Are Collegiate Athletes Interests Being Well-Served?

I have previously blogged about the expansion of “name, image, and licensing” (NIL) opportunities for collegiate athletes. This has spawned so-called collectives.

NIL collectives are independent organizations that fundraise money for various universities and give it to attending college athletes in the form of NIL agreement payouts. Several NIL collectives guide their athletes through the NIL endorsement landscape. 

NIL collectives are a relatively new phenomenon. In less than two years, they’ve shaken up the college sports scene and spurred some controversy. They represent booster-funded organizations that are a common way for athletes to cash in on their NIL compensation. They have become a stand-in for salary, which has created deep concern for many in college sports.

Antitrust Settlement

Two weeks ago, a $2.8 billion antitrust settlement proposal was agreed to by the NCAA and the nation’s biggest conferences. The agreement may negatively influence the collectives even though the duties they perform will become more important.

“One of the key functions of a collective is properly managing payroll for a sport. And the skill set that’s been developed is now going to be required for every single [power conference] school,” said Blake Lawrence, whose company, Opendorse, works with dozens of schools of more than 40 collectives on NIL activities.”

Lawrence also wonders whether schools will hire key members of their collectives, those responsible for managing and moving money, negotiating with parents and players, and move the process internally. Or, according to Lawrence, “will schools hire the collective as their NIL agency, and shift some of their risk away from the school into the third party to manage the distribution of those NIL payments?”

NCAA Actions

The NCAA is trying to implement new rules to encourage schools to bring NIL activities in-house, allowing athletic departments to be more involved in setting up deals for their athletes. The NCAA has also passed legislation to bring more transparency and accountability to the process, including disclosure rules for deals above $600 and the creation of a deal database to help establish fair market value.

It has been reported that some collectives have said they are getting out of the collective business. This may be premature and only time will tell whether it does happen.

Another issue is revenue-sharing. The revenue-sharing model proposed in the antitrust settlement — which still needs approval from a federal judge — and agreed to by the NCAA, Big Ten, Big 12, Pac-12, Atlantic Coast and Southeastern conferences would allow schools to direct up to 22% of the average power league school's annual revenue to athletes. That amounts to about $21 million per year and would rise as revenues rise over the 10-year agreement.

NIL enforcement is currently on hold after attorneys in Tennessee and Virginia sued the NCAA, challenging rules that ban recruitment inducements and pay-for-play.

The bottom line is that Congress needs to get involved. There needs to be a model that takes into consideration the revenue these athletes bring to the university. Until then, it seems that collectives will still be used even though there are no rules of the road yet for oversight of their activities.

Profiting Off NIL

The amount of money that goes into college sports from boosters, donors, alumni, television advertising, sales of sports merchandise and so on opened the gates to allowing college athletes to make money from their NIL. These deals are negotiated directly between the athlete and/or representative and the party looking to profit from NIL.

In a perfect world, NIL would be a great solution to a decades-old problem of college athlete compensation, but we don’t live in a perfect world. NIL has been taken advantage of by some schools, which causes rampant transferring and an unfair college football landscape.

Beyond football, NIL causes major problems with gender inequity, and it does not give everyone an equal chance to get fair or adequate payment. Hopefully, at some point, the NCAA will figure out how to make NIL fair and equitable for all student-athletes. However, I doubt it as, in college sports, especially football, the rich get richer while the poor stay stagnant with respect to attracting funds from external sources for their athletes.

Posted by Steven Mintz, Ph.D., aka Ethics Sage, on May 29, 2024. You can sign up for his newsletter and learn more about his activities at: https://www.stevenmintzethics.com/.

             

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Challenges and Opportunities for Disclosure

I have already blogged about the importance of gathering and disclosing ESG data (environment, social and governance) and how it affects operational and investment decisions. In this blog, I repeat some of the most salient facts and suggest that ESG should be taught to students. I believe the best courses to use are auditing, because of the coverage of assurance, advanced managerial accounting, because of the importance of operating systems in gathering and evaluating the data, and accounting ethics, because of the need to balance stakeholder needs with the usefulness of the data and how it can impact decision making.

ESG reporting provides a specific framework for evaluating and measuring a company’s sustainability performance. It assesses a company’s ESG-related risks and opportunities by providing a standardized approach for stakeholders, including investors, creditors, regulators and society in general, to assess corporate sustainability.

The Views of the SEC

For years now, a debate has been held between the SEC and business community about the reporting of events related to corporate social responsibility (CSR). The SEC has examined the potential economic effects of mandated disclosure and reporting standards for CSR, environmental, social, and governance (ESG) criteria and sustainability. There is no agreement about mandated disclosures just yet, but it may be forthcoming with climate disclosures. However, there are some important points to make that argue for disclosures in the annual report  

ESG are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. Environmental criteria consider how a company performs as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.

The critics of ESG disclosure requirements often point to the costs associated with preparing the disclosures. Consideration of such costs is important, as is getting clear about their causes. But just as important is the recognition of the costs associated with not having ESG disclosure requirements. For investors, despite an abundance of ESG data, there is often a lack of consistent, comparable, and reliable ESG information available upon which to make informed investment and voting decisions.

The SEC is also looking at whether ESG disclosures should be mandatory or voluntary. The SEC’s existing system contains some mandatory ESG disclosure requirements (e.g., disclosure of how a company’s board considers diversity in identifying director nominees). It permits significant differences in how companies respond to a variety of “mandatory” requirements, including in many cases disclosing items if and only if they are material. The system contains “comply or explain” requirements (e.g., if a company does not have an audit committee financial expert, it can explain why, and where the ability to explain makes the requirement less than rigidly mandatory and for some companies potentially more informative).

Finally, companies generally are mandated to make disclosures as needed to prevent other disclosures from being materially misleading. As companies continue to disclose more in sustainability reports, they should already be evaluating those disclosures considering existing anti-fraud obligations.

On April 11, 2024, the SEC disclosed that it would temporarily halt implementation of its anticipated climate reporting regulation amid ongoing legal disputes concerning the rule’s legitimacy. This strategic pause is intended to reduce the unpredictability surrounding the regulation as the court battle unfolds. The agency had the option to challenge a recent temporary injunction from an appeals court but chose to focus its efforts on legally defending the regulation’s validity instead. 

The SEC affirms its belief in the legality of the rule and its authority to enforce it, emphasizing that this temporary suspension will aid in a more organized legal review process and help the appellate court concentrate on assessing the rule’s legal challenges thoroughly.

The Purpose of ESG Reporting

The goal of reporting on ESG (Environment, Social, Governance) is to use data to measure how a company’s ESG initiatives compare with industry benchmarks and targets. It also provides stakeholders with valuable insights that can inform decision-making, highlighting potential opportunities and risks that might affect the valuation of a company.

Sustainability and ESG are similar, yet differences exist. Sustainability is an overarching principle, while ESG provides a practical approach for evaluating and reporting on sustainability performance. Sustainability reporting communicates an organization’s non-financial performance to its stakeholders by disclosing relevant information about environmental, social, and economic impacts, as well as its governance practices.

One of the main differences between ESG and topics like sustainability or corporate social responsibility (CSR) is the notion of motivation versus outcomes. Sustainability and CSR function as the business model or methodology that motivates a company and its employees to act in the best interest of civil society. ESG reporting, on the other hand, is the outcome of those initiatives and provides stakeholders with the ESG data needed to inform decision-making.

ESG reporting is becoming increasingly important to companies, not just to comply with regulations, but to respond to the demands of stakeholders. The EU’s new Corporate Sustainability Reporting Directive (CSRD) affects approx. 60,000 EU and non-EU companies who will have to meet the European Sustainability Reporting Standards (ESRS) for financial year 2024. On a global level, the inaugural IFRS Sustainability Disclosure Standards (ISSB) will require companies to communicate the sustainability risks and opportunities they face over the short, medium, and long term.

Given the changing state of ESG reporting, it’s little surprise that companies differ greatly in how they organize ESG reporting responsibilities for gathering, processing and disclosing their ESG performance data. Depending upon the company, the organization of ESG reporting may vary in terms of organizational structure, company statement, and the distribution of tasks – as well as varying sizes of teams responsible for disclosure.

The ESG Reporting Challenge for Companies

KPMG addresses the reporting challenge for companies. According to its report, the arising challenge is twofold. On the one hand, companies are obliged to report on ESG at ever-increasing levels of detail across a widening range of areas. As a result, metrics and targets are likely to stretch to the hundreds. On the other hand, similar to financial reporting, the CSRD expects companies to offer independent assurance over their ESG reporting. This places considerable pressure on companies to produce a fluid process for setting targets and measuring performance, to meet appropriate standards and adapt to the new requirements coming down the line. Meeting these extensive and growing requirements is a major, complex challenge that makes it imperative to transform ESG reporting, according to Jan-Hendrik Gnandiger, Global Head of ESG Reporting for KPMG International,

KPMG’s 2022 Global Survey of Sustainability Reporting found that 78% of the 250 world’s biggest companies by revenue (G250), now adopt GRI Standards for Reporting (up from 73% in 2020).[1]

Deloitte reports in its December 2022 Survey Findings on ESG Disclosures and Preparedness the following findings:[2]

• As companies begin to prepare for the U.S. SEC disclosure requirements, they are beginning to shift from commitment to action to address evolving stakeholder expectations. They are starting to see the strategic benefits that can be realized through enhanced ESG governance, controls, and disclosure.
• While most companies are taking meaningful steps towards enhancing their ESG disclosures, they continue to face challenges with data accuracy and availability.
• Rather than waiting to react to future disclosure requirements, many companies are proactively implementing changes to help accelerate readiness. This includes creating new roles and responsibilities and plans to invest in more technology and tools over the next 12 months.
• Companies utilize a range of frameworks and standards for ESG disclosure.
• Chief sustainability officers (CSOs) are primarily responsible for managing ESG disclosure.

One problem with ESG reporting is the information may not be comparable and consistent between companies and industries. Moreover, transparency may be lacking. This is due in large part to the challenges in adopting one generally accepted method to account for and report non-financial information related to sustainability in the global environment. The result is that investors may have problems evaluating the information and making investment decisions.

Frameworks for ESG Reporting

The Deloitte report identifies five frameworks for reporting ESG data as follows:

• Task Force for Climate-related Financial Disclosures (TCFD)  56%
• Sustainability Accounting Standards Board (SASB)                    55%
• Greenhouse Gas (GHG) Protocol                                                     50%
• International Integrated Reporting Council (IIRC)                      48%
• Global Reporting Initiative (GRI)                                                      47%

Sustainability reporting continues to accelerate globally, and it is a growing requirement for large and listed companies around the world. The two comprehensive and internationally recognized sustainability standard-setters for corporate reporting—GRI and SASB—provide standards that are complimentary and help organizations meet stakeholder needs.

Transparency is the best way to create trust among organizations and their stakeholders, including investors. For this reason, companies focus on disclosures that assist these user decision-making needs. Companies can use both the GRI Standards and SASB Standards. The latter are evolving and should be carefully monitored by organizations to ensure they meet both the form and spirit of non-financial requirements.

ESG data is important not only for CSOs but also the following: chief operating officers (COO), who need to know how the reporting requirements might affect operational decisions; CFOs, who oversee financial reporting and disclosures; internal auditors, who evaluate reporting systems and whether they are operating as intended; and external auditors, who often are called upon to provide assurance that the systems are working in accordance with internal control requirements. The audit committee also has a key role to play.

Student Needs

Given the importance of ESG reporting, it is important for students to understand the purpose of the standards, what are their goals, specific reporting requirements, relationship to financial reporting, and the role and responsibilities of management, especially the CEO, CFO, and Chief Sustainability Officer, if one exists The internal auditors and audit committee have an important role to play as well. Finally, the external auditors need to understand and evaluate the operational systems and whether they are working to gather sustainability data and meet the needs of investors for transparency. 

Students also need to be aware that companies should gather ESG data and report to investors. Companies want such data because of their commitment to sustainable business practices. The decision shouldn’t be made from an investment perspective, that is, enhancing return on equity or return on assets, but an operating one, which means CEOs, CSOs, CFOs, internal and external auditors, and the audit committee all have a role to play in ensuring the data is accurate and reliable and will meet stakeholder needs now and into the future.

Posted by Steven Mintz, Ph.D., aka Ethics Sage, on May 8, 2024. You can sign up for his newsletter and learn more about his activities at: https://www.stevenmintzethics.com/.

             

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Barriers to Entry as a CPA

The time is right for the accounting profession to rethink the pathways to licensure as a CPA. A growing number of critics have argued that the 150-credit hour education requirement can no longer be sustained because of pipeline problems that have led to a steep decline in the number of accounting graduates and first-time CPA Exam takers. Some critics contend that the traditional bachelor’s degree program that includes 120 credit-hours is sufficient to produce a qualified graduate.

One of the reasons for the pipeline problem is the cost of the 30 extra hours of education and foregoing earning a salary while these units are completed. Paying for the extra units may be out of reach for some accounting students, especially minorities. This makes it more difficult to attract a diverse group of students to the accounting profession. Some students might turn to other majors as a result including finance and technology.

Researchers at Utah State University collected data from 2006 to 2016 examining the effect of the 150-hour requirement on the number of first-time candidates sitting for the CPA exam and on candidate performance. The findings indicate that a reduction in the number of credit hours required to sit for the CPA exam increased the number of candidates, while an increase in the number of prerequisite hours reduced the number of candidates. The authors found no relationship between changes in the CPA exam requirements and pass rates or scores. They suggest that requiring 150 hours instead of 120 creates a potential barrier to entry for licensed CPAs with no accompanying increase in candidate quality (Stephenson and Meeham 2020).

Alternative Pathways

For the past several years, researchers have identified alternative paths to licensure that could alleviate the pipeline problems. Virtually all states now permit students to take the CPA exam after graduating with a bachelor’s degree or after completing 120 units. Completion of the 30 extra units would then be required before licensure. Recently, proposals have been made to give the experience requirement a more prominent role in licensing.

Perhaps because of the pressure being asserted by CPA firms and a lack of student demand, virtually all state boards of accountancy have modified their requirements to allow accounting students to take the CPA exam after completing a bachelor’s degree/120-hours.

Increasingly, universities are providing internship credit toward the degree. While many universities allow internship credit, and state boards of accountancy count it toward meeting the 150-hour requirement, students still spend extra time and money for these credits. A growing trend is for universities to partner with Big-4 CPA firms to jointly sponsor the extra hours while providing scholarships or work experience in targeted areas, such as taxation.

The American Institute of CPAs (AICPA) and the National Association of State Boards of Accountancy (NASBA) recently launched an innovative post-graduate program in 2023 with the Tulane School of Professional Advancement (SoPA). The program blends rigorous online learning with on-the-job professional experience for college accounting graduates, offering a less costly and more flexible way to complete the 150-hour course credit requirement to become a licensed CPA. Tulane SoPA piloted the academic ELE program for prospective CPA candidates that can reduce their cost of education, allow them to earn a paycheck, and advance their careers at the same time. More programs of this kind are needed.

The Experience Pathway

The Minnesota Society of CPAs introduced legislation to broaden the path to CPA licensure in that state including the following options as identified by Linda Wedul.

1. 150-college credit hours with one year of experience. This is the current requirement in Minnesota.
2. 120-college credit hours with an accounting degree or equivalent with two years of accounting experience. This would be a new, additional pathway.
3. 120-college credit hours with an accounting degree or equivalent, one year of experience and 120-continuing professional education credits within one year of licensure. This would be a new, additional pathway.

These options do not lower the bar; it is broadening the path. All candidates [still] must pass the CPA exam, which is the unifying element among all the jurisdictions and passing the exam demonstrates competency to practice as a CPA. Moreover, by using additional work experience to count toward the licensing requirements, candidates can “enter the workforce more quickly, creating an opportunity for additional professional training to become a successful CPA and reduces the cost to become a CPA. This also supports efforts to reach minority and first-generation college students.

Conclusions

In summary, some of the factors that have been causing the pipeline problem include:

• CPA firms have not supported the need for extra education, oftentimes hiring accounting graduates before they complete the 150-credit hour requirement.
• Questions persist whether the 30 extra credit hours leads to higher CPA exam passing rates.
• Questions persist whether the extra education makes for a more qualified accounting professional.

One of the biggest obstacles is if one or more states change the 150-hour requirement, the ability for CPAs to work across state lines, or mobility, is threatened because of the education/experience requirements may deviate from state to state. The result might be to create additional barriers to entry. NASBA needs to address this issue.

Clients are better served if state boards of accountancy give learning experience a larger role in licensing. To that end, students should be given the option of completing the 150-credit hour requirement with one year of experience to be licensed or complete the 120-credit hour requirement with two years of experience. The first option should be more appealing to students who have the financial means to pay for the extra credits or whose colleges and universities develop arrangements with CPA firms to support the extra education. Students who choose to complete the extra hours should be allowed to take the CPA exam after completing 120-hours or earning a bachelor's degree. The second option should be more appealing to students who complete paid internships with experience that counts towards licensing and those who have a greater financial need and seek to earn a salary after graduating with a bachelor’s degree.

It would be nice if the accounting firms develop joint programs with universities as previously discussed. They need to do all that is possible to better support accounting graduates who will be their lifeblood and help chart the future for the accounting profession.

Posted by Steven Mintz, Ph.D., aka Ethics Sage, on February 22, 2024. You can sign up for his newsletter and learn more about his activities at: https://www.stevenmintzethics.com/.

             

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