Accounting practice in the new millennium: is accounting education ready to meet the challenge?

The British Accounting Review 35 (2003) 69–103 www.elsevier.com/locate/jnlabr/ybare

Accounting practice in the new millennium: is accounting education ready to meet the challenge?q Bryan Howieson* School of Accounting and Information Systems, University of South Australia, GPO Box 2471, Adelaide, Australia Received 1 May 2002; revised 24 January 2003; accepted 24 January 2003

Abstract As the new century and millennium get underway it is appropriate to reflect upon, and plan for, expected changes in accounting practice and the implications of these changes for accounting education. This paper covers three broad topics. These are: † the future of business and accounting practice—a brief review of the predictions about how we will do business in the new century seems a necessary precursor to a discussion of changes in education; † in the light of expected changes in business, what skills will be required by the accountants of the future?; and † what are the implications for accounting education? Expected trends in business practice and the necessary skill set of accountants are reviewed in the light of recent literature from the United Kingdom, United States and Australia. These trends suggest that so-called ‘compliance’ work will form a diminished portion of accounting firms’ revenues as technology means that even small businesses become more empowered with respect to their recordkeeping needs. On the other hand, the main growth areas of accounting practice appear to lie in the fields of business advisory services. As such, future accountants will take on the role of ‘knowledge’ workers. Although a command of technology will be an important component of an accountant’s skill set, of more significance will be skills in analysis, innovative problem solving, communication and client relations.

q Earlier versions of this paper were presented to the 1999 Australasian Conference of PKF Partners (1999) and to staff at the Universities of Western Australia, Southern Queensland, South Australia, and Aveiro (Portugal) as well as the 2001 Annual Conference of the British Accounting Association. Bryan Howieson thanks the participants at these forums for their helpful feedback and suggestions. He also gratefully acknowledge the insightful comments of two anonymous referees. * Tel.: þ61-8-8302-0781; fax: þ 61-8-8302-0992. E-mail address: [email protected] (B. Howieson).

0890-8389/03/$ - see front matter q 2003 Elsevier Science Ltd. All rights reserved. doi:10.1016/S0890-8389(03)00004-0

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Accounting educators need to anticipate the expected shift in accountants’ skills and develop courses and teaching methods that are far more interdisciplinary and analytical in their orientation. This paper explores some ways in which this might be achieved and some of the challenges to effecting change in accounting education that will have to be overcome. q 2003 Elsevier Science Ltd. All rights reserved. Keywords: Accounting practice; Accounting education; Knowledge

1. Introduction The arrival of a new century and millennium is a time for ‘taking stock’ and reflection. In the field of accounting education, this desire for introspection is given greater urgency by the significant changes that technology is already imposing on business practices and the need to reconsider the role of accounting practitioners as business changes. This paper seeks to help generate debate between accounting educators as to what might be the implications of these expected changes for universities and other educational institutions. As such, the paper covers three broad topics: † the future of business and accounting practice—a review of the predictions about how we will do business in the new century seems a necessary precursor to a discussion of changes in education; † in the light of expected changes in business, what skills will be required by the accountant of the 21st century?; and † what are the implications for accounting education? Before beginning these topics, it should be noted that most serious forecasters of the future for business have limited their outlook to the next 20 years or so and this paper does the same. Further, although the primary focus of this paper is a consideration of how the education of future accountants might respond to the expected restructuring of the accounting profession, it is not predicated on a view that universities are simply training grounds for professionals. The exact opposite position is adopted here. Elliott and Jacobson (2002), for instance, describe how life-skills necessary for success and existence change over time as environmental and economic conditions change. Universities are ideally placed, if they are so inclined, to offer the sorts of generic, life-long learning skills that will be essential for success in a world of rapid change. The sorts of educational approaches explored later in this paper are designed to leverage the strengths of a traditional university education and simply contextualise these strengths in the type of environment future accountants are likely to encounter.

2. The future of business and accounting practice Although the futurist pundits may differ on some of their specific predictions about how business will be transformed over the next 20 years, there has been general agreement that

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the way we do business is likely to be subject to widespread and significant change. Of course, change is not a new phenomenon for accountants. Parker (2001), for instance, describes the restructuring in the accounting profession that has occurred over the last 100 years, while Elliott and Jacobson (2002) broadly review historical trends that describe the emergence of the ‘knowledge professional’. However, at the start of this century many commentators (as described below) expected that the changes would not only be major in a structural sense, but also that change would occur at a quicker rate than before. Not surprisingly, the major drivers of these forces of change are the expected growth and flexibility of communications and business technology and a belief that this will result in a more globalised business environment.1 Of course, more recent events such as the September 11 terrorist attack and the major corporate accounting scandals in the US and elsewhere suggest that such growth will be subject to constraints and setbacks. Nevertheless, we might ask what are the implications for accountants of these changes? A number of relevant surveys and interviews of accounting practitioners and eminent business people have been conducted in recent years. These include, but are not limited to: † the Institute of Chartered Accountants in England and Wales (ICAEW) (1996) (the report of the 2005 Working Party); † the Institute of Chartered Accountants in Australia (ICAA) (1998a) (a survey of 18 selected Australian business people representing a wide cross-section of expertise); † ICAA (1998b) (a series of interviews with 28 of Australia’s chief executive officers and chief financial officers); † the Institute of Management Accountants (IMA) (1999) (a survey of the changes in the work and organisational role of American management accountants); † Albrecht and Sack (2000) (a wide ranging review of educators, professionals and others on the state of accounting education in the US); and † ICAA (2001) (a survey of 46 selected Australian business people representing a wide cross-section of expertise). Although the findings of this material are ‘bullish’ in sentiment, they do provide a useful starting point for our predictions of the future. Each of the documents may use somewhat different terms but there is considerable commonality between them in what they identify as the major forces of change. These can be summarised as (ICAA, 1998a, p. 2): † an escalation in the pace and extent of change itself-—there will be a need for employers and employees to be able to anticipate and manage change; † demographic changes, population movement and growth—aging populations in industrialised countries and increasing participation by women in the workforce will change workers’ expectations about how work is performed. In the non-industrialised 1 In their review of accounting education on behalf of the American Accounting Association and other interested parties, Albrecht and Sack, (2000, p. 6) also include a third source of change, namely ‘the concentration of power in certain market investors, primarily large mutual and pension funds.’ Their argument is that the rise of powerful investors means that business is now more accountable than ever before. A similar theme is explored later in this paper.

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world, it is expected that the issue of the control of the size of the population will need to be addressed; developments in technology, particularly communications and IT—expected changes will allow business and consumers real time access to more and new types of information. New technologies should improve the ability of small and medium sized businesses to access global markets; with the changes in technology, all businesses may face increasing competition due to the globalisation of business—in its interviews with Chief Financial Officers, the ICAA (1998b, p. 4) notes, ‘Factories and production centres can now be located in the most advantageous countries.… Shared service centres are moving jobs away from some countries into others.… With the ability to communicate instantly, to fly to almost anywhere in the world within 24 hours and to be able to transport goods quickly and economically, the actual location of the facilities is almost irrelevant in many cases.’ These forces mean that strategic alliances with other organisations may become increasingly prevalent; the focus on knowledge capital and the growing importance of intellectual property— rapid change and increased competition will mean that innovation in products and services is likely to confer competitive advantage. The greater access to information (and the resulting ‘information overload’) will increase the demand for ‘effective methods of sorting and screening information’ (ICAA, 1998a, p. 21). The growing importance of knowledge capital is likely to continue the trend away from a focus on ‘profit’ towards the maximisation of ‘shareholder value’ (with more attention being paid to non-financial measures of performance) (ICAA, 1998b, p. 5). Globalisation is not limited to the effects of technology. For instance, the announcements by the European Union and Australia to adopt International Financial Reporting Standards by 1 January 2005 and New Zealand’s similar adoption by 2007 signal the start of the removal of one of the frictions to the global flow of finance; changing expectations of stakeholders—changes in technology and demography are likely to result in a more informed set of stakeholders who will demand more accountability from business, both financially and non-financially. The growing movement towards ‘triple bottom line reporting’ is one example (see, for instance, Elkington, 1999). The fallout from Enron and other corporate scandals has also raised stakeholders’ expectations about auditor independence which will have implications for how public accounting firms provide both audit and non-audit services; and the increasing importance of human resources management—all of the factors listed above are likely to mean a more mobile and independent workforce. Issues like loyalty and career development will increasingly be in the hands of the top so-called ‘gold collar’ knowledge workers rather than employers.

All of these factors are interrelated and, to a large extent, all are driven by current and expected advancements in communication and data management technology. However, more recent events would suggest that these forces of change are likely to be more muted in the short to medium term than first anticipated in the various surveys. For instance, globalisation of business has generated resistance from some groups for reasons such as its impact on low-qualified workers in developed countries, the impact on national trade

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unions, perceived threats to national sovereignty, and environmental sustainability (Siebert and Klodt, 2001). Further, the events of September 11, 2001 have highlighted a new level of political risks that restrain the practicality of some aspects of globalised business such as relocating activities to other countries (ICAA, 2001).2 More recently, the events surrounding the accounting improprieties of Enron,3 WorldCom, Tyco International, and others are currently requiring all accounting firms to reassess the manner and mechanisms by which they can react to the sources of change noted above. The new Sarbanes-Oxley Act in the US that restricts the ability of accounting firms to offer nonaudit services to audit clients is a clear demonstration of how regulation modifies the relative level of influence of the different drivers of change. Nevertheless, the underlying tenor of the evolution of the business environment described in the reports above suggests a number of structural changes that will make some aspects of business easier and cheaper. Many commentators expect these forces to redefine the relationship between clients and professional experts because more powerful technology will empower clients to take a bigger role in managing their own affairs. As a result, although many of the sort of services that accountants have traditionally provided will still be demanded (for example, records still need to be kept and audited), more businesses will be able to perform many of these procedural tasks themselves or outsource them to a growing number of competitors to accountants. We have already witnessed the start of this trend where compliance services such as audit and tax have begun to be a diminishing part of an accounting firm’s revenue base relative to so-called ‘management services’ work.4 The way in which this trend unfolds in the future has now become more problematic in the light of the restrictions placed on non-audit services by the SarbanesOxley Act. However, it is clear that clients will continue to demand the non-audit services and accountants will need to explore new ways in which they can meet these demands (see, for example, Currie, 2002; Ham, 2002). All of the above factors suggest that the major ‘products’ of the early 21st century may not be physical goods or even many existing services but rather knowledge and the ability to manage knowledge. These days people talk, not of an ‘information age’ but rather of moving into a so-called ‘knowledge age’. Knowledge as a commodity will significantly alter the way clients operate and in turn change the type of ‘product’ professionals have to offer and how they offer it. It will also create new ethical challenges because, as the adage goes, ‘knowledge is power’. Many commentators see the ‘knowledge age’ as a catalyst for an explosion in business growth but it also has the potential to, inter alia, stifle competition as businesses and professionals act to protect their valuable intellectual capital. 2

At the time of writing, there was also the possibility of a war in Iraq. An excellent review of the accounting practices adopted by Enron, for instance, can be found in Benston and Hartgraves (2002). 4 In the context of the US, Albrecht and Sack (2000, p. 12) cite evidence about these relative changes in accounting services. They note: ‘In 1993, the Big 5 firms’ accounting and auditing services averaged 51% of total fees; tax services were 22%; and consulting and other services accounting for 27%. By 1999, accounting and auditing had slipped to 33% of total fees, tax was 18% and consulting and other services had grown to an average of 49% of firms’ fees.’ 3

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Building on the forces for change identified previously, we can consider what might be some of the structural and operational changes for accountants and their clients. 2.1. Clients The various reports described earlier suggest that advancements in communications and e-commerce mean that all businesses could potentially face a global marketplace, a number of commentators have called this ‘virtual business’. This potentially presents more business opportunities for firms but it also increases the competition that any particular firm must face (not to mention the complexities of doing business in a larger market). To compete in such a market, firms will need to be constantly innovative in the products and services they provide. In the report Vision 2010: Designing Tomorrow’s Organization5 it is predicted that the change to a virtual business environment will mean that companies ‘must concentrate on their core competencies’ (Epstein, 1998, p. 9) and jettison all non-core activities such that the ‘company of the future will be a lean organization drawing on a network of external relationships’ (Epstein, 1998, p. 8). If firms must focus on their core ‘competitive advantage’, then it is predicted that there will be a major growth in outsourcing and joint ventures, particularly internationally. Indeed, it has been reported (Epstein, 1998, p. 9) that in ‘1995, the Institute for the Future in Menlo Park, California, found that the number of international joint ventures had grown 25% a year since 1990.’ Australian chief financial officers have stated that ‘Strategic alliances are becoming more common as specialist businesses seek to gain synergies with other businesses’ (ICAA, 1998b, p. 5). For small to medium businesses, Gottliebsen (1998) predicts that the rapid changes in the business environment will create a short-term crisis that many firms will not survive. However, he predicts that ‘those that do emerge will have completely transformed their systems and will be much more professionally managed. They will no longer need accountants to process their cheque butts and make adjustments in June to save them tax’ (Gottliebsen, 1998, p. 17). Others believe that ‘there should be a trend for more and more small businesses. This is because it is becoming increasingly easier and cheaper to start a business, especially online’ (Thompson, 1998, p. 20). Recent experience suggests that this initial enthusiasm for virtual business is perhaps premature. On the one hand, internet-business (‘I-business’) ‘remains unproven, a segment epitomized by the still-as-yet-unprofitable Amazon.com and Ebay…. Few retail pure I-business ventures show profits at this time, less than 1% as reported by the US Department of Commerce…’ (Nemzow, 2000). One of the reasons for the lack of success in the I-business sector may be that comparative price information is so easily obtainable in this market that retailers are forced to be ‘price takers’ by the resulting high levels of competition. On the other hand, the success story in ‘electronic-business’ (E-business) would seem to be businesses’ use of electronic data interchange (EDI). It has been reported that ‘business-to-business communications and transaction processing represents more than 99.9% of all E-business transactions. In contrast, greater than 90% of E-business is EDI, which is unlikely to vanish’ (Nemzow (2000)). The growth in EDI is at least 5

Prepared jointly by the Economist Intelligence Unit and Andersen Consulting (as it was then called. See footnote 6).

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consistent with the view that firms are streamlining their business processes and information systems which can lead to more relevant and timely information for managerial decision-making, inventory control, faster transaction processing, and other value adding activities. Overall, there seems to be general agreement that technological improvements in data management will mean that the average business person will become more sophisticated and educated and thus more self-reliant than at present. One American social anthropologist, Jennifer James, has stated ‘The more society pushes complexity, the more homo sapiens will push back and take back autonomy’ (quoted in Keeva, 1998, p. 82). She notes that professions like lawyers and doctors in the US have felt the effects of a ‘self-help craze’ where, for instance, ‘medical self-care has reached the point that it is possible to buy a home-model heart defibrillator’ (Keeva, 1998, p. 82). Just as consumers are now more willing to question a doctor’s diagnosis and demand a second opinion, business people are being equipped with technology that allows them to keep their own accounts and monitor their own affairs. As Albrecht and Sack (2000, p. 6) have noted, the forces of change ‘have eliminated the old model that assumed information is expensive. Today anyone, armed with the right software, can be an ‘accountant’ and produce financial information.’ The problem for the businessperson then becomes what to do with all the information and how to avoid information overload. The opportunity for the accounting professional is to add value to the client/employer by analysing and interpreting that information and providing recommendations for appropriate courses of action. 2.2. Accounting practitioners What do all these changes to the business environment mean for accounting practitioners? Accountants must be proactive. It has been noted that there are no monopolies on business advice (Keeva, 1998) and accountants must compete with other existing and emerging advisory professionals. With more self-reliant clients who are focussed on their core business activities, accounting practices will have to become more multi-disciplinary. (This is discussed further below.) In the context of small accounting firms, Gottliebsen, (1998, p. 17) warns that they ‘will need to invest in the latest technology and have a better knowledge base. If they fail to do so, they too will disappear along with the clients that did not adapt.’ There is much, however, about these expected changes in the business environment that is very positive for accounting practitioners. If knowledge is the commodity of the future, then accountants are ideally placed to seize the opportunity to be the main player in this commodity. After all, accounting has always been an information system designed to collate, analyse and disseminate knowledge in a way that is useful to various decision makers. Knowledge management is the raison d’eˆtre of accounting. The trick for accounting practitioners will be, in the language of Barry Jones (1999), how to turn this comparative advantage into a competitive advantage. In a world of intense competition accountants will need to effectively position themselves as the gurus of knowledge management by thinking globally and in a way that provides clients with value added services. To demonstrate the latter, accountants must reinvent themselves to clients as

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being in the ‘ideas and advocacy’ business rather than in the ‘compliance’ business (Jones, 1999). One possible direction in which accounting services might further develop is that of analysing risk. Albrecht and Sack (2000, p. 9) have noted that the increasing complexity and uncertainty of the business world ‘has given rise to new types of professional services focusing on understanding risk. Although many people expect the demand for audit services to decrease because an audit is a ‘commodity that adds little future value’, this increase in risk may create an even higher demand for audit-type services in the future.’ More generally, ‘knowledge management’ is described by Parker (2001, p. 437) as a continuous process ‘of creating, capturing, storing, sharing and redistributing knowledge that can enhance organizational performance.’ The key concept here is not merely the structuring of a data system, but rather a question of how can information be used within an organisation to add value to its activities by identifying strengths and weaknesses and improving business processes. The IMA (1999, pp. 4– 5, 7) views knowledge management as a ‘transformation of management accountants from scorekeepers to business partners’ with the result that these accountants ‘spend the bulk of their time as internal consultants or business analysts’ performing tasks ‘such as strategic planning, internal consulting, process improvement, and performance evaluation.’ In a similar vein, the ICAA (2001, p.11) has operationalised knowledge management in terms of ‘activity based management’ methods such as strategic cost management (including activity based costing and value chain analysis), analysis of those product/service attributes most valued by customers, customer profitability analysis, and the evaluation of the profitability of alternative sales and delivery channels. Accountants have a competitive advantage in knowledge management relative to many other professionals because they tend to understand the interrelationships between different segments of a business (ICAA, 2001, p. 8). Another opportunity for accountants comes from the expected outsourcing of organisations’ non-core activities. In commenting upon the Vision 2010 report, Andersen Consulting6 partner Wayne Furphy noted (quoted in Ryan, 1998, p. 28): There’s a fair investment in the skilling up of people. Any service, which is not customer-related, could be outsourced. This includes financial management, human resources, IT management, legal services, procurement and back office processing. The processing of information typically takes 75% of employee effort and this aspect is suited to outsourcing to obtain available efficiencies. The remaining 25% consists of effectiveness and interpretation, which typically is insourced. Management focuses substantially on the interpretation of information for executive decision making. Accountants have an opportunity to significantly capture this growing outsourcing market but to do so they will need to reconsider their structure and the services they provide. To speak of the ‘accounting firm’ of the future is probably a misnomer because the expectation is that clients will want all their needs both locally and internationally to be met by one set of professionals, the so-called ‘one-stop’ professional shop! This one-stop shop will have to be multi-disciplinary if it is to meet the complete needs of a business. As 6

Andersen Consulting changed its name to ‘Accenture’ in 2000.

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mentioned previously, that means that accountants must re-model themselves beyond their traditional boundaries and create alliances with a wide variety of professionals such as lawyers, architects, actuaries and engineers.7 This re-modelling will bring problems too of course. For example, as discussed shortly, there are ethical considerations associated with the ethical principle of ‘independence’ when accountants become primarily business advisers.8 For the larger accounting firms that are already global or enjoy international associations this process of transformation will be aided by economies of scale. Again, these accounting firms enjoy a competitive advantage that may make them the dominant partner in such one-stop shops. As the futurist John Naisbitt has said at a conference of American lawyers (quoted in Keeva, 1998, p. 81), ‘There’s a good reason for mergers with accounting firms. They’re everywhere, and law firms will increasingly need people in key cities.’ Smaller and local accounting firms may only achieve survival and growth if they are prepared to lose some autonomy and become franchisees in a professional shop network. This is already underway in the US, for instance, where companies such as American Express, Merrill Lynch and Oppenheimer are purchasing individual accounting (and other professional) practices across the country and creating a professional services franchise network (Melancon, 1998). The Chairman of the Australian Society of Certified Practising Accountants9 (ASCPA) National Public Practice Committee, Mr Rob McAdam, has been reported to have recommended that small accounting practices should consider the following responses to this sort of consolidation and the other changes discussed previously (see Armstrong, 1999, p. 41): † † † †

‘enhancing and diversifying the skills set of practitioners’ ‘increasing the strength of internal and external networks’ ‘increasing the use of technology’ ‘ensuring that there is a structured marketing and promotions program for practitioners’… † ‘reinforce the CPA brand.’ Presumably a similar claim can be made for other professional designations. These general expectations that accounting firms will become ‘one-stop shops’ have recently suffered a hiccup due to the fallout in the US from the accounting and auditing improprieties exposed in corporations such as Enron and others. Not only was one of 7 Clegg (1999a) notes that these multi-disciplinary dimensions to accounting practices are underway already. With respect to the ‘Big Five’ accounting firms he states that ‘Many of the recent appointments are not even qualified accountants. They are lawyers and IT wizards, management gurus and change consultants, merger experts and human resource planners.’ 8 These ethical issues are starting to emerge. For instance, Durie (1999) reported that a proposal by KPMG in the US to float its consulting division in association with the network equipment company Cisco Systems was put on hold by the Securities and Exchange Commission (SEC). The SEC was concerned that such alliances create the potential for significant conflicts of interest between the audit and consultancy divisions. This proposed merger has since provoked a sometimes bitter debate between the SEC and large accounting firms over independence issues. These sorts of conflicts have now been superseded in the US by the requirements of section 201 of the Sarbanes-Oxley Act which forbids a registered public accounting firm from providing any non-audit services ‘contemporaneously’ with audit services to the same client. 9 The ASCPA has since changed its name to CPA Australia.

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the ‘Big Five’ accounting firms, Arthur Andersen, erased world-wide in a matter of weeks but the ability of the remaining ‘Big Four’ firms to simultaneously offer audit and nonaudit services to the same client has been severely curtailed by section 201 of the Sarbanes-Oxley Act. As noted earlier, subject to some very limited exceptions, a registered public accounting firm cannot ‘contemporaneously’ provide audit services and: 1. bookkeeping or other services related to the accounting records or financial statements of the audit client; 2. financial information systems design and implementation; 3. appraisal or valuation services, fairness opinions, or contribution-in-kind reports; 4. actuarial services; 5. internal audit outsourcing services; 6. management functions or human resources; 7. broker or dealer, investment adviser, or investment banking services; 8. legal services and expert services unrelated to the audit; and 9. any other service that the [Public Company Accounting Oversight] Board determines, by regulation, is impermissible. The impact of this prohibition is far more wide-ranging than might at first be appreciated. Although it is a piece of US Federal legislation, there are widespread concerns that its provisions might be more widely imposed in the US by being replicated by various State legislators (see Partner’s Report, 2002; Sachdev, 2002). More importantly, there are worldwide repercussions because section 106 of the Act requires ‘foreign public accounting firms’ who audit a US corporation to register with the Public Company Accounting Oversight Board and so be subject to the provisions of the Sarbanes-Oxley Act and the regulations of the Board! At the time of writing the ramifications of this legislation for the structure and conduct of accounting practices have yet to unfold. At one extreme, accounting firms were being starkly exhorted to ‘choose between the audit and the consulting work’ (Partner’s Report, 2002). The president of the American Institute of Certified Practicing Accountants (AICPA) was reported to have predicted that ‘as many as two-thirds of the approximately 800 [US] firms that audit public companies will forgo that business in the next two years’ (Sachdev, 2002) due to concerns about the increased regulatory environment. In reality, although Sarbanes-Oxley may have speeded up the process, the separation between audit and consulting divisions was already underway in some accounting firms (see endnote 8 and Ham, 2002). Auditor independence is clearly important to all stakeholders (including accountants) but in the medium to long-term the demands for accountants’ consulting and knowledge-based services are unlikely to diminish. There are a number of reasons for this expectation. One of the strongest is simply that the general forces for change discussed earlier have not gone away as a result of Enron. Clients continue to need the sorts of skills that accountants have and that strong demand may well mean some compromise between independence and consulting services will emerge (see, for instance, Currie, 2002; Ham, 2002; Marcus, 2002). It seems likely that in the short-run firms will now have difficulty using audit services as a vehicle for selling non-audit services but this could even be at the expense of additional costs to clients. Marcus (2002) has argued that there are efficiencies

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that can be achieved from the conduct of both audit and non-audit services because the knowledge obtained and the improvements made to a client’s systems from one of these types of services can assist in the conduct of the other service thus reducing overall costs. Another reason to expect that audit firms will be reluctant to withdraw entirely from nonaudit services is because the latter are lucrative (Ham, 2002)! Although there are clearly incentives for firms offering audit services to have some involvement in non-audit services, the mechanism by which this might be achieved, if at all, remains to be seen. It may be that accounting firms separate their audit and consulting divisions and, perhaps, treat their old consulting division as ‘a preferred supplier’ (Ham, 2002, p. 57) or non-audit services may become the primary focus of regional and specialist ‘boutique’ accounting firms (Kelcher, 2002) with whom audit based firms may form alliances or partnerships. Nevertheless, the key point remains that although the mechanism by which accountants deliver non-audit services may change, these services will remain an important, if not growing, component of the work of many accountants. There are many other matters relating to the future of the accounting profession that could be mentioned if space allowed. For example, as business becomes ‘virtual’ and borderless, what does the future hold for our professional accounting associations and their accreditation requirements for both local and overseas accountants (see, for instance, Wells, 1994)10 Although many national accounting associations have been exploring ways of implementing cross-accreditation, these proposed changes have met with some resistance. For instance, the AICPA had proposed a change in its bylaws that would have allowed the ‘granting of an interdisciplinary global credential by an affiliated entity to qualified persons who seek to obtain it.’ The global credential was to be offered by a new organisation entitled the International Institute of Strategic Business Professionals. In a vote by approximately 134,000 of the AICPA’s members in December 2001 the proposal was defeated when 62.7% of the voters opposed it (AICPA, 2002). One of the main reasons for the opposition was a concern by AICPA members that the global credential would have empowered the AICPA’s competitors rather themselves. Enough has been discussed here to allow a consideration of what skills will be required by an accountant to survive and prosper in the first 20 years of the new millennium.

3. What skills will be required by the accountant of the 21st century? In a world of rapid change where business is conducted globally and via e-commerce the skills of the future accountant are likely to be demanding. For instance, the one-stop shop concept is not just about delivering a range of services. An Australian senior managing accounting partner, Chris Knoblanche, was reported as saying, ‘It’s not so much a one-stop shop [client’s] want: it’s a depth of competencies in all the services, and 10

One example of the possible direction of professional associations was the announcement that the Canadian Institute of Chartered Accountants proposed to recognise specialist CA designations from association with the designations of The Canadian Institute of Chartered Business Valuators and The Information Systems Audit and Control Association (see Canadian Institute of Chartered Accountants, (1999a and 1999b)).

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the ability to bring all those together in a team to do the major transactions and projects’ (quoted in van Leeuwen (1999)). Instead of ‘blue collar’ and ‘white collar’ workers there is now talk of the emergence of so-called ‘gold collar’ workers who will be the ‘elite… top advisors to business’ (ICAA, 1998a, p. 33). The broad skills, the demand for which is already emerging, of the future accounting practitioner have been aptly summarised by Andrew Mcelhone of Drake Executives (see Lamba, 1999): Employers demand skills within specific industries… Banks which would normally take anyone with a commerce degree are now asking for commerce graduates who specialised in banking. The same goes for insurance companies, superannuation, whatever. He says that while specialised industrial knowledge is being asked for, the role of accountants within those companies requires a far wider range of skills. Employers also want accountants to have business nous. They have to produce, interpret, and advise on those numbers, not just crunch them in a backroom while someone else makes the decisions. Mcelhone’s remarks attempt to reconcile an apparent contradiction between the need for professionals to be ‘generalists’ and ‘specialists’ at the same time. Accountants may, for instance, need to have specialist knowledge in a specific industry but they will also have to possess a range of generalist (‘generic’) skills which enable them to apply their specialist knowledge within the ‘big picture’ context of a client’s/employer’s organisation and strategy. These dual roles are reflected in a number of reports by accounting professional bodies around the world, who have also sought to identify the skills needed by practitioners in the early decades of the next millennium. The Report of the ICAEW’s 2005 Working Party has considered the implications of change for the accountant in different areas of public practice. These are summarised in Table 1. Table 2 reports the ICAEW’s projections by employment sector (also see Table 3).11 At the individual and generalised level, the ICAEW and Australian chief financial officers have summarised the future skills set of accountants as in Table 4. To many, these competencies are at odds with more traditional concepts of accounting which portray accountants as skilled technicians, who possess specialisations in the rules and procedures of financial reporting, auditing, or tax. They are also at odds with a system of training accountants (both within universities and the professional entrance exams) that has emphasised the gaining of technical competence as the primary goal of an education and apprenticeship. In addition, the reported shredding of Enron audit work papers by Arthur Andersen staff and the increased public awareness of the need for auditor independence mean that accountants need increased sensitivity to the ethical implications of their decisions and (in)actions. 11 A similar survey has been conducted in Australia. The 1998 ICAA survey of Australian business people which was mentioned earlier summarised the competencies of the future ‘gold collar’ worker into four broad areas as shown in Table 3 (ICAA, 1998a).

Table 1 Activities and skills necessary for success in various areas of public practice. Source: ICAEW (1996) Financial reporting

As firms: Add value to the audit by reducing the perceived risk to the users of financial statements

Exploit technology to provide/interpret relevant timely financial information

Tax advice and planning

Corporate finance

Expected to be an unattractive area of work for accountants because of changes in technology and competition from non-accountants. Develop and diversify Champion the conver- Likely to be the range of gence of management a platform from assurance services and financial accounwhich other types of ting, and non-financial advisory services performance measures, could be sold to increase users’ information value Have the ability to Understand the No special skills deploy teams with changing needs of new mentioned the right mix of and existing users specialist skills

Unlike tax compliance, seen as a growth area

An excellent The entrepreneTo keep them understanding of a wide urial spirit required selves fully up range of businesses to run a business to date with the latest management techniques and thinking A wide range of Managerial skills A detailed contacts in industry, knowledge of commerce, the professwhat makes ions and government organisations succeed

Be able to handle IT applications in order to access information quickly

Access to sources of capital

As individuals:

Be seen to maintain the highest standards of practice

Negotiating skills

Analytical skills to give simple/relevant information tailored to precise needs of users

Tax compliance

Combine enhanced specialist expertise with broader interdisciplinary business and team skills

Insolvency and corporate recovery

The skills and expertise necessary to value businesses and individual assets A broad range of business skills, such as marketing

Management consultancy

Strong analytical and problemsolving skills

Excellent communication and change management skills (continued on next page)

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Table 1 (continued) Financial reporting

Develop specialist expertise and/or industry-specific knowledge built on sound general business training Have an excellent understanding of IT and the systems approach to auditing

Keep pace with international reporting changes

Tax compliance

Tax advice and planning

Corporate finance

Insolvency and corporate recovery

Management consultancy

Market themselves very strongly against high quality competition from within and outside the accounting profession

A good knowledge of company law and other relevant legislation and regulations

Project manage ment skills

Skills in interpretation of financial information

The marketing skills to reposition themselves as consultants who can add value

Expertise in financial modelling a

With respect to auditing, the ICAEW also had some recommendations for the profession which were: (i) emphasise and build on the intrinsic value of the audit to capital markets; (ii) maintain a strong reputation for professional ethics, and promote these as unique selling propositions for auditing and related work; (iii) develop training programmes in the skills necessary to allow members to diversify away from standard audit products.

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Auditinga

Table 2 Strategies and skills necessary for accountants to succeed in different employment sectors. Source: ICAEW (1996) Medium sized firms

The big firms

Corporate sector

Public sector

The technical, financial, marketing and business skills to add significant value to their clients’ affairs The broader business and personal skills to be an effective adviser and establish long-term relationships

Making better use of international networks to share investments, risks and expert knowledge

Exploit the opportunities in value added areas such as tax-planning, corporate finance and business advice

An ability to contribute to the strategic direction of the business

Similar skills to those needed by accountants in the corporate sector

Forming co-operative alliances or mergers with other accountants, lawyers and professional firms

Further development of consultancy divisions and challenging the strategic advice consultancies

Broad management skills —including change manage ment, people management and marketing

Long-term continuity of staffing

Focussing on niche sectors and services, and turning away business that does not fit the strategy

Diversification of standard audit

Strong IT skills

The imagination and adaptability to contribute in sectors that have not previously made substantial use of the traditional skills of professional accountants An awareness of the key issues in the delivery of public services, such as the public service ethic, openness, accountability and the importance of wider social dimensions

The ability and integrity to sell on the basis of a strong reputation

Developing innovative marketing programmes to support their strategies and to differentiate themselves

Joint ventures with other professionals

Non-financial performance measurement and management skills

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(continued on next page)

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Table 2 (continued) Medium sized firms

The big firms

Corporate sector

Good local knowledge and close involvement in the local business structure

Matching the office network to the strategy, perhaps by closing offices to cut costs or by opening more ‘high street’ offices to attract smaller clients Exploiting big firm conflicts of interest in insolvency, litigation and similar work

Firms may organise themselves in functional ‘silos’ rather than on a regional or local basis

The flexibility to take on new roles outside the traditional accounting sphere and to acquire new specialist skills: e.g., in tax planning and internal audit

Strong working relationships with other service providers in order to offer a full range of services The marketing tools (including database software) to target clients with appropriate services A commercial approach to the types of fees and service levels expected by clients

Practice management skills

Streamlining personnel policies: e.g., placing greater reliance on low cost para-professionals

Develop more efficient staff recruitment and retention policies designed to develop better trained and more flexible workers Making better use of recruits by offering broader training and more varied career options and mobility Recruiting staff with MBAs, industry-specific knowledge and post-qualification experience in other disciplines

Public sector

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Table 3 Competencies of ‘Gold Collar’ Workers. Source: ICAA (1998a) Knowledge

Skills

Attitudes and value

Intellectual framework

Formally qualified in a particular discipline: a prerequisite only

Core basic technical skills

Well-connected

A ‘general specialist’: breadth of knowledge and experience

Demonstrated high level business management skills

Portable, adaptive skills: likely to change career several times/wants to upgrade skills Embrace change

Understanding of business dynamics

Good communication skills: also relates well to people

Technology wise (not IT technically-expert)

Ability to work in global markets

Team working-skills: able to manage a multi-disciplinary team A strategist

Leadership skills: motivate and ‘ideas people’

If the futurists are correct, then there will need to be a major change in the way both practitioners and educators view the objectives of university accounting studies and continuing professional development.12 As an aside, the rise of gold collar workers will present very challenging issues for the human resource management of the one-stop professional shops. The gold collar worker will be a more independent and empowered entity than at present. For instance, the 1998 ICAA survey notes that (ICAA, 1998a, p. 33): The marketable gold collar worker will increasingly be unprepared to work excessive hours per week, looking for flexible working arrangements that meet lifestyle requirements and career objectives. Employment contracts will be tailored to fit with lifestyle expectations. Short-term contracts, out-sourcing arrangements, and other flexible employment practices will enable the worker to move in and out of the paid workforce, and to change work practices from say, consulting to permanent employment and back to consulting, as needs change.13 The need for flexibility in work practices will also become more important as more women enter what has been a male dominated profession. The membership statistics of 12 Some of these changes are already beginning, for example, the introduction in 2000 of the ICAA’s ‘CA Program’ which seeks to emphasise analytical skills and strategic thinking. The details of this program are described later in the paper. 13 For instance, a recent survey by Morgan and Banks of 1000 Australian employees indicated that 57% ‘would much prefer home-based work, with interest highest among middle to lower-income earners in the accounting and finance, engineering and IT industries’ (reported in Field (1999)). 60.2% of men but only 55.3% of women were interested in ‘telecommuting’. Clegg (1999b) mentions that at least one large accounting firm, Deloitte Touche Tohmatsu, has started to address this issue by instituting ‘a system called Signals which aims to provide employees with a balance between work and personal life.’

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Table 4 General Summary of Skills for Future Individual Accountants. Sources: ICAEW, 1996; ICAA, 1998b) ICAEW (1996)

ICAA (1998b)

See the qualification as the starting point—not the end point—for their professional education and development Market themselves effectively

Strategic skills including a thorough understanding of the employers’ business

Develop strong communication and IT skills

Use every opportunity to broaden and extend their business skills

Accounting and finance skills including measurement and reporting skills, management skills, environmental skills, costing and cost management skills, valuation skills (particularly intangible assets), financial market skills, risk management, and compliance with tax legislation People skills including general management skills (particularly for co-ordinating teams), communication and presentation skills, project management skills, change management skills, negotiation skills, outsource provider/supplier management skills, international social and cultural skills Information technology skills including systems usage (e.g. sophisticated modelling software), systems delivery (e.g. ensuring appropriate information flows)

Shift their emphasis from the tasks accountants have traditionally done, to those the market is now willing to pay for, such as business analysis, strategic planning, decision support, information management Combine technical skills and strategic vision to contribute effectively to the new range of performance measures stakeholders will demand in the 21st century Add value by managing and improving their clients’, customers’ and employers’ performance Recognise the need to start taking action now to shape their skills for the future

professional accounting associations indicate that women represent over 50% of members, at least at the graduate entry level (for example, see CPA Australia, 2001; ICAA, 2002c; Wooten, 2001). However, although there are signs that women are making some headway in advancing their careers in accounting,14 a considerable divide still exists between men and 14

For example, US surveys suggest that the proportion of women partners in Big 5 accounting firms has grown from 4.9 to 11.9% between 1992 and 2000 (Strafford Publications, Inc., 2000).

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women in senior managerial and partner positions. For instance, Baldiga and Doucet (2001) report that US evidence indicates that only 15% of women CPAs hold positions of partner, principal, director or senior manager while 41% of male CPAs hold these positions. An Australian survey found that 34% of male CPAs were senior managers or partners and 11% were chief executive officers but women CPAs represented only 9 and 1%, respectively, of these categories (CPA Australia, 2001). Wooten (2001) argues that there are at least five institutional pressures that are likely to continue to promote the interests of women CPAs: † external pressure for firms to manage workforce diversity—for example, social responsibility obligations and a need for firms to achieve an economic advantage. Failing to retain women employees means a loss of valuable expertise and experience. Staff turnover is also costly; † pressures from constituents—for example, professional accounting associations have begun to promote the interests of their women members and are proactive in exploring means of improving women’s career prospects such as mentoring programs. Wooten also reports some anecdotal evidence that suggests that some clients of accounting firms are expecting to see more women in the firms’ customer service teams; † consistency of institutional pressures within organizational goals and characteristics— for example, large public accounting firms adopt socially responsible policies in the expectation that this will add to the perceived prestige and reputation of the firm; † institutional pressures imposed by legal authorities—for instance, equal opportunity and sexual harassment legislation; and † environmental uncertainty—during times when skilled professionals are scarce, accounting firms can help manage their labour shortages by making their workplace practices more attractive to skilled women accountants. The need to ensure more flexible workplace practices is not limited to attracting more women accountants. As with the ICAA, 1998a survey, the Vision 2010 report predicts that gold collar workers will be highly mobile and if employers are to retain them, then there will be a need to supply constant training and opportunities for career enhancement that the worker, rather than the employer, can control (Epstein, 1998). Epstein (1998, p. 9) concludes: That suggests a dual reality for employers: That they must value their workers’ knowledge and skills, while at the same time acknowledging that today’s employee may work for someone else tomorrow. Japanese business culture, for example, tends to value personal relationships—and thereby the tacit knowledge in individuals—even more than Western culture does. As enterprises work more through alliances than through their own internal organization, the ability to manage networks of people may be as key to future success as the core competencies of the partners involved. Breaking old hierarchies and rigid work practices could be a considerable challenge to many accounting firms. For instance, in February 1999, Business Review Weekly ran an article entitled ‘Small CPA Firms in Danger’ in which the buyout of small firms by bigger organisations was noted. The article suggested that there was a ‘brain-drain’ from smaller

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accounting firms due to poor handling of staff. One consultant, Allison Ashby, was reported as making the following comments (Thomas, 1999, p. 64): They (accounting staff) want out, into the corporate sector, where they perceive the hours to be lower and pay higher…. Rightly or wrongly they also perceive the work variety in companies to be better…. Those hours in the big firm arose through staff shortages, job deadlines and partners’ lack of awareness of what their staffs were going through. Partners are often not good at saying ‘thank you’; it’s more a case of saying ‘you’re late’ to someone who comes in at 10 a.m. after a long night’s work. In a similar vein, The Australian newspaper reported the comments of two academics that there was a ‘brain-drain’ from higher studies in accounting because students were ‘put off’ a career in accounting because of the perceptions of a low pay rate (relative to finance careers), the difficulty of the professional entrance requirements and the rigidity of the career structure in accounting public practice (Pryor, 1999). Middle tier and small firms, in particular, will have to make serious attempts to address these perceptions if they are to be able to attract a suitably high level of raw material for future gold collar accountants.

4. What are the implications for accounting education? Given the forces for change and the accompanying skills set reviewed so far, what are some of the issues accounting educators must address if they are to supply the sort of future graduates that the profession requires? The release of a major review of accounting education in the US (Albrecht and Sack, 2000) provides one source of valuable evidence and insights into this issue. In Chapter 5 of their monograph it is suggested that there are six broad problems with the current state of accounting education: 1. Course content and curricula—many stakeholders view accounting curricula as ‘too narrow and often outdated or irrelevant. [Curricula] are driven by the interests of faculty and not by the demands of the market’ (Albrecht and Sack, 2000, p. 43). 2. Pedagogy—the teaching of accounting is dominated by a rule based approach which promotes memorisation rather than creativity. 3. Skill development—the focus of teaching is upon content rather than the development of ‘generic’ skills. 4. Technology—the emphasis remains on technology as a bookkeeping system rather than on how ‘technology can be leveraged to make business decisions’ (p. 43). 5. Faculty development and reward systems—accounting teachers are largely divorced from teachers of other business disciplines and business practitioners. 6. Strategic direction—most accounting schools have failed to strategically plan for the changes to their environment and as such have lost ground to other disciplines and other education providers. These problems are explored below.

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4.1. Pedagogy and content ‘In too many respects, accounting education is being delivered the same way today as it was 20 or 30 years ago.’ In one simple sentence, Albrecht and Sack (2000, p. 2) succinctly summarise the predominant state of accounting education and what is wrong with it. Despite actual and predicted changes in business practice, accounting is still largely taught within the long established format of lectures, tutorials and workshops and from the perspective as if it consists of nothing more than a series of discrete independent topics relating to technical matters, usually entirely divorced from other related disciplines. For example, intermediate accounting courses are usually a litany of technical bookkeeping subjects such as lease accounting, consolidations, and tax-effect accounting with limited attempts to inter-relate the various topics to each other or to place them in a realistic and interesting business context. As such, students leave these courses with little, if any, sense of an ‘inquiring mind’ and do not have an appreciation that the financial reporting choices they make may have an impact on other parties both within and external to the organisation. The approach is even worse in the context of so-called accounting theory courses where we would expect to see an attempt to place the ‘theory’ in an institutional and practical context and to explore the relationship between accounting practices and user needs. But typically each topic is presented as an independent subject such as the ‘conceptual framework’ or ‘agency theory’ with little effort to relate the abstract concepts to real world phenomena. In addition, most of these courses on accounting theory and concepts are actually taught towards the end of an undergraduate degree. It seems strange to wait until the end of their degree to ask students to reflect on, for instance, the nature of an ‘asset’ when they have had to work with that concept right from the start of their studies. Consequently, it is not surprising that many accounting students find accounting theory irrelevant and uninteresting—the exact opposite of what their reaction should be! The traditional approach described above can be contrasted with the needs of the knowledge worker or ‘new information professional’ as described by two American practitioners (Elliott and Jacobson, 2002, p. 75): The required competencies will be broader, covering not only all types of information that might be relevant to a business problem, but also all types of decisions…. The challenge of the new information professional will be to formulate the strategy to align or mesh the right information with particular and generic problems requiring decisions. They argue that academics have a role to play in the evolution of the accounting profession by defining ‘a body of knowledge more suited to the realities of the marketplace, to the needs of the decision makers, and to the future prospects of both’ (Elliott and Jacobson, 2002, p. 79). Students of accounting need to be prepared so that they can ‘identify and create decision-useful information, arrange its availability when needed for decisions, and design feedback loops to ensure the continued readiness and effectiveness of systems’ (Elliott and Jacobson, 2002, p. 79). An overemphasis on accounting rules and techniques will clearly not meet these aims.

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Albrecht and Sack (2000) document a declining interest by US students in accounting studies. These students are now choosing to major in other business areas such as finance, strategy, information technology and e-commerce. The two researchers even found that many accounting teachers and practitioners would not choose to undertake the accounting courses they took as students if the approach and content of teaching was to remain the same! As such, they argue, accounting is in danger of becoming a second class citizen relative to other business majors because these alternative fields of study appear to reflect changing business practices. On the other hand, as Mathews (2001, pp. 118, 120) notes Albrecht and Sacks’ gloomy picture needs to be balanced by the understanding that they did not survey the members, academics, and graduates of other professions who may be experiencing similar disillusionment. Nevertheless, even Mathews (2001, p. 120, emphasis added) acknowledges that: The absence of courses in accounting theory, and the exclusion of non-financial data from the programme lead to the results of narrow thinking discussed in the [Albrecht and Sack] report. These issues are common to many [non-US] systems of accounting education. These problems of course content and declining student interest are only exacerbated by university administrations that, particularly for the long established institutions, have been driven more by research interests and, perhaps, scholarly prejudices rather than by teaching quality. Practitioners too have traditionally encouraged an entrenched technical approach to accounting education. For instance, some sectors of the profession have persistently complained that universities produce graduates, who cannot instantly be turned to profitable activities. The professional accounting bodies have also, until recently, promoted the command of technical accounting, tax and auditing rules as the primary benchmark to satisfy their entrance examinations. It seems that if accountants are ever to become gold collar workers, then both universities (including university administrators) and the practitioners must change their perspective away from the short-term and technical and more towards the long-term and adaptability. In the new millennium, the practicality of an accountant is not to be judged by competence in procedures alone, but also by capacities in problem solving and client advice. It is time to acknowledge ‘that the objective should be to prepare students to become professional accountants, not be professional accountants at the time of entry to the profession’ (Williams, 1994, p. 208, emphasis in original). Our discussion of the gold collar worker indicated that we must move away from an approach that seeks to pass on to our students a thorough knowledge of all the technical rules of accounting or tax, etc. With the rate of change in business and business regulation it is simply becoming physically impossible to be an encyclopaedia of rules. Bandy (1994, p. 427) notes: At one time it was possible to read everything published in accounting. R.M. Mautz reports that, in 1948, A.C. Littleton stated that ‘he read everything that was published in accounting… Who would do that now? Or would want to?’

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He goes on to argue that (Bandy, 1994, p. 428): Law schools do not attempt to teach law students every law. Rather law schools attempt to provide students with skills needed to conduct legal research. Moot court serves to provide students with simulated courtroom experiences before they serve real life clients. Williams (1994, p. 208) summarises the change that must take place in accounting instruction when he states: They should be taught to identify and solve unstructured problems, learn by doing, work in groups, and learn to use technology effectively, such as databases for researching issues. Students’ learning should focus on skills as well as knowledge. Especially important, students should develop good communication and interpersonal skills. In addition, their ethical and professional values should be enhanced.15 But of greatest importance, the curriculum should focus on the process of learning, not just teaching answers…. If students can learn how to find answers, then they are well prepared for a lifetime career. To achieve these outcomes, various innovative strategies must be devised, tested and incorporated into the teaching methods and curriculum of accounting courses. Some suggestions include: † a revision of course curricula and degree structure that seeks to develop an integrated set of courses, which place the content firmly within a realistic context and avoid the trap of treating each topic as though it is unrelated to any other topic; † the use of team teaching of courses needs to be developed much further (particularly across various business disciplines). This has the advantage of exposing students to different mind sets and of setting the course material in a wider business context. This would help students appreciate the interrelationships between all aspects of a firm. It is necessary for students to understand the role of accountants as consultants who need skills in the use of IT and strategy; † a continued use of case studies to help stimulate student interest and link course material to accounting practice. However, the content of cases should be extended to incorporate so-called ‘scenario planning’ in which students must think strategically within a particular business context rather than simply technically. As such, it is time to recognise that ‘managerial’ accounting may be the more dominant major in an accounting degree rather than ‘financial’ accounting; † class activities need to be set in more of a systems context—not only a technical command of IT systems but how such systems can be designed and used for analysis and decision making. In the words of Albrecht and Sack (2000, p. 57), ‘Our students must understand how technology has and will continue to change the way we provide and use information to make decisions’; 15

An understanding of ethics has assumed a much higher profile in the light of the scandals associated with Enron and other corporations.

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† related to these prior two suggestions, it may be time for university accounting and finance departments to reassess the place of work-based learning in their programmes. Eraut (1990, p. 25), amongst others, has noted the common separation between training and the workplace and the importance of trying to integrate these two contexts: … knowledge is transformed by the process of being used. Hence knowledge used only in the training context will not be the same as apparently similar knowledge used on the job; and knowledge used in one job context will not be quite the same as apparently similar knowledge used in a different context. Various methods of getting students to involve themselves in ‘real’ work-place scenarios are available (see, for instance, Crebert, 1995; Martin, 1996; Trigwell and Reid, 1998). However, given that most mainstream accounting and finance courses may have many hundreds of students in them, work-based learning opportunities will be admittedly difficult to implement. One successful role model is the initiative between the University of Newcastle upon Tyne, PricewaterhouseCoopers (PwC), and the ICAEW to offer a business programme that includes a significant component based on a placement with PwC. This placement not only gives students a valuable opportunity to explore how their university studies are transformed by practical experience but it also allows them to fasttrack their Chartered Accountant qualification;16 † there is a need for more interactive group work within tutorials rather than simply presentations by individual students; † much greater use of the world wide web as a reference source; † the training of students in the practical skills of ethics - namely personal and professional values clarification, ethical decision making, and ethical policy setting. Past experience suggests that implementing these sorts of pedagogical changes is more easily said than done (see, for example, Mathews, 2001). The types of resistance that might be encountered and the barriers to change are explored in the next section of this paper but one example of the types of changes that might and can be made can be found in Australia. This example is the ICAA’s new ‘CA’ programme which is the recent replacement to its ‘Professional Year’ programme (PY) for entrance to the ICAA. The objectives and proposed learning techniques dovetail very well with the observations made here in that the ICAA is clearly seeking to develop the types of skills it identified earlier in its various surveys. The PY concentrated on in-depth technical modules in subjects such as Financial Accounting, Auditing, and Taxation. The new CA programme, however, consists of five modules, the first of which, ‘CA Foundations’, is a module devoted to ‘broad business knowledge, skills and values providing an important base for the collaborative and interactive learning that is central to the programme’ (ICAA, 2002a). The objectives of CA Foundations are to develop chartered accountants who are (ICAA, 2002b, pp. 27 –3): 16

Information on the program can be found at http://www.ncl.ac.uk/flyingstart/about.htm

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‘informed about the latest international, disciplinary and business knowledge’ ‘innovative problem solvers’ ‘forward-thinking change managers’ ‘technology-literate’ ‘collaborative team workers’ ‘capable communicators of shared understandings’ ‘service-oriented’ ‘ethical’ ‘professional’ and ‘reflective about their own knowledge, skills and values’.

The candidates seek to obtain these objectives via a varied mix of teamwork and individual exercises, self-study materials, on-line learning methods, and weekly workshops. Only 16% of the module is directed towards developing and assessing knowledge, while 69% of the content is directed towards skill development. The remaining 15% of the content is oriented to developing professional values (ICAA, 2002b, p. 1). The other modules in the CA programme include three technical modules and a final ‘CA Integrative’ module. Even the technical modules emphasise problem solving skills and strategic planning. One side issue, perhaps, is what is the role of a professional designation for the gold collar worker of the future? Future workers may be more attracted to MBAs, which seem well placed to provide the generalist type of instruction that would satisfy the desired skill set for the future business environment. Indeed, professional accounting associations everywhere will have to think seriously about how they position and market themselves to an increasingly generalist class of experts. This is not to say, however, that a professional designation is not valuable. CPA Australia, for instance, has recently launched its own MBA programme as a means of meeting the expected skill needs of its members, while at the same time signalling to the community that the MBAs of its members are associated with an organisation with ‘professional’ and ‘ethical’ standards. 4.2. Barriers to change in accounting education It must be acknowledged that there are a number of committed academics who are seeking new and innovative means of training students for the future. In more recent years, many university departments have established teaching and learning committees to help foster innovation in instruction. Nevertheless, there remain significant barriers to those who wish to reform the teaching of accounting. These barriers include: † lack of financial and physical resources. Most university accounting departments have insufficient resources available to them to allow for effective innovation in teaching. For instance, student/staff ratios are usually too high and the number of teaching venues is too small to allow for small group teaching that could effectively support innovative teaching methods; † despite the rhetoric, there is still a widespread perception that universities do not reward teaching quality when it comes to promotion. Certainly, for the long established

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institutions, research still seems to be the higher, rather than equal, priority (not that research should be abandoned or avoided); † in Australia, at least, university accounting programs are locked into a three year model. Attempts to expand to a fourth undergraduate year and thus provide more room for broadening student education have been unsuccessful. By contrast, in the US many states now have five-year accounting programs; † a general lack of awareness on the part of accounting academics (and administrators) of the changes the business environment and a need to re-skill accounting educators in innovative teaching methods and content. A major impediment to change is the readiness of some academics and students to explore whether change might be necessary and whether they should be a part of it. For instance, attempts to introduce a more ‘integrative critical’ approach to the teaching of accounting at Waikato University in New Zealand were strongly resisted by some academics and students because such an approach did not accord with their understanding of what ‘accounting’ was all about (see Gallhofer et al., 1998). Widespread stereotypes of accountants as ‘bookkeepers’ are hard to dispel and should be attacked as early as possible in students’ accounting studies. The professional accounting bodies may be able to help reduce the impact of these stereotypes by way of educational visits to secondary schools. In a series of case studies on re-engineering change in UK universities, Allen and Fifield (1999) indicated that university departments and academics can be particularly resistant to widespread change in the workplace because of cultural, political, and managerial structural factors, which stem from the ancient values of these institutions. In particular they noted that one major factor that drives resistance to change is a ‘culture of individualism’ that exists at both the levels of departments and individual academics. Central to this culture is the notion of academic freedom in which departments are typically decentralised and autonomous and individual academics believe that they have the right to choose whatever pedagogical approach best suits the subject matter at hand. Any attempt to introduce pedagogical change is usually resisted on the basis that it represents an attack on academic freedom. In addition Allen and Fifield argue that a sense of inertia exists in many universities where staff believe that long established academic programmes have ‘worked’ and can therefore see no reason to change them. In a similar vein, most academics will have invested considerable intellectual capital and energy into their existing courses and may be reluctant to embrace change if they see it as having to ‘start from scratch all over again’. The link between research and teaching can exacerbate this resistance to change because academics have often developed their own specialist research commitment for which they may be widely acknowledged and recognised. These research specialisations in turn drive their teaching interests. Asking academics to make major changes in their teaching may thus be seen as threatening a change to their underlying knowledge/research base and interests. One trend over the years that is saddening, is the extent to which the academic and practitioner communities usually do not work together. There was a time when the practitioners played an active role in university teaching but this is no longer the case (compare, for example, Wildman, 1926). A shift in the research interests of academics may

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be one reason for this but it is also probable that teaching links are also not rewarded within accounting firms. However, practitioners have so much to offer. Their wealth of experience makes them a vital but largely untapped source of case study material and even if only as guest lecturers, they can use their experiences to illustrate the study topics and capture students’ interests. There are also benefits to the practitioners in that it raises their profile with students and assists them to identify quality candidates for potential recruitment. 4.3. Competitors to individual local universities An internationally mobile workforce with advanced communications technology poses interesting challenges to the role of individual universities who have traditionally served their local communities. There are at least two issues here. First, for some time now some universities have offered distance-learning programs but the great majority of these have been limited to national boundaries. Future professionals (particularly at the postgraduate level) may wish greater flexibility in the location from which they do their studies and in their choice of educational institutions. Institutions will need to explore much closer working relationships/partnerships with other institutions in their region (e.g., South East Asia) and globally. Such developments are currently being explored in the UK and elsewhere. Lymer (1999) reports: Some of the UK’s top Universities… are joining forces with similar bodies in China, Australia and Canada. The new group will be called the ‘Vice-Chancellors’ and Presidents’ Forum…. Part of the… plans appear to be the idea of global degrees where, for example, a student could take different years at different Universities in different countries but gain a complete degree from one of them. This ‘credit’ type system has been tried, unsuccessfully, in the past in the UK, however, previously it was sunk by the very Universities who now are supporting this concept. Although the move to e-learning has been rapidly embraced by some institutions, it has not been without its problems. Goodridge (2002), for instance, noted the financial difficulties faced by the on-line Cardean University (a partnership between UNext.com and the universities of Carnegie Mellon, Columbia, and the London School of Economics) that forced it to conduct substantial restructuring. She notes that, in general, the rush to online learning lacks ‘maturity’ at present and she states (Goodridge, 2002): Some of the stumbling blocks that trip up users of e-learning technologies are integration and interoperability problems among elements of e-learning systems; product limitations; inadequate support services; and vendors’ financial woes. The Cardean experiment seems to have worked best ‘for narrowly defined business or technical courses’ (Smith, 2002a). Nevertheless, more cautious entrants into the e-learning environment, such as the Alliance for Lifelong Learning (operated by the universities of Oxford, Stanford and Yale), have been enjoying modest success (Smith, 2002b). Some form of e-learning seems to be here to stay but its successful growth will depend, in part,

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on e-learning providers having a much clearer and more precise understanding of the training and educational needs of the end user of their product. Careful and seamless integration of the various components of the e-learning system will also be required. The second issue is that universities are likely to face competition from new players in the education market. These may even be large multi-national companies who believe that the career aspirations of their workforce might best be satisfied by superior ‘in-house’ training. Professional associations are now starting to offer their own post-graduate qualifications. In Australia, for example, the ICAA has recently gained approval to award a Graduate Diploma to all ICAA candidates who complete the CA program. The ICAA believes that the graduate diploma ‘provides a stronger base for developing strategic partnerships for the provision of masters degrees for members’ (Charter, 2001, p. 74). As previously noted, CPA Australia offers an MBA program in conjunction with three Australian higher education institutions. Textbook publishers are also potential competitors. For instance, the publisher, Harcourt Inc., is reported (Mendels, 1999) to be considering a ‘Harcourt University Project’ which would be an institution that only offers courses over the internet. Mendels (1999) indicates that this movement is young but there is considerable interest among various organisations to enter this market. Of course, online teaching poses challenging pedagogical problems and its merits must be more carefully assessed against the more traditional face-to-face methods of instruction. Although many universities are racing to use on-line technologies and webbased courses as a perceived means of conferring competitive advantage upon themselves, many critics warn that more caution needs to be exercised. For example, in a radio program, the Australian Broadcasting Corporation (ABC) reports the following comments from Canadian policy analyst Marita Moll (ABC, 2002): …learning and education is a people experience. You can’t take the people out of it, you can’t take the social experience out of it, you can’t take the teachers out of it. And that’s what a lot of this technology does, it removes us from the people from whom we have gained much of our education. In the same program, American academic Langdon Winner argues (ABC, 2002): In a normal face-to-face classroom for example, if you follow what actually goes on, there is a continuing negotiation between students and teachers…. In the online world I think that kind of negotiation is less likely, particularly in these heavily commoditised courses where what students are getting basically is the educational equivalent of a Big Mac. The importance of the social interaction that occurs in more conventional teaching methods cannot be understated. Although not inherently opposed to the use of technology in teaching, the educationalist Parker Palmer (1998, p. 21) insightfully notes ‘that the imprint of good teachers remains long after the facts they gave us have faded’. Advocates of web-based learning might be tempted to argue that social interaction can still be achieved by means of electronic ‘chat-rooms’ but as Palmer, (1998, pp. 75 –76) argues:

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…a teaching and learning space must be more than a forum for individual expression. It must also be a place in which the group’s voice is gathered and amplified, so that the group can affirm, question, challenge, and correct the voice of the individual. The teacher’s task is to listen for what the group voice is saying and to play that voice back from time to time so the group can hear and even change its own collective mind. Chat-rooms do not offer the spontaneity and interaction needed to support this important social aspect of the educational process.

5. Where to from here? This paper has sought to describe and explore some of the implications for practice and education of the expected changes to flow from the most recent developments in the evolution of accounting. As a minimum, this paper is an invitation for accounting schools and individual scholars to reflect for themselves upon the current state of their educational offerings and what, if any, changes should they effect to their own pedagogical methodologies, content, and methods. 5.1. Some key questions Responding to change poses many difficult questions for higher education institutions, departments, and individual academics. At one level Albrecht and Sack, 2000 are at pains to stress the need for university accounting educators to respond to the challenges raised by a changing environment by thinking strategically. They strongly believe that increased competition among different providers of business and accounting education means that each accounting school must now strive to ensure that its offerings are sufficiently distinct from that of its competitors to create a unique niche to attract students. For instance, they note (p. 56) that if ‘we effectively teach [analytical and generic] skills, we will add value that cannot be duplicated through distance learning and other lower-cost delivery methods’. In Chapter 6 of their review, Albrecht and Sack argue that an accounting school’s strategic planning process should consist of four sequential sets of questions (see Albrecht and Sack, 2000, p. 64): 1. ‘What is our environment and what are our resources? Who are our students and employers?’ Some educational institutions may need to recognise that the demand for their students may extend beyond primarily serving public accounting firms. 2. ‘What kinds of programs should we have? Should we form strategic alliances with other programs or disciplines?’ Some accounting schools may decide that they wish only to be service providers to other business disciplines. 3. ‘What should our course content look like? Which courses should we offer? How should we structure our curriculum?’ 4. ‘What kinds of delivery methods should we use? How do we develop our faculty? How do we measure performance?’

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In addition to these questions, many others could no doubt be generated. Resource issues will not be limited to simply asking what is available, but rather will focus on how resources can be increased. In Australia at least, universities have faced significant declines in government funding which somehow have to be supplemented from other sources. This can lead to overloading of staff and other resources as universities seek, for instance, to increase the numbers of overseas fee paying students. Extra students also reduce the time academics have for other important duties such as research and so managing workloads will become an even more important challenge for academics. Related resourcing issues include maintaining availability of suitable physical and technological facilities (e.g., rooms and computing facilities), how to manage class sizes and student/staff ratios to ensure students receive an appropriate level of individual attention, and how to package and present new forms of teaching materials? If the accounting profession is broadening its scope as claimed and thus attracting a wider range of people, another question, which must be addressed, is how are universities to encourage new people (particularly young people) into an academic career and to higher university studies (rather than, for instance, the offerings of competitors to universities)? Mention was made previously in this paper that the culture and attitudes of academics could be a major source of resistance to change. Institutions, heads of departments/schools, and especially individual academics will have to face up to the difficult question of what incentives can be offered or found if staff are to respond to changes in the accounting environment? It will not surprise the reader to note that there are no easy answers to these questions. As noted by Mathews (2001) many prior attempts to change accounting education have not been successful. Nevertheless, some observations are given below on possible approaches to implementing a review of what academics offer and how it is offered. 5.2. Modus operandi? In a previous section of this paper some cultural, political and managerial factors were identified as attributes of universities and academics that result in resistance to change. These factors are steeped in tradition and long held values and so are very difficult to change quickly. In their case studies of UK higher education institutions, Allen and Fifield (1999) found that changes in the work practices of universities would be more likely to succeed if the cultural aspects of the workplace were acknowledged and accommodated in any proposed changes. For example, they argued that although continued and visible senior management support was crucial for successfully implementing change, it was also vital that the development and implementation of new proposals was conducted via a participative process in which all those who would be affected felt that they had input to the process. If this were not the case, the proposed changes would be viewed as an attack on academic freedom and vigorously resisted. Further, it was important to couch proposed changes in terms which were consistent with the ‘existing cultural paradigm’ or values that staff identified with. As a consequence, they argue that successful change in universities is likely to be more incremental rather than radical. Nevertheless, this is preferable to no change at all. One strategy for implementing change in a way which is accepted by academic staff is the implementation of a program of regular reviews of the curriculum. Depending upon

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how this is implemented it might offer the opportunity for those who wish to explore alternative pedagogies to do so while allowing those who are more cautious to observe the success or otherwise of these efforts. If universities and departments make available appropriate training and technologies to help academics respond to environmental change, those who are successful in using the new methods may attract other staff to join them. Regular reviews of the curriculum also offer the possibility of being more inclusive because all interested academic staff could participate as well as other stakeholders such as employers and students. Associations of accounting academics have a role to play in developing strategies for accounting education and lobbying interested stakeholders for change and resources. For instance, the American Accounting Association has developed projects such as the benchmarking of different accounting schools, electronic publishing, and programs in teaching faculty development (see Albrecht and Sack, 2000, p. 12) and similar activities could be undertaken by other associations such as the Accounting and Finance Association of Australia and New Zealand and the British Accounting Association. These associations could also seek to join forces with the practitioner equivalents to, not only lobby for resources, but also educate students against the stereotypes of accounting careers. As noted earlier, it may well be necessary to change perceptions of accounting practice at the matriculation/high school level by communicating with students and their career guidance officers. There can be no pretence that solutions will be straight-forward or obvious but we should resist the temptation to give up simply because reform is all ‘too hard’. Complaints of ‘too much teaching’, ‘not enough resources’, and ‘unsympathetic university administrations which won’t listen’ are all common experiences which make it easy for academics seeking change to sink into despair. However, constantly using these ‘excuses’ as arguments against reform merely reinforces them and creates a mental state of pessimism and paralysis. Much inspiration can be gained from the writing of Parker Palmer (1998, Chapter VII) who seeks to call on teachers to adopt a ‘movement mentality’ to challenge the restrictions currently facing them. Palmer argues that a study of all the great movements for social reform (such as the civil rights and women’s movements) faced forces that similarly seemed insurmountable. In the traditions of these social movements, academics must learn to institute reform by fighting on grounds other than that chosen by university administrations and government policy. There are at least two lessons here: † first, that the challenges currently being faced and a general despondency among academics are clearly signals that something new has to be done, that things have to change. As such, this should be seen as an opportunity to be creative in generating alternatives to the present situation; and † second, it is important to find sources of ‘countervailing power’ (Palmer, 1998, p. 165)) which give ‘leverage’ to proposed reforms. In the case of accounting, such countervailing sources of power could include the accounting profession/firms, other employer groups, the media, and opposition political parties. For instance, many larger professional firms and businesses have developed their own highly advanced teaching methods and technologies. It may be possible for individual accounting departments or

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even individual academics to enter into strategic partnerships with these organisations to gain access to new resources that might otherwise not be available through the university system. Palmer sees four stages to the development and implementation of a ‘movement mentality’ but a detailed description is beyond the scope of this paper.17 Further, implementing reforms requires energy and drive that may well require the services of individuals with strong personalities and organisational skills. Nevertheless, Palmer’s characterisation of the reform process does offer the hope that change is possible.

6. Conclusions This review of the predicted future for accounting practitioners and their skills needs presents significant challenges to accounting educators and to employers. It seems likely that the traditional approaches will be inadequate and that new philosophies, materials and technologies will be needed. The end objectives of innovations in accounting education will be to develop students’ skills in abstraction, systems thinking, experimentation, and the capacity for communication and collaboration. There are some notable efforts now emerging both within universities and from the professional accounting bodies that are consistent with these life-long learning goals. However, serious barriers to innovation remain and both universities and the profession should be encouraged, as a part of their own strategic planning, to explore ways in which they can contribute to the learning skills of future knowledge workers. The objective of equipping students for ‘life-long learning’ cannot stop at university. The predictions for rapid change in knowledge and technology and the desire by gold collar workers for training which furthers their careers, suggests that continuing professional development is another area which will become a much more significant activity than it is now. Universities may be able to position themselves as quality suppliers of professional training but they will face potential competition from employers and professional associations. It is appropriate to summarise and conclude this paper with the closing remarks of Albrecht and Sack (2000, p. 66) which signal both warnings and promise for the future of accounting education: Corporate and public accounting firms are working hard to transform themselves into finance professionals and professional services firms. It is now accounting education’s turn to transform itself. Failure to do so could be fatal. Seizing the moment to make 17 The four stages are described in more detail in Palmer (1998, Chapter VII) but are summarized on page 166 (emphasis in original) as: ‘Stage 1. Isolated individuals make an inward decision to live ‘divided no more,’ finding a center for their lives outside of institutions. Stage 2. These individuals begin to discover one another and form communities of congruence that offer mutual support and opportunities to develop a shared vision. Stage 3. These communities start going public, learning to convert their private concerns into the public issues they are and receiving vital critiques in the process. Stage 4. A system of alternative awards emerges to sustain the movement’s vision and to put pressure for change on the standard institutional reward system.’

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needed changes could increase our relevance and open new opportunities for accounting education.

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