The stock purchase turned out to be a lucrative one for Melancon. His initial investment of $100,000 of his own money grew to about $5 million as of March 2002, according to a report in The New York Times. Still, sources defend Melancon's actions at CPA2Biz, asserting that it wasn't his idea to purchase stock in the for-profit business. They claim he invested his own money in the portal because other investors wanted to know that he was personally committed to making the venture work.
"They asked him to invest so that the deal would go forward, and he did," explains Linda Dunbar, director of public relations for the AICPA. (Editor's note: In preparing this story, CFO.com requested interviews with Melancon, AICPA chairman William Ezzell, or any other AICPA member who could talk about these issues. The AICPA provided access to Ezzell, and Dunbar supplied answers to written questions.)
Others saw Melancon's involvement at CPA2Biz in a different light. The stock deal "created the perception that AICPA management had engaged in self-enrichment at the expense of the organization's membership," according to a recent paper on CPA2Biz written by William E. Shafer and Dwight Owsen and published in the Journal of Business Ethics.
Within the CPA community itself, that perception has spawned questions about Melancon's ability to continue to lead the institute. "That [Melancon's stock purchase in CPA2Biz] was something that shouldn't have been done," said Bruce Rosen, a lead audit partner of Eisner LLP and a member of the AICPA's SEC practice section executive committee. "I don't know if that issue is grounds for [Melancon] stepping down, but it's not something I'd want my leader to do."
Unseemly
Apparently, others agree. Citing broader concerns about having a for-profit venture under the AICPA umbrella, Jeffrey Hoops, president of the 30,000-member New York State Society of Certified Public Accountants, also says his group doubted the propriety of Melancon's deal.
While Melancon's defenders point out that the stock purchase was perfectly legal, detractors say the deal just didn't look good — particularly at a time when corporate executives were getting hammered for similar arrangements. As accountant Freedman argues, "Your independence is governed not only by fact, but by appearance."
Eventually, the AICPA chief responded to the criticism. According to Dunbar, Melancon's investment "turned out to be a distraction and took focus away from the merits of [CPA2Biz] and its benefits to members." Thus, last July, Melancon and other AICPA executives donated their shares to the organization's charitable and educational foundation. When asked if the AICPA executives received tax deductions for their charitable contributions, Dunbar termed the issue "a personal matter."
But the dumping of Melancon's holdings in CPA2Biz has not put an end to the controversy surrounding the for-profit startup. Among other CPA2Biz-related challenges, the AICPA has to defend itself against a lawsuit filed in 2000 by BDO Seidman, a non-Big Four accountancy. Management at the Chicago-based firm claim that AICPA and some of the state accounting societies have, through CPA2Biz, leveraged "monopoly power" to unfairly compete with BDO Seidman's own services business.
One alleged unfairness: By supplying a link to the CPA2Biz Web site on the AICPA site, the institute is using its non-profit role as a provider of auditing standards to bring in business to its for-profit spinoff. The suit, filed in U.S. District Court for the Southern District of New York, is "still alive," according to Scott Univer, BDO Seidman's general counsel.
The AICPA asserts that there is no basis for the suit. In fact, Dunbar insists that CPA2Biz does not unfairly compete against the institute's own members, but rather "serves our members' interests."
Nevertheless, the institute has cut back on it holdings in the venture, reducing its original 90 percent stake to a current 54 percent, on a diluted basis. (Last year, the company underwent a 400-1 stock split.) For this year, AICPA expects the spin-off to get close to breaking even. Further, current AICPA chairman William Ezzell claims the big losses CPA2Biz endured were largely expected.
But Ezzell does concede that the prospects for CPA2Biz remain uncertain. "It's not out of the woods, we're not saying it's a home run yet," he grants. "The jury's still out."
Standards at Half-Staff
The jury is also out on whether the AICPA will have much say about the setting of audit industry standards. In April, the PCAOB issued a stunning statement, announcing that it would not delegate audit standards-setting to AICPA. Instead, the SEC-governed board would take on the job itself.
In a later move, the accounting oversight board adopted the AICPA's generally accepted auditing standards. But it did so on an interim basis. During the next few months, the PCAOB will review the standards and make decisions about whether to keep, change, or jettison them.
That represents a dramatic shift in the setting of standards for the audit industry. Instead of holding sway over the process, the AICPA will have to take a place in line with others applying for a role in advising the PCAOB.
Admittedly, the institute starts out with a certain advantage over other would-be advisers to the new board. "It's virtually impossible to have a standards-setting process completely divorced [from the] profession," says the PCAOB's Niemeier. "We do see the AICPA certainly as being a voice for the profession."
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