Job Seekers Want To Know: Why a CPA may trump an MBA

By: Tracy Levine, Principal, Advantage Talent Inc.

Every other week The Renaissance Executive Transition Forum, composed of top Executives who are highly educated and highly accomplished, meet for networking and peer mentorship.  In recent months the topic of how some Senior Financial Job Descriptions have changed has brought about much debate.  Job Descriptions for many Finance positions are now including the following:  “CPA required or preferred.”  Other job openings even include experience with a “Big 4”  or Large Regional Public Accounting firm required.

As one recent ex-public company executive shared with the group, it doesn’t make sense that a job I have done for over 20 years, may be out of reach.  The most outraged and stunned are the Senior Executives that have earned an MBA.

These Executives argue their case vigorously.

“I’ve done this job for years which should make a CPA irrelevant.”

“I have an MBA with solid work experience which should be at least equal to a CPA with experience.”

“Requiring a CPA is a way to promote age discrimination.”

“If I could just get around the ‘dumb’ HR Managers and/or Recruiters to a real ‘educated’ person, the lack of the CPA would be a nonissue.”

Several people who do not have a CPA have in the past held and done exceptional jobs as internal accountants, assistant controllers, controllers and chief financial officers.  These same candidates could continue to do fabulous jobs but the world economic paradigm has shifted.  The U.S. has just experienced the worst economic downturn since the Great Depression.  American’s want the gatekeepers to have accountability.  Regulatory Authorities, such as, the Securities and Exchange Commission, the FDIC and the IRS are busier than ever.  Accountability and measurable expertise has become a key concept in today’s economy.

Meet the new Rock Stars: Certified Public Accounts (CPA)

Certified Public Accountants (CPA) muscling in on MBAs

Meet the new Rock Stars: CPAEarning an MBA is a very significant accomplishment.  However, in today’s economic reality an MBA is not always viewed as an equivalent to a CPA.  A CPA in several instances is getting paid more than an MBA.  If a person has a JD and a CPA or an MBA and a CPA, they have the “Willie Wonka Golden Ticket”.  Getting an undergraduate accounting degree coupled with a CPA License takes as much time and work as earning an MBA.  The current requirement is 5 years of undergraduate classes.  After graduation, the person has to pass a 4 part exam and complete a one year apprenticeship to obtain their CPA License.  And while both the MBA and the CPA continue to gain real world experience, only the CPA continues to take classes for Continuing Professional Education (CPE) credit to supplement their real world experience.  The CPA cannot keep their license active if they do not take CPE Classes.  A CPA License is not just a piece of paper, as many non-CPA Senior Financial Executives argue, anymore than an MBA is just a piece of paper.  Both are only earned through hard work.

Why does all of this matter? Changes in Corporate Governance

In a past blog, I wrote about how the switch to IFRS will affect corporate governance.   Under the final rules the Securities and Exchange Commission makes it clear that just because someone was already serving on an Audit Committee did not mean they could automatically be grandfathered in as the Audit Committee Financial Expert in IFRS Accounting.  It further states that the fact that a person has experience as a public accountant or auditor, a principal financial officer, controller or principal accounting officer or experience in a similar position would not, by itself, justify the board of directors in deeming the person to be an Audit Committee Financial expert. (http://www.sec.gov/rules/final/33-8177.htm)

Just like the Audit Committee Financial Expert, Senior Financial Executives may not get to be grandfathered in as the experts when all eyes are on GAAP, IFRS and corporate accounting.  Some Boards may take the position that it is of great relevance for a company to hire someone with a CPA and public accounting experience.  As the old adage goes, “Nobody was ever fired for buying IBM.”  Even though it has been assumed the rule only applies to the auditors, any accountant filing a report with the Securities and Exchange Commission (SEC) is required by law to be a Certified Public Accountant (CPA).  This may include senior level accountants working for or on behalf of public companies that are registered with the SEC.  Technically the assistant controller, the controller and the CFO are all involved in the accounting, the creating and filing of the financial reports that are submitted to the SEC.

Shareholders are now quicker to sue Board Members for any financial missteps.  Regulators are becoming more aggressive.  The Board is not and will not be able to continue business as usual.  A litigious environment coupled with aggressive regulator investigations does have an effect on the way the Board views the Finance and Accounting Executives being hired by the Corporation.  Therefore, Senior Financial Executives should not find it shocking that the Board may prefer to hire candidates with a CPA and “Big 4” or large public accounting experience.

The Senior Financial Executive’s are correct that their job encompasses more than accounting.  However, Corporate Boards and Chief Executive Officers are very aware that the shareholders, the regulators and the general public are not in a happy or forgiving mood.   Shareholders feel like they were blindsided by the massive banking and corporate failures over the past couple of years.  Both Shareholders and Regulators want Senior Financial Executives to provide financials that are accurate and provide transparency into the health of a corporation.  Certified Public Accounts are viewed as the experts in providing what the shareholders and regulators are currently demanding.

Trends In Accounting Employment

By: Tracy Levine, President – Advantage Talent Inc. and Michael Levine, Principal – Advantage Talent Inc.

What have employment trends been like for the accounting industry in both Georgia and nationwide in past years?  Looking back to the period from 2003 through early 2008, the trend was very positive for accountants in both ‘Industry’ and ‘Public Accounting’.  In mid-2008, many companies in ‘Industry’ reduced their hiring appetite, but ‘Public Accounting’ firms were still scrambling to find accountants at all levels to ramp up for the upcoming Busy Season.  By February 2009 (only 7 months later), many of these same ‘Public Accounting’ firms were forced to lay people off due to lack of demand for their services. 

Over the past several years was there a shortage of experienced Accountants?  From 2004 to early 2008 there were some minor shortages in ‘Industry’ but ‘Public Accounting’ experienced a shortage of experienced candidates for their positions.

What’s the overall landscape of Accounting Employment?  Today, the employment environment for both ‘Industry’ and ‘Public Accounting’ is mixed.  Some companies and some firms are expanding and others are contracting.

How has the recession impacted employment in the Accounting industry?  Unemployment within ‘Public Accounting’ and ‘Industry’ has increased significantly during the last 2 years.  Many of the ‘Public Accounting’ firms have cut staff, and large numbers of accounting professionals from ‘Industry’ are between jobs and looking for work.  The first half of 2010 saw some modest improvement in the government and healthcare sectors, but employment in many sectors continued to decline throughout most of 2010.

How has it impacted education in the Accounting field? Are there fewer students?   The number of students majoring in accounting has been steadily growing.  In fact, according to the last AICPA survey, 2008 saw the largest number of graduates in history.  This trend is expected to continue.  The major problem is replacing the Accounting Ph.D. Professors.  They are retiring in large numbers.  The current economy may help this problem.  Many of the new graduates who did not get hired continued their education.   The AICPA has a fund to help students who wish to continue their education and earn an Accounting Ph.D.

Are fewer people being certified as CPAs? Or is it just more difficult for those new to the profession to get jobs because of layoffs, consolidations, etc.?     Just like their peers, accounting graduates were affected by the bad economy.  According to a survey from the National Association of Colleges and Employers, only 19.7 percent of all 2009 graduates who applied for a job actually had one. 

The AICPA reported a significant drop in students sitting for the C.P.A. Exam when the exam was computerized that made it look like the number of students sitting for the exam had dropped 50%. The truth of the matter is there has been a small decrease. When the exam was given in paper form, if a student took the exam in May and November, they were many times counted twice. 

What’s in store for Accountants in the coming years?  We believe the demand for CPAs will be strong whether the economy improves or not.  New governmental healthcare/insurance regulations and Financial Reform regulations will require companies to put significant resources toward compliance.  International Financial Reporting Standards (IFRS) are scheduled to be implemented over the next few years. Some companies that have been putting off Merger and Acquisition activity or other transactions will get ‘back in the game’ at some point.  All of these activities represent good news for the accounting community because all of these issues create additional demand for CPAs.

Will employment numbers for Accountants (both in Georgia and nationally) increase again? If so, why?  According to the U.S. Department of Labor’s Bureau of Labor Statistics’ Occupational Outlook Handbook, employment for a number of accounting and finance specialties will rise as fast or faster than the average for all occupations in the coming years.  In fact, accounting was listed as one of the top 20 industries that would experience the most growth through 2018.  The MetLife Foundation and Civic Ventures, a think tank that focuses on baby boomers, predicts that a worker shortage could develop within 10 years as this group retires.  This will be particularly true for the Public Accounting Firms.  Many of the current Partners are part of the baby boomer generation.  Public Accounts at all levels will have more opportunities for positive career advancement as the top positions become available.  We have seen a huge pickup in hiring by Public Accounting Firms across the nation.  This trend should continue well into first quarter 2011.

Check out our National Public and Industry Accounting Jobs at http://www.advantagetalentinc.com/Job_Openings.html

Will IFRS Make CPAs a Requirement for SOX Compliant Boards?

By: Tracy Levine, President, Advantage Talent, Inc.

Most articles about IFRS have been technical in nature. The focus has been on what items will be accounted for differently under IFRS versus GAAP. Little attention has been given to how the switch to IFRS will affect corporate governance. While the SEC supports the switch to IFRS, they have expressed concern that the switch will cause a short term SOX compliance issue as it relates to financial experts on the audit committee. Under SOX at least one member of the Audit Committee must be defined as an Audit Committee Expert. The SEC defines an Audit Committee Financial expert as a person who has the following attributes:

An understanding of generally accepted accounting principles and financial statements;………………..Under the final rules, a person must have acquired such attributes through any one or more of the following:

(1) Education and experience as a principal financial officer, principal accounting officer, controller, public accountant or auditor or experience in one or more positions that involve the performance of similar functions;

(2) Experience actively supervising a principal financial officer, principal accounting officer, controller, public accountant, auditor or person performing similar functions;

(3) Experience overseeing or assessing the performance of companies or public accountants with respect to the preparation, auditing or evaluation of financial statements; or

(4) Other relevant experience.

Under the final rules the SEC makes it clear that just because someone was already serving on an Audit Committee did not mean they could automatically be grandfathered in as the Audit Committee Financial Expert. It further states that the fact that a person has experience as a public accountant or auditor, a principal financial officer, controller or principal accounting officer or experience in a similar position would not, by itself, justify the board of directors in deeming the person to be an Audit Committee Financial expert.

(http://www.sec.gov/rules/final/33-8177.htm)

The rules of the game are changing. An understanding of GAAP is no longer going to be the starting benchmark. IFRS knowledge is going to be the starting benchmark. Audit Committee Financial Experts familiar with IFRS are going to be in short supply. Very few financial experts have the prerequisite experience to qualify as the expert under SOX. One of the groups actively preparing for and educating their members about the switch to IFRS is Certified Public Accountants (CPA). Starting in 2011, the CPA Exam will include testing on IFRS. A CPA is required to finish a predetermined amount of Continuing Professional Education (CPE) each year to keep their licenses current. For the last couple of years they have been able to take numerous CPE Classes on IFRS. Putting a CPA with IFRS training on the Audit Committee may be one of the steps companies may have to take to protect themselves from litigation.

Shareholders have become very litigious. Many feel the gatekeepers have failed miserably and left the shareholders with diminished assets. The Security Police and Fire Professionals of America are suing Goldman Sachs and Morgan Stanley over large bonuses and losses sustained by investors. The Atlanta Firefighters’ Pension Fund is suing their custodian, Chicago-based Northern Trust, over risky investments. These are just a few examples of shareholders lashing out.  Corporate Boards run the risk of finding themselves the next group of gatekeepers subject to shareholder litigation. If the company loses money or fraud is discovered, shareholders might put forth litigation challenging the competence of the Audit Committee Expert, the Audit Committee members and of corporate decisions approved by audit committees who are alleged to have lacked the necessary competence.

The Securities and Exchange Commission is soliciting comments on this issue and several others related to IFRS and Corporate Governance. If you are interested in commenting on this issue, the SEC requests the following:

DATES: Comments should be received on or before October 18, 2010.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

•Use the Commission’s Internet comment form

(http://www.sec.gov/rules/other.shtml);

•Send an e-mail to rule-comments@sec.gov. Please include File Number 4-608 on the

subject line; or

•Use the Federal eRulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

•Send paper comments in triplicate to

Elizabeth M. Murphy, Secretary

Securities and Exchange Commission

100 F Street, NE

Washington, DC 20549–1090.

All submissions should refer to File No. 4-608. This file number should be included on the subject line if e-mail is used.

Click the following link to read about all of the Coporate Governance Issues being addressed by the SEC:   http://www.sec.gov/rules/other/2010/33-9134.pdf

Cost Cutting without Sacrificing Human Capital

In the current economy, corporations are asking Senior Management to take a closer look at the bottom line and cut costs.  This creates a koan for the CFO.  The dismal state of the economy has necessitated that corporations eliminate jobs for short term survival and economic health.  A global approach using cold hard numbers and math is the deciding factor on the percentage of jobs that have to be eliminated. 

A common concern among CFO’s is how do you keep from decimating and sacrificing the company’s human capital that will be needed when it is time to turn the company in a positive direction or to support growth when the economy rebounds.

Companies are taking the follow actions to reduce cost without sacrificing the human capital that they had already invested in developing.  The following were some of the steps being taken: 

1.) Reducing work week hours;

2.) Implementing partial month furloughs;

3.) Creating situations where employees can job share; and

4.) Reducing the pay of employees.   

These measures save money for the company while allowing the company to retain more of its human capital.  However, it creates a unique environment that management has to address.  Many employees just see these steps as a precursor to the next reduction in force.  Senior Management needs to clearly communicate their vision for the future of the company and how the employees are an integral part of this success.

Banks vs. other investors including Private Equity Groups and Public Shareholders

We are hearing the following from CFOs and Senior Fiancial Executives.

     Banks are still doing business but in a decidedly different manner than before.  This has created some rather unique situations.  Banks appear to be trying to be proactive and thoughtful in handling what seems to be the next inevitable bump in the road…..the rising corporate bankruptcy rates resulting in corporate loan defaults.

Banks vs. other investors including Private Equity Groups and Public Shareholders

     Many companies have several investors, the bank that provides the securitized loan; the Private Equity Groups who provided seed money along the way and the public shareholders.  Typically, the goals and objectives of these groups are in line with each other in the short run and in the long run.

 

     Most bank agreements contain language that states upon default/foreclosure, the bank has the legal right to replace senior management.  Typically, this standard clause is never executed before the banker pulls the line of credit or the bank, in corporate bankruptcy situations, as the primary creditor just liquidates a company’s assets to recoup money.  Banks are not in the business of running corporations.  In an apparent strategic move banks may decide in some instances that liquidation of assets is not an option because of the current state of the economy and a different strategy needs to be employed. 

 Scenario:

  • A bank may have issued credit to several companies in similar lines of business. 
  • One business seems to have weathered the storm better than their peers and is not currently in violation of the bank covenants and considering the environment seems very likely to be able to survive the economic downturn in the long run and eventually become profitable once again.  The senior management is solid.  However, unless some other source of money from another investor is infused into the company it looks like the company will within a short period of time be in violation of their loan covenants.
  • The second business has already breached their loan covenants and the loan is in default.

     The old ways may in some instances be passed over for a new strategy.  The banker is approaching the company that has strong management with an interesting proposition.   We know that you will probably break your loan covenants during the next quarter.  However, we feel comfortable with Management and want to make a proposal to you.   When the loan covenants are broken, we have the ability to pull your primary source of financing and/or fire everyone in Senior Management.  However, we will let you keep your loan and your job but with one catch.   We are going to be ousting the management of another business whose loan is in default and will be merging this business with your company, leaving you as the Management of the new entity.

     While this may be a proactive solution on the bankers’ side, it is not without side effects for Senior Management, private equity investors or public shareholders.   Senior Management is left to assess how to manage and merge two companies in a successful manner that does not derail the stability of their original business.  The private equity groups and shareholders are left with their investment significantly diminished, and a company unrecognizable when compared to the company they originally invested.  Only time will tell whether out of the box moves like this by bankers will be beneficial or harmful in the long run.

Bank Covenants and Senior Management:

     Most Banks have always viewed senior management as part of the mix when deciding whether or not to issue any type of corporate loan, securitized or non-securitized.  Now it seems that this informal review is becoming a bit more formal when it comes to small cap and mid cap companies.  It seems that some banks have already started, and others are going to be possibly following suit by adding the following line in loan agreements, “Firing the CFO other than for cause, triggers a loan default.” 

     The rational for this additional written covenant given to a CFO last week follows:  “Bankers have developed trust and confidence in the CFO that they will do the right thing in administering the credit agreement and in managing the business ethically.”  When the banker sees the CEO firing the CFO for reasons other than for cause, a huge “red flag” is raised.  From past experience this normally signals a change in what the bank signed up for when the loan was granted.

     One CFO who started off on the banking side explained that in bad times, numerous situations occur to cause more tension between the CEO and CFO.  In closely held public and private companies, independent of size, the CFO or Senior Financial person is put in the position of saying “no” to Management that is used to being able to keep their “sacred cow” departments, employees or perks or initiating any idea without regard to serious analysis of ROI (Return On Investment).  In difficult economic environments every allocation or use of a company’s assets are important to the company’s growth and/or survival.   In these types of showdowns, history shows the Senior Financial Executive is left to confront management and many times is forced to resign or is fired for “cost” cutting reasons.  In the perception of many bankers, particularly as it relates to small or mid cap companies, removing the CFO or Senior Financial Executive as a “cost” cutting measure or forced resignation is typically not considered a positive strategic business move and signals possible Senior Management problems that can lead to credit issues.

     Most Bankers consider the Senior Financial Executive, typically the CFO, an integral strategic and operations Executive, not someone who just gathers the numbers and publishes the reports.  A firing not based on cause, or forced resignation is interpreted as a sure sign that there is a disagreement related to the strategic and operating goals of the company among Senior Executive Management. This results in concerns on the banker’s part.

 

Corporate Cost Containment in Tough Economic Times

As the economy continues to create challenges for companies, many are searching for ways to cut cost. Included in the list that follows are some common and some not so common examples of what companies are telling us they are doing to survive and thrive:

• Reduce hiring and/or terminate underperformers

• Encourage employees to take pay cuts

• Find sublease tenants for underutilized properties

• Identify new sources of revenue

• Hire firms that specialize in cost containment strategy to help (logistics audits, telecom, etc.)

• Review all items on income statement and determine which need reduction/elimination

• Use zero based budgeting and determine ROI for each expenditure

• If you have a sourcing department, use them to pressure pricing concessions

• Create a ‘CFO Bounty’ to pay employees for identifying cost cutting ideas over certain thresholds

• Re-negotiate fees for Tax and Audit and Legal services, etc.

• Shift to a ‘pay for performance’ compensation model. Reduce base and increase commission/bonus where possible.

• Consider purchasing a company that is a supplier to you to reduce overall costs

• Elimination of 401K match

What are some of the steps your company is taking to deal with Cost Containment in the current economic environment?