At the American Accounting Association’s recent 100th annual meeting and conference, I addressed a topic familiar to CPA Journal readers: Can CPAs serve two masters, the client and the public? My fellow panelists included Steve Mintz, one of our profession’s great ethicists, whose article “From Analysis to Action” appeared in our August issue; Sri Ramamoorti, who co-wrote our March cover story, “Fraud Risk Models Lack Personality”; Tony Menendez, who blew the whistle on Halliburton’s revenue recognition fraud and paid dearly for it over a nine-year period; and Aaron Beame, co-founder and former CFO of Health South, who served time in federal prison for that company’s fraud. We’ll be sharing the panelists’ “behind-the-scenes” remarks on our website in the near future.
Many of us have devoted our lives to the highest ethical standards of being a CPA, viewing our public interest responsibility as inviolate. This has lead to constant tension between upholding our responsibilities and turning a profit, as astutely described by Vince Love in “Can Prof essionalism and Com mercial ism Coexist in CPA Firms?” (February 2015), which recently won our Max Block Award (see page 14). But the question remains unanswered: Can we serve both the client and the public? Are independence, objectivity, and judgment in service to our clients enough?
Perhaps a global perspective is needed. In 2000, it was estimated that 51 of the largest 100 economies in the world were not countries but multinational corporations (Jane Gleeson-White, Six Capitals, or Can Accountants Save the Planet?, W.W. Norton & Co., 2015, p. 105). In 2013, 2000 of the largest publicly listed companies employed 87 million people and generated approximately half of the world’s GDP. Have global multinational corporations grown too big to be regulated? (Or too big to be audited?) In this context, how can the incentives to serve one master, the public, be aligned with the demands of the other, the increasingly powerful global corporate client?
Maybe it’s time to redefine the client. The strongest argument in favor of doing so is that the myth of shareholder primacy has been dispelled. Prem Sikka of the University of Essex has noted that, in the United Kingdom, a shareholder owns stock for about 22 seconds [“The Myth of Shareholder Ownership,” British Accounting and Finance Association south east region conference, Sept. 25, 2014]. Arguably, CPAs’ obligation as fiduciaries ought to be to the stakeholders of an enterprise, the new publics, which include employees, customers, vendors, and suppliers, and communities, as well as creditors, debtors, bondholders, and investors.
Financial Planning Also Has Two Masters
This month’s focus is on financial planning. As I wrote in March (“What’s Wrong with Putting the Clients First?”), CPAs are the gold standard trusted advisor; a recent Pew survey, released by the AICPA, confirms that CPAs are the most trusted business professionals.
But not everyone who advises the public on financial matters follows this same standard. Some financial planners put their own self-interest before their client’s needs. I would argue that while financial planning is a natural practice extension for CPAs, we have an affirmative duty when practicing in this area to ensure the financial safety and security of the public in service to our clients.
Our Series on Lifecycle Planning
This month’s focus on the CPA as the first-choice provider of financial planning services throughout a client’s life is part of a larger series begun earlier this year. One of America’s premier financial planning experts, Sidney Kess, along with collaborators James R. Grimaldi and James A.J. Revels, shares his wisdom with “Tax and Financial Retirement Strategies” and “Buying and Selling a Home.” Each article contains client checklists to add more practice value.
Kess also writes our monthly Personal Financial Planning column with Edward Mendlowitz. This month’s column untangles the Gordian knot of professional financial advisors. The authors argue that CPAs should endorse the Department of Labor’s proposal that all financial advisors put their clients’ interests before their own profit.
When the demands of the profession’s two masters conflict, whom are we to serve? If our professionalism is to prevail, tough choices must be made. When it comes to financial planning, CPAs must not forget that our greatest reward—and our paramount duty—is providing financial security to all in the public interest.
The opinions expressed here are my own and do not reflect those of the NYSSCPA, its management, or its staff.