|Preparing the Next Generation of Accountants|
The accounting profession is a more regulated industry since Sarbanes-Oxley was enacted a decade ago, and potentially a more converged one if U.S. public companies have to adopt international accounting standards in the coming years.
While the standards debate continues, two new high-energy accounting faculty members are making sure Fisher students are prepared for a rapidly changing accounting landscape.
Nurturing critical thinking and a broader accounting perspective is Michael Drake’s mantra. A CPA and doctoral accounting graduate from Texas A&M University, Drake joined Fisher a year ago in July 2009.
“The accounting landscape right now is very dynamic. The near future may hold changes to financial statement presentation and new international financial reporting standards. There are active debates related to how companies should value their investments. So I try to focus the students on the intuition that underlies the accounting they are learning. Changes are inevitable so we need to focus students on core intuition… to be flexible to alternative methodologies and standards they may face in the future,” Drake says.
Tzachi Zach, who joined Fisher in 2008 after six years on the accounting faculty at Washington University in St. Louis, thrives on “waking up the dormant accountant” in his students, helping them “find their inner passion for the field.”
“I want to expose them to many different ideas that will hopefully inspire them to continue in accounting or other areas,” says Zach, a dynamic presenter in both the undergraduate honors and graduate classes he teaches.
Both academics were drawn to Fisher’s research reputation and recognized accounting programs. The undergraduate and graduate programs are ranked sixth and ninth respectively, according to the Public Accounting Report’s Annual Survey of Professors.
“Having great peers, a large department and diversity in both research interests as well as research methods was an environment I wanted to be in,” Zach says.
Commenting on Fisher’s energy for high-quality research and teaching, Drake adds, “It was clear that Fisher is committed to supporting new academics like me and to provide us with the resources and opportunity to be successful (both in our teaching and research).”
Drake, a CPA and former auditor at Ernst & Young, has broad research interests, encompassing international accounting and financial reporting and its relation to capital markets. He believes that a move to one global standard for international financial reporting is inevitable.
“It will make the allocation of capital more efficient across borders,” he says, adding that there are some significant challenges since parts of the world have adopted their own “flavor” of the International Financial Reporting Standards (IFRS). He advises young professionals and students to “embrace these changes” and view them as an opportunity to shine in their organization. In fact, the Uniform CPA Exam will include questions about the IFRS starting in 2011.
Zach, who is focused on financial reporting and its relation to capital markets, earnings management and managerial incentives, also believes the standard will get adopted over the next few years, but is cautious about its success in promoting actual uniform financial reporting outcomes globally. It would represent a significant change in U.S. accounting practices that would also drive changes not just in financial reporting but also in auditing and legal arenas. “I think that significant thought needs to be undertaken to weigh those costs and benefits (for U.S. corporations),” he advises.
His most recent research includes tracking how research and development investments translate into future performance in companies (a key indicator is both the number of patents a firm garners and how often it gets cited in other patents), and the role advertising campaigns play in helping companies “manage their earnings.”
“Advertising is one activity that may be subject to what’s called real earnings management—changing business decisions with respect to advertising in order to meet key accounting benchmarks,” Zach notes. Those benchmarks could be meeting an analyst forecast and ensuring a company reports earnings increases. “What we find in the paper is that firms tend to cut their advertising in anticipation of meeting certain accounting goals, such as avoiding a loss.”
For Drake, a key research focus is on short sellers—investors who bet against a stock and profit when the stock’s price declines, and whether they play a positive or negative role in the stock market. In late 2008, these investors were blamed for exacerbating the sharp stock market declines, leading to a temporary ban on short selling of some financial institutions by the U.S. Securities and Exchange Commission during the height of the stock market crisis. Based on his research, Drake believes that short sellers are needed to keep stock prices in line with fundamentals.
“If pessimists aren’t allowed to participate in the market, then stock prices will only reflect the views of optimists—this leads to over-evaluation of stock prices,” says Drake.
Looking ahead, Drake expresses optimism for the fertile research ground he and his accounting colleagues have at Fisher. “I’m just excited to be here, and I will keep working to better understand how accounting affects the capital markets.”
Michael Drake Interview
Michael Drake, assistant professor of Accounting & MIS, discusses why he chose to join Fisher’s faculty and how he approaches teaching accounting.
Tzachi Zach Interview
Tzachi Zach, assistant professor of Accounting & MIS, talks about equipping the next generation of accountants.