Accounting for Second Life.

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EXECUTIVE SUMMARY

* Second Life is a virtual world with education, public relations, and economic implications. CPA Island is the center of the public accounting profession in Second Life.

* At a minimum, CPA Island presents a creative communication medium to appeal to a new generation. This generation has grown up with high-speed Internet connectivity, instant messaging, and multiplayer online gaming.

* The spirit behind CPA Island goes beyond clearly demonstrating an awareness of the different skill set of this new generation. It embraces and celebrates these skills as important to the future of the accounting profession.

* The economic implications of Second Life are just now unfolding. Suspend disbelief, log on, and experience CPA Island and the other aspects of Second Life for yourself.

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Thanks to the pioneering efforts of the Maryland Association of Certified Public Accountants (MACPA) and Katz, Abosch, Windesheim, Gershman & Freedman PA (KAWG&F), a Maryland CPA firm, the public accounting profession has joined the ranks of leading corporations, organizations, universities and millions of individuals with a presence on Second Life (www.secondlife.com). Second what? Second Life is a virtual 3-D world on the Internet. Think. of it as the marriage of online video game technology and social networking tools, like MySpace and Facebook, with e-coramerce potential. It is not really a game and isn't intended for children. Public accounting's presence in Second Life is called CPA Island. CPA Island may be a way to attract the next generation of young professionals to careers in public accounting. (Figure 1 shows the welcome sign outside the MACPA headquarters on CPA Island in Second Life.)

In this article we introduce readers to Second Life via CPA Island and describe the emerging importance of Second Life to accountants, as it goes beyond recruiting and continuing professional education.

Second Life is just one example of emerging virtual worlds developing on the Internet that may be a catalyst for a new range of public accounting business opportunities. It has attracted mainstream business media attention, including coverage in BusinessWeek and The Wall Street Journal, and a CNN blog featuring stories about Second Life. The Reuters news agency has a bureau in Second Life. IBM, Pontiac, Toyota, H&R Block, Sears and many other corporate groups are found there. On the education front, Ohio University, Princeton University, and other universities have established virtual Second Life campuses.

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SECOND LIFE ORIGIN AND BASICS

An interesting folklore surrounds the origins of Second Life. A quick Google search indicates that the inspiration for Second Life is the science fiction novel Snow Crash, by Neal Stephenson, in which he coins the term "metaverse." The definition of metaverse can't be found in a paper dictionary,

but online Wikipedia describes it as "a user-defined world of general use in which people can interact, play, do business, and otherwise communicate" under its definition for Second Life.

Second Life was introduced in 2003 by Linden Research Inc. (also known as Linden Lab), a privately held corporation based in San Francisco. Accountants may recognize its Chairman of the Board Mitch Kapor, who developed the Lotus 1-2-3 spreadsheet in the 1980s. While Linden Lab owns Second Life, inhabitants design, build and own most everything in it using software tools provided by the company.

Free memberships in Second Life provide general citizenship rights, but paid memberships are required to own land and other objects. Humans are represented by animated characters, called avatars, that walk, fly, and teleport (instantly travel) through a rich geography with features that parallel our real world. Specific destinations are found either with a map searching feature or by entering the specific map coordinates. Basic avatars and names are selected during the initial signup and logon process, but most inhabitants choose to customize and accessorize their avatar appearance over time. Avatar communication takes place primarily through text chatting/instant messaging. Group presentations are made in Second Life with PowerPoint-like slide shows and streaming video. Voice communication was recently introduced, resulting in the birth of a new type of TV show broadcast in Second Life.

The concept can be difficult to grasp in an article. Videos more easily capture the look and feel of Second Life. YouTube (www.youtube.com) has a good introductory overview video of Second Life (search "Second Life Textl00") as well as a video that illustrates its communication, education and collaboration possibilities (search "Second Life Ohio University").

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Second Life is a global phenomenon. Reuters estimates that only 31.2% of active Second Life users are U.S. residents. The majority of active users (more than 54%) are from Europe. Second Life usage is so pervasive in Korea, for example, that it is beginning to impact the country's social agenda, according to virtual world expert Edward Castronova.

LIFE'S A BEACH ON CPA ISLAND

The Second Life Association of CPAs (SLACPA) is a virtual association for CPAs, educators and students from around the world. The SLACPA has more than 100 members including CPAS from across the United States, and at least one member from France. The group includes accounting educators, CPA firm administrators, a CPA firm COO, the CFO of Linden Lab, and accounting students. It is a network exploring the potential of virtual worlds, like Second Life, for real world accounting applications and networking.

To visit CPA Island, you first have to download and install the Second Life viewer on your computer and join Second Life" itself (see sidebar "Getting Started in Second Life"). Then join SLACPA with the "Group" option in the Second Life viewer menu (SLACPA membership is free, and you'll automatically receive CPA Island discussion and event updates). After joining, the easiest way to get to CPA Island is by entering the search term "CPA Island" in the Second Life map search box. This process pinpoints CPA Island on the map, and the "Teleport" button takes you there.

CPA Island is still evolving with new buildings, landscaping and other enhancements often appearing. If you visit during an unscheduled time, the island may be empty, and you can wander around at will. During a scheduled event, you'll find a lot more avatars, each representing a SLACPA member. For example, the MACPA is planning the Maryland Business & Accounting Expo conference June 17-18, "to be held concurrently (in the real world) and in the virtual world of Second Life and to offer CPE credit through a virtual classroom." (For additional information about this virtual session, visit www.journalofaccountancy.com.)

CPA Island has six main buildings with modem architecture that creates bright and inviting spaces. The MACPA headquarters building is shown in Figure 2. As you enter, you'll find a reception desk with a computer that links to www.cpa success.com, a MACPA Web site highlighting the efforts of "Maryland CPAs on the cutting edge of business strategy ..."

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A presentation area on the first floor shows a continuous PowerPoint presentation that describes aspects of the CPA profession including the MCPAs "CPA Vision Project" and typical public accounting career paths. Conference rooms and offices are on the second floor. The third floor has a video viewing room in which your avatar can watch an Apple Quicktime video, "Defining America's CPAs," made by the MACPA in association with the MCPA to highlight the variety of career opportunities in the CPA profession.

The second main building on CPA Island is the Business Learning Institute Conference Center and headquarters of the SLACPA. A computer on the reception desk provides a link to the "CPAs on Second Life" blog (www.slacpa.org), dedicated to "Exploring the possibilities of CPAs in Second Life and building a community of people interested in the CPA profession."

Figure 3 shows the entrance to the third main building on CPA Island, the Second Life headquarters of KAWG&E This real-life CPA firm (in practice more than 35 years) is the first U.S. CPA firm with an office in Second Life. Arlene Ciroula, COO of KAWG&F, says that "having this virtual office in Second Life provides KAWG&F with a unique way of connecting with both existing and potential clients, firm contacts and job seekers, while continuing to explore this emerging technology, environment and culture." A computer on the KAWG&F reception desk provides a link to its "real" Web site. A large tropical aquarium behind the reception desk accents the space.

"Three more buildings were recently added to CPA Island, including a meeting pavilion for New/Young Professionals, a CPA Firm of the Future Center, and the CFO of the Future Center," says Tom Hood, executive director of the MACPA. "These 'buildings' will serve as hubs for exhibits, resources, and community around specific areas of interest. Construction is under way for a Center for Strategic Planning and a virtual CPA TV studio."

CPA Island 2 is already under construction and available for a visit. It is envisioned as a more public island where anyone can visit without first joining the SLACPA. One of its main features will be an educator's pavilion. A few universities have already set up information kiosks with their logos and links to the accounting department Web pages.

WHAT ABOUT OTHER, CPA FIRMS AND ORGANIZATIONS?

According to Hood, CPA Island and CPA Island 2 are just a start. CPA Island has room for more CPA offices and other organizations and there are plans to link to any other accounting related "islands" or communities that appear. H&R Block has a Second Life Island on which it sponsors "Ask a Tax Adviser" nights.

Interestingly, the theme of the American Accounting Association 2007 annual meeting in Chicago was "Imagined Worlds of Accounting." At the conference, Robert Bloomfield, an accounting professor at Cornell University and director of its MBA program, moderated a panel discussion titled, "From the Lab to the Virtual World." He hosts a weekly speaker series broadcast in Second Life called "Metanomics," which is a study of business and policy in the metaverse of virtual worlds (www.johnson.cornell.edu/ faculty/profiles/Bloomfield). The videos provide a good demonstration of the "voice capability" recently added to Second Life (schedule and videos of archived shows available at http://meta nomics.net). In a recent interview for National Public Radio Weekend Edition (www.npr.org, Feb. 9, 08), Bloomfield described the basics of the Second Life economy and the real financial losses from the recent Second Life banking crisis. (The currency used for economic transactions in Second Life is called Linden Dollars. Linden Dollars can be exchanged for real U.S. dollars at a rate of approximately 260-to-1. Last year, Linden Lab banned online gambling operations that had become popular in Second Life. Early this year, Linden Lab banned unregulated banking operations in Second Life because several banks were reneging on unsustainable high interest rates on deposits.) Bloomfield attributes his initial interest in Second Life to its potential use as an economic simulator in which reactions to new financial regulations could be studied by FASB.

Professor Steven Hornik, of the University of Central Florida, is another accounting professor exploring accounting education applications. He created a Second Life location called Really Engaging Accounting and maintains a blog about his efforts at www.mydebitcredit.com. In his financial accounting course, he uses the social networking capabilities of Second Life and interactive 3-D objects that he creates. The objects demonstrate basic accounting principles. One simulates the effect of transactions on the basic accounting equation. Another simulates the use of T-accounts to record changes to account balances. Students use their avatars to manipulate the models. Videos of his Second Life creations are available on YouTube (search "second life accounting").

SUMMARY

Second Life is an immersive and engaging 3-D virtual world with economic implications and opportunities for the real world. CPA Island is the current center of the public accounting profession in Second Life, but this won't be the case for long as other CPA firms choose to use it as a tool for meeting, connecting, sharing and collaborating with others. Where business activity goes, it seems certain that CPAs will follow.

Virtual Economy

Linden Lab CFO John Zdanowski wrote about the Second Life economy in the August 2007 Technology Review (published by MIT and available at www.technologyreview.com by searching "Second Life Zdanowski"). The same search yields several articles that chronicle growing pains in the Second Life economy. These include gambling, a bank crisis and fraud allegations.

Getting Started in Second Life

Here's how to set up a Second Life account and create your own Second Life alter ego (known as an "avatar"):

* Visit the Second Life Web site (www.secondlife.com).

* Click "Join? (It is free.)

* Choose your Second Life name. Pick from a list of available last names and enter the first name of your choice. Be careful selecting your avatar's first and last name because it can't be changed. When entering Second Life for the first time, it is a good idea to visit one of the new member orientation sites to practice walking, flying and teleporting around the virtual world with your keyboard and mouse.

* Enter your birth date (for age verification). Enter your e-mail address.

* Select your avatar style.

* Enter your basic account information (real name and password).

* Activate your account by clicking on the link in an e-mail you will receive from Second Life.

* Download and install the Second Life program on your computer.

* Log on with your new avatar's name and your password.

Congratulations: You are now a part of the metaverse!

AICPA RESOURCES

JofA article "Host a Virtual Meeting," Feb. 05, page 66

OTHER RESOURCES

Publication Virtual Reality: The Revolutionary Technology of Computer-Generated Artificial Worlds-and How It Promises to Transform Society, Howard Rheingold, Summit Books, 1991.

Conference

Maryland Business & Accounting Expo, June 17-18, Baltimore, www.mdbizexpo.com

Richard A. Johnson, CPA, Ph.D., and Joyce M. Middleton, CPA, Ph.D., are professors of accounting at Frostburg State University's College of Business. Their e-mail addresses, respectively, are [e-mail] and [e-mail].