Accounting News Roundup: AICPA vs. IMA and GAAP’s Relevance | 06.13.16

AICPA vs. IMA

Since the AICPA and CIMA brought the CGMA into the accounting world, there's been some…awkwardness around management accounting credentials. Specifically, the fact that the IMA and its designation, the CMA, have been in around for quite some time and the AICPA didn't seem to care. As if the CMA was a forgettable trio of letters not worthy not worthy of any accountant's time and only the AICPA could change that with its four-lettered, no-exam credential. 

I'd always sensed the IMA's hostility towards the AICPA's efforts, but it's never been more clear than in this column from its president and CEO, Jeff Thomson, who picks apart an earlier column from the AICPA's Ash Noah, vice president of CGMA external relations:

[T]he AICPA has discovered in the last few years what the IMA has known for nearly a century: While public accounting focuses on value preservation and retrospective reporting, its relevance is best complemented by management accounting with its focus on value creation and unique prospective competencies required for success. However, we disagree with the assertion, implied or otherwise, that the CGMA is the path to success.

You'd have to a little dense not to pick up on the shade that the AICPA has been throwing at the IMA all this time. I mean, they waltzed in with a totally made-up credential and started handing it out like Halloween candy to any accountant with a pulse. So yeah, the IMA noticed!

Mr. Noah indicates that more than 150,000 professionals currently hold the CGMA designation. However, a significant proportion of these professionals were grandfathered in as CGMAs without having certified their competency with an examination in these “skills for success.” And an insignificant number of all reported CGMAs in the U.S. holding a CPA have passed credentialing exams in management accounting, as most were grandfathered in. So far as we know, the AICPA has still not publicly reported the results of the first class of CPAs who took the one-part CGMA exam over a year ago.

Thomson writes that the CGMA "was created to capitalize on the rapidly expanding field of management accounting in the face of a deflating public accounting field." He cites the increasing demand for accountants but the decreasing number of CPA exam candidates as evidence. And that might be true, however, the AICPA probably would not have waded into this corner of the sandbox if the CMA had the CPA's brand moxie.

Ultimately, I think both sides end up looking bad. The AICPA slapped the CGMA together and took it to market with little or no prompting from its membership or the wider accounting profession. The IMA continues to react defensively after being caught flatfooted. And accountants, as far as I can tell, don't benefit at all. It's quite the enjoyable fiasco.

GAAP worries

See what I did there? All this time people are fretting about the pitfalls of non-GAAP reporting and I thought that no one's really talking about GAAP's own shortcomings. Well, here are a couple of professors who are:

Baruch Lev, Israel-born accounting professor at NYU’s Stern School of Business, has long been a skeptic of traditional corporate accounting.

His contention is that generally accepted accounting principles, or GAAP, have lost their relevance over the last 40 years. The industrial economy, he says, with its emphasis on physical assets of property, plant and equipment, and inventory levels has been supplanted by a new economy in which intangible assets like research and development, information technology, unique business franchises, and powerful brands rule the roost.

The problem, according to the 77-year- old Lev, is that GAAP hasn’t evolved sufficiently to capture this new reality despite the fact that academic studies show that companies since the 1990s spend more on intangible assets and harder-to-quantify strategic assets—brand development, advertising and marketing, unique personal talents, and the like—than on Rust Belt–like hard assets. 

Professor Lev's been featured in our roundup in the past, most notably around the topic of intangible assets. However, Lev and his co-author, University of Buffalo Professor Feng Gu, have written a far more comprehensive takedown of GAAP: The End of Accounting and the Path Forward for Investors and Managers.

Despite that ambitious title and many suggestions for improving corporate reporting, Lev admits "such a change might be a bridge too far for corporate managements and accountants." 

Previously, on Going Concern…

More PwC partners with fancy titles. And in Open Items: CPA Exams, No Job.

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