Last year, my colleague Robert Sack of the University of Virginia and I concluded that if we were to open a new business school today, we would not include a separate accounting program—at least, not in the way such programs are structured today. Our conclusion was based on our research indicating that accounting programs, as they are traditionally taught, have become anachronisms.
Our study showed that students no longer perceive accounting degrees to be as valuable as other business degrees, and that many practicing accountants and accounting educators would not pursue a degree in accounting if they had their education to do over again. Perhaps most tellingly, many in the profession say that accounting, as it is currently structured, is “broken.” It has become outdated and irrelevant to today’s businesses.
It may be difficult to see a future for a discipline that is the target for so much criticism, but the future for accounting education is still promising. Before we can determine whether or not accounting has a place in management education, however, it is necessary to understand changes that have taken place in the business world and how those changes have affected business education.
A New World
In recent years, at least three major developments have dramatically changed the business environment for which we prepare our graduates. Not surprisingly, technology is at the forefront of these developments, especially in terms of making information preparation and dissemination easy and inexpensive. High-speed digital data transmission, hardware that produces information quickly and easily, and software that makes preparation and communication easy and widely available have reduced or eliminated the constraints of time and space for today’s business world.
The second development has been the shift toward globalization. Faster methods of transportation and technological progress have transformed the world into one giant marketplace. Consumers now can buy products from foreign firms as easily as they can from the store next door. As a result, an organization such as General Motors no longer can concern itself only with what its U.S. competitors Daimler-Chrysler and Ford Motor Co. are doing. It also has to know what non-U.S. competitors like Toyota, Volvo, and BMW are doing. Furthermore, with the increased availability of inexpensive information, there is no place to hide. If a flaw appears in a General Motors product, the entire world knows and can react to that flaw within minutes of its discovery.
Skills in analytical and critical thinking, technology, communication, and teamwork are essential to moving the profession into a new era.
The third, more subtle change becoming ever more apparent is the increased concentration of power among certain market investors, particularly large mutual and pension funds. Mutual funds such as Fidelity Investments and Vanguard Group now hold major stock positions in many companies. In fact, the influence of these organizations is so significant that if they are displeased, corporate executives may find their positions in jeopardy. Such large, institutional investors have raised the competitive bar to a very high level and have shortened the time period wherein success must be achieved.
These changes have had a significant impact on the way we live, but the effect on business has been even greater. And, in the process, they have hurled three strikes against the already struggling accounting profession:
Strike No. 1: Accounting is no longer seen as a profession that is difficult to practice and understand. Today, almost anyone, armed with the right software, can be an “accountant” and produce reliable financial information.
Strike No. 2: As competitive levels increase among organizations, stakeholders want high performance and they want it now. This demand for immediate results creates a difficult environment for a profession that goes “by the numbers.”
Strike No. 3: Global competitors often have different cost structures that can be exploited to render historically successful business models obsolete. Therefore, accounting, which in many ways is a traditional profession, has fallen behind the times.
These problems are exacerbated even further by the place of accounting in most business models. At one time, it required students to take several financial accounting classes to learn how to prepare the financial information required to measure success. Now, technology allows many corporations to outsource their accounting preparation to vendors who can provide reliable financial information at reduced costs, simply because they have the right software.
In this new environment of quick electronic data input and outflow, it may be difficult to see a place for accounting. The truth, however, is that it’s difficult to see a place for accounting as we now know it. That does not mean that accounting itself cannot evolve right along with the world around it.
Out with the Old
Truthfully, I have never been more optimistic about the future of accounting education. However, I am optimistic only if educators abandon outdated practices and adopt methods that reflect the new world order. The focus of accounting classes must change from preparation and memorization of information to interpretation, analysis, planning, and, most important, decision making.
Several points sum up the deeply ingrained, yet largely no longer effective, practices that much of accounting education still follows:
Curricula—Accounting curricula tend to be driven by faculty interest, not market demands. In such a structure, the knowledge is often outdated and irrelevant, and does not expose students to highly relevant concepts such as globalization, technology, and ethics.
Pedagogy—Our rule-based, memorization-centered, test-for-content educational model lacks creativity, depends too much on lectures and textbooks, and is inefficient. More important, its “one-right-answer” approach does not prepare students for the ambiguous business world they will encounter.
Faculty—Accounting faculty are often isolated from their peers in other business school disciplines. Skill development—Our educational model focuses too much on content at the expense of developing skills our students will need to be successful in a changing marketplace.
Technology—We teach accounting as if it were still costly. But information is cheap, so the aspects of our curricula that are devoted to information gathering and recording are, in large part, a waste of time. Anyone using the right software can replace accountants with this skill in a heartbeat.
Accounting education can prepare students to think critically, assess risk, and plan for the future better than any other discipline can.
Of course, not all schools have taught or are teaching accounting in the same way. Nonetheless, the approaches listed describe what I believe are the most common approaches; and they are approaches that may cost accounting its place in the canon of business disciplines.
Accountancy and the Value Chain
Robert Elliott, former KPMG partner and past president of the American Institute of Certified Public Accountants, spoke often about the value that accountants can and should provide. He identified five stages in what he called the “value chain of financial information”: recording business events; summarizing those recorded events into usable data; manipulating the data to provide useful information; converting that information into knowledge that is helpful to decision-makers; and using that knowledge to make value-added decisions.
The scary part of this analysis is his judgment of what the segments in this value chain are worth in today’s changed world. Primarily because of the impact of technology, he concludes that, within today’s perception of valued services:
- Stage 1 activity is worth no more than $10 per hour.
- Stage 2 activity is worth no more than $30 per hour.
- Stage 3 is worth $100 per hour.
- Stage 4 is worth $300 per hour.
- Stage 5 is worth $1,000 per hour.
Accounting educators, he concludes, are teaching too much at the lower end of the value chain and not enough at the upper end.
Sparking the Evolution
The good news is that none of these are problems that cannot be fixed. In fact, the new business environment could foster additional accounting courses that give students exposure to new settings where an understanding, not simply a memorization, of financial information is useful.
Successful business organizations do four things very well:
- They successfully articulate a vision that is shared by all stakeholders.
- They implement processes to transform that vision into reality.
- They assess and mitigate risks that inhibit the success of processes and vision.
- They communicate the vision, processes, and risks effectively to vested stakeholders and other interested parties.
Going forward, accounting education can only be meaningful if it can provide financial information, measurement, and analysis skills that add value to each of these functions. Well-trained accountants will provide tremendous value to organizations as key members of decision and support teams. However, accountants who focus only on preparation soon will find that their skills will no longer be needed.
Courses in fraud examination may help students understand how financial information can be used to prevent, detect, and investigate fraud, for example. Litigation support and personal financial planning courses may also help to create an improved, more relevant accounting curriculum. In addition, courses that help students understand how to deal with business risks, focus on corporate governance and due diligence, and delve into the analysis of financial information in mergers and acquisitions as these topics relate to accounting also are necessary. The skills and knowledge generated from such studies could convert accounting from an information generating profession to one that uses information to solve problems and carry an organization’s vision to fruition.
Working with a New Set of Tools
Because their roles have changed so dramatically, future accountants will need a new set of tools. Skills in analytical and critical thinking, technology, communication, and teamwork are essential to moving the profession into a new era. Accounting education has a bright and an even increasingly important role in business schools and business in general if it is taught with that role in mind.
Schools with successful accounting programs will use innovative pedagogies and case analysis to involve students in active rather than passive learning. Successful programs will work closely with other business school disciplines, such as marketing, finance, and information systems, to help students understand how their financial analysis, planning, and interpretation skills will apply to all aspects of business.
In this new environment, the accounting accreditation efforts of organizations such as AACSB International and the faculty development efforts of the American Accounting Association and others are more important than ever. Accreditation will provide benchmark and peer review assistance to help schools adjust their curricula and pedagogy to suit the new environment they inhabit and to distinguish value-added programs from those that simply waste students’ time. Similarly, faculty development efforts will help educators develop the new skills and knowledge that they must have to keep pace with the accelerating speed of business.
Schools that fail to transform their curricula will find themselves at the points I described at the beginning of this article— eliminating their accounting programs as demand ebbs and disappears. Isolated, preparation-oriented, and memorization-based accounting programs will not and should not survive in the future of management education.
Accounting’s Last Chance
In the final analysis, whether or not accounting education has a future depends on how proactive accounting educators and business school administrators are. If we are content to teach low value-chain activities, our students will gradually decline in number and be replaced by low-level, technically trained professionals.
On the other hand, if we are proactive in revising our curricula; if we focus on interpretation, analysis, planning, and decision making; and if we modify our learning environments from passive to active, accounting education has a bright future. Accounting education can prepare students to think critically, assess risk, interpret financial information, and plan for the future better than any other discipline can.
If we fail, it will not be because accounting education had no future. Rather, it will be because we didn’t seize the opportunities that were available to us and adapt our programs to the rapidly changing and evolving business environment.
Steve Albrecht is the associate dean and the Andersen LLP Alumni Professor of Accounting at Brigham Young University’s Marriott School of Management in Provo, Utah.