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Posted 10.31.12

Gary Previts, Weatherhead accounting professor, among books and knick-nacs in his officeWe caught up with Gary Previts, PhD, Distinguished University Professor, E. Mandell de Windt Professor and Chair of the Department of Accountancy, working with two PhD students in a seminar where they are debating the definition of the term “public interest” as it relates to the meaning of a profession and public policy and regulation.

W:  It sounds like there is no standard definition of “public interest.”
GP:  It’s like the term “common sense.” There’s no set definition. It’s a kind of shorthand use that facilitates conversation. There may be no resolution to this inquiry into the definition, only variety. But this is what we want in an intellectual community: discussion, which leads to understanding, and then a form of resolution. The point is the process, not the product. It’s all about the debate, the discussion, the disagreements even, that can draw people in.

W:  Talk about your recent work with the Department of the Treasury.
GP:  The Department of the Treasury established a committee with a very mundane title--the Advisory Committee on the Auditing Profession (ACAP)--in 2007. It examined questions such as: Is the profession properly staffed? Properly structured? One of the main arguments has to do with litigation reforms. On one side, some argue that because there are a limited number of firms that provide auditing services, and because these firms are large they will tend to be less competitive, they are not motivated to work hard to detect anomalies.

W:  This could allow disasters like Enron to occur.
GP:  On the other side, however, accounting firms are seeking litigation reforms, because when an allegation of audit failure due to fraud, control system failures, and even bad luck is made, lawsuits are often brought against auditing firms. So, similar to the way that a doctor might be subject to different malpractice laws in Michigan versus Ohio, auditing firms want reform in litigation so that they feel they are being treated more fairly and consistently.

Some other issues discussed by ACAP included education, human capital, and globalization—meaning questions about how auditing should be conducted around the world. Can we agree with other countries, and will they use our systems or standards? It’s a significant diplomatic issue.

W:  What was your role in ACAP?
GP:  I was assigned to the human capital area. We considered such issues as opportunities for minorities, AP high school courses to prepare people to consider accounting, and the structure of higher education. I served as the chair of the subcommittee on human capital, and our subcommittee made several recommendations.

W:  Your report came out in 2008. What were some of your recommendations?
GP:  One of our recommendations was to form a “blue-ribbon panel” and establish a process for looking ahead to the educational structure needed to properly prepare students for a future in the field. The panel is now known as the Pathways Commission. In a way, it is the heir to a 1967 panel, Horizons for a Profession. There have been other educational efforts, but Horizons was the most telling, given that it recommended what has now become the norm: five years of university education for CPA licensure.

Pathways is issuing its Phase I report in August, identifying means, impediments, and goals and issues, by making seven recommendations to do with piloting new teaching technologies, high school preparation, college curriculum, and two-year versus four-year colleges. We need to smooth the transition between the two and iron out their differences.

Another important question that Pathways is looking at is the proper role of the doctorate in accountancy.

W:  Isn’t there already a doctorate in accountancy?
GP:  Yes. Since l969, it is an accreditation expectation that faculty obtain a PhD in accountancy if they wish to teach at a research institution, such as CWRU. But there may be a need for a doctorate for practitioners. The “DA” or “AD” would be like the MD or JD. Consider what has happened in fields such as pharmacy, and most recently, nursing. The nursing doctorate is becoming the law of the land. Nurses play a vital role in healthcare, and the nursing community realized that if it was to play an influential and meaningful part in medical care and health policy, more formal education would be needed for the future. The nursing doctorate is an important and expansive program here at CWRU.

The evidence suggests that there are enough specialized areas--take tax, for example--to justify such a degree in accountancy. But we must demonstrate fully that the cost/benefit is there. Pathways has the potential to develop considerations on both sides of the issue and evaluate them.

W:  What would be the opposition to such a proposal?
Well, back in the 30’s through the 50’s, a high school education was all that was required to be a CPA in most states. In 1963, only 18 states required a bachelor’s degree. In 1967, it was proposed that CPAs add a fifth year of education. It was controversial to add a year of education. It was viewed as a barrier to entry. Small firms said: “We can’t afford it! Show us it is worth it! Educators are just out for their own interests.” Candidates said: “Now I need one more year of graduate study? I don’t want to pay for it.” But the evidence and market forces have been generally supportive over the intervening decades. Today, virtually all jurisdictions require that fifth year, or have passed legislation to take effect in a few years. Ohio passed the legislation in 1993, and it took effect in 2000.

Much like medicine or law--what we call “learned professions”--accountancy will likely evolve to a comparable level of education. Accountants provide information necessary for effective decisions, and auditors evaluate controls and financial reports. There is too much specialized knowledge to integrate it all into a four-year degree. Such a fundamental activity, on a global and instantaneous basis, coupled with specialization in areas such as statement preparation, taxation, and assurance, have combined to make the additional year valuable.

One example of how this norm is being demonstrated is that partners in public accounting firms have gone from 10% with an additional degree to 50% over the past few decades, with the Master of Accountancy, or MAcc, being the most common campus offering.

W:  So when will firms start requiring ADs or DAs?
GP:  The practitioner’s doctorate is in the early state of discussion. It hasn’t even been proposed yet. It’s going to take a generation or more to evolve. ACAP ended in October 2008. Here we are in 2012, and it has taken that long for Pathways to form and get funded and staffed, and to make it continuous. Previous panels like Horizons for a Profession were discontinuous, meaning that they issued a report and then disappeared. And it took 45 years for a fifth year of post-high-school education to become standard. Discontinuity is inefficient, if not fatal.

W:  What else are you working on--besides being department chair, teaching, and working on the Pathways panel?
GP:  It’s time for a new edition of our book, A History of Accountancy in the United States. The last edition came out in 1998; the first edition was 1979. So we need to get on schedule for an edition to come out before the end of the decade. So much has changed since the 1990s. New research, new interpretations ... we have to update and revise it all. I’ll plan to be on sabbatical during 2013-14 to work on it.

W:  Imagine that you have an hour or two to yourself--you have no administrative tasks, and the new edition of your book has already been written.
GP:  Imagine” is right!

W:  What would you do with a couple of hours of free time?
GP:  There’s a group called the Academy of Accounting Historians (AAH) that was founded in 1973 to give historians an organizational means to support research, teaching, and global exchange via conferences and journals. Today, there are three English-language journals, and membership has always been open to people outside the U.S. and other English-speaking countries. AAH sponsors world congresses. This summer the 13th congress was held in the U.K., and others are planned every four years through the rest of the coming decade.

If I had two hours, I’d work on assisting one of the AAH journals or reaching out to places like China. China has a history of accountancy that goes back for ages. I would work on outreach to the BRIC countries that are developing so rapidly. I can’t think of a better use of time for myself and for the students I work with than to give them an appreciation for the variety of cultural and historical perspectives that influence the practice of our discipline.

You have just read the third installment of Weatherhead Q & A with faculty. Check back for our next conversation!



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