The reputation of CPAs, perhaps exaggerated, is that they are precise, introverted, and conservative. Whether they are employed by a public auditing firm or by an organization, a CPA’s traditional responsibilities have been financial stewardship and assurance of financial accounting compliance with regulatory and tax agencies and typically report past historical data.
Generally, CPAs have not had a reputation for deep involvement with operations and sales management nor being a strategic advisor to their executive team, although articles by the media, consulting firms, and IT analysts have been claiming this is a trend and direction for them.
Are the claims becoming reality?
Maybe there is now a glimmer of change. Perhaps CPAs are increasing in numbers with their transition to expanding from being primarily financial accountants to managerial accountants. I have some evidence for this.
Here are some impressions I have from presenting at AICPA financial planning and analytics (FP&A) conferences in the US. (As many are aware the AICPA and CIMA created an alliance, the CGMA. I have authored two CGMA books). A first sign of change of this transition from “bean counter to bean grower” is that the number of conference attendees at AICPA FP&A conferences is increasing.
However a much better indicator is the common FP&A themes by the presenters, including myself. At a summary level these themes are:
· The CFO and controller is indeed becoming more of a strategic advisor.
· There should ideally be less emphasis on the annual budget and with spending control and more emphasis on analysis, forecasting, and planning.
· Enterprise risk management (ERM) should be integrated with enterprise and corporate performance management (EPM/CPM) methods.
Which “dark side” do I mean?
When I asked the question in this blog’s title if CPAs are now joining the “dark side” (as with Darth Vader from Star Wars), what I am referring to is the managerial accounting side of accounting’s taxonomy neighbored with financial and tax accounting.
To clarify, financial accounting is intended for external reporting to satisfy regulatory compliance, bankers, and the investment community. In contrast, managerial accounting is for internal reporting to support better analysis and decisions. (Tax accounting is in my mind a digital game somewhat disconnected from economic reality.)
The AICPA has been the USA’s primary professional institute for financial accounting. Similarly is the Association of Chartered Certified Accountants (ACCA) in the UK. However in the past few years both of these professional societies have established partner alliances with premier managerial accounting institutes. The ACCA with the USA’s Institute for Managerial Accounting (IMA), and, as earlier mentioned, the AICPA with the Chartered Institute of Management Accountants (CIMA) headquartered in London. Similar partnering has occurred with Canada’s accounting institutes.
My interpretation is that these new joint alliances reflect a shift in emphasis of CPAs from “valuation” (i.e., financial accounting) to the more critical need for “creating financial value” (i.e., managerial accounting).
Highlights from the AICPA FP&A conference
Here are brief highlights from FP&A conference presenters who I know well including my own message:
David Axson, Accenture – There is too much volatility and uncertainty in today’s world which makes predictability difficult. Therefore, detailed line-item monthly budgets have much less value. The annual budget is typically obsolete soon after it is published. It consumes the accountants’ time which could be better used for analysis and planning.
Steve Player, The Player Group – Expanding on Axson’s observations, a remedy to abandoning the annual budget exercise is driver-based rolling financial forecasts reported at more frequent time intervals.
Gary Cokins, Analytics-Based Performance Management LLC – Organizations should not only integrate all of their managerial methods that comprise enterprise and corporate performance management (EPM/CPM), but they should imbed into each of them analytics of all flavors (e.g., regression, segmentation, clustering, and correlation analysis), and especially predictive analytics.
Brett Knowles, PM2 – The domains of EPM/CPM and enterprise risk management (ERM) need to be unified. There is a systematic and structured way to integrate strategy, performance measures, and risk.
Donny Shimamoto, Intraprise TechKnowledge LLC – Information technology (IT) is an essential enabler to include business intelligence (BI) and analytics to complete the full vision of EPM/CPM.
CPAs joining the dark side?
To sum up, yes, this is good news that CPAs are increasingly acquiring FP&A and managerial accounting skills and competencies. It is their “Force.” But to clarify the Star Wars “dark side” analogy represented by managerial accounting, it is actually the “bright side.” Why? Good managerial accounting, such as activity-based costing (ABC) practices, brings visibility and transparency to product, service, channel, and customer costs and profit margin layers that are typically hidden with GAAP reporting. With managerial accounting internal managers and employee teams gain more insights and foresight to support better decision making.
It has been a longtime coming for CPAs to display high interest in managerial accounting. Hopefully CPAs will now be like moths-to-the-flame pursuing analysis. CPAs are seeing the light and are expanding their FP&A and managerial accounting skills and competencies. It is a win-win for both them and the line function managers they support.