Paul Miller and Paul Bahnson are at it again in their regular article series “The Spirit of Accounting,” in Accounting Today. I wrote here about their recent article on GAAP deficiencies, and in the Sept 8-21, 2008 issue, they have another excellent article, “The perils of clinging to the status quo—Part 1.”
The May 2008 issue of The Journal of Accountancy included some commentary by Paul Miller. In response, a CPA emailed him and defended the status quo against “the ravages of value-based accounting practices,” stating that “When we increase subjectivity, we decrease value [of the financial statements].”
Miller and Bahnson spare no contempt, or logic, for this status-quo CPA. Here’s my favorite part of their reply:
An audit cannot make GAAP statements useful any more than an alchemist can turn lead into gold or a weaver can turn a sow’s ear into a silk purse.
What we see in his premise is a reflection of the profession’s blind spot that causes it to overlook the fact that, more often than not, compliance with GAAP doesn’t produce useful information.
Amen. How refreshing to hear criticism like this coming from inside the profession.
Too often, the accounting press is like reading Pravda in the old Soviet Union. If you don’t tow the party line, you’re exiled to Siberia.
Miller and Bahnson are fearless at pointing out the deficiencies in our decrepit, ossified reporting model known as GAAP.
But it seems that the rest of the profession is happy to continue to produce information that is of limited usefulness and value to users of financial statements, for fear any change will imperil their overblown “objectivity and independence.”
We are one of the least innovative professions on the planet, the current GAAP reporting model being Exhibit A. It’s 500 years old, and all we’ve managed to do with it in that time period is add more rules—oh, and to be fair, we did innovate the financial statement compilation and review services, in 1978.
This is why Thomas Stewart, editor of Harvard Business Review, refers to the GAAP financial statements as the three blind mice. And he’s not the only one.
It’s apparent that the profession is happy with its role of financial historian with a bad memory. We don’t look outside ourselves for new ideas, innovations, and we are constitutionally incapable of self-criticism, taking each one as a personal affront to our beloved integrity.
This is precisely why CPAs are destined to become less and less relevant in the economy of the future. They simply are not adapting quickly enough to their changing environment.
There’s absolutely nothing sacred about a profession. They can and do die. They do so because they are no longer relevant, adding little to no value to those who utilize them.
Is this where the profession is at this point in time? It may be. There’s very little on the horizon that demonstrates the profession is willing to change, innovate, or experiment with new services that offer users what they are most interested in—information that helps them peer into the future rather than simply confirming the past.
The profession’s leaders, collectively, don’t seem to be up to the challenges. Perhaps the younger generation of CPAs offers more hope? But I’ve scant evidence for that wish, given that they are trained to b greyhounds in bookkeeping while paying little attention to what is happening in the world around them.
Few CPAs we’ve met around the world even know there is a debate about the usefulness of GAAP, or what the criticisms are.
A good proxy is to look at what they read, if they read at all—since most firms don’t give their knowledge workers the time to read because it impairs billable hours. And we wonder why we’re in the mess were in.
At least their is a light at the end of our tunnel vision. For now, it’s Miller and Bahnson—and others like them—who have the courage to say the emperor doesn’t have any clothes.
Be sure to tune into the next issue of Accounting Today for Part 2 of their response to the status-quo CPA.