VideoBack in 1995 — back when Barry Melancon took over as the president and CEO of the American Institute of Certified Public Accountants — even current critics had kind words for the chief defender of the audit industry. Mitchell Freedman, one of the 22 founders of a new group called CPAs Reforming Our Profession, recalls being "avidly in support" of the rookie AICPA chief. "He was a fresh face with new ideas," Freedman remembers.
Melancon got off to a promising start. In the early days of his tenure at the 116-year old institute, the AICPA head eagerly pushed members to expand their professional horizons beyond mere auditing and tax consulting. As Allan Koltin, president of Practice Development Institute, recounts: "He advanced concepts with accountants about being more than bean counters."
It seemed like a smart move. At the time, auditing was fast becoming a loss leader for many accounting firms, and the computer had turned tax advice into a commodity business. Melancon, say industry-watchers, wanted bookkeepers to provide a much broader array of services. The goal? To turn accountants into strategic business advisers, some say.
Under Melancon's aegis, AICPA leaders pushed for a new, unregulated "XYZ" credential offered globally and focused on strategic issues. Along with such ambitions came an expanded notion of what the institute, which boasts 333,000 members, should actually be. "Until [Melancon] came to the AICPA they were a rudderless ship, with no vision, no direction," remembers Koltin. "Members viewed [the AICPA] as a way to get continuing education credit and life insurance."
Then came the late 1990s economic boom, which seemed to fuel even greater ambitions at the powerful industry group. In the spirit of those times, Melancon and other AICPA leaders hatched the idea of spinning off a for-profit Web portal, eventually known as CPA2Biz.
Using the portal, the AICPA could peddle software and training tools, as well as products offered by other vendors. (Editor's note: CFO.com has an ongoing business relationship with CPA2Biz.) Launched in 2001, CPA2Biz's gold-plated list of investors included Microsoft and Thomson, which ponied up $50 million between them.
These days, CPA2Biz's prospects — and those of the AICPA — are decidedly less heady. All of a sudden, the vision thing looks shortsighted. The XYZ credential, which was eventually voted down by 67 percent of the AICPA membership, remains a continuing source of bad blood among those who saw it as a threat to the more rigorous CPA brand. The once-lauded idea of expanding the service offerings of auditors now seems, to some, more like a threat to the independence of those auditors.
And then there's CPA2Biz, which has proven to be something of a millstone for the AICPA. The for-profit venture of the not-for-profit association has lost tons of money — $80 million in net losses as of last July — and much prestige. The AICPA has paid an especially dear price in bad press for Melancon's purchase of CPA2Biz stock at an insider's price.
Indeed, the AICPA now appears to be a professional organization in search of an identity. The recent string of high-profile corporate accounting scandals — Enron, WorldCom, Rite Aid, and the like — has not exactly burnished the image of the accounting industry. Neither has the demise of bellwether firm Arthur Andersen, nor the scores of lawsuits filed by corporate clients and shareholders against the remaining Big Four accounting firms.
Moreover, a new — and well-connected — rival has appeared on the scene. Last year, as per the mandate of the Sarbanes-Oxley Act of 2002, the Securities and Exchange Commission created the Public Company Accounting Oversight Board. The mandate of the PCAOB: to oversee the audit industry.
In April, the board put itself in a position to do that in the most direct way. In a surprise move, the fledgling oversight body announced that it would not "designate or recognize any professional group of accountants to propose standards." While agreeing to use the AICPA's standards on an interim basis, the PCAOB basically stripped the institute of its long-held role as the arbiter of standards for the audit industry.
Why? Hard to say for sure. But clearly, in a post-Enron, post-WorldCom, post-Andersen world, the notion that the accounting industry can effectively regulate itself has fallen into disfavor — particularly on Capitol Hill. "[The AICPA] was the voice of the profession and the profession was viewed as a whole [as] not being able to regulate itself," says Charles Niemeier, a member of the PCAOB. "And that's why PCAOB was created."
As the voice of the voice of the profession, Melancon himself has become a prime target of critics of the accounting profession — and of a fair number of opponents within the AICPA itself. Freedman is hardly alone when he says, "I think it's time for Barry to step down."
Growing the Business
The business and ethical questions that have beset the institute's involvement with CPA2Biz have been the most visible of AICPA's woes. Yet the AICPA governing council's decision in 2000 to allow Melancon to buy CPA2Biz stock at a low price was very much in keeping with the executive-retention practices of those times. (In the fiscal year ending July 2002, the AICPA paid its CEO $747,000 in salary and contributed about $214,000 to his benefit plan — a 22 percent raise that came on top of 32 percent hike the year before.)
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