Where to start?

That’s the question facing the accounting profession, as it advances through a period of unprecedented change: Which of the many issues that cry out for attention should the profession address first?

The short answer is: All of them.

In trying to solve this riddle, we reached out to the leaders in accounting — the regulators, association chiefs, thought leaders, trailblazing firm owners, software developers, consultants and so on — and asked them what they thought were the most important issues facing the field. Their answers covered the wide range that you would expect, but as we dug through them, three broad categories of concern emerged, each of which subsumed a number of individual issues. What’s more, all three broad categories were related in ways that both multiplied their difficulty, and also pointed toward possible solutions.

Call them the Three Nightmares of the Accounting Profession, and read on to see what the field’s leaders think can be done to wake up from them.

 

THE NIGHTMARE OF IRRELEVANCE

The most-cited concern was the worry that the profession is dropping behind not just its clients, but the world as a whole, seeing its core services rendered obsolete by technology, their value to clients plummeting.

Technology thought leader and educator Doug Sleeter described it very simply: “The profession is struggling to maintain its relevance in the eyes of clients. As a whole, the focus is still too much on compliance services and not enough on going deeper with client engagements.”

Software was a frequently cited villain in the case. “Technology is moving so fast that all the bean-counting that has been the heart and soul of the industry is disappearing fast,” warned 2020 Group chairman Chris Frederiksen, describing how staples of accounting like recording purchases, writing checks, invoicing and others have disappeared in the face of automation. “Some firms have moved swiftly to give clients what they want: accurate, timely information and meaningful advice.”

And some warned of a one-two punch: “It will not be long before automation will be able to handle most of the role of current CPAs,” said Sage senior director Ed Kless. “What computers can’t handle, offshoring will. It will not be long before there are more people in India more knowledgeable about the U.S. Tax Code than there are CPAs in the U.S.”

And still others saw it as a case of the profession being left behind by the very people it’s trying to serve. “Today’s clients and staff are far more demanding and sophisticated than prior generations,” said Jon Baron, managing director of the professional segment at Thomson Reuters Tax & Accounting. “Clients expect professionals who serve them to be equally sophisticated.”

Whatever the cause of the disruption, some found the profession’s response inadequate. “The world has changed, the way we do business has changed, our customers want to interact differently with their CPAs, and yet most CPAs have not changed to meet today’s consumers’ needs,” said Radical CPA author Jody Padar. “They feel the change and they know they need to do something, yet they have not started on the journey to remain relevant.”

VeraSage Institute founder and value pricing proponent Ron Baker was even willing to doom the profession: “Unless our profession continuously innovates and adds value, we deserve irrelevancy,” he said. “What was the last innovation from the profession? We continue to avoid the tough issues, such as auditor independence. … CPAs need to help their customers make history, not just report on it.”

And ConvergenceCoaching co-founder Jennifer Wilson had a strong challenge for accountants: “In our increasingly digital, instant-information world, how can a profession comprised of predominantly compliance-oriented, historically minded traditionalists compete? And why would young, smart, tech-savvy professionals want to work in a profession still so married to ‘the way it was?’”

The answer to that challenge was summed up by American Institute of CPAs president and CEO Barry Melancon: “Evolving the profession at the pace of change we see in the business world is by far the most important task before us. … We must embrace innovation, find a way to elevate the trusted business adviser relationship with clients and employers, and evolve to meet and anticipate market demands.” 

Part of that will mean “moving from a compliance, transactional, disruption-prone profession to a knowledge-based profession and thus changing the mindset from the ‘expected’ annuity business model to a true client-based value service delivery model,” noted firm consultant Jim Metzler.

“We’re seeing a lot of firms talk less about themselves as accounting firms and more so as advisory firms,” said Kevin Keane, the managing partner of Top 100 Firm O’Connor Davies. “It’s not a coincidence. That’s where the value is — in being trusted business advisors, not number crunchers.”

Sage global vice president of product marketing Jennifer Warawa described it in terms of a 180-degree change in focus: “The shift for accountants from looking in the rearview mirror to looking out the windshield, looking ahead instead of looking back, and being more proactive, less reactive. All of these shifts are hugely important to businesses.”

That’s a major call for change, but WithumSmith+Brown partner and technology thought leader Jim Bourke had an even more challenging prescription: “CPAs will need to change how they view a CPA firm of the future. A CPA firm of the future (and it is happening today) will need to be in a position to provide not just the traditional tax and attest services, but a greater level of consulting services brought on by a changing world.”

And Boomer Consulting CEO Gary Boomer put it simply: “CPAs must re-invent themselves and their services to meet the wants of the market.”

But is the profession up for the challenge of wholesale reinvention and starting to look forward? Opinions varied.

“The constituencies we serve are evolving quickly and technology is moving rapidly,” acknowledged incoming AICPA chair and Baker Tilly Virchow Krause chairman and CEO Tim Christen, before adding, “The profession is in a position of strength regarding public trust and confidence. We must capitalize on our current position and evolve with those we serve.”

Joanne Barry, executive director of the New York State Society of CPAs, was less sanguine. “The profession is changing, and is faced with disruption on multiple fronts,” she said, “but instead of engaging the opportunities that come with them, it’s almost as if the profession is waiting for directions. News flash: We’re not going to get any.”

And not everyone was as confident in the strength of the profession’s reputation. Two leaders with a broad international perspective were worried about very specific concerns. “In the wake of sporadic corporate failures over the past decade or so, the most important issue has been demonstrating the value of accountants to society,” said International Federation of Accountants CEO Fayezul Choudhury. “There has been a crisis of confidence in the profession itself.”

Almost as disturbing was International Accounting Standards Board Chairman Hans Hoogervorst’s assessment: “Rightly or wrongly, the accounting profession is struggling with a perceived lack of independence vis-à-vis the companies they audit.”

Some are worried about a different type of reputational crisis: “I am becoming more and more concerned about the negative impression that many young people, and others, have about a career in accounting,” said consultant and firm administration expert Rita Keller. “For example, I was recently watching a TV show where the star developed amnesia. He is actually a detective. Seeking to remember, he demonstrates an expertise with math and another person says, ‘Maybe you are an accountant.’ The star immediately says, ‘I hope not!’”

The nightmare of not being relevant or attractive to future generations is where the first nightmare of the accounting profession bleeds into the next.

 

THE STAFFING NIGHTMARE

It should come as no surprise that this nightmare, which the profession has been having for several years now, was on the minds of many of the leaders we heard from.

“People, people, people,” was how AICPA vice president Mark Koziel put it. “Finding and retaining staff is back as a significant issue.”

Jennifer Katrulya, accounting operations director at H&R Block Small Business, agreed: “Finding and retaining qualified staff seems harder than ever. Add to that the overwhelming number of practitioners who are scheduled to retire in the next five to eight years, and it seems certain that the profession is headed into very uncertain waters.”

As with relevance, a number of factors were cited as causes. Joe Adams, managing partner and CEO of McGladrey, focused on the external: “As the economy continues to improve and clients require more of our services, firms are challenged to attract, develop and retain more qualified professionals than ever before. We face competition not only within our own industry, but also from other businesses that require professionals with strong analytical and financial capabilities.”

Practice management guru Marc Rosenberg noted that there are many factors behind the crunch, but highlighted one: “There are many reasons for this, including an alarming decline in the number of people who want to be university professors,” he said. “I’m being told by university accounting department heads that they have more student demand for accounting classes than supply. And the reason for the low supply is lack of professors.”

But external factors like the many opportunities available to potential accountants, the growth in demand for accounting services, and the lack of educators were only half of the equation. Factors internal to the profession were also to blame, according to AICPA senior vice president Arleen Thomas. “Approximately 60 percent of accounting graduates have their first job in the accounting firms. But not all firms create the environment to ensure those new hires become CPAs — we can do better,” she said.

New Jersey Society of CPAs CEO and executive director Ralph Thomas was also worried about that: “I’m concerned that the profession isn’t producing enough CPAs to replace the Baby Boomers who will reach retirement age in the next five to 15 years. We need to motivate and incentivize accounting graduates to sit for the CPA Exam to ensure that our profession doesn’t suffer from a talent shortage in the future. I’m particularly concerned that the profession won’t be able to hold onto minority candidates if these issues aren’t addressed.”

The bleakest assessment of all came from CPA Trendlines founder Rick Telberg, who said, “Put simply, many of the profession’s best and brightest see little or no future in the traditional public accounting industry. The number of newly minted CPAs entering public accounting is trending to an all-time low.”

So far, it may seem like the normal staffing nightmare that accounting has been facing for several years — but a number of the profession’s leaders pointed out a whole new angle to it that might make the situation much worse: It turns out that not only is accounting not finding enough people — it’s also not teaching the ones it finds the right things.

“I feel that we have growing issues relating to a talent gap in our young professionals and those coming out of college into the accounting workforce,” said Benjamin Mulling, the chair of the Institute of Management Accountants. “As a CFO in charge of our intern program, I constantly see young professionals and students who are just simply not being taught the business and accounting skills needed for them to be effective right out of the gate. The classrooms are focusing more on rules-based accounting, which is important, but are not spending enough time on the advanced business and analytical skills that companies need.”

Inovautus Consulting president Sarah Johnson Dobek pointed out a problem that plagues firms across the country: “I see a great deal of need to develop people at all levels — specifically in the area of management. Many firms aren’t training their seniors and managers how to manage and if these people make it to principle or partner, they aren’t necessarily any better off.”

Those aren’t the only skills that need teaching, according to Center for Audit Quality executive director Cindy Fornelli: “Firms of all sizes must focus intently on how to attract not only CPAs but also talent in data analysis, computer science, statistics, and other areas of expertise that are already changing the face of the profession and that will continue to do so.”

And Rainmaker Companies president Angie Grissom tied this skills gap back to the first nightmare of the profession, citing the desperate need to develop professionals “so they are equipped to serve as high-level consultants to their clients. This should begin early as it takes time to mature in this area. This will be required of accountants that want to have thriving, growing, profitable practices.”

As the accounting profession works to re-invent itself, the staffing shortage will be a major hindrance, as will the need to teach new accountants an entirely different set of skills. Worse yet, that reinvention and the process of learning new skill sets will most likely need to be permanent, in no small part because of the profession’s third nightmare.

 

THE NIGHTMARE OF CHANGE

Accountants expect certain rules to change — it’s ingrained in them to learn new standards, laws and regulations. What they don’t expect is that everything else will change, too, from client expectations to the structure of firms to where and when people work.

Demographics and intergenerational differences are major players in this tidal wave of change, but by far the biggest culprit is technology, which is washing away old processes, modes and markets, and just as quickly erasing the new ones that spring up to take their place.

“The rate of technology change in the small-business marketplace is outpacing the rate of change inside small to midsized accounting firms,” according to Rootworks president and CEO Darren Root. “Firms are so inwardly focused on their own technology challenges that they are missing the opportunity that has presented itself to better serve this rapidly changing marketplace.”

National Association of Certified Valuators and Analysts president Parnell Black described the permanence of ongoing technological change: “The profession is an old one still widely run by patriarchs who were around when fax machines were the newest and greatest technological innovation. I know this because I am one of them. We have seen unbelievable and transformative changes in technology since that first innovation, so much, in fact, that many of us have been in the middle of a learning curve throughout our entire careers.”

This unchanging state of change requires more and more from accountants. “With technology changes and opportunities continuing to accelerate … CPAs are having to move significantly faster than ever,” according to AccountantsWorld president Jeff Gramlich. “The speed of business and amount of information can be overwhelming.”

And the stakes are high, according to Thomson Reuters’ Baron. “Firms that have a culture of adapting slowly to change are in very real danger, with the greatest risk coming from their own inertia,” he said. “Firms must embrace change management and immerse themselves in the concept. This may sound harsh, but if partners or staff can’t — or won’t — embrace and keep up with the new accounting and client service world of today, dealing with that issue may be the first ‘change’ that needs to occur.”

Arxis Technology principal David Cieslak was even blunter: “Those who look to the future but refuse to change, will not survive. They’ll slowly fade into irrelevance or be forced into combining with another firm.”

It wasn’t all downside, though — some pointed out that these ongoing changes may actually be the solution to the first nightmare. “Technology today holds the promise of changing our growth and client service delivery model,” said growth consultant Gale Crosley, after identifying the profession’s outdated business model as its biggest issue.

But even if you approach technological change as a solution, it brings risks with it. “I think it is still important for accountants to be able to communicate that technology can’t replace the knowledge and expertise that accountants have,” said Iconis Group CEO Cathy Iconis. “We can utilize technology to make our jobs easier, but accountants in all specialties still have a place in our economy.”

 

TIME TO WAKE UP?

One of the constants among the three nightmares is that, as serious as they may be, there are fairly clear solutions available for them. All of those solutions involve major changes, however — changes in business model, changes in the structure of both careers and firms, and changes in technology adoption — and some of the leaders we heard from were not sure the profession was up to that.

“I believe the most important issue facing the accounting profession today is our inability or unwillingness to accept and embrace change,” said National Conference of CPA Practitioners president Sandy Johnson. “Change is inevitable. In the 21st century, things seem to be changing faster than ever. Unless we, as a profession, are willing to accept this change, we will fail to attract young talent and will jeopardize the future of this noble profession.”

Thriveal Network founder Jason Blumer was also worried that CPAs weren’t ready: “Our profession is too committed to archaic ways and is fearful to disrupt their own firms. But disrupting your own firm is the most important move firms can make today.”

Capstone Marketing president Jean Marie Caragher blamed “contentment” for the unwillingness to adapt: “I’m not opposed to happiness. However, many Baby Boomer partners are setting a bad example for the next generation of accountants by being satisfied enough with what they’ve accomplished. This means not continuing to enhance their own skills, not delegating work down, getting stuck, which affects firm growth, career opportunities for managers and staff, and attracting and retaining the best people.”

The failure to change will leave the profession in the grip of its three nightmares — but not everyone thinks it’s doomed.

Technology educator Joe Woodard hailed the current spate of disruption as “positive,” and said, “Accountants must realize that the professional is bigger and bolder than compliance and record-keeping, and choose to embrace a trusted advisory model through which we can make a radically positive impact on the success of our clients.”

And Maryland Association of CPAs CEO and executive director Tom Hood is positive about the future, if only CPAs can “get out of our box(es), start looking forward and learning how to be proactive. All of the major issues facing the profession like succession planning, generations, adding value, and adopting technology we should have seen coming based on the ‘hard trends’ of demographics, technology, and government regulations. The good news is that being proactive and anticipating future trends is a skill accountants and CPAs can learn.”

To end on a positive note, we’ll point out that even CPA Trendlines’ Telberg, who was concerned that young accountants didn’t see a future in public accounting, saw bright spots already emerging: “New CPAs are reinventing the CPA firm; they may not call it a CPA firm, and they may shun attest, but they are still trading off the CPA brand and leveraging their CPA-only skills. Just don’t call their businesses CPA firms. They are advisors, coaches, facilitators, accelerators for the new economy.”