CPA profession, from a variety of perspectives, as it approaches the new millennium.
Eli Mason remains active as the senior partner in Mason & Company LLP, a firm he founded more than 50 years ago. He is in the office most business days, interacting with his partners and keeping up-to-date on developments in the firm and the profession. He has been an active participant in the profession for his entire career. He was president of the New York State Society of Certified Public Accountants for its 1972/73 year. He also served as vice president and council member of the AICPA.
What's on his mind is now evident in his writing for Accounting Today. Many of today's institutions are not safe from his reproach. He is critical of the industrialization of the practice of public accountancy, the dominance of large firms, and the AICPA's failure to act with authority on these developments.
on the profession. The last thing he would think of doing is leaving it.
The CPA Journal: You have become known as a critic of the accounting profession. At what point did you realize that some of your observations went against the grain of the establishment?
Eli Mason: While I was in college, there was a highly publicized audit failure involving a pharmaceutical firm, McKesson & Robbins, which motivated an intense examination of auditing procedures. Everyone asked, "How could this happen?" After graduation, I wrote an article in 1940 entitled "Audit the Auditor" and submitted it to the Journal of Accountancy--it was rejected. Perhaps that was the beginning of my quest.
CPAJ: But the world did not yet know Eli Mason. When did you first begin to have a noticeable impact on what was happening?
Mason: It may have been at about the time that my firm joined an association of medium-sized firms--it had representatives in most of the major U.S. cities. I became aware of discrimination in the marketplace against using medium-sized firms for certain engagements that they were perfectly capable of doing. The most notable example was the pressure placed on clients seeking to raise capital with a securities offering to use the major accounting firms for their audits in SEC filings. I felt that this was unfair, unjustified, and detrimental to the growth of firms as well as to the profession.
Shortly thereafter, as president of the New York State Society of CPAs, I appointed a committee to study the extent of discrimination against and displacement of local firms. The committee sent questionnaires to investment bankers and brokerage firms asking if they discriminated against local firms.
CPAJ: And of course they all replied that they do not discriminate.
Mason: Yes, but they continued the practice. The result is that, today, 95% of companies listed on the New York Stock Exchange are audited by the Big Five.
CPAJ: But what, if anything, can be done about that? Is that a major weakness in our capital market system?
Mason: I think it has led to an unhealthy bifurcation of the profession into the large firms, which do most of the SEC work, and the rest of the profession. There are those that claim that audit services are a "loss leader" to attract clients for consulting work.
As state society president, I designated a quality review task force to provide a type of peer review for society members. It was very successful and preceded the AICPA peer review program by five years.
CPAJ: With consolidation of the largest firms from eight to now five, it is surprising that the second-tier firms have not grown larger and prospered more. But, in fact, they appear to be less a factor than they were a few years ago. Is the market saying it prefers dealing with the Big Five?
Mason: The managing partner of a second tier firm told me of an incident involving a public company client and a proposal from a Big Five firm to do the same work his firm was doing, but at a substantially lower fee. The common name for that procedure is lowballing. I think the second-tier firms are just unable to compete with the Big Five firms, even though they are qualified to do the work, just as many of the larger local firms are.
CPAJ: Should and can anything be done? Whose job is it to fix this?
Mason: I'm not optimistic, but the responsibility rests with the institutions of the profession--the AICPA and the various state societies. Over the years attempts have been made, even a suggestion for rotation of auditors, but the big have grown bigger.
CPAJ: What are some of the positive developments in the profession over the years of your involvement?
Mason: Public accounting can result in some of the most rewarding lifetime experiences, including contact with wonderful individuals--partners, staff, clients, and other professionals. It provides a spectacular opportunity for social and intellectual interaction. It can also be financially rewarding, beyond what many expect. I know that there are many local practitioners whose incomes compare favorably with the income of partners in major firms.
As an example of the opportunity to meet and get to know other fine professionals, I think of my work over the years with SEC-filing companies. I obtained my first SEC client in 1951 as a result of completing a special investigation for a group of shareholders. From that point on, whenever I had a question on an SEC matter that I could not answer, or did not feel comfortable with my own answer, I would speak to or even meet with the chief accountant of the SEC. As a result, I came to know many outstanding chief accountants, including one of the greatest--John C. (Sandy) Burton.
CPAJ: Are there some aspects of your service in the profession for which you are particularly proud?
Mason: Yes, there are. One example took place in 1968, when Robert M. Trueblood was AICPA president (now chair) and a proposal was made to AICPA Council to eliminate the prohibition against competitive bidding. I proposed an amendment to the motion, in effect saying that a firm could not submit a "bid" that was so low that the time represented by the fee would not have permitted the firm to meet professional standards. AICPA counsel said my motion would violate antitrust statutes, which caused the defeat of my amendment. At the banquet that evening, a number of important council members told me that they agreed with me--and I still believe I was right.
The next year, Mr. Trueblood, as chair of the nominating committee, submitted my name in nomination to be a vice president of the AICPA. I believe he agreed with me.
I am also proud of my service at the NYSSCPA, ultimately becoming its president, and of my 10 years of service on the New York State Board for Public Accountancy, including two years as its chair.
When I was president of the NYSSCPA's Foundation for Accounting Education in 1974, I thought we should have an annual business show. There was opposition from those that felt it would be unprofessional and from those that believed it would not be profitable. I persisted, and the first annual business show in 1974 turned a profit and has done so ever since. I am pleased that the 1999 show was held at the Jacob Javits Convention Center.
CPAJ: Being the founder and now senior partner in your own firm has given you the freedom to participate in the profession in a variety of ways, for as long as you care to do so.
Mason: Participation in the profession was extremely rewarding for me. I was willing and able, with the support of my partners, to devote the time to professional service. Perhaps, if I had been working for others, it might not have been possible for me to do as much as I did.
There is also something to be said about being an individual practitioner: You are your own boss, no orders from above. You can go into the office on Sundays for an hour to catch up. You can work into your 60s, 70s, or even 80s--it keeps you young and on your toes.
CPAJ: What about some of the negatives over the years? You have mentioned one--the dominance of the large firms in auditing public companies. Are there others?
Mason: I am not pleased by the consolidation that is taking place. It saddens me, because some of the firms that have "merged," or some would say "sold out," didn't need to do so. Some of the most successful firms in major U.S. cities have made deals with the consolidators. To me, this reflects a kind of weakness. Successful firms should be able to operate on a professionally satisfying basis. The only reason the managements of firms deal with consolidators is financial.
CPAJ: What if Mr. Smith of John Doe Tax & Business Services called you and said: "Eli, we want to expand our practice in the widget sector, and your practice in that area would help us do that. Can I come over and talk?"
Mason: You lose your identity, you lose your self-pride, and, in a sense, you disappear professionally.
CPAJ: But you may make a lot more money.
Mason: I'm not so sure. The consolidators are in it for a reasonable return and will be shrewd negotiators. And, besides, in my small firm--three partners and perhaps 25 staff--I am completely unimpeded in my daily chores. My tax partner, with whom I have been associated for 46 years, also enjoys his independence.
CPAJ: What is wrong with what the consolidators are doing? What about the users of their services? Will they continue to be properly served?
Mason: The consolidators are basically looking for client names and addresses in order to sell them securities, life insurance, and perhaps even business equipment. That is not the practice of public accounting.
CPAJ: But those working on the accounting practice side are not expected to sell those things. It's the people in related companies that are expert in those areas that do the selling.
Mason: To me it's no different than when a practitioner enters into a relationship with a securities broker or insurance agent and then gets commissions or fees for business he or she refers. CPAs should not seek or receive commissions from stockbrokers, computer companies, or anyone else. The practice of public accounting has sufficient rewards without having to resort to that kind of activity.
CPAJ: Have other developments taken a toll on the standing of the profession?
Mason: I view with amusement the idea that CPAs should become consultants to their clients. That is a vacuous and misleading thought because CPAs have always been consultants to their clients. A smart CPA always conferred with his or her client as to the results of operations and prospects for the future. The CPA has always been the most qualified to advise, for example, on which business equipment to use. In my early days it was the Monroe calculator. Today, it is the computer network. Tomorrow, who knows what it will be?
CPAJ: Will there be a Mason & Company tomorrow?
Mason: I hope and believe there will always be small and medium-sized firms. The media says that college students are choosing Wall Street over public accounting. That is not a happy prospect. The profession needs a strong public relations push since in big cities, small towns, and villages there will always be businesses that will prefer the personal contact and attention provided by a local practitioner.
CPAJ: You're not ready to give it up. Might there be a time when you are ready to cash out?
Mason: Retirement for me is not a desirable prospect. So many friends that have retired to warmer climates suffer from four ailments: arthritis, bursitis, golfitis, and scotchitis. Leading a meaningful life at any age is far more important than yielding to the seduction of a retirement with little exercise of your mental faculties.
CPAJ: The AICPA Vision Process, which was completed this past year, concluded that there will be a demand for the services of the CPA, based upon the profession's core values and core competencies.
Mason: I have always had an aversion to buzzwords such as "core values" and "vision." The Vision Process focuses on the state of the world in 2011. I'm more interested in today, six months from now, or a year from now.
CPAJ: If you could change the AICPA today to enable it to better serve its members or the public, how would you do it?
Mason: The AICPA is a funny animal today. Less than 40% of its members are in public practice. A large portion of that group are partners and staff at the largest firms. Many local practitioners are not pleased with the direction the AICPA is taking. The president of the AICPA and, for that matter, the executive directors of the state societies, should hold frequent meetings where local practitioners can freely express their viewpoints and make suggestions.
CPAJ: Are you thinking of a town-meeting format?
Mason: Town meetings would be excellent because many of the officials of these organizations live in an ivory tower and are not always in touch with their members. Many local practitioners around the country are not heard from.
CPAJ: Is that why associations like the National Conference of CPA Practitioners were formed? You were very much involved at the creation of NCCPAP, were you not?
Mason: Eighteen members of the AICPA sued the Institute in 1977 because AICPA Council approved the formation of the Division for CPA Firms with two sections--the SEC Practice Section and the Private Companies Practice Section--without referring the matter to a vote of the members. The 18 plaintiffs lost in a lower court and did not have the resources for an appeal.
I mailed 50 letters to friends throughout the country to attend a meeting in Washington, D.C., during January 1979. All 50 appeared during a raging snowstorm; the chair of the House Small Business Committee addressed our luncheon meeting. After lunch, the 50 agreed to form NCCPAP, which has become a very successful champion of the local CPA firm.
CPAJ: If you could change the profession to make it better for those in it and the users of its services, what would you change?
*	No more full-page ads in the New York Times or Wall Street Journal containing blurbs of self-praise.
*	No more solicitation of other firms' clients.
*	On occasion, the major firms should recommend the next level of firms to some of their clients.
*	Auditing is the highest form of practice and service to the public, and there should be no shortcuts in the conduct of an audit.
*	As one of my heroes in the profession, Philip Defliese, once said, "The heads of the major firms should be technicians, not marketeers."
*	CPAs are smarter than some of our leaders think. They do not need pontification; rather, our leaders should ask them for advice, counsel, and direction.
CPAJ: What do you think about the third edition of the Uniform Accountancy Act, developed by the AICPA and NASBA, which is currently being considered as the basis for modifying accountancy acts in many of the 54 jurisdictions?
Mason: A main objective of the new version is to promote the concept of substantial equivalency among all the jurisdictions to facilitate the movement of CPAs from jurisdiction to jurisdiction. That is highly desirable. However, the act contains startling errors in judgment. First, the new experience requirement would allow work performed outside of a CPA firm to qualify. That is absurd.
Second, licensed CPAs need only constitute a simple majority of the owners of a firm in order to qualify as a "CPA firm." To call a firm with 49% non-CPA ownership a CPA firm is deceptive and harmful to the public.
My third objection, which I have had for years, is to the 150-hour education requirement to sit for the exam. That equates to five years of college, which at today's tuition rates is an exorbitant burden. Many students, especially minorities and the disadvantaged, do not have the resources for the additional, and I consider unnecessary, courses. Those wishing to earn a master's degree should, of course, be encouraged to do so. This requirement, on top of the declining number of students taking accounting courses, makes no sense.
I also object to the UAA notion that compilation reports are an attest service. The compilation report explicitly states that no assurance is given. How can it be called an attest service? This was done to prevent unlicensed accountants from offering this service. But to put a fundamentally flawed technical rule into the act for political purposes is wrong. I hope that the authors of the UAA will rescind this portion of the act.
CPAJ: The whole purpose of calling compilations an attest service is to restrict that service to CPA firms.
Mason: That is the wrong way to do it. Look at the mess that has been created in Florida. Now they have a fourth level of service called an assembly. Next we will have a fifth level called a "Punch-and-Judy" report.
CPAJ: What do you think about the general level of professionalism and performance of the profession?
Mason: A disturbing development is the apparent lack of shame we seem to observe in the face of recent audit failures. SEC Chair Arthur Levitt has spoken out against "cookie jar" reserves and manipulation of bottom line results to meet Wall Street expectations. I am also troubled by the need for action by the SEC against accounting firms for making loans to officers of clients. More recently the SEC has disciplined firms where partners owned shares in clients or had pension plans invest in clients. Is this behavior a result of ignorance or arrogance?
When J.S. Seidman was chair of the AICPA, the AICPA had a rule that a small percentage ownership of stock in a client would be permitted under the independence rules. The SEC did not like that rule then, and it does not take any countenance in that concept today.
CPAJ: Do we have leaders in the profession of the caliber of those in the past that you often refer to? Or put another way, do we have the caliber of leadership that we need to move us forward into the next millennium?
Mason: I find it difficult to cite leaders at the national level right now. I am impressed with some of the members of the state boards of public accountancy. An example is Princy Harrison of the Mississippi state board. She has the courage and wisdom to speak out on the issues.
CPAJ: Are there places and opportunities for highly motivated people with good judgment to move into leadership positions and guide the profession into the future?
Mason: I believe you will find people and opportunities at the state level--at state societies and state boards of accountancy. I am not giving up on the accounting profession. I come to the office every day, and I enjoy tremendously the interplay with partners, staff, clients, and the associations of the profession.
CPAJ: On a personal note, how do you practice public accounting without eyesight?
Mason: I think of Doug Sprague's favorite expression (Doug preceded me as president of the NYSSCPA): "You learn to live with it." I am a very orderly person. I know where every paper is located on my desk. I walk the hallways of my office at a good pace, because I am aware of every right angle. I have supportive partners, and I have a wonderful wife who reads The CPA Journal to me after dinner.
Eli Mason trained in a medium-sized firm from 1941 to 1943. He received an honorable discharge from the Signal Corps in 1943 because of a sight problem and became controller of a defense plant located in the Bronx, where he served until 1945. He received his CPA certificate in 1943 and joined the New York State Society of CPAs in 1944. He was immediately appointed to the professional conduct committee.
Mason started his own firm in 1946, with two clients. He wrote a monthly newsletter and made cold calls to bank officers. He was also active in the NYSSCPA, on committees, and after serving in the usual officer positions became president in 1972. He was appointed to the New York State Board for Public Accountancy in 1972 and served for 10 years, the last two as chair.