Accounting education; response to corporate scandals: helping the profession find opportunity in crisis.

EXECUTIVE SUMMARY

* IN THE WAKE OF THE CORPORATE SCANDALS CAUSED by Enron, WorldCom and others, the CPA profession has taken numerous steps to turn crisis into opportunity. In particular colleges, universities and their accounting faculties have changed their course offerings and other aspects of the accounting program to better equip students to cope with the ethical challenges of the accounting profession.

* AVAILABLE DATA SUGGEST ENROLLMENT IN accounting programs around the country is stable and there was no immediate exodus of students following the scandals. Individual schools have addressed the new professional environment head on with new course offerings, real-life case studies, increased emphasis on ethics and guest speakers at seminars and lectures.

* ACCOUNTING INSTRUCTORS SAY THE SCANDALS have helped them emphasize to students the importance of accounting. The attitudes of students themselves have not changed significantly in the postscandal period. In general, the more students knew about what had taken place the more positive their attitude toward accounting.

* TO CAPITALIZE ON THESE CHANGES, SCHOOLS NEED to make introductory courses more relevant to the current business climate to encourage more students to major in accounting, instructors need to offer students at all levels the opportunity to explore the social, political and ethical implications of accounting decisions.

* AS STUDENTS GRADUATE AND TAKE JOBS IN INDUSTRY or public practice, employers need to reinforce the ethics lessons students learn in school in the workplace. This can be done through employer-sponsored ethics workshops and by making it clear that CPAs are free to raise questions when they suspect possible wrongdoing.

Let's play a game of word association. Read the term in bold type and say the first word that pops into your head.

Crisis

What did you come up with? If you're from a Far Eastern culture, you might have a different answer. In Chinese the symbol for crisis is actually composed of two symbols. The first is for "danger." The second is for "opportunity." Was opportunity the word you thought of?

Why did we undertake the above exercise, and what does it have to do with accounting? In the wake of Enron, WorldCom and other corporate scandals, crisis is a word that has been closely associated with the accounting profession. Although these incidents had a devastating effect on peoples' lives, there also is a positive chapter to this story. In fact this crisis presents an opportunity for the profession.

This article examines the response by accounting educators--and others--in the years since the scandals first broke. It looks at changes in course offerings, administrative actions and student attitudes toward accounting to help educators refine their academic programs to take maxi mum advantage of the opportunities the crisis presents and help all CPAs understand how they can contribute to the positive changes.

REGULATORY AND PROFESSIONAL RESPONSE

The reaction to the crisis at the regulatory, professional and industry levels has been well-documented. The Sarbanes-Oxley Act of 2002 and the flurry of rules the SEC implemented to enforce the act's provisions evidenced the regulatory response. Many regard current U.S. standards as among the toughest corporate governance rules in the world. The issuance of professional standards for accounting and auditing is but one component of the accounting profession's response. CPAs have heard calls for change from the profession's leaders. The cooperative spirit in working with the newly formed Public Company Accounting Oversight Board (PCAOB) is evidence of substantive reform. Within industry the response is embodied in the significant resources companies have committed to implement the provisions of Sarbanes-Oxley. Section 404 of the act, requiring an external auditor's report on management's assertions about internal controls, has prompted publicly traded companies to pay more attention to these matters than ever before.

WHAT EDUCATORS DID

Although the academic response to the corporate scandals has garnered less attention, there are questions of fundamental importance to the future of the accounting profession. How are leading universities responding? Are student views of the profession changing? Has the publicity surrounding the scandals sent danger signals to students, or is it a message of opportunity?

Enrollment data provide a quantitative answer to some of these questions. Data from the 2001 to 2002 academic year suggest stable enrollment in accounting programs across the country. In 2002 the majority of schools were predicting enrollment increases for both bachelor's and master's programs for 2004. This is particularly encouraging considering the number of ac counting graduates declined by 27% from 1995 through 2002. It also demonstrates that there was no immediate exodus from accounting programs as the scandals broke, as many had feared. The more telling statistics will be published in forthcoming AICPA reports as students gain a deeper understanding of the implications of the past three years for the profession.

Discussions with accounting program leaders suggest enrollment may have increased from 2002 to 2003. David W. Wright, faculty director of the master in accounting program at the University of Michigan, refers to the corporate scandals in describing the record enrollment in the most recent class: "By every measure our master's program is flourishing-if not because of, then at least in spite of, the tumultuous times in which we live." Several schools reported similarly significant enrollment increases.

To further gauge the academic response, we requested newsletters published and information on new course offerings since the scandals from each of the 89 schools that grant doctorate degrees in accounting in the United States. The intent was to obtain anecdotal evidence of the academic response to the corporate upheaval. We received information from 26 schools and examined the Web sites of most of the schools that did not send a response.

Clearly, many of the schools recognized an opportunity for growth in their response to the scandals. Of the 26 newsletters we reviewed, 11 made some mention of the postscandal accounting environment. Most highlighted changes to the curriculum. Tom Linsmeier, department chair at Michigan State University, expressed the central theme of this article when he wrote, "Each challenge can be looked at as a problem or an opportunity ... [We] are well poised to make the challenges of today opportunities for our students and alumni."

Shahrokh M. Saudagaran, dean of the Milgard School of Business at the University of Washington--Tacoma, offered guidance on how accounting education should respond to the opportunity: "I hope the current problems will motivate us to move from a debits and credits approach to an accounting education that focuses not only on technical rules but also on producing competent individuals with a functioning moral compass." Mort Pincus, chairman of the accounting department at the University of Iowa, mentioned these specific actions in response to the ongoing events involving the accounting profession: establishing an accounting orientation seminar session focusing on ethics and the honor code; introducing case studies and writing assignments involving fraud in upper-level undergraduate and MBA classes; adding business law classes focusing on SEC rules and the professional code; and inviting nationally known speakers to deliver lectures on Sarbanes-Oxley.

Michigan State's Linsmeier wrote, "We are offering three new courses next year as a result of comprehensive review and revision of our undergraduate and master's accounting curricula, the singular purpose for which is to better prepare our students to serve the business profession." Adding new courses was one of the most consistent, observable responses to the scandals. Most of the new offerings were related to fraud detection, corporate governance and ethics. Exhibit 1, below, shows some of the courses schools have added to their accounting degree programs. Most schools also created special topic courses with the flexibility to incorporate subjects of current interest to students and the profession. Many of these classes provide ongoing coverage of the corporate accounting scandals and the professional and regulatory response to them.

Institutions most often left decisions about how to incorporate coverage of the scandals to individual instructors. Some schools undertook a comprehensive review of the curriculum at the departmental level. For example, the University of Texas did such a review and found every accounting course included business responsibility and ethics issues.

Several schools featured speakers to address the topic at seminars, banquets or lecture series. In inviting Cynthia Cooper, vice-president of internal audit at WorldCom and Time's 2002 per son of the year, Silvia Madeo, director of the J.M. Tull School of Accounting at the University of Georgia, recognized the significance of this type of personal interaction at what she called "this time of renewed emphasis on ethics and integrity in accounting."

Other speakers schools invited included Robert Herdman, SEC chief accountant; Lynn Turner, former SEC chief accountant; other influential regulators; key executives involved in Sarbanes-Oxley implementation at publicly traded companies; and an Arthur Andersen employee who refused to shred documents and testified at the firm's trial. These and many other speakers have helped establish the relevance and importance of classroom experiences related to ethics and corporate responsibility.

Further analysis of newsletters and Web sites also revealed that many classes have added special projects and units dealing with scandal-related issues. Wright of the University of Michigan wrote: "Our courses will, of course, adapt to the times ... The specific accounting failures at Enron, WorldCom and other high profile cases will work their way into the curriculum. However, even more influential is the renewed interest among our students in ethics; the fundamentals of financial reporting practices and the relations of clients, auditors, consultants and analysts; earnings management; and the reliance of the capital market on financial reports." As this commentary shows, perhaps the most significant academic response is that a dialogue has opened in classrooms on how- to prevent future scandals.

INSTRUCTORS' VIEWS

What effect is all of this classroom and extracurricular attention having on students? We looked at this issue using two methods. First, the anecdotal perceptions of instructors suggested students in the postscandal environment have a greater appreciation for the importance of accounting. Second, we reported the results of our own research project where we gathered data on student perceptions of accounting before and after the scandals broke.

Anecdotal reports from instructors suggested the scandals have helped emphasize the importance of accounting. This may be especially relevant to introductory accounting courses, where motivating students always has been a struggle.

With regular news reports on the personal losses that resulted from accounting impropriety, students seemed to have a better understanding of the discipline's importance. After describing the changes he had observed in his graduate-level introductory accounting course, Don Finn, a professor at the University of Arkansas, wrote, "Having taught that particular class off and on for the past 20 years, I have never had a class that was more dedicated to learning." Wright expressed a similar view: "In some respects, the tumultuous events of the last year may simply mean we have their eyes and ears open in ways we never did before." Students with open eyes and ears and renewed dedication to learning present a tremendous opportunity for accounting educators. How they respond could have a lasting effect on the profession and the lives of those who rely on its work.

STUDENT ATTITUDES

Also contributing to our understanding of the student reaction to the scandals are the results of a research project involving attitudes toward accounting among nonaccounting majors. Business students who are not majoring in accounting typically must take at least one, and often two, introductory accounting courses. They generally do not rate accounting as their favorite subject. Using a five-point scale, the study surveyed accounting students about their attitudes toward accounting on each of the following dimensions: boring to interesting, unimportant to important, irrelevant to relevant, worthless to valuable, useless to useful and meaningless to meaningful.

We began collecting data in August 2000 before the scandals broke and again surveyed prescandal student attitudes in January and August 2001. We gathered 448 responses from nonaccounting majors during this time period. Because the Enron and WorldCom news was emerging in the fall of 2001 and the spring and summer of 2002, we excluded data from this period from the analysis.

We gathered 257 surveys in fall 2002 to measure attitudes following the accounting scandals. We also asked these students to complete a survey to determine their familiarity with what had occurred. This instrument contained nine questions--three each on Enron, WorldCom and Sarbanes-Oxley.

The results of the study suggested that, as a whole, the scandals did not have a significant negative effect on the attitudes of nonaccounting majors toward the profession. In fact, the more knowledgeable students were about the accounting scandals, the more positive their attitudes toward accounting. Specifically, students who answered at least half of the detailed questions about the scandals correctly had significantly more positive attitudes toward accounting than those who did not. These results, shown in exhibit 2, page 64, suggested that open communication and straight talk of the type referenced in the anecdotes above could improve student attitudes.

WHERE DO WE GO FROM HERE?

Now that we've had a glimpse into how academics and students have responded to the crisis, what lessons are there for both academicians and practicing CPAs? Many schools saw the opportunity to open a dialogue with students through new course offerings, projects, seminars and lectures. Given that more informed students appear to view the profession more favorably, schools that have yet to respond need to assess their programs to ensure they take advantage of the opportunity and are in step with current trends.

Schools may wish to examine the content of every accounting course, as the University of Texas did, to ensure they include ethics issues where appropriate. Colleges might con rider adding courses like those listed in exhibit 1. Alternatively, they can sponsor ethics lectures or ask Beta Alpha Psi and other student groups to invite speakers who focus their lectures on ethics and the failures resulting from inappropriate conduct. Every school doesn't need to do the same thing but most need to do something.

If students who generally are not interested in accounting now find it more attractive and meaningful, accounting programs can capitalize on these feelings. By making introductory courses more relevant vis-a-vis the current business climate, schools may encourage more students to major in accounting and hold the interest of those who already have said it will be their major. Professors should give students in upper-level accounting classes the opportunity to apply their knowledge of the scandals through critical-thinking exercises that encourage them to explore the economic, social, political and ethical implications of accounting decisions.

CPAs in industry or public practice must reinforce the ethics lessons students learn in school in the workplace, through firm- or employer-sponsored workshops and seminars on ethics and by maintaining a workplace environment that fosters an ethical climate like the one students are taught about in the classroom. For auditors, required discussions about fraud per Statement on Auditing Standards no. 99, Consideration of Fraud in a Financial Statement Audit, may present a good opportunity to extend the dialogue. Finally, practicing CPAs and educators must continue to seek out opportunities for collaboration that will enrich the academic experience.

A LOOK TO THE FUTURE

The crisis the accounting profession went through truly has become an opportunity upon which academia and the corporate world can capitalize with substantive course and curriculum change and increased interaction to reduce the likelihood of this kind of problem in the future. Accounting graduates should receive instruction that improves their knowledge of publicized frauds and promotes increased awareness of the antecedents and indicators of fraud as well as the appropriate actions to take when faced with ethical dilemmas. They should be able to recognize ethics issues and make the tough choices necessary to respond in an appropriate manner when they encounter problems as professionals.

Sarbanes-Oxley and SAS no. 99 were designed to significantly change corporate governance and equip auditors with the tools to detect fraud. To make them effective, however, businesses, including CPA firms and their clients, must embrace the spirit of the guidance as well as the letter of the law. Corporate employees and accounting firm staff must feel free to raise questions when they are unsure or suspect possible wrongdoing. Employers must be willing to follow through when such questions are raised. It's imperative to avoid the head-in-the-sand syndrome. Although greed and the ability of some individuals to rationalize fraud never will disappear, the severity of their actions can be reduced if academia is successful in giving students the necessary awareness and if the accounting profession is serious about ensuring integrity in financial reporting.

Exhibit 1: Selected Courses Related to Corporate Accounting
Scandals

School                      Course Title

University of Maryland      Ethics and Professionalism in Accounting
Michigan State
  University                Accounting for Multiunit Enterprises;
                            Contemporary Financial Reporting Decisions;
                            Corporate Governance and Accounting Control
Tulane University
  (Louisiana)               Ethics in Accounting and Finance
University of Kansas        Fraud Examination and Forensic Accounting *
Louisiana State
  University                Fraud Auditing and Forensic Accounting *
Case Western Reserve
  University (Ohio)         Fraud and Financial Reporting *
Florida International
  University                Fraud Examination *
SUNY--Buffalo (New York)
Mississippi State
  University
University of Kentucky

* More than 200 colleges have fraud-related courses. These are
presented as a sample.

Exhibit 2: Student Attitudes Toward Accounting

Students were asked to rate their feelings about accounting on a scale
of 1 to 5. For example, in the first item, 1.0 would be boring, 3.0
neutral and 5.0 interesting.

                                              Not
                                         Knowledgeable   Knowledgeable
                            Prescandal    Postscandal     Postscandal

                            (N = 448)      (N = 184)       (N = 72)

Boring to interesting          2.63          2.72           2.95 *
Unimportant to important       4.26          4.24            4.33
Irrelevant to relevant         4.10          4.06           4.29 *
Worthless to valuable          4.26          4.17           4.33 *
Useless to useful              4.22          4.12           4.40 *
Meaningless to meaningful      4.01          3.96           4.15 *

* Difference from not knowledgeable is statistically significant.

PRACTICAL TIPS TO REMEMBER

* For instructors. Be proactive in bringing ethics discussions into classes. Look for current examples in the daily paper and recent magazine articles. Many textbook publishers provide support that identifies and discusses news items related to topics included in the text. Use the ethics cases and illustrations in the text to emphasize the ethical dimensions of technical material. Avoid thinking that ethics is the topic you will cover only if time permits.

* For accounting program administrators. Review curriculum with faculty to see whether changes are needed in the form of new or revised courses. Determine what's being done in the classroom in each course. Ensure that what is shown in the syllabus in terms of ethics is, in fact, being implemented. Support faculty who seek to develop materials and competency in ethics-based instruction.

* For students. In addition to learning the technical requirements of the profession, try to develop an appreciation for the moral and ethical dimensions and consequences of accounting decisions. Take an active role in classroom ethics discussions. Ask questions and voice your opinion when you don't agree with what's been said. Stay abreast of the news of the day and look for its connection to the material you are learning in accounting and business courses.

* For practitioners. Maintain a workplace environment that encourages staff members to raise questions about transactions, statements or situations that are unclear, problematic or questionable. Pursue questionable situations to the ultimate satisfaction of all concerned. Actively seek opportunities to enhance academic programs through interaction with students and faculty. Help improve student understanding of ethical issues by participating in speaking engagements, partnering with faculty in case study development, providing internships and supporting academic research.

AICPA RESOURCE

The AICPA Antifraud Resource Center includes a section called "Integrating Fraud Education Into the Accounting Curriculum" at www.aicpa.org/antifraud/ educators_students/integrate_curriculum/homepage.htm. It offers educators the resources they need to develop stand-alone fraud courses and integrate fraud awareness into existing accounting programs. The fraud education integration matrix offers a framework for studying the subject. There also are fraud course components and examples, presentation materials on fraud for classroom use and insights into accessing fraud research.

PIERRE L. TITARD, CPA, PhD, is associate professor of accounting at Southeastern Louisiana University, Hammond. His e-mail address is [e-mail]. ROBERT L. BRAUN, PhD, CIA, is associate professor of accounting at Southeastern Louisiana University. His e-mail address is [e-mail]. MICHAEL J. MEYER, CPA, DBA, is assistant professor of accounting at the University of New Orleans. His e-mail address is [e-mail].