Testifying at the February hearing, Burritt implored the committee — formed in July 2007 to advise the department on the auditing profession’s ability to attract the requisite human capital, as well as audit-market competition and finances — to expand its mandate. “We must carefully consider whether the current accounting educational system prepares graduates for careers in the various fields of accounting, and how it can be improved in the context of the increasing globalization of business and the onset of [International Financial Reporting Standards],” Burritt said. Students are also unprepared for government or nonprofit work, he added.
In written testimony, IMA chimed in that the committee, chaired by former Securities and Exchange Commission chairman Arthur Levitt and former SEC chief accountant Don Nicolaisen, “should not miss this opportunity to actively consider what role the preparer community has, what responsibilities it must shoulder, and what accountabilities in must jointly share with the auditing industry.”
A call to the Treasury Department seeking comment on Burritt’s and IMA’s testimony was not returned.
Raef Lawson, IMA’s newly hired director of research and professor-in-residence and the former accounting department chair at the State University of New York at Albany, listed Harvard and Babson College as schools with an exceptionally strong focus on corporate accounting. Northwestern University and Johnson & Wales University have new B.S. programs in management accounting, he noted.
To that list, Kathy Fitzpatrick, vice president of finance leadership development at Johnson & Johnson, added Rider University, Penn State, and Butler. These schools are leaders in providing programs that offer college credit for paid corporate internships, she noted, but added that not enough schools are doing the same. Only about 40 percent of the undergraduate-degree finance and accounting students the company hires have participated in such programs.
Because of the lack of college preparation, “we have to spend extra time training our associates to get them up to speed on what we expect from them,” Fitzpatrick told CFO.com. What is lacking, she said, is a practical approach. Colleges “give students a lot of theory, but where is the practical application once they go into the work force? You can’t just say ‘this is how I learned it in school’ — you have to understand how a business works and makes decisions.” Also lacking is technology training, with many candidates inadequately skilled in Excel.
Johnson & Johnson, which is among a fairly small group of large companies — another is General Electric — with aggressive rotation training programs for entry-level finance and accounting workers, hires many more such employees than the typical corporation. A majority of graduates are sucked up by the insatiable needs of the public accounting firms.
IMA speaks critically of the public accountancies’ “high-contribution-margin model” and claims it is responsible for colleges’ heavy focus on auditing. In an article last October in the institute’s Strategic Finance magazine, IMA chief executive Paul Sharman called that focus “tunnel vision.” In short, the firms bill out young, low-earning employees’ time at highly profitable rates. And they need to replenish the ranks constantly because young accounting professionals typically see two to six years of public accounting as the path to a corporate career.
That means the firms are extremely aggressive recruiters on college campuses, which further encourages schools to tailor curricula toward their needs. “Until we alter the mental model of accounting education … we will not see a meaningful decrease in the number of errors in publicly issued financial statements,” IMA wrote to the Treasury Department auditing committee.
Editor’s Note: On Friday, see what college accounting professors have to say on these issues.