The CPA Vision Project and AFTF
By Humphrey Nash
(Should be read with CPA Vision Report)
The CPA Vision Statement is an excellent analysis of where CPAs
are now and where they should be in the future. It also suggests, in
general terms, how CPAs might make the journey into the future. AFTF
stands for Accounting For The Future, the title of a draft
proposal for a prospective account model. This draft proposal was
written by Humphrey Nash and is a biased, naïve, and inadequately
researched analysis of where CPAs are now and where they should be in
the future. Despite its deficiencies, it provides a somewhat similar
vision of accounting. More important, it charts a specific course of
action that may help accounting make its journey into the future. AFTF
does this by providing fundamental theory, reliable methodology and
feasible structures for accounting. It can, I believe, significantly
enhance the value of the CPA and significantly expand the opportunities
for the CPA.
Initial Vision Statement
It is stated that "CPAs deliver value by:
1. Communicating the total picture with clarity and objectivity,
2. Translating complex information into critical knowledge,
3. Anticipating and creating opportunities, and
4. Designing pathways which translate vision into reality."
This is a fine statement of purpose, but it doesn't represent what
accountants do today. Of course, this is the purpose of a vision
statement … to change and improve upon what is done today.
The following comments outline some areas where CPAs will have
difficulty fulfilling their vision and some solutions to those
1. GAAP accounting is incomplete and does not communicate the total
picture. GAAP accounting does not recognize "accounting
intangibles" which translate into future values. These values are
real and have a value in the present, which is well recognized outside
of financial reporting, for example, in the capital markets. See the
section The Problem of Completeness in Chapter 3 of AFTF. The
draft proposal outlines a solution.
2. The critical knowledge for the shareholder, and by extension for
management and stock analysts, is shareholder value. GAAP accounting
does not attempt to report shareholder value. The vision statement
repeatedly refers to value, but current developments seem to be
heading in the wrong direction. The Model of Business Reporting
(MOBR) that the FASB Business Reporting Project is now considering is
a regressive step. It proposes adding significantly more detail and
complexity to financial presentations. It translates information into
data! Accounting has a duty to process information and produce
positive value. See Appendix 10, Comments on the AICPA Report of
3. A retrospective (cost-based) accounting model is inferior to a prospective
at anticipating and creating future opportunities for clients or for
CPAs. AFTF outlines a decision-useful, value-creating accounting
model. This model unifies all accounting and would expand and enhance
the current role of the CPA.
4. Creating a pathway to the future requires a prospective view.
Accounting intangibles are the dominant values for the future. AFTF
incorporates intangibles into expected cash flows and into present
values. The old path of accounting only for tangibles and only for the
past doesn't lead to the future.
The Vision Statement mentions "sound business and economic
practices". Business practices and economic values have not been a
feature of traditional accounting, but they are a feature of AFTF which
adopts those practices and values.
I agree that the good news is the great opportunities available for
accountants. The bad news is that "The future will not mirror the
past" and that a change of perspective and a new accounting model
is needed. Change is uncomfortable; the alternative may be fatal.
Caution: I think it may be a mistake to cast accountants or CPAs as the
visionaries or strategists of the future. Accountants would do well to
stick to their traditional roles of providing a defined service
function. For one thing, the business world is much too complex for any
single profession to do everything. Second, management has a legitimate
role in providing vision and strategy and assuming risks. Third, there
is a great and vital need for relevant and reliable financial
information on which strategies and decisions can be based. Fourth,
accountants would to well to delegate uncertainty and inevitable
failures to others; accountants will have enough responsibility with the
expanded scope of their traditional functions.
Forces Impacting the Profession
I agree that there are a number of non-CPA competitors not bound by
the profession's code of standard, practices and ethics. This is not
desirable from several standpoints. AFTF would change that by unifying
all accounting technologies and providing CPAs and accounting
organizations with a broader oversight role. CPAs would be the quality
control engineers for all valuation and decision activities, not just
Decline of New CPAs
The number of young people entering accounting may be declining
because of opportunities elsewhere, but also because of the relative
lack of opportunity within accounting. A free society rewards value
creation; the inference must be that accounting does not adequately
support value creation. A prospective accounting model can better
support value creation.
There is an increasing need for uniqueness, uniformity and
universality in accounting as the role of accounting becomes global.
AFTF is based on the universal and unequivocal realities of cash flows
and capital markets valuations. This can be the foundation for
accounting principles and practices that are uniform across national
boundaries. This can expand opportunities for CPAs
AFTF harnesses and integrates advanced technology. It makes extensive
use of computers hardware, software, and databases. It makes use of new
principles, practices, methodology, and disciplines. It makes use of
those people who are equipped by reason of training or experience for
the information age, either the CPA or those that the CPA oversees. It
makes use of a necessary and natural division of labor. It structures
and defines an appropriate degree of specialization and responsibility.
Pressure to Transform Finance from
Scorekeeper to Business Partner
Traditional retrospective accounting keeps score. A business partner
provides relevant decision-useful information. Relevant information for
businesses is shareholder value. AFTF is a shareholder-value based
decision model. It is also an accounting model.
Market Value Shifts
AFTF would expand the role and relevance of accounting and the CPA.
The actual value and, consequently, the perceived value of the CPA would
be enhanced. For example, the auditing role would include the quality
control of all business information used for decisions. This results
from the unification of financial reporting and other accounting
There is no great value to tax preparation. It is a necessary job, but doesn't conform to
any cohesive or logical theory. It doesn't support value creation. A
value-added tax has some rationality and might, for example, be a way to
eliminate the double taxation of dividends.
Management has the primary responsibility for leadership, but the
accounting profession can show leadership by acquiring new prospective
accounting skills and insights. The accountant should not just observe
and record the train of events. He should not just be a passenger in
that train. He should be the train engineer responsible for where the
train goes and how it gets there. In no event should the accountant
stand in the way of the train. That would be the antithesis of
leadership - and would be fatal.
"Many of the traditional essential skills of CPAs are being
replaced by new technologies". One answer is for the accountant to
himself employ new technologies to the fullest. Another answer is for
the accountant to exercise firm control over those technologies.
Accounting unification would extend and improve that control. The best
answer is for the accounting profession to create new technology.
Technology is not the problem. It is the solution.
One insight of the Visioning Process is that "CPAs have far more in
common than they realized, …" The AFTF draft proposal was
designed to identify essential purposes and unify accounting around
common principles. These principles are not traditional financial
reporting (GAAP) practices, but are naturally evolved accounting
technologies, such as, capital budgeting technology.
The "360-degree view of the business and economic marketplace"
must include a view of the future. The degree to which accounting looks
forward to the future will, in my opinion, be the degree to which
accountants can look forward to a future. If accounting wants to be a
part of the future then accounting must make the future part of itself.
The table showing the difference between leaders and followers is very
revealing. The focus groups and interviews show that accountants, by
their own admission, are primarily followers. This, in my opinion, is an
occupational hazard due the retrospective nature of traditional
accounting. A prospective accounting model would, in one flash,
transform accountants from followers to leaders. In a sense, AFTF is an
accounting blueprint for leadership.
Perhaps more revealing and important are those comments from those
students who were pursuing non-traditional accounting degrees.
1. They wanted better opportunities than traditional accounting
would provide. Since the job market rewards value creation traditional
accounting must be inferior, in this regard, to non-traditional
2. They wanted broad skills to provide a general ability to meet new
demands. This concerns me because I believe that the accountant's
plate is full. My solution to this problem is a natural division of
labor into management decisions and assumptions, modeler's development
of expected cash flows, and the accountant's oversight and reporting.
In this way the accountant would be part of a general corporate
ability to meet new demands without having undue educational or
3. Accountants were perceived as involved with minor, tedious or
methodical tasks. If this is true then technology can be brought to
bear. The computer is well suited to such tasks. I believe the problem
is different. I believe that accounting is caught up in a web of its
own complexity and irrationality. AFTF will simplify and rationalize
accounting. For example, many FASB statements are fixes for
fundamental problems in the accounting model. Fix the model instead.
4. Accountants were perceived as not involved in decision-making
aspects. AFTF is a decision-oriented model. It attaches values to
decisions not to traditional accounting assets or accounting
liabilities. It is difficult to understand global economic issues when
traditional accounting does not measure economic value. AFTF measures
5. CPA educators were perceived as having a narrow focus. AFTF would
unify accounting and would permit a fairly recognizable role
(bookkeeping, financial measurement and reporting, auditing) within a
broader context. Accountants would be a vital part of the management
and decision processes. Educators would have important research,
development, educational and implementation roles for the new
accounting. It may be time for accounting education to explore new
Comments on Selected Accounting
The enduring core values of accounting are an important ingredient of
the excellent reputation that CPAs generally enjoy today. One of the
five identified core values is that CPAs be "in tune with the
overall realities of the business environment." This is
problematic. Real business values are not accounting values. Decisions
are not based on traditional accounting measures. The core value
statement is appropriate; the current implementation is not. AFTF is
shareholder value-based and geared at decision making.
Assurance and Information Quality
Providing assurance of information integrity and quality is a
fundamental CPA function whose importance is only clear when the
integrity or quality breaks down. Companies and economies depend on
accurate information. Companies and economies also require relevant
information. This must be decision-useful information based on business
measures. Unfortunately these measure are not traditional accounting
measures used by CPAs. They more closely resemble those measures used by
MBA's or in finance or in economics. To be specific, those measures are
present values of expected cash flows based on a cost of capital. AFTF
provides such measures and supports the integrity and quality functions
in a general context, which includes financial reporting.
Computer technologies must be fully exploited and carefully controlled.
In addition, new accounting technology should be utilized if it improves
objectives and decision making. Traditional retrospective accounting
does not provide clear or useful objectives. One objective, which has
some rationality, is consistency with past practices, but this objective
is in conflict with other more important objectives, such as, relevance.
The objective of AFTF is capital efficiency and the means for achieving
that is to base the AFTF model on shareholder value measures. This also
provides a transparent decision tool since positive decisions correspond directly to
Management Consulting and
How can traditional accounting provide "advice and insight on the
financial and non-financial performance" when traditional
accounting measures neither financial performance nor non-financial
Financial performance measures must take into account future expected
cash flows and the cost of capital. This is done in all other accounting
disciplines, other that traditional "financial" reporting.
Financial performance measures must use the capital market's yardstick.
Non-Financial performance is currently ignored by accounting, as if it
didn't exist and had no effect on current or future value. The reason
for this is that non-financial performance is unrelated to traditional
accounting measures. For example, an insurance company may hire and
train a large number of sales representatives during a period. This will
be costly and traditional GAAP results will be depressed, even though
value has been added to the company. The CPA adhering to GAAP accounting
does not recognize or report such non-financial performance.
With AFTF actions and decisions which have future value also have a
present value; there is no conflict between financial reporting and
financial values. To manage performance actual performance must be
evaluated. One way of doing this is to compare actual performance to a
standard. The standard used by AFTF is natural and useful; actual
performance is compared to expected performance.
On a fundamental level the adoption of a uniform accounting standard
would "facilitate commerce in the global marketplace." AFTF is
based on universal realities and values shared by all and can provide
such a standard. More important it provides relevant value measures,
which are required for efficient value creation and efficient global
Strategic and Critical Thinking Skills
Accountants are not generally known for their strategic thinking. They
are perceived as involved with minor, tedious or methodical tasks. They
are perceived as being more concerned with the past than the future. No
wonder, since accounting is retrospective. If accountants want to be
forward looking they must adopt a new prospective view and prospective
measures and prospective reporting. AFTF is prospective.
Focus on the Customer, Client, and
Traditional accounting has no tools for such a focus. AFTF automatically
gives financial weight to these factors via expected cash flows. All
such cash flows are future cash flows making the accounting system
AFTF is a value-added technology optimized to adding value to clients,
customers, and employers
Future Forum Highest Rated Issues
Accountants will be market-driven when they add value to management
and to the capital markets. They can retain a fairly traditional role
(bookkeeping, financial measurement and reporting, auditing) within a
prospective accounting system. This will give them greater relevance and
a broader utility within a unified accounting model. This will increase
the opportunities and enhance the reputations of CPAs.
We live in a complex world where specialization is necessary. Successful
enterprises have integrated specialized functions into large structures
that are efficient and effective. AFTF acknowledges the magnitude and
scope of the prospective accounting. It suggests a natural division of
labor into three parts: management, modeler, and accountant. Since AFTF
unifies all accounting technologies, there will, I believe, be a net
savings in effort. CPAs will oversee the entire process within a body of
accounting principles and practices. CPAs will be overseeing a much
broader range of functions within a much more forward-looking
I think CPAs would do well to wean themselves from the teat of
regulation. The dependence of CPAs on the GAAP edifice or on FASB's
requirements retards independent growth. I am not suggesting eliminating
FASB as the premier standard setter. In fact, I envision a powerful role
for FASB is establishing fundamental principles and general practices
for prospective accounting. However, if FASB will not take the
initiative then somebody else must (AICPA, SEC, IASC, the private
sector, state regulators, academia).
Accounting organizations seem to be tied to tradition and frozen by
fear. If no accounting organization takes the lead then the lead will be
taken by someone outside of traditional accounting. This will happen. In
fact, it has already happened to a large degree. There are many others
using prospective accounting technologies without accounting oversight.
AFTF would reverse this.
Even within financial reporting there is increasing use of economic
value measures and forward looking information. This should not be
suppressed, but it should be controlled. It should be controlled within
a rational and cohesive accounting model, such as AFTF. If this is not
done traditional accounting will become a footnote … and so will CPAs.
There was a time when the balance sheet and income statement were
preeminent in financial reports. Now such statements are buried. The
implications are clear.
The following are quoted from the discussions of core implications:
"new competencies and skills" "broad base of
knowledge" "new standards or guidelines" "need to
align with other professions" "ability to provide unique
value" "Requires development of new non-traditional skills,
competencies, and services" "Requires development of wide
variety of new skills" "Involves the use of non-traditional
methods" "Requires more strategic alliances"
"Requires expanded skill sets" "Requires focus on adding
value" " Requires a proactive rather than a reactive
stance" "Requires forward rather than historical
thinking" "Requires useful formats for presentation of
information" "Moving to a strategic results-driven profession
implies that CPAs must not let themselves become stuck in the current
rules of the game, but rather leapfrog to meet new demands and realities
of future paradigms." "Change feels uncomfortable … most
people resist change."
It is clear that the accounting profession recognizes the need for
change. It is also clear that the accounting profession is uncertain how
to change. That uncertainty is uncomfortable.
The Economic Platforms Chart was very interesting. CPAs fall, in my
opinion, mainly in Platforms 1 and 2. AFTF would shift accounting to
mainly Platform 3, but accountants would not be alone on that platform;
they would be accompanied by management and the modeler. Accountants
should not entirely abandon Platforms 1 and 2 since accountants provide
critical structural and oversight functions. Those platforms are not
unimportant; all other platforms rest on them.
The accounting profession and its professional bodies, as distinguished
from the individual accountant, must adopt a longer-term focus and act
at a higher level. FASB seems stuck at level 5, issuing many industry
specific statements. I would like to see FASB and the AICPA operate
primarily at level 6 and increasing at level 7. The accounting
profession and its professional bodies should research, develop,
promote, implement, and enforce general principles and general
methodology. It is expected that AFTF will substantially decrease the
need for industry or case specific official statements. This is because
AFTF espouses a central rational purpose providing both a bright beacon
and a clear standard. Platforms 4 and 5 seem to be at the corporate and
technology levels respectively, i.e., above the individual CPA level of
action and beneath the CPA profession level of action.
The accounting profession understands the need for a prospective view.
However, the profession is naturally reluctant to abandon its
traditional model since the relevance, reliability and feasible of a
prospective model has not been established. AFTF seeks to do this by
1. Basing the prospective model foursquare on capital market
(economic) values to produce relevance
2. Employing strict disciplines and disclosures, e.g., dual
validation, to produce reliability
3. Unifying, simplifying, and dividing the labor and responsibilities
to produce feasibility.
Prospective valuation methods are in wide use in other professional
communities. It is not a great risk for financial reporting to adopt
similar accounting strategies. AFTF suggest mechanisms and structures to
make prospective accounting relevant, reliable and feasible. Since AFTF
unifies all accounting, CPAs can leverage their resources by expanding
their scope and maximizing their utility. AFTF proposes a continuation
of traditional CPA functions (bookkeeping, financial measurement and
reporting, auditing) so that the profession can capitalize on its
Vision Statements represent substantial efforts and achievements. It is
unfortunate that such statements are often ignored or quickly forgotten.
The best intentions are seldom carried through. AFTF provides a vision
of the future similar in many ways to the CPA Vision Statement. It also
provides an action path with which to realize that vision.