ACCOUNTING AND AMERICAN BUSINESS
A new level of numeracy is required in American business today. Numeracy, the mathematical equivalent of literacy, is a given for accountants. Facility with numbers is the first order of business for accounting students, and in today's world of commerce, ability to manipulate numbers via on-line spreadsheets.
In addition to purely computational skills, accountants must demonstrate superior analytical reasoning when faced with business problems in consulting engagements. In fact, a recent study concluded by calling on accounting educators to stress courses that require students to write and reason, in order to prepare for the consulting work they'll be asked to do with clients.
Ethical awareness is also vital in a profession that deals with money and its temptations daily. An accounting firm's reputation is entirely based on its maintenance of high ethical standards, which are developed and publicized in the United States by the industry's professional associations. These standards are in addition to the legal requirements and regulations of the nation's business law.
Career tracks for accountants in the changing structure of business may take several diverging paths. One traditional path leads through the ranks of a company's financial department, or more likely, through a succession of jobs with different companies, advancing higher in the ranks through accountant, tax manager, assistant controller, toward the CFO position. Another leads to partner in a public accounting firm, after many years as junior and senior accountant.
Entry-level jobs may mean junior accountant or a management-level job in the financial division, depending on the background of the student when he or she enters the job market. More important than job title is career path: it is important to get on the right track to begin with if you want to make partner in an accounting firm; if you're aiming for CFO of a corporation, that's a different track. Some critical career planning before making your course selection, will contribute to your success in today's competitive job market.
EDUCATION FOR TODAY'S ACCOUNTING CAREERS
Students with an accounting interest can consider several options for higher education. If your immediate goal is an entry-level job with a small investment of time and tuition, it may be enough to enroll in a two-year college program for accounting technicians such as those offered at some community or state colleges. However, to get the most career-boosting potential from your education, complete the four-year college bachelor's degree program as soon as possible. A four-year college B.A. in liberal arts (with an economics major, for example) could be paired with an M.B.A. or master's of accounting later on to build a solid foundation for career advancement.
Getting this education is a tall order. First you must get accepted at the college of your choice, and figure out how to finance the cost of college, tuition, lodging, and meals. In the United States, graduation, plus job experience and a CPA, are the next hurdles. Moreover, American Institute of Certified Public Accountants' (AICPA) stated goal is to boost the required level of education to 150 hours of college-level credit in all states by the year 2000. A majority of state boards of accountancy have already adopted the standard. This means that most would-be CPAs will go beyond a typical bachelor's degree (120 hours) to earn 30 more hours in an extended B.A. program or in a master's degree program. And learning doesn't stop there. Tax accountants monitor changing tax codes through continuing education programs; financial accountants need to learn about new debt instruments or securities; management accountants brush up on the latest software for decision support and analysis. Education becomes a lifelong pursuit.
Many academic institutions offer advanced degree programs in accounting specialties; the flow of information and education through other sources such as associations and private business seminars is constant. In the United States, AICPA offers accountants three options for career development through certificate programs: a tax planning and advising course sequence, a personal financial planning program (see Chapter 7), and a business valuation certificate. In Canada, Canadian Institute of Chartered Accountants expanded its range of educational courses in response to high demand that in some courses-such as a specialized tax course called Wealth Preservation-filled classrooms to overflowing. The CGA recently added information technology as a category in its program of studies, reflecting the integration of accounting and information systems in the business world. Increasingly, education doesn't end at graduation. It continues through academic institutions, consulting firms, and nonprofit associations, among others, that are available to accountants at all stages of their careers.
COMPUTERS IN ACCOUNTING
In all these jobs, computer skills are essential for advancement. In a survey of management accountants, accounting Professor Gary Siegel at DePaul University, Chicago, found technology is probably the biggest single factor changing the profession today. Industry observers agree, noting that the changes computers will bring to the employment structure of the profession are just beginning. Already many bookkeeping tasks are done by data processing systems. Write-up work goes faster on-line. Again, computer knowledge is a critical factor for companies that are trying to do business overseas, and an accounting firm that knows financial software can offer a key service to customers.
What are the skills you'll need? A list of computer basics would have to include familiarity with operating systems such as Windows 95. Other important computer skills are listed in Figure 9.1.
Beyond that, accountants must know the software that's widely used in their field. Almost every business will have some kind of accounting information system (AIS). It may be as simple as a commercial, low-end software package. If clients are small businesses, they may automate with this off-the-shelf software that gives them basic integrated accounting capabilities. The accountant must know how to navigate inside applications like Quicken, QuickBooks, Money, or Peachtree Accounting. These and others will become familiar fast if clients are in the $1 million to $5 million range or smaller. Bigger clients need more accounting power, and so use a different type of software, such as Solomon Great Plains or Real World, to name a few brands on the market.
All these applications take the tried-and-true accounting tools, such as the general ledger, journal, accounts receivable, accounts payable, and inventory, and replicate these tools in a computerized environment.
On a more advanced level, students who immerse themselves in computer studies during their school days will be able to materially help their clients. Stephen Moscove and his colleagues, in the book Core Concepts of Accounting Information Systems, write and properly configured financial accounting software actually can improve corporate bottom-line performance by eliminating costly un-reconciled differences that may occur with manual systems. For multinational corporations, these systems also can optimize multicurrency transactions while providing complete and accurate audit trails. The result: minimized transaction costs, optimized case management and improved cash flow.
Specialized accounting software helps bigger businesses track their work with multiple customers, and a whole category of software called contact management applications will be important for this kind of work. "Vertical industry software" that's designed for one special sector of the economy, such as retailing, will have features unique to the business in question. All these high-tech tools must become part of the accountant's work life. Solo practitioners will have to learn many of them first-hand when they serve clients in the field, developing reports and extracting data for tax purposes or financial accounting. In management accounting and when consulting for a client firm, accountants will be expected to know computers inside and out. That's fundamental to the process of change and development that all businesses are undergoing today-with help from accountants. Moscove continues,
The AIS (accounting information system) plays an important role in a TQM [total quality management] environment, since cost estimates are vital. Accountants can calculate the cost of quality and determine whether quality products generate a positive contribution margin.
In a global economy, an American-trained accountant can be a valued employee anywhere in the world. If you're inclined toward international finance and marketing, as are many M.B.A. graduates, you can choose from a wider array of job options than your stateside compatriots.
Accounting firms have always searched far and wide for clients. They have enjoyed the dynamic and sometimes turbulent world of business, and taken pride in their own technical prowess at accounting.
Consider the following excerpt from the diaries of Edwin Waterhouse, written 100 years ago. In his memoirs Edwin Waterhouse (of the founding family of Price, Waterhouse) tells how he got one account during a business trip to Ireland in 1886.
Before the month of November was over I again crossed to Larne by the pretty Stranraer route-this time in the interests of the Belfast and Northern Countries Railway. A question had arisen at the board as to whether some expenditure should be treated as capital or revenue outlay; and I was requested to examine into the accounts and report. I went down on the night of the 30th and was back in London on the 3rd December, staying the night of the 2nd at the house of the chairman of the company, the Rt. Hon. John Young of Galgorm Castle, Ballymena, about one hour distant by rail from Belfast. I was much interested in the old house, adapted as a residence from one of the old castles of refuge of a more turbulent age.
Before I left I pointed out to Mr. Stewart, the secretary, a weak point in the company's methods of account keeping; so also an apparent inaccuracy to which I thought the attention of the company's auditors ought to be called. Soon after my return I learnt that the accountant and cashier had thought it fit to make themselves scarce, and that extensive frauds upon the company had been discovered. I was asked to suggest a new and reliable accountant and had the pleasure of recommending a Mr. Bailey of the South Eastern [Railway] offices, a gentleman of whose abilities we had formed a high opinion. He became a very useful official of the Irish company. The accounts were carefully examined into and reported on by Price, Waterhouse & Co. and subsequently audited by them half yearly; and the business of the company under the chairmanship of Mr. Young steadily improved.2
The scale of enterprise far outdistances the economies of the nineteenth century. The global market that is forming now could multiply such stories a thousand fold. The steamship and railway era of "around the world in eighty days" has been replaced by the speed of light and the time reduced to nanoseconds in which financial information can cross international borders. There are those who predict a coming together of world economies to agree on international accounting standards.
Internationalization of Accounting Standards
Some experts divide the world into four accounting models or systems: (1) the British-American-Dutch model, (2) the Continental model, (3) the South American model, and (4) the communist model.3 The legal systems and the business structure of the countries within each system tend to be the same or similar.
The British-American-Dutch model uses the same basic accounting principles as the United States, and is shared by North America, Australia, and India. The system is designed to serve the needs of investors and an active legal system.
The Continental model includes the European countries and Japan, and accountants here focus on the information needed by government authorities. The economies here rely more on banks for business capital.
The South American model suits the needs of government planners, and sets rules for businesses. This system has had to adapt to periodic inflation in economies of its countries.
The communist model, which is less widely used since the changes in the economies of Russia and the Commonwealth of Independent States after 1993, contained accounting rules that served the requirements of government planners in centrally controlled economies.4
To add one more piece to this round-the-world tour of accounting systems, consider the developing countries. International standards would help them to establish accounting systems as well as provide more opportunities for the far-ranging corporations and firms of established economies.
Will a universal accounting standard ever be established? It's hard to tell. Some are working hard to improve the chances that it will. According to Kenneth Most, author of The Future of the Accounting Profession (1993, p. 78) the big push began in 1973:
Largely through the efforts of (Lord) Henry Benson, then senior partner of Cooper Brothers (now part of Coopers and Lybrand) and president of the Institute of Chartered Accountants in England and Wales, the International Accounting Standards Committee (IASC) was formed. Its nine original members had all been hosts to one of the international congresses. The IASC has grown to a membership of over 100 professional associations from more than eighty-five countries. From its offices in London, it has promulgated thirty-one international accounting standards through 1991.
When it does happen, international standardization will simplify the work of many international businesses, and speed the globalization of commerce.
In a book on accounting in developing countries, Ahmed Riohi-Belkaoui identified three options for international accounting if evolution of corporations goes on beyond the current "parent company-international subsidiary" Crossing Borders. Crossing just one border can complicate a corporation's life, or improve its fortunes. A well-known example that has appeared in more than one textbook and in the Journal of Accounting Case Research is the financial history of baseball's Toronto Bluejays, who pioneered the internationalization of major league baseball. In the 1980s, on the verge of a world championship and planning a brand new-and expensive-home at the Toronto SkyDome, to be funded by public and private sources, the Bluejays were facing a financial squeeze play, along with their business partners in the stadium construction project. With a new stadium to pay for and a huge payroll, the team's front office needed a financial home run. One creative tactic: exploit the currency differences between Canadian dollars and U.S. dollars to hedge in financial markets. The team may have saved millions that way. Another tactic: use the domed stadium for convention business attracted north from U.S. cities such as Boston; finally, sell the stadium to a consortium of investors in the private sector. To play baseball today, you need world-class financial accounting talent!
In multinational firms the situation becomes even more complex. International corporations require accountants who can sort out the tax laws of the dozens of countries where they do business. They also need financial acumen to anticipate the consequences of their company's business moves. For example, Baxter International adopted FASB Statement No. 109 "Accounting for Income Taxes" in 1993. Under this standard, deferred income taxes have to be adjusted "to reflect changes in tax rates made from time to time by taxing authorities in the jurisdiction in which the company operates." Baxter's pretax income in 1995 was $524 million, from health care products with a global demand. A case in point: If its new blood substitute product is approved, Baxter likely will want to distribute it worldwide. Demand could be huge, since the product would eliminate many worries in emergency rooms about blood type, shortages, and transmitting infection through tainted blood. The company finds its customers not only in the United States and the developed regions like Europe and Japan, but in emerging markets in Asia, its fastest-growing market, and Latin America. Targeting markets like China, India, Brazil, and Colombia means that the financial officers must rationalize policies to show the best results after taxes in dozens of nations. In this context FASB 109 becomes a tall order, as adjustments are made not just for changes in U.S. law, but for all countries in which the company does business. It falls to the financial executives to deal with interactions of several countries' currency factors and tax laws in calculating the best business strategy for the company.
Because business crosses international boundaries to find the areas of greatest opportunity, many companies and even countries want to participate. The Big Six firms routinely advise clients about this. One of the most exciting opportunities for top accounting graduates is to join a multinational team to do such work. Students prepare for this in various ways. Coopers & Lybrand sponsored a program that was designed to attract top students into the profession (and to Coopers & Lybrand after graduation) by actually participating in a consultation. In 1996, eighty students from twelve countries formed a team to advise the government of Cyprus on a plan for the tourism industry on the island in the 21st century. The Institute of Management Accountants points out in its publications that U.S. students should aggressively learn foreign languages and pursue cross-cultural interests to prepare for the new global workplace.
In what may be one of the most far-reaching developments in the world of business and accounting, the banking system of China is now modernizing to keep pace with the growth of Chinese industry and Asian trade. Several big international accounting firms are in the thick of it, acting in a consulting role. Western accounting groups from the United States, Canada, and other countries are also involved in training a new generation of China's businesspeople.
Cracking the Global Marketplace
The Big Six firms dominate the international scene, routinely auditing the U.S. Fortune 500 firms and many of the largest overseas firms. However, second-tier accounting firms and even local firms have found opportunities in advising smaller companies on import and export business and the tax effects of operating overseas. Multinational auditing is a trend to be watched. The challenges for auditors are found in tasks like monitoring foreign exchange rates, watching cash flow from multiple sources, and linking diverse computer systems together, in addition to concern about marketing, travel, and personnel.
There's a major opportunity for small companies that crack the global marketplace, too, and these companies usually don't have the advice of a Big Six firm. However, they still need the same help as larger companies to get through the maze of international laws and regulations safely. In addition to taxation, such small companies might seek the advice of accountants about their capital needs, setting up foreign offices, choosing financial software, or developing a strategic plan that has the financial horsepower to succeed. The U.S. government is actively pushing such companies into the world arena in an effort to create jobs and help the economy grow.
It has been suggested that mid-sized accounting firms can position themselves to serve this growing need. The training that goes into this requires special attention to international laws and regulations, beyond the foundational accounting education but it is a niche that may prove rewarding to accountants of the 21st century, who will be doing business worldwide.
Going global has its problems, as a recent article in Management Accounting (April 1995) pointed out. Take a simple example like business travel. Say a key executive is loaned by his company to another company, a client of his own. He travels overseas to work for two months in another country. Accounting sees this as a problem in reconciling the two companies' books. Someone will have to look at each company's fiscal year, charge the executive's time to the proper account, and see what his expenses were. Or a shipping company might have to gather up hundreds of records from every port it serves worldwide.
Then again, if a company buys parts in Canada for its German factory to assemble a machine to sell in America, transactions in several currencies have to be coordinated. Do they have enough Deutsche Marks? What's the most favorable timing for the transaction, given the exchange rates? "A true automated multinational system can handle a transaction entered at one company then allocate it across several companies as appropriate despite a different chart of accounts." The key to success for the multinational company is "selecting software designed with multinational, multicurrency, multilingual applications in mind."
Accounting firms, with their consulting abilities, often help with such problems. If your career takes you in this direction you'll have a chance to contribute significantly to the evolution of business and your profession. You'll be on the frontier of the new global economy.
For more information on the international scope of accounting: World Wide Web sites of Big Six accounting firms; World Wide Web sites of accounting organizations: Institute of Management Accountants, American Institute of CPAs, Canadian Institute of Chartered Accountants.