. And that subtle difference in thinking when you think about client experience is a major way of thinking about how to refresh and rethink about tax practices.”

As another example, he described the AICPA’s Dynamic Audit Solution initiative, which is building a 21^st century audit tool from the ground up based on the capabilities offered by the latest technologies. “Let's assume an audit did not exist, that it was never invented, and let's invent an audit today given the capabilities of a technological world that we're in today,” he said. “We are about reinventing the audit.”

DAS is already out in pilot mode, and Melancon said the plan is develop over two dozen industry-specific approaches to its capabilities over the course of 2022.

Those were just two of the many challenges, changes and opportunities that Melancon believes the profession needs to evolve to face; below are a number of other developments that he covered in his wide-ranging keynote at Digital CPA.

The prospect for tax changes

A close up of the capital building with an American flag

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Melancon offered his take on the major legislation everyone has their eye on — the “Build Back Better” reconciliation bill.

“Some of you may wish it to not pass and some of you may want it to pass,” he noted, “but the reality is that it is on the brink. If it's going to pass in the calendar year 2021, it'll probably be on Christmas Eve, because that'll sort of be a deadline. People will want to be home for Christmas. And that is probably the only shot that sort of to it starting to happen right now. … If it carries over into 2022, then it becomes even more of a debate as to whether it actually will happen or not.”

The next potential deadline in that case would be in February, when funding the government becomes an issue again. “The last thing you want to hear about is a battle in Washington that shuts down the government in the middle of tax season,” he said. “Service levels from the IRS are already at pretty low levels.”

A shift to enforcement

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The Biden administration has brought a change in tone and focus at the federal level. “There is a different environment in Washington that affects our profession,” Melancon said. “There is an enforcement aura in many of the states and in many of the federal agencies today, including the Securities and Exchange Commission. And that has an effect, frankly, on human capital, and it has an effect on firms, and it creates just a very negative environment. We have an SEC today who has been very public on saying enforcement actions against firms and against companies are going to be a high priority."

As another example, he cited the almost complete turnover in board members at the Public Company Accounting Oversight Board. “And their agenda is going to be very aggressive towards the profession, and some of that cascades into private companies,” he warned.

He suggested that some in Washington are questioning accountants’ role at the Financial Accounting Standards Board, and whether the profession should even be in the room when standards are set.

Opportunity and risk in government auditing

With a record amount of money flowing from the federal government to state and local governments and to nonprofits throughout the pandemic, and with another huge tranche of money going into new areas thanks to the recently passed infrastructure bill, the AICPA estimates that there is going to be approximately 10,000 new government audits being conducted under new rules of engagement.

“That's a lot of audits and there's a lot of risks from a quality perspective in that space,” he said, and it will be important for auditing firms to make sure they put qualified people on those engagements — not just the partner who may have previously worked with the organization being audited.

Fast changes in ESG

Environmental social governance (ESG) text on wooden signpost outdoors in nature

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While he acknowledged that individual accountants might differ over the relative importance of or even the necessity for efforts around environmental, social and governance issues like climate change, diversity and the like, Melancon asked them to put those aside, and recognize that the key role accountants are being asked to play in terms of measuring and attesting to all kinds of ESG data. “Information flow about businesses is the business that we're in, whether it's small business or big business. And what this is going to require is looking at the flow of information to not be just financial information, which we have done for 125 years, but other business information as well,” he said. “This is a huge redefinition of the space of information from business that our profession will be associated with moving forward.”

And it’s happening fast, with the vast array of fledgling sustainability standards and frameworks rapidly consolidating, and the IFRS Foundation in the midst of establishing a global sustainability standard-setter. “What has happened in the last year took six decades to happen in accounting,” he said.

The human capital pipeline

As if the current lack of staff weren’t a big enough problem, Melancon pointed out that there are a million fewer undergraduate students on college campuses now than there were in the fall of 2019, and community colleges have seen a significant reduction as well. “So we, and all professions and all trades, have this human capital challenge in place,” he warned.

Among the areas the profession will have to address to face that challenge are starting salaries that are too low, the pyramidal structure of most accounting firms, and the traditional career path from public accounting to private, which is beginning to be reversed.

Changes to the CPA exam

In response to the impact of technology and the need for a range of new skills, the AICPA and the National Association of State Boards of Accountancy launched the CPA Evolution program, part of which is leading to a major revamp of the CPA exam.

“By Jan. 1, 2024, we will still have a four-part CPA exam, but it will change dramatically,” Melancon explained. “It's going to change to be what's called a core-plus-one process, where each person will be tested on a basic core [that covers] what we call the three legs of the stool of the profession — accounting/auditing, tax, and technology,” and then add deeper skills in tax compliance and planning, business reporting and analysis, or information systems and controls.

Getting comfortable again with advisory

Melancon stressed the importance of maintaining the strong relationship accountants play with their clients, and the central role of business acumen in advising them. “For about 20 or 25 years, we sort of got a little bit of passive about the business acumen point, because the litigation and the focus on compliance and even the complexity of tax and accounting that sort of drove us to maybe not see the forest for the trees in some cases,” he said. “If there's anything that we could redo in the profession, I would put that at the top of the list.”