CPAs can bring order

Editor's note: The author is a member of the Public Company Accounting Oversight Board (PCAOB). The views expressed in this article are those of the author only and do not necessarily reflect the views of the PCAOB, other PCAOB members, or PCAOB staff.

Accountants have been innovators and problem-solvers since the beginning of civilization. The core function of the accounting profession has always been about discerning and reporting the truth, which can transcend chaos and lead to solutions. A good accountant can methodically decipher a complex problem such that it can be understood and solved.

The world faces increasingly complex global problems, including wars, public health issues, economic uncertainties, and climate change. We also have a trust problem.

The Edelman Trust Barometer, a worldwide survey on trust conducted annually since 2001, reported a crisis in trust in 2017, when the general population's trust in four key institutions — business, government, nongovernmental organizations (NGOs), and media — eroded to slightly above or below 50%, the point where distrust becomes prevalent. According to the survey, which polls more than 32,000 respondents from 28 countries, the average level of trust has improved since then but remains below 60% for NGOs, government, and media, the point above which trust prevails. While 63% of respondents said they trusted business in 2024, the survey found economic fears that became profound in 2023 persist. According to the 2023 survey, "People now fear for their economic future without a trust safety net. Only 40% of respondents say they and their families will be better off in five years, a 10-point decline from 2022."

The lack of trust destabilizes our ability to solve problems, as people cannot even agree on the nature and extent of the various problems. For example, corporations are increasingly wrestling with the need to account for intangible and indirect events that may have a positive or negative material effect on their finances.

All companies were affected by the COVID-19 pandemic, war, and climate change. Trying to translate these intangible events into financial numbers can be daunting but is necessary. Otherwise, no one can agree on the nature or extent of its impact. Consequently, no meaningful change can occur, and chaos, which breeds distrust, ensues. Who can help bring about order?

The profession needs a contemporary vision

Accounting in the modern era is a discipline that resides at the intersection of three domains — data, process, and finance, all of which are enabled by technology. (See the illustration, "The Intersection of Three Domains.")

The Corporate Finance Institute defines accounting as "the process of consolidating financial information to make it clear and understandable for all stakeholders and shareholders. The main goal of accounting is to record and report a company's financial transactions, financial performance, and cash flows." This definition focuses on the "what," not the "why."

Michael Kimbrough, area chair in accounting and information assurance at the University of Maryland, College Park, had a succinct characterization, saying that accounting is about "optimizing information for the intended use." Those six words reveal the "what" and the "why."

Imagine a world with no accountants — information would not be organized in a standardized and understandable fashion, users would not be able to trust the information, and, ultimately, this would lead to poor decision-making, including ineffective use of resources, bad investments, and disastrous policy setting.

Optimizing information for the intended use requires a multidisciplinary approach by applying expertise in:

1. Data: Humans have been creating, validating, analyzing, and interpreting data since the invention of writing. The "ordering" of data enables the extraction of insights for decision-making and problem-solving — skills that are at the heart of accounting.
2. Process: Accountants are trained to focus on internal controls and are often experts in understanding the underlying processes that create data and facilitate business transactions. Process enables repeatability, consistency, and predictability.
3. Finance: All problems and risks need to be consistently broken down and measured in terms of their financial impact. Accountants can translate these risks into comparable and trusted financial measures for strategic decision-making and problem-solving.

How to execute on the vision

Technology influences and enables the integration of the three aforementioned domain areas. In other words, technology is essential for helping accountants bring order to a disorderly world and build trust in the problem-solving process.

For example, accountants can use artificial intelligence (AI) to process and analyze data at unprecedented speeds. Innovative technologies, such as process mining, help accountants analyze and validate processes efficiently and automatedly. AI can also be used to automate processes, predict risks, and detect fraud.

The accounting profession is at a pivotal moment, given the precarious trust environment, rapid technology advancement, and talent shortages. We can either maintain the status quo and risk becoming irrelevant, or we can be bold and lead the way in solving complex problems by using the most important skill all accountants are trained to have — understanding the data to discern the truth. To realize this bold vision, we need every accounting practitioner to drive changes in this profession.

Specifically, collaborative and consistent effort is required in five main sectors:

• Corporate (audit committee chairs/members and directors/CFOs/controllers/internal auditors): Focus on (1) driving data standards within each company and across the industry when feasible; (2) driving innovation to automate routine tasks and increase productivity; and (3) engaging stakeholders publicly when breaking down problems and making data-driven decisions to the extent possible.

• Public accounting (firm leadership): Adopt data-centric audit approaches and use technology to improve audit quality; train staff to be thinkers and problem-solvers in addition to being task executors.

• Academia (accounting faculty members): Develop accounting students' data analytic skills and technology aptitude. Publish more research on the accounting profession's contribution of novel ideas for using data and technology to improve financial reporting and auditing.

• Government (financial executives): Commit to a data-centric and user-centered approach when developing and operating new financial management programs. Implement data-driven initiatives to improve efficiency and effectiveness of government programs.

• Regulators/standard setters: Proactively develop feasible and cost-effective policies and standards that help enable the responsible use of rapidly evolving technology within the accounting and auditing professions.

It will take time to turn this vision into reality, but collectively this profession has the ingenuity, influence, and intellect to make it materialize. I look forward to the day when accountants are innately regarded as decoders of complex problems, arbiters of facts, cultivators of order and solutions, and, ultimately, trust builders.

— C. Christina Ho, CPA, is a member of the Public Company Accounting Oversight Board in Washington, D.C.