Bob Tarola has a point. 

Last week, I attended the AICPA Regional Council meeting with our Maryland delegation. Maryland is well represented with two AICPA board members (Carter Heim and Lisa Cines) and one at-large council member (Robert Tarola, pictured in the middle), plus our designated and elected representatives (Lou Satchell; Ed Rommel, pictured at left; Tami Bensky; Al DeLeon, pictured at right; and Kimberly Ellison-Taylor).

At that meeting, I had a chance to catch up with our volunteer leaders and we had a good discussion about a topic that is extremely relevant in light of the recent financial scandals and auditing issues. The question is: Why is the emphasis on corporate and accounting scandals always focused almost solely on the auditors? What about the preparers?

The point is that you cannot “audit in” the quality of financial reporting. There should be a renewed emphasis on the competency and qualifications of financial preparers — CFOs, CAOs, controllers, etc. — in addition to the focus on auditors. The people who are the first line of defense in understanding and reporting on the financial and economic affairs of the business have as much or more obligation to the public interest than the auditors that check on them … or do they?

The SEC’s new sign-offs required by Sarbanes-Oxley and the requirement that a financial expert serve on public company boards are a good first step, according to Tarola, but do they cover accounting expertise? And what about the public interest?

That was the subject of our conversation while in New York. It is also covered in Bob’s whitepaper, CPAs Can Be the Backbone of the Financial Reporting System. Bob makes the point that having demonstrated accounting expertise and the responsibility to protect the public interest that accompanies a CPA license may be an idea that can add one more layer of protection in the financial reporting process. He should know; he has been on both sides of the financial reporting process, as an auditor and as a preparer. Bob is the retired CFO of W.R. Grace and former audit partner at PricewaterhouseCoopers.

I agree with Bob and want to emphasize two key points that having a CPA license adds:

1. It is based on a uniform national CPA exam that tests practical competencies in accounting and auditing.
2. It is a license issued by states with an additional obligation to protect the public interest. That is very different from other credentials that do not include the additonal responsibility of a state granting you the rights, privileges and obligations that go with licensure.

Wouldn’t it be nice if either the chief accounting officer or the chief financial officer certifying financial statements to the SEC was a licensed CPA? This would add one more element of oversight and responsibility to the public interest to the financial reporting process. It also is not the first time this idea has surfaced.

Funny how I was re-reading the MACPA‘s 2002 Accounting Reform Task Force (of which Bob was a member) whitepaper as I was prepping for a presentation I am giving on corporate and accounting scandals to accounting students at Salisbury University later this week. In it, I found the same recommendations. Our blue ribbon task force had these as two of our major suggestions for restoring public trust in financial reporting :

1. Have the principal accounting officer and principal auditor in corporations be currently licensed CPAs where possible.
2. Include an outside CPA on the audit committee to provide financial accounting and auditing expertise.

Even Financial Executives International included this concept in its recommendations during the Enron-WorldCom scandals of 2002. In its paper titled, Improving Financial Management, Financial Reporting and Corporate Governance, the FEI made a recommendation that “the principal accounting officer should be a licensed public accountant or possess equivalent knowledge and experience, and should be current and knowledgeable in the understanding of GAAP and the SEC’s rules and regulations governing the preparation and audit of financial statements.”

It reminds me of our ad, “Your doctor is certified. Your lawyer is certified. Shouldn’t your accountant (CFO or CAO) be certified?”

• Read Bob Tarola’s whitepaper and tell me what you think.
• See CPAs commit to protecting the public interest at the official swearing-in ceremony in Maryland.
• See Bob’s interview during our CPA road show in which he talks about a career as a CPA.
• Read the MACPA’s accounting reform white paper.