AICPA Special Committee on Assurance Services. Assurance ...raw.rutgers.edu/docs/Elliott/12Assuranceservise opportImplicfor acad.pdf · Robert K. Elliott Robert K. Elliott is Partner

© 1997 American Accounting AssociationAccounting HorizonsVol. 11 No. 4December 1997pp. 61-74

COMMENTARYRobert K. Elliott

Robert K. Elliott is Partner at KPMG Peat Marwick LLP and Former Chair of theAICPA Special Committee on Assurance Services.

Assurance Service Opportunities:Implications for Academia

The market for audits has been flat for anumber of years with no clear prospect of aturnaround. The AICPA's Special Committeeon Assurance Services (1997) publicized thatfact and responded by identifying new servicesand recommending processes for the ongoingidentification and development of additionalservices. The premise was always to build onthe audit tradition, and steady (though not ris-ing) demand for audits was projected into thefuture.

The audit tradition is a professional assetof incalculable value. It derives from the mar-ketplace need for high-quality, decision-mak-ing infonnation. The financial statement au-dit provides assurance that an information setpresented to investors and creditors is reliable.But the marketplace need for high quality in-formation is far greater than the need for reli-able historical-cost-basis financiai statements.Thus, assurance services not only respondto the growth problems of the audit indus-try, they also adjust the audit tradition tothe wider marketplace it long ago was des-tined to serve, or so it seems in retrospect.

The Special Committee on Assurance Ser-vices set in train three types of changes, asillustrated by figure 1. The smaller enclosedcube represents tbe profession's revenue fi-oinfinancial statement audits. The larger cubeextends three dimensions of the financial state-ment audit, which can be abbreviated as thewho, the what and the how of the service. Thewho refers to the CPA's customers (who willexpand fi-om investors and creditors to include

entities' customers, employees, managers, di-rectors, and suppliers of goods and services).Tbe what refers to the service provided (whichwill embrace assurance on nonfinancial infor-mation and systems). The how refers to theservice-delivery technologies (which will in-clude real-time audit techniques, as well asevaluation of encryption, firewall strategiesand database design).

Services will include providing assuranceon nonfinancial information and on all sortsof information systems. The assurances maypertain to the relevance as well as the reli-ability of the information. Service-deliverytechnologies will address a broader range ofpotential defects in information and infor-mation systems, because information will beproduced and presented in different forms.Instead of evaluating manual detection andcorrection of errors, for example, assurerswill evaluate the design of systems for theirpreventive controls. Real-time informationreports cannot wait for manual detection, sothe effectiveness of preventive controls willdetermine the reliability of the informationdecision makers receive.

The CPA's customer base can (andshould) be all users of decision-making infor-mation. They include senior managers orother employees, members of corporate or

This article is adapted from Mr. Elliott's plenary ad-dress at the AAA's annual meeting in Dallas on August18, 1997.

62 Accounting Horizons/December 1997

FIGURE 1Strategic Expansion of "Audit Space"

o 3-n -^In

CustomersSuppliers

EmployeesIndividuals

InvestorsCreditors

Manual detectionand correction

>f ^O/Technology

based prevention Financial-statement audit

Assurance on non-financialinformation and systems

not-for-profit boards, institutional investors,analysts, individual investors and creditors,charitable donors and individuals who aremaking decisions about other matters, such asselecting personal medical care or arrangingcare for elderly family members. All these par-ties are potential customers because they needdecision-making information and assurance ofits quality.

Defective decision-making information isunfortunately a universal experience foradults. They have encountered well-inten-tioned overstatements in social situations andmisleading information in commercial situa-tions. The ubiquitous jokes about advertisingcopy in our society are evidence that some wari-ness of misleading information is typical, andyou can go back to a centuries-long history ofconcern by decision makers that the informa-tion they receive is tainted by the interests ofthose who prepared it. People can take assur-ance from the credentials of the party supply-ing information and the circumstances underwhich it is supplied. One is more likely to be-lieve a scientist presenting a basic concept thana producer touting a film before it opens. When

a decision is important, however, decision mak-ers are hkely to be most comfortable with as-surance from an independent party qualifiedto judge the quality of the information.

One way to put in perspective the range ofpotential new customers and assurance servicesis to focus on an organization's external rela-tionships and the decision-making needs theypresent (although organizations also have agreat number of internal decisions to make,and organizations' decision makers are alsoimportant assurance-service customers). Orga-nizations conduct transactions with: purchas-ers of their goods and services; suppliers ofgoods, services and technologies; capital sup-pliers; and potential employees. Decisionsaboutthe transactions (e.g., sales of goods andservices, inventory purchases, exchanges ofsecurities for capital, and hiring) are supportedby two-way information fiows. The arrows infigure 2 illustrate these fiows. In addition, theentity has accountability and regulatory rela-tionships as a member of its community.Information flows to and from communityagencies are necessary when decisionshave to be made about accountability and

Assurance Service Opportunities: Implications for Academia 63

FIGURE 2Enterprise's External Information Flows

Adapted from C. K. Prahalad

regulatory relationships (e.g., compliancewith regulations).

CPAs have been most involved with arrow1 (the black arrow) through audits of financialstatements. Obviously, there are many otherinformation flows needed for entity decisionmaking, as the other arrows in the figure dem-onstrate. However, even the possibilities rep-resented by the black arrow are much greaterthan services needed to produce periodic finan-cial statements. Today there are many otherinformation fiows to investors and creditors.Table 1 illustrates the range of informationfiows represented by the numbered arrows infigure 1.

Decision makers using these informationfiows would benefit fi'om assurance services,and the prospect of such benefits would cre-ate economic demand for the services. IfCPAs do not meet the demand, others will.Outside of the financial-statement audit,there is no statutory fi-anchise. Competitors'responses to the demand for additional as-surance services will have a great effect onthe CPA's practice environment. The oppor-tunities for CPAs will be enormous, but non-

CPA competition will be an ever-presentcondition when attempting to take advan-tage of the opportunities.

DEFINITION OF ASSURANCESERVICES

The Special Committee's definition of as-surance services attempted to capture thecentrality of decision makers' needs for qual-ity information and the full breadth of ser-vice possibilities that those needs open:

Assurance services are independent profes-sional services that improve the quality of in-formation, or its context, for decision makers.

This definition allows for expansion alongeach of the dimensions illustrated in figure 1 byserving new customers, providing new servicesand employing new technologies. New assuranceservices have already been identified and AICPAprocesses put in place to identify and developadditional services in the future. The new ser-vices, both those in development and those thatwill be identified, have three implications foracademic accounting departments. The new ser-vices create training demands; they create new

64 Accounting Horizons /December 1997

Arrow

TABLE 1Examples of External Information Flows

Information

Financial statementsPress releasesAnalysts meetingsFact books

Tru th in lending"Undertakings in offeringFinancial capacity

Product/service quality (e.g., ISO 9000)WarrantiesCredit terms

Procurement specificationsFinancial condition (creditworthiness)Customer qualifications

Credentials/competenciesEmployment historyReferences

BenefitsEmployment policiesCompensationJob-related information

Tax policy/regulationsEmployment requirementsAir/water qualityEnvironmental restrictions

Environmental effects (e.g., ISO 14000)Employment effectsTax returns

research opportunities; and they will helpredefine what we mean by accountancy as avocation, and, therefore, as an academic dis-cipline as well. Each of these implicationspresents the academic branch of the profes-sion with choices, some of them difficult.

The remainder of this article briefly ex-plores these three implications of assuranceservices. The exploration relies on the find-ings of the Special Committee on AssuranceServices. The Special Committee's report, in-cluding its studies, background papers, anddescriptions of new services, are availableon-line at www.aicpa.org/assurance/scas/index.htm.

MAINTAINING AND INCREASINGTHE VALUE OF THE AUDIT

The committee foresaw two types ofchanges in the audit that should affect whatis desirable education for practitioners.First, the evolution of information technol-ogy will have a number of influences onneeded audit capabilities. It is transformingbusiness information systems and facilitatingforms of on-line reporting. Auditors will haveto upgrade their ability to evaluate systems asthe systems themselves become more sophisti-cated. On-line reporting based on databasesupdated in real time will be less wedded tocurrent protocols for periodicity, creating a


parallel evolution toward continuous auditing.Continuous auditing may lead to continuousreporting that supplements and eventually re-places the annual audit report. To audit effec-tively in these environments, auditors will useelectronic sensors, software agents and com-puterized audit programming models.

Information technology is also the leadingedge of a mix of interrelated forces changingthe way business is conducted. Auditors mustunderstand the effects of these changes if theyare to continue to understand their clients'businesses and transactions. Meanwhile, thepublic's expectations of auditors, together withpressures for greater accountability, will in-crease demands for auditors to detect fraud andillegal acts, and provide early warning of fi-nancial distress and going concern problems.

How auditors respond to these changes willgreatly determine the value of the audit in thecoming decade. But the response will not alonedetermine the audit's value. The value of ef-fective auditing depends on the usefulness ofthe business reports that are audited. Businessreporting that is increasingly useful to inves-

tors and creditors increases the value of theeffective audit. Figure 3 shows that raising thequality of auditing or accounting alone helpsincrease the value of the audit, but raisingthem both helps even more. So the professionhas a great deal at stake in the future of busi-ness reporting through the work of the FASB.

However, the value of the audit will alsobe influenced by how auditors respond todemands for additional deliverables basedon the client-specific knowledge gained dur-ing the audit and on the industry and eco-nomic knowledge brought to the audit. Forexample, the auditor could deliver observa-tions to clients on risks and opportunitiesand strengths and weaknesses. The some-times tired notions carried forward from thetraditional management letter could be re-placed by far more useful observations fromthe auditors. They would result in net in-creases in the value of the audit even if thequality of the business reporting was steady.

Table 2 shows the capabilities needed tomaintain and increase the value of the tra-ditional audit function.

FIGURE 3Assurance vs. Disclosure Policy

Lo

Quality ofassurance(reliability)

Quality of disclosure(relevance)


TABLE 2Capabilities Needed to Maintain and Enhance the Traditional Audit Function

Knowledge of information technology in order to:Upgrade capabilities to evaluate clients' systemsUnderstand how IT affects the client's business, specifically, how IT affects operations,risks, opportunities and desirable strategic direction

An understanding of how economic forces (including IT) are changing the auditee's risks andopportunities, i.e., the capacity to analyze the auditee's operational effectiveness and indus-try standing, what forces are affecting it and could affect it, and how it is being and could bechanged

New techniques to plan the audit (computerized programming models) and gather auditevidence (e.g., use of electronic sensors, software agents)Strengthened capabihties to detect fraud and illegal acts

Strengthened capabilities to evaluate financial distress and going-concern problemsAbility to deliver observations on risk and opportunities and on strengths and weaknesses,based on knowledge gained during the audit and on the industry and economic knowledgebrought to the audit

Some of the table's entries are versions ofwhat is provided by current curricula, butshould be adapted to the changing audit en-vironment. For example, training to under-stand the client's business is hardly a newcurricular demand, but what is needed israpidly evolving.

Other items in the table overlap with thetraining traditionally provided by account-ing firms to their practitioners. Techniquesto plan the audit is perhaps the best ex-ample. In all such cases, students should haveenough mastery of the issue to upgrade theskills and use the specific tools that theirpractice demands. It is a simple example ofhow a curriculum not devoted to learning howto learn will fail to meet student needs.

The table has research implications. Theacademic community can help to improvetechniques to detect fraud and illegal acts.It can help improve techniques to evaluatefinancial distress and going-concern problems.These research topics have been on the agendafor years, and some progress has been made,but more can be done.

More forward-looking research is im-plied by the entry "Upgrade capabilities toevaluate clients' systems." As already noted,the audit will eventually move into the era

of real-time access to corporate databases,presenting the opportunity for continuousauditing and continuous assurance, with itsattendant problems. Data access will replaceperiodic reporting by those we now refer toas preparers. Research on new tools forgathering audit evidence (e.g., electronicsensors and software agents) would be veryhelpful. Research on effective preventivecontrols—what might be called "reliabilityby design"—would benefit managements aswell as auditors.

Maintaining and strengthening the au-dit is a forward-looking task. I am not talk-ing about scraping the rust off an old hull toget a few more voyages out of it. I am talkingabout a service that will continue to havemarket demand and be useful. However, thestakes are even higher than that. Increasingthe value of the audit is a key to market per-missions for new assurance services. Practi-tioners are not going to be given market per-missions if the public has a declining impres-sion of the effectiveness and value of audits.The halo effect fi-om independent, objectiveaudit work demanding a high level of exper-tise degrades as the public impression of theeffectiveness and value of audits degrades. Onthe other hand, if we strengthen the audit in


all the ways mentioned above, we should si-multaneously strengthen the market permis-sions it provides to new assurance services.

NEW SERVICESNew assurance services are coming to the

marketplace. The Special Committee iden-tified some; the AICPA's new Assurance Ser-vices Executive Committee is developingthem and will he identifying and developingothers on into the future. To this will beadded the current and future work in ser-vice identification and service developmentperformed hy individual firms.

What does all this mean for the curricu-lum? New services cannot be provided with-out sufficient competencies. In some cases, ex-isting competencies can he applied to new ser-vices without any sacrifice in needed profi-ciency. In other cases, some mix of training byfirms and the AICPA and perhaps new hiringwill be necessary. In still other cases, it will beextraordinarily difficult to train people to per-form the services unless they have the back-ground that permits them to benefit fi-om train-ing in a nontraditional service—^backgroundthey can obtain most efficiently in theirhigher education. Once again it's the storyof the paramountcy of learning to learn inthe curriculum.

The following six services were the subjectof husiness plans prepared by the Special Com-mittee on Assurance Services (the website ref-erence to the husiness plan follows the abbre-viated description of the service).• Provide assurance to concerned parties as

to whether care delivery goals for elderlyindividuals are being met (ElderCare Plus).(www.aicpa.org/assurance/scas/newsvs/elderpl/index.htm)

• Assess health care providers' performancefor the decision-making benefit of carerecipients and their representatives (e.g.,employers and unions), (www.aicpa.org/as surance/scas/newsvs/health/index .htm)

• Provide assurance that systems are de-signed and operate in a manner thatprovides reliable information or oper-ate according to accepted criteria.

(www.aicpa.org/assurance/scas/newsvs/reli ab/i n dex. h tm)

• Assess whether informational featuresof electronic commerce function in accor-dance with accepted criteria. The servicewould provide assurance with respect tothe integrity, security and privacy of elec-tronic transactions, electronic docu-ments and the supporting systems.(www.aicpa.org/assurance/scas/newsvs/elec/index.htm)

• Improve the quality of risk informationthrough independent assessments of thelikelihood of significant, adverse eventsand quantify the possible magnitudes ofthe effects, (www.aicpa.org/assurance/seas/new svs/risk/in dex. htm)

• Assess the relevance and reliability of anentity's performance measures. Potentialengagements include assessing the reli-ability of the information reported fi-oman organization's performance measure-ment system, assessing the relevance ofthe organization's performance measures,identifying relevant performance mea-sures for organizations that need them,and helping to design and implement aperformance measurement system.(www.aicpa.org/assurance/scas/newsvs/perf/index.htm)Practitioners performing these services

must be able to apply measurement criteriaother than financial accounting principlesand to measure in nonfinancial units. Nei-ther task is novel in the accounting profes-sion, but neither seems to be given a greatdeal of attention in traditional accounting andauditing courses.

Many of the new services will be attestservices. A solid background in attestationwould therefore be fundamental to prepar-ing to perform them.

Systems assurance and electronic-com-merce assurance show again the usefulnessof improving the treatment of informationtechnology in the curriculum. Assurers pro-viding electronic-commerce assurance servicesneed to understand the risks of electronic com-merce (e.g., intentional attacks, transmission


failures, lack of authentication, lack of trust,theft of identity), the role of preventive controlsin reducing these risks, and how design can es-tablish reliability. The services cannot be per-formed without such knowledge even when theneeded measurement criteria become available,which will not be too long after this writing.

Assurance services will be necessary tomaximize the growth of the electronic-com-merce marketplace, and non-CPAs are ca-pable of gearing up to provide the services.Consumers will not participate in electroniccommerce unless they have confidence thatthey have reached a properly identified web-site, that their personal data will be keptconfidential, and that the transaction datawill be processed reliably. Many know, somefrom bitter experience, how information rep-resenting their own identity (e.g., credit cardnumbers) can be stolen and used to draintheir assets. Even CPAs who do not provideelectronic-commerce assurance servicesmust understand electronic-commerce infor-mation systems and information flows, be-cause in time they will be entwined with allsorts of business activities.

Risk assessment assurance services re-quire the assurer to understand the risksaffecting an organization. To gain such an un-derstanding, the assurer will have to have adeep knowledge of client operations and strat-egies, the industry and the economy and theirinterrelationships, as well as organizationalbehavior and relationships. These are not newcurricular demands, but training in risk analy-sis, which would be either new or much lesscommon, would obviously be very helpful.

Performance measurement services, in alltheir variety, would take the practitioner di-rectly into the uncharted waters of relevanceenhancement assurance services: The assurercould evaluate the relevance or reliability ofperformance measures, could identify relevantperformance measures, and could design sys-tems that produce relevant performance mea-surement data. These services have implica-tions for the curriculum.

In a general sense, information is relevantif it can help a decision maker achieve an ob-

jective. An assurer could enhance the relevanceof decision-making information by services ateach component process of the decision-mak-ing activity. This means that, first, practitio-ners who are to provide relevance enhancementservices need to understand how organizationsarrive at valid objectives and to understandobjectives that have already been defined. Sec-ond, they need to understand decision-mak-ing processes. Their scope is illustrated inthe figure 4.

The figure shows that relevance enhance-ment services encompass several processesand can therefore be a substantial source ofnew assurance services. It brings homesharply the degree to which assurance ser-vices as a group are far broader than attestservices, although that is not the sole way inwhich assurance services are broader thanattest services.

The Special Committee made an initial analy-sis of the types of competencies new assurance ser-vices demand (see www.aicpa.org/assurance/scas/comstud/compfufindex.htm). But it is upto academic members of the profession to ana-lyze them further, to judge whether their re-spective curriculum should be modified in re-sponse, and, if so, to devise how to go aboutit. The process of evaluating how theprofession's changing portfolio of assuranceservices should affect the curriculum shouldbe ongoing.

RESEARCH IMPLICATIONSResearch on how to perform new assur-

ance services would always be helpful, eventhough the firms and the AICPA AssuranceServices Executive Committee will be pro-viding guidance on how to perform identi-fied services suitable for the marketplace.Relevance enhancement—a broad family ofassurance services—is a topic ripe for re-search. We need to know more about thescope of the services and about user deci-sion processes and the types of information thatsupport those processes. It would also be help-ful for researchers to identify prototype deci-sion models used by decision makers and therelevant information that supports the use of

Assurance Service Opportunities : Implications for Academia

FIGURE 4User Decision-Making Processes

-rProblemDefinition

InformationAnalysis/

Interpretation

I Decision ModelSelection/

Specification

Evaluation ofAlternatives/

Tradeoffs

1 Decision ModelInformation

Requirements

Implementationof Actions

69

InformationSourcing/

Finding

OutcomeFeedback

1!

the models. The research should not beconfined to financial decisions and finan-cial information.

Several of the new services depend on newmeasurement criteria, and each need is a re-search opportunity. The following business-plan assurance services cannot be performedwithout new measurement criteria:Information systems reliability—Criteria

for assessing the reliability of all majorinternal information systems.

Electronic commerce—Criteria for assess-ing the integrity and security of elec-tronic commerce.

Health careperform.ance m,easurem^nt—Criteria for assessing the quality of serviceprovided by care givers.In addition, criteria would be helpful for

two other business-plan assurance services:Risk assessments—Criteria for identifying

risks and assessing their likelihoods andconsequences.

Business perfbrmance measurement—Cri-teria for assessing the performance of themajor value-creating activities within anenterprise.Research on concepts and methods for con-

ducting new types of assurance services andfor reporting results would contribute to thedevelopment of assurance services. For ex-ample, a clearly articulated concept of "assur-

ance risk" would provide a framework for de-termining the amount of assurance effort re-quired on particular engagements. We alsoneed to know what new concepts of report-ing are needed to communicate the natureand extent of the assurance effort and as-surance findings.

CUSTOMER FOCUSThe Special Committee identified over 200

assurance services through a survey of servicesperformed by 21 medium and larger CPA firms(see www.aicpa.org/assurance/scas/newsvs/addlposs/index.htm). The findings are ampleevidence that CPAs are now identifying andproviding new assurance services and havebeen for some time. In the future they will beaided by a report on how to identify new as-surance services prepared by the committee(www.aicpa.org/assurance/scas/comstud/amodel/index.htm).

The Special Committee based its identifi-cation of new assurance services on custom-ers' needs—that is, the information needs ofdecision makers. Its report on how to identifynew assurance services takes the same ap-proach. A customer focus is also consistent withlogic and recommended business practices. Ser-vices not based on customers' needs are notlikely to be purchased.

Should the curriculum teach how to iden-tify customers' needs, how to translate needs


into services, and how to assess the market fornew services? To some extent the answer isclearly yes. At the least, the need to identifyand develop new services should appear in thecurriculum as one of the professional demandsstudents will one day face. If future accoun-tants think they are entering a static market-place, they will not be prepared to succeed. Andif they think they can consistently deliver valuewithout regard to customers' needs, they aresimply mistaken. It may be time for account-ing departments to rethink the way theypresent the world of practice to students. It isunrealistic to omit assurance services.

A key conclusion by the Special Committeeon Assurance Services is that customers valuemost in information services what gives themthe most leverage in decision making. Tradi-tional accounting work typified by collecting,classifying and summarizing data on economicevents is becoming less valued relative to workon how to use information effectively (e.g., analy-sis and evaluation). A high proportion of theformer type of work can be done by software.Independent accountants are therefore enteringa period in which the growth of their practiceswill depend importantly on changing the pro-portions of the types of services they deliver. Thisnot only means that competencies must change,hut also that accountants must learn from cus-tomers what services would help them and offerservices customers believe will help them.

The practice demand to learn customers'needs dovetails with the emphasis on commu-nications skills that the Accounting EducationChange Commission championed. Studentswho develop two-way communications skillswill be prepared to become practitioners whoquery clients about their needs and are atten-tive, interactive and analytical listeners. Thescope of such an inquiry is not limited by whatis necessary to perform the audit. It includesall information needs for decision making. Nev-ertheless, the two purposes are complementary.The better the auditor understands the chent'sbusiness, the better equipped he or she is toaudit the financial statements effectively.

Focusing so heavily on the customers* in-formation needs with the intent to satisfy thoseneeds is a new approach for the profession. It'snot that the needs of investors and creditorswere wholly ignored, but services linked to theneeds of specific sets of users, or even indi-vidual users, received relatively little atten-tion. The GAAS/GAAP audit is a "general pur-pose" product. It is designed for the whole classof investors and creditors. The information con-veyed by the financial statements and assuredby the auditor is intended to meet a commondenominator of needs without regard to indi-viduals' particular needs. This allows for com-parability of financial statements, a tremen-dous advantage to users, but does not attemptto satisfy the market created by the fact thatdifferent users have different needs.

Research yielding a better understand-ing of decision makers' needs would be veryuseful. Although the Special Committees onFinancial Reporting and on Assurance Ser-vices investigated user needs, their explo-rations just scratched the surface of thiscomplex subject. Much remains to be discov-ered—from information needs for specifictypes of decisions to the need for assuranceregarding that information.

WHERE DO WE STAND?The traditional curriculum for the ac-

counting major with its emphasis on GAASand GAAP will not prepare students for thenew world of assurance services. Yet we do notknow how far we have come in transformingthe traditional curriculum. If we are to assessit, we need to know how far accounting pro-grams have come in adopting the reforms ad-vocated by the Accounting Education ChangeCommission that would be needed for studentsto become effective assurers. I have alreadynoted, for example, that communications skills,emphasized by the Accounting EducationChange Commission, would help identify cus-tomers' needs. Teaching accounting as an in-formation development and communicationprocess—the concept in the AAA's Bedford Re-port—^would help as well. And so would an em-phasis on learning to learn, a theme also given


prominence in the Bedford Committee (1986)Report. Learning skills would help graduatesto acquire the additional competencies neededto perform new assurance services.

The assessment should also report thelevel of attention given to the competenciesneeded to perform the services ahout to cometo market. Are students taught to measurewith criteria other than GAAP? Do they re-ceive any instruction in how to use such cri-teria to evaluate nonfinancial conditions andassertions? How helpful is their informationtechnology experience in light of the compe-tency needed to evaluate the security andintegrity of electronic-commerce informa-tion? How helpful is their training in per-formance measurement in light of the de-mands on assurers who evaluate the rel-evance of performance measures, identifyrelevant measures, and design systems thatproduce relevant performance data?

We should he ahle to get some notion ofwhere we stand on these issues hy compar-ing the accounting and auditing course re-quirements for an undergraduate account-ing major to the competencies needed forsuccess in an assurance practice. Ideally,course catalogs should allow a meaningfulcomparison, hecause they are supposed tohelp students plan their programs and se-lect their majors. The catalogs often univer-sities were reviewed for a sample comparison.̂The ten schools all have fine reputations; noneis a recipient of an AECC grant.

A test of the degree to which the curricu-lum is ready for new assurance services iswhether the programs directly treat attes-tation in its full breadth and whether theyteach the Bedford approach to accounting.The AICPA issued the attestation standardsin 1986, and the AAA issued the BedfordCommittee Report on accounting educationin the same year. By formulating the attes-tation standards, the AICPA recognized boththat nonaudit attest practice was underwayand that its expansion was desirable. TheBedford Committee Report acknowledgedthat accounting practice was becoming morediverse and based its recommendations in

part on the continued expansion of account-ing services.

None of the ten sampled catalogs indicatedthat attestation would be taught in its fullbreadth. Auditing, a form of attestation, was,of course, covered, but nonaudit attestation wasnever featured as a separate category. Thisdespite the fact that the Bedford CommitteeReport endorsed such breath a decade ago. Itsrecommended curriculum would treat audit-ing and attestation, covering their role inassuring the integrity of accounting andother information systems (Bedford Commit-tee 1986,182).

The Bedford approach to accounting wasbased on the general notion that accountingshould be treated as an information develop-ment and distribution function for economicdecision making. The recommended curricu-lum would cover the design and use of infor-mation systems, not one exclusive system thatproduces financial statements. This refiectedthe future the Bedford Committee foresaw,with "an accounting profession that will pro-vide information for economic and social deci-sions, using sophisticated measurement andconmiunications technologies applied to a sub-stantially enlarged scope of phenomena" (BedfordCommittee 1986,171,182).

No course or part of a course in the tencatalogs reviewed took the Bedford approachdirectly. Although managerial accounting andsystems courses might satisfy the concept tosome degree, they are not explications of theindependent practice of accounting. With re-spect to accounting for external users, the de-gree to which the Bedford approach was real-ized in the ten catalogs reviewed was zero.

If this exercise in reviewing requirementsfor accounting majors helps fi-ame questionsthat others will attempt to answer with bettersources, it will have served its purpose. Weneed to know more definitively than we do now

' The results of the comparison are not generalizablehecause the sample size is small, the sample was notrandomly selected, and course catalogs may not fairlyportray the curricula. Also, the descriptions were gen-erally rather sketchy.

72Accounting Horizons /Decem,ber 1997

where we are in preparing students for the com-ing world of new assurance services.

THE PRACTICE OFACCOUNTANCY

The expansion of assurance services is re-defining the vocation of accountancy. The pro-cess, which, as I have noted, has been underway for some time, will change the natureof accounting as an academic disciplineand should affect the way the professionis presented to students in courses. How-ever, the essential continuities hetweenthe past, the present and the future shouldbe fully respected.

Accountancy has always been focused onproviding information integrity to oureconomy. Auditing is one component of thismission, but it has never been the sole compo-nent. From the beginning, accountants wereexperts in the systems that produced the auditedinformation and advised clients on how to im-prove them. Both roles expanded over time.

Practitioners became expert in electronicinformation systems and provided advice onhow to improve them. This was followed byintegrated systems, with the same contribu-tion being made. Sometimes firms helped or-ganizations as an offshoot of the audit, in thetradition of the management letter, and some-times the engagements were separate, part ofwhat is known as consulting. Meanwhile, ac-countants provided data processing, compila-tions, reviews and audits, and by 1986 formallydefined the wider practice of attestation, in-cluding nonfinancial information within thepurview of assurance on reliability. Now as-surance services takes the audit-attest com-ponent of information-integrity services to abroader level.

Providing information integrity is a greatcontribution to the economy, with an evengreater future as knowledge work becomes asteadily more dominant engine for economicgrowth. Complete, accurate and relevant in-formation will be the difference between con-trol and chaos, between efficiency and confusion,between the productive allocation of assets andthe waste of capital, talent, technology andmaterials. Secure information will be essen-

tial to electronic commerce, and high-qualityinformation will be essential to sound decisionson economic, social and political issues.

The definition of accountancy as a voca-tion (or profession) should have a direct in-fluence on how professors present the prac-tice of public accounting to students. Thereis a more generic way of conceiving of whatauditors do than applying principles of fi-nancial accounting when verifying financialstatement assertions. Practitioners with alltheir diverse specialties still serve thebroader mission of providing informationintegrity.

The redefinition of accountancy will in-clude a reconsideration of basic concepts.From my own perspective, we should defineaccounting in a way that reflects a future inwhich enterprise accounting systems will typi-cally be linked over the web, not isolated. Forexample: Accounting is the information infra-structure necessary for an organization toachieve its objectives. An accountant's roleshould be defined by the benefit the servicesbring to the entity receiving them, not by someset of activities. For example: An accountantenables an entity to achieve its objectivesthrough the strategic use of information and in-formation systems. Naturally, I recommend de-fining an assurer in accordance with the SpecialCommittee's definition of assurance services: Anassurer improves the quality of information, orits context, for decision makers. This set of pro-posed definitions is consistent with theprofession's past and reflects its future.

Assurance services and the notion of pro-viding information integrity will broaden thebody of knowledge that defines the academicdiscipline of accounting. The broader thediscipline, the more it is hkely to interact atthe boundaries with other disciplines. Thereis nothing new in this kind of interaction and,during it, the academic branch of the profes-sion may find it helpful that their practitionerkin are performing services that correspond tothe broader notion of accountancy.

THE STAKESIn one sense, what is at stake for the aca-

demic branch of the profession in responding


to the findings of the Special Committee onAssurance Services derives directly from theold link between practitioners' economic vital-ity and the success of accounting programs. Ifpractitioners don't prosper, the demand for ac-counting majors will drop. If professors don'tsupply capable new practitioners, the firmscan't prosper. The Special Committee foundthat practitioners' traditional service, the au-dit of financial statements, is not growing. Re-vitalization makes undoubted sense for a num-ber of reasons, as we have seen, but it cannotrestore the financial statement audit to its oldstatus as a rapid-growth industry segment.Assurance services can supply the growth thatmutually benefits both practitioners and ac-counting programs. Thus, practitioners and theacademic branch of the accounting professionhave a shared stake in the success of new as-surance services.

There is another way to evaluate the stakesfor the profession. Accounting firms have othersources of growth, as is well known. For a num-ber of years consulting practices have beengrowing vigorously and promise to continue togrow vigorously in the future. That is good newsfor all parties with an interest in auditing, be-cause the economic health of the firms enablesthem to maintain audit quality, to invest inaudit technology, and to adapt the audit tochanging economic circumstances. However, itis arguable that the academic branch of theprofession has a greater stake in practitioners'growth from new assurance services than theirgrowth from additional consulting services.Accounting programs supply most audit per-sonnel and could be the suppliers of most per-sons who perform new assurance services. Butthey are not, and would not be, the sole or ma-jor suppliers of accounting firm consultants.

Consider figure 5, which illustrates thelikely effects of a failure to expand new assur-ance services.^ It shows a declining proportionof accounting and audit professionals in largeaccounting firms since 1990, a change causedby the effects of rapid growth of consulting andthe progress of audit technology. Figure 5 also

projects to the year 2004, with and withoutgrowth in assurance services. As can be seen,the proportion stabilizes assuming growingassurance services. The decline without growthin new assurance services concludes in 2004with accounting and auditing personnel con-stituting a relatively small segment of totalfirm personnel, down from a majority in 1990.

The growth in personnel from growth inassurance services has a basis in estimatesof the revenue potential of new assuranceservices. The estimates were prepared by theSpecial Committee on Assurance Services.As table 3 shows, the potential revenue fromthe six new services that were the subject ofbusiness plans, and are under development bythe AICPA's Assurance Services ExecutiveCommittee, is between seven and 20 billiondollars. Potential revenue from other new as-surance services would be in addition.

CONCLUSIONThe accounting profession is responding

to challenges. To use the biological meta-phor, it is evolving by adapting to the changesin its environment. But this is not a classicexample of Darwinian natural selection,where those with lucky genes survive best andbecome the new type. We're asking questionsabout our environment and devising new waysof prospering from the answers. We'll get goodanswers to those questions faster from coop-eration between the academic and practitio-ner branches of the profession. The same coop-eration can help us translate those answersinto profitable services and recall the dayswhen accounting firms and departments wereenjoying rapid growth together.

The historical part of the graph is estimated hasedon publicly available data. The projected part as-sumes consulting revenues grow at a modest 10 per-cent per year (the compound annual growth rate forthe period 1990 to 1996, even though such growth hasrecently accelerated) and assurance services grow at10 percent per year (compared to a 20 percent poten-tial, if all of the identified opportunities in table 3are realized over the period).


FIGURE 5Accounting and Auditing Professionals in Large CPA Firms

100%

50%

0%

With growth inassurance services

Witti nogrowth inassurance.services'

1990 1997 2004

TABLE3Potential Revenue from Six New Assurance Services

ServiceRisk assessmentPerformance measuresSystems qualityElderCareElectronic commerceHealth careTotal

High1112117

($ billions)Low

232733

20

REFERENCESAmerican Accounting Association (AAA), Committee on the Future Structure, Content, and Scope of

Accounting Education (the Bedford Committee). 1986. Future accounting education: Preparingfor the expanding profession. Issues in Accounting Education (Spring): 168-195.

American Institute of Certified Public Accountants (AICPA), Special Committee on Assurance Ser-vices. 1997. Report of the special committee on assurance services, www.aicpa.org/assurance/index.htm.

Documents

AICPA Special Committee on Assurance Services. Assurance ...raw.rutgers.edu/docs/Elliott/12Assuranceservise opportImplicfor acad.pdf · Robert K. Elliott Robert K. Elliott is Partner