The other night I was listening to Episode #2 of the Thrivecast (which I highly recommend) with Jason Blumer and Greg Kyte. At one point in the podcast they were talking about innovation in the accounting profession and Jason made a comment that struck me:
"The PCAOB is new and they have a slew of regulations. Cool. I got a new freakin' job that's pretty awesome, but… that's professional welfare".
That's what I want to talk about today. When I was in university, I knew a woman who was previously on welfare and she told me a story. One day she went to get food stamps and the line was extra long, and people were waiting for up to two hours. While she waited, an angry man stood up on a chair and yelled, "This is crazy, I'm about to go get a job!”
In another realm, a good friend of mine is currently a "big brother" with the organization Big Brothers, Big Sisters and his "little" (the child to whom he’s assigned) has a mother who sells her food stamps to pay for iPhone bills and drugs. Per the "little," it's not just his mom who does this, but everyone he knows.
While I don't think many CPA firms are looking for drugs or struggling to pay their iPhone bills, Jason is right. The increase in government regulations, largely after 2002, has created hundreds of thousands of new jobs. Has it helped? No. Handouts never do.
In fact, a mere six years after the job creations began, the financial crisis of 2008 occurred, wherein many massive corporations that had reported clean financial statements the prior year went belly up [Ed. note: I know this seems like an eternity ago but hopefully all of you remember what got us there so you can keep us from getting there again while you are out there defending the integrity of capital markets like the number-crunching superheroes you are]. Thank goodness for the SEC and PCAOB. Where would we be without them?
The worst part is that everyone knows it's wrong, but nobody is talking about it. Most people just laugh, maybe complain about the work (even though these organizations charge high fees for non-VALUE added services), and move on. For example, Andy Fastow, Former Enron CFO, gave a speech at a conference in Las Vegas for the Association of Certified Fraud Examiners earlier this year and said:
"Several of you have commented to me that your organization has grown dramatically over the past 10 years. And they thank me. They said no other individual has been more responsible for the growth of your industry than me. So, you're welcome."
The crowd roared.
"It's not something I'm proud of."
He is right, it is not something to be proud of. In my own experience, paper-chasing under the guise of preventing and detecting fraud is putting a huge strain and burden on the profession. Many CPA firms that serve public clients are just like the man standing in line for food stamps mentioned above. The firms do what they're told by the PCAOB, provide some new service, bill for stuff that makes no sense (and adds no value), and complain.
So what's the answer? Well, when you tell people that you don't think welfare has helped the poor, often their immediate reaction is, "Well do you just want people to starve on the streets?"
Similarly, when you tell people that you don't think the increase in government regulations has added VALUE to clients, financial markets, and stakeholders of the profession, they almost always respond, “Well do you just want another Enron to occur?”
Hasn't it already? Not to mention the pending (ongoing?) financial disaster that is the U.S. Government itself.
So what do we do? I don't know… and that's exactly the point. Nobody knows. Certainly a central planning or regulatory authority doesn't know what to do, as I thought we realized a long time ago. What does work are hungry, creative, innovative entrepreneurs who are trying different things based on their available resources, facts, circumstances, and client needs (which, in case the PCAOB didn't know, varies by industry, company, department, and individual person).
Let’s not forgot the most valuable currency the profession has: its reputation. I think it's time we go back to that. Rather than being worried about the regulator we're pleasing, let's get back to the fundamentals of capitalism.
No industry ever thrived on its ability submit and do what it was told, at least not in the long run. The public accounting profession is no exception.