‘Most important man in accounting’ warns against lowering standards

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Barry Melancon, dubbed “the most important man in accounting” for his 30-year leadership of its professional body in the US, has sent a stern warning to his successors that they should not compromise standards in an effort to attract more people to the profession.

Melancon is retiring this month as the longest-serving chief executive of the American Institute of Certified Public Accountants, overseeing a profession that has been transformed by new technology and private equity investment but finds itself in throes of a recruitment crisis.

With young people lured by the higher salaries and lower entry requirements of finance and technology, the number of people taking the CPA exam run by the institute has fallen sharply, and accounting firms have demanded reforms to make it cheaper and quicker to get qualified.

In a wide-ranging interview with the Financial Times, Melancon expressed scepticism about some of the firms’ claims, and said a race to the “lowest common denominator” could come back to haunt the profession.

“We are a highly trusted profession and we live in a world that doesn’t have a lot of touchstones on trust,” he said. “We need to respect the respect that we get from the public and from the business community and from regulators.”

A shortage of accountants has been blamed by some companies for potential flaws in their financial statements, and some US local governments and companies have complained that it is harder to find auditors.

After initially resisting pressure from the profession, the AICPA in September proposed scrapping a requirement that accountants have the equivalent of five years of university education, known as the 150-hour rule — a year more than a typical undergraduate degree’s 120 hours of courses.

Melancon made it clear he had doubts about the need for such a change. “The 150-hour rule elevated our profession, which in the 1970s was oriented more like a trade than a profession. It elevated the quality of people in our profession, and the standing of our profession, and to deny that is to deny history.”

Melancon was the youngest-ever head of the AICPA when he took the helm in 1995 at the age of 37, and he has not flinched from pushing through changes in the past. He insisted on computerising the CPA exam when some in the profession resisted, and made the qualification available internationally. He also championed the creation of audit systems and other technology that could be shared among firms. The magazine Accounting Today has consistently ranked him the most influential person in the profession.

A new flashpoint is over the detail of the on-the-job training that the AICPA has designed as an alternative to a fifth year of university education for CPA candidates.

The FT has reported that the group representing big accounting firms wanted a simpler system than the one proposed, which would require supervisors to certify that new recruits have obtained dozens of specific skills, or “competencies”.

Critics say the plan is too complex, costly and subjective, but Melancon said ensuring new accountants had specific competencies was vital to prevent a “lowest common denominator problem” where an unskilled practitioner could bring the profession into disrepute.

“Firms don’t take their investment in the people they hire lightly, so it really should not be a huge change for the vast majority of firms,” he said.

The proposed changes come against the backdrop of a workplace that is fast evolving, with less need for armies of junior employees doing repetitive tasks and new opportunities for accountants to use their business and financial acumen to help clients.

“Entry-level positions in our profession will be reduced . . . due to technology, and the traditional pyramid shape of a public accounting firm is not going to be the structure of the future,” Melancon predicted.

“We have to develop investments in competency enhancement that more quickly gets people into that middle part of the firm or the finance function, where the profession is so valuable.”

Also changing the shape of the profession is the arrival of private equity, which has acquired a third of the 30 largest US firms since 2022. As well as promising to fund technology investment, the deals provide windfalls for older partners and equity to incentivise younger ones. Regulators, however, have warned that private equity ownership threatens the objectivity of audit work, while a need to maximise profits could lower standards.

“I don’t think the traditional partnership structure is the only way our profession can function,” Melancon says. While he welcomed the experimentation, he added that “anybody that thinks [private equity deals] are all going to be marriages made in heaven is not right”.

Ultimately, accounting firms are likely to find investors that can hold them for the long-term rather than flip them, he said.

For one final prediction before his retirement, Melancon uses a quote he has had in his office for decades. “Change,” he says, “will never be as slow as it is today.”