June 2002

Council Increases AICPA Dues; Reviews Game Plan

Will Take Up Governance Issues in the Fall

NEW YORK—During its biannual meeting to discuss important initiatives, the American Institute of CPAs’ (AICPA) governing Council approved an 11 percent dues increase for its members, and shied away from discussion of the Institute’s failed global credential proposal.
Just prior to the May 20-22 meeting in Savannah, Ga., the Massachusetts Society of CPAs, seemingly concerned over an apparent disconnect between Council and AICPA membership, made a last-minute inquiry into Institute governance—an issue that Council said it would address at its fall meeting in Hawaii.

The dues increase, included as part of the 2002-03 budget that Council approved at the meeting, will become effective for the year beginning Aug. 1, 2002, and will be spread differently among the various membership categories. The greatest dollar increase is $30 and will affect CPA, law and consulting firm owners, and those employed in business and industry as an officer, CFO or CEO. Staff members and those employed in government or education will have a dues increase of $15. The dues of students, recent graduates, non-CPA section associates and AICPA associates (those awaiting certification) will not change.

A realignment of AICPA resources to meet the public and government relations challenges posed in the aftermath of Enron enabled the Institute to come close to meeting its budgeted $3 million budget deficit for the fiscal year ending July 31. The current forecast will result in the AICPA showing a $3.3 million deficit. Revenue from CPA2Biz is forecast to slightly exceed budget. Despite the deficit, AICPA reserve funds remain within the mandated 20 to 25 percent of annual revenue.

The approved budget for 2002-03 has an excess of operating expense over revenue of $400,000, which is more than made up by a $500,000 gain on investments. The budgeted bottom line, then, is $100,000 of net income.

CPA2Biz observers undoubtedly are interested in the impact of the portal on the AICPA’s financial condition. As a gross revenue category, the post-2000 budgeted item “portal revenue” largely replaces two pre-2001 items: “professional development revenue” and “publications/magazine/software revenue.” (See box.) When the three items are combined, gross revenue from these sources has declined from $63 million to $31 million from the 1999 to the 2003 budget, with the most precipitous drop occurring after CPA2Biz came on line.

These are gross income numbers and AICPA management is quick to note that the related costs also have been shifted to the portal.
The budgeted “cost of sales recovery” from the portal is $17.7 million. (See box.) Recognizing that the budget did not contain a complete set of financial statements with full disclosures, it appears that when combining the cost of sales recovery and portal revenue, which amounts to $46 million, either additional gross revenue of approximately $14 million has shifted to the portal or sales in that amount have fallen off between the 1999 and the 2003 budgets. The matter should become clearer after audited financial statements are issued following the Institute’s July 31 fiscal year-end.

Institute leadership placed the financial report and budget approval second to last on its agenda, by which time many Council members already had departed, prompting one of the remaining members to request that budget decisions be addressed earlier in future meetings.

The XYZ Affair and Council-Member Relations

Almost nothing was said throughout the meeting about the failed initiative to introduce a new broad-based business credential, also known as XYZ, which AICPA membership rejected by nearly 2 to 1 last December and which Council endorsed by more than 2-1 during its October 2001 meeting. The three-year, $5 million gambit to establish a new credential led some state societies and individual members to criticize the AICPA for not representing the interests of its membership, and has led to some concern in two state societies that are, in very different ways, raising governance issues.

The California Society of CPAs’ membership is moving to have Society-designated Council members be put to a membership vote. And, across the country, the Massachusetts Society of CPAs, in a May 8 letter to AICPA Chairman Jim Castellano, has asked that Council take several matters into consideration. “We are requesting that Council devote time to the study of its own role, what it is, what it should be,” the letter states, specifically asking whether Council serves as an advisory body or exists to decide major issues. The letter also asks whether Council members should vote the will of their state membership or their own beliefs. “Secondly, (Council should) discuss an effective way to collect and gauge members’ feedback so that the AICPA and its leadership are not put in an embarrassing position in the future,” the letter continues. Institute leadership responded by announcing during the Council meeting that they will devote time to governance at the fall Council meeting.

Irons in the Fire

Before approving the budget, Council members were briefed on a number of current AICPA initiatives. They appeared particularly impressed by recruitment efforts targeted toward high school and college students. In addition to its relationship with the Burly Bear television network for college students, the Institute has created a website at www.startheregoplaces.com for young people considering careers in accounting and business. The website contains an interactive game called bizzfun that challenges players to work their way to the top of a business venture. To date, approximately 10,500 people have registered with the site, the meeting revealed. The goal of both initiatives is to show students that a CPA career is more exciting and fulfilling than they might assume.

“The Institute’s efforts to bring the CPA profession to the attention of high school and college students is highly creative,” noted George T. Foundotos, a former New York State Society of CPAs president and a current Council member, of the Institute’s recruitment efforts. “Plans are to spend $5 million a year for five years; and, initially, it appears to me the money is being well spent.”

Castellano and AICPA President Barry Melancon briefed Council on the Institute’s extensive efforts to craft a piece of federal legislation in response to the Enron bankruptcy that could satisfy Congress’ concerns without seriously impairing the CPA profession. The AICPA actively supported the legislation introduced by Financial Services Committee Chairman Rep. Michael G. Oxley (R-Ohio), which the House of Representatives passed on April 25 and referred to the Senate.

Melancon and Castellano also reviewed a piece of legislation sponsored by Sen. Paul Sarbanes (D-Md.), who chairs the Banking, Housing, and Urban Affairs Committee, which proposes to take standards-setting authority away from the profession and introduce a number of new restrictions on public company audits. Castellano also reported that the General Accounting Office soon would release a number of questions and answers relating to the audit independence standards it issued on Jan. 25.

AICPA Finance Chair Michael B. Mountjoy, who also serves as a director of CPA2Biz, answered a number of the questions posed before the Council meeting by Council member and 2001-02 Society President Nancy Newman-Limata. The questions pertained to CPA2Biz’s recent merger with software producer RIVIO, which included a recent 400-to-1 stock split and the issuance of a new series of preferred stock. Mountjoy reported that the AICPA currently owns 52 percent of CPA2Biz, 45 percent on a fully diluted basis.

AICPA Board Member Michael Mares reported on the Ethics Committee’s current projects, many of which were under consideration before the Enron debacle, to strengthen the profession’s ethics enforcement process, criticized for its lack of transparency, timeliness and variety of disciplinary issues. Council later divided into eight groups to discuss the various proposals and to provide feedback on how to best address the issues.

John M. Nix, a Council member and member of the Business Performance Measures Task Force, and Edi Osborne, CEO of Mentor PLUS, introduced CPA Performance View, a new performance measurement service championed by the AICPA and CPA2Biz in the hopes that it will expand the CPA brand. Osborne’s firm developed a special training program for the new service. Performance measurement is one of the six services identified in the mid-90s by the Special Committee on Assurance Services as providing growth opportunities for CPAs. Other services included WebTrust and eldercare.

Other briefings included one by AICPA Senior Vice President Alan Anderson on the future of the reporting model and one on the status of international accounting standards by Aki Fujinuma, president of the International Federation of Accountants (IFAC).