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chair's corner.

The New Economy can be dated from the invention and subsequent miniaturization of the semi-conductor, resulting in cheap and abundant information. This information dramatically improves coordination in virtually every facet of our lives:

* Political power has shifted from governments to citizens--with a worldwide outbreak of democracy and market economies.

* Military power has flowed from the brutally strong to the technology savvy.

* Well-informed markets better allocate resources--reducing waste and increasing wealth.

* Consumers have seized power from producers--improving quality, usability and customer satisfaction.

These forces have radically reshaped companies, markets and countries--in other words, the world we now live in.

Now consider our own neighborhood. A shift of power from producers of financial information (CPAs) to consumers (managers and investors) forces us to rethink our own marketplace. The situation can be simplified graphically (see figure). The business information value chain starts with business events and ends with wealth-creating decisions. Higher activities (running a company) are exponentially more valuable than lower ones (data entry). CPAs are licensed to attest to financial statements--the middle of the value chain--though we certainly do far more than just the job that we're licensed to do! Market forces (technology and customer demands, as reflected in our Vision and the "XYZ" designation project) are pushing us up the chain while regulatory forces would confine us to the licensed function.

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These conflicting forces are typical in regulated industries. Market forces, rooted in technology, make old regulations obsolete. They can be repealed or modernized to the benefit of economic progress (cf. transportation, telecommunications and financial services), or they can be left in place or made more rigid, even without evidence or demonstrable cause, leaving industries less adaptable and therefore vulnerable to obsolescence.

Existing regulatory regimes originated in the industrial era. For example, the core laws enforced by the SEC were written two-thirds of a century ago--before the digital computer, the Internet, online securities trading, and the effective globalization of the capital markets. Such changes demand innovation, but antiquated regulations hinder it.

The accounting profession is now at a crucial point in its history: Which of the opposing forces will prevail? Will regulatory forces prevail and reduce us effectively to statutory auditors? Will market forces prevail and open vast new economic potential for our profession? Or will the forces stalemate, leaving us in a protracted conflict?

The question is crucial to all CPAs, whether in industry, government, education, practice firms that audit SEC registrants, or practice firms that don't audit SEC registrants. Regulatory constriction of one member segment will ultimately cramp all.

CPAs need to understand the dynamics of this situation--the parlous inflection point at which we find ourselves, and the necessity for coordinated and forceful action to modernize regulation so we can seize the market opportunities. If we succeed, we will better serve the public interest and bequeath to our successors a profession strengthened, ennobled and invigorated rather than enervated, demoralized and diminished.

relliott@kpmg.com

Robert K. Elliott, CPA Chair, AICPA Board of Directors
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Title Annotation:Robert K. Elliott on accountancy profession
Author:Elliott, Robert K.
Publication:CPA Letter
Article Type:Brief Article
Geographic Code:1USA
Date:Sep 1, 2000
Words:496
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