1987: A TOUGH ENTRANCEIt was not, perhaps, the best of times for the accounting profession: Scandals, including the implosion that summer of the brazenly fraudulent ZZZZ Best, had tarnished auditors' reputations, malpractice insurance rates were soaring, college students were staying away in droves, and the Federal Trade Commission claimed that the American Institute of CPAs' rules on professional activities violated restraint-of-trade rules.

It wasn't the worst of times, though: Accountants were kept busy dealing with the provisions of the landmark Tax Reform Act of 1986 (including many companies' rush to convert to S corporation status); the Treadway Commission offered its report on ways to prevent fraud; and the Public Oversight Board reported that less than 1 percent of audits conducted the year before were substandard. Under then-president Philip Chenok, the AICPA celebrated its 100th anniversary with a gala event, and also introduced the Personal Financial Specialist credential, just as Price Waterhouse became the first of the Big Eight to register an investment affiliate with the Securities and Exchange Commission (though some smaller firms, like Seidman & Seidman and McGladrey, Hendrickson & Pullen, had already done so).

Recruiters from PW were offering starting salaries up 20 percent on the year before -- to a princely $29,000; Arthur Young reported that it had a record 30 women partners -- out of a total of 800; and Klynveld Main Goerdeler and Peat Marwick merged to form KPMG, rounding out the then-Big Eight.


Technology had already begun to change everyday practice, and 1987 saw the release of an eight-module accounting package from Peachtree, MAS 90 Job Cost software from State of the Art, BusinessVision accounting software, and Act! for contact management. Apple was still a major player in business software, and a company called Amstrad introduced a revolutionary "laptop" computer that operated on batteries -- C batteries. Ten of them.

Into this brave new world, with impeccable timing, Accounting Today was launched on Oct. 12 -- exactly seven days before the "Black Monday" crash saw the second largest one-day stock market decline to date.

1988: MAKING CHANGES

Still under a cloud, with Rep. John Dingell holding hearings blaming accountants for recent scandals and the Securities and Exchange Commission tightening disclosure rules for 8-k filings, the profession responded: The Auditing Standards Board issued new standards, including clarifications and extensions of the duty to detect fraud, while the AICPA banned so-called "solvency" letters and approved the 150-hour education requirement for new members after 2000, and its membership approved a bylaw making peer review mandatory (though the balloting procedure for this sparked a lawsuit by a number of dissidents, including Eli Mason, alleging ballot improprieties). It also voted to lift bans on CPAs receiving commissions and contingency fees (to placate the FTC), and launched its first nationwide advertising campaign, touting CPAs as "the measure of excellence."


Regulators, too, were busy: The SEC worked on guidelines for pooling, and the Financial Accounting Standards Board, just installed in its new headquarters in Norwalk, Conn., mulled rules for stock compensation and faced a storm of complaints over its proposals on pension benefits reporting.

Practitioners, meanwhile, were still busy with S corps and Internal Revenue Service year-end rules, while considering moving into new niches like merger and acquisition advice and overseas services, even as they struggled with entry-level recruits who no longer want to work long hours and "waste their first two years doing menial jobs." With a staffing crunch ongoing, CPA firms ranked among the top sponsors of minority internships (though female accountants still earn only 70 cents on the dollar, and the American Women's Society of CPAs and the American Women's Society of Accountants announced that there were too few CPA role models for women), Big Eight firm Touche Ross launched a staff retention program, and staffing company Robert Half reported that first-year salaries were up approximately 9 percent. And after facing staff raids from Saatchi & Saatchi, Andersen split up its audit and consulting units to form Arthur Andersen and Andersen Consulting.

In technology, Apple shipped Hypercard with every machine (Apple was still a player in business software); CLR released its GoSystem; Lacerte introduced remote-entry processing, so practitioners can prepare tax returns at home; four of the Big Eight were using Excel, putting it on par with Lotus 1-2-3; and the market for general ledger software was a free-for-all between Peachtree, MAS 90, Solomon, Real World Accounting, Great Plains, Cyma and One-Write Plus; IBM debuted its AS/400 computers; and faxes began to use plain paper, with some sending pages at the astonishing pace of a page every 13 seconds. Finally, tech guru Gary Boomer predicted that firms would quadruple their tech spending by 1990 -- to around $8,000 each.

1989: FROM BIG EIGHT TO ...

As President George Bush unveiled his costly solution to the savings and loan crisis, many blamed auditors. The SEC required auditors to let it know when they were dismissed (though it hedged on a outright prohibition of relationships with audit clients), and colleges made sweeping changes to their accounting curricula, adding more ethics (and computer) courses. While argument over "summary" reports continued, the AICPA squelched "plain paper" interim financials, and added more public representation to the ASB, as the Treadway Report had suggested. It also joined with the National Association of State Boards of Accountancy to consider revamping the CPA Exam to include more machine-scoring and testing of candidates' writing skills, and NASBA proposed a national CPE registry, to the horror of individual states.

It was a more difficult year for standard-setters: Opposition to a statement of accounting for income taxes forced FASB to postpone it, and the board had to fight off an attempt by industry to change the way it operated. At the same time, only a retreat in the face of a power struggle with state and local government groups saved the five-year-old Governmental Accounting Standards Board from an existential crisis.


Technical troubles during tax season at Interactive Financial Services, a computerized tax processor, and its collapse later in the year, made many CPAs reconsider the way they prepared tax returns -- though they were utterly unenthused about the IRS's fledgling electronic filing program.

The biggest events of the year, though, were the June merger of Ernst & Whinney and Arthur Young and the July merger of Touche Ross and Deloitte Haskins & Sells -- reducing the Big Eight to the Big Six -- and the very serious merger talks between Andersen and Price Waterhouse, which broke down late in the year.

1990: 'INTERESTING TIMES'

With a recession looming, clients collapsing, revenues declining and staff hard to find, many firms began searching for alternatives to the traditional partnership structure, and the profession begins considering allowing non-CPA ownership of firms. The S&L crisis continued to dog the profession, with the Federal Savings & Loan Insurance Corp. filing a large number of lawsuits against firms -- though the feds also selected 43 audit firms to help sort out the mess.

At the same time, the AICPA announced that auditors of public companies must be members of its SEC Practice Section to keep institute membership, and left a consent order from the FTC on lifting the ban on commissions unsigned -- perhaps waiting to see the results of votes to ban commissions at the state level. NASBA was occupied with the battle over its proposed CPE registry, and also opened a debate over substantial equivalency.

With Statement 96 on income taxes and a new standard on post-retirement benefits still delayed -- and the AICPA warning that if it can't put out timely standards, the institute will -- FASB began discussing mark-to-market accounting, and decided after some debate to require a supermajority for decisions starting in January 1991.

In tax, service bureaus battled for clients as some of the big players collapsed, and CPAs began to move tax prep in-house -- which worked out very well for them. The IRS, meanwhile, noted abuses in refund anticipation loans, which held the number of e-filed returns down to 3.9 million, with a little boost from newcomer Express Tax Refunds, which began offering e-filing through 7-11s, Eckerds and small regional chain stores. And as Commissioner Fred Goldberg called the IRS a big burden on taxpayers and called for reform, the notion of implementing a value-added tax gained popularity.

While mergers were big just a year before, the biggest events of 1990 were the unexpected bankruptcy late in the year of the seventh largest accounting firm, Laventhol & Horwath, and the dissolution of the fifteenth largest, Spicer & Oppenheim, late in the year. Other firms, though, were piling into MAS services and litigation support, and tightening their belts. Price Waterhouse lost a landmark sexual discrimination case for denying a woman a partnership, even as an AICPA survey revealed that women made up the majority of accounting graduates for the first time.


In technology, software companies everywhere began adapting to Microsoft's Windows 3.0; computer-generated graphics and charts become an increasingly important tool; Apple Computer and KPMG Peat Marwick formed a strategic alliance for consulting and systems integration; IBM rolled out Platinum accounting and MIS software; BNA introduced its Estate Tax Spreadsheet; Peachtree debuted Complete III; and ChipSoft released Version 7 of its TurboTax. And Accounting Today, in addition to publishing its first Buyers' Guide for tax prep software, also ran its first article on digital document management and "The End of Paper Pushing."

1991: RECESSION

The recession -- particularly when combined with large settlements for S&L cases -- hit firms hard, hammering staff numbers and salaries. Accounting graduates saw half as many job offers as before, even as NASBA reported a decline in CPA Exam takers, and record numbers flunking.

In the ongoing commissions battle, the AICPA Council voted strongly against them, but in favor of dropping bans on different ownership formats, and of allowing non-CPAs as members. The institute was busy on other fronts, too: proposing a new Uniform Accounting Act with NASBA; wrangling with FASB over the GAAP hierarchy; and agreeing to change its voting procedures to settle a lawsuit from five dissidents over balloting in 1987.


For firms, litigation support, business evaluation, health care and benefits planning, and hospitality were the hot niches -- and they expressed disappointment with their financial planning practices. More and more of them, according to the AWSCPA, began offering flex-time. And in a sign of things to come, an American Express subsidiary opened two dozen tax and bookkeeping outfits.

In technology, CD-ROM tax research systems gained in popularity, as did notebook computers and laser printers. CCH launched ProSystem fx; Peachtree released Crystal Accounting for Windows; State of the Art announced plans to go public; Andersen made its A-Plus Tax program look like Windows; and the Macintosh Accounting Consortium was formed.

1992: DARK BEFORE DAWN

Tough times bred flat salaries and staff cuts (Accounting Today estimated the Big Six might cut as many as 80,000 positions), as well as a wave of audit ligitation, including a $340 million judgement against Price Waterhouse. The AICPA voted against merging in the AWSCPA, and announced plans to cut staff, cancel meetings and hike dues, while the National Conference of CPA Practitioners closed its New York City office and retrenched to a chapter office in Long Island. California dealt the profession two blows, when it voted against the 150-hour law, and when its Supreme Court ruled that non-CPAs could call themselves accountants.

FASB postponed its mark-to-market standard, and issued water-down standards on income taxes and fair value, while early efforts at international accounting standards foundered on national prejudices.

Firms shuddered when Pannell Kerr Forster broke up into individual companies to avoid the liability issues that hit Laventhol partners earlier, and the Department of Labor threatened to hit services firms for unpaid overtime.

But not all the news was bad: Firms like Coopers & Lybrand and BDO Seidman fought back against audit liability lawsuits with countersuits. The Committee of Sponsoring Organizations of the Treadway Commission issued its landmark report on internal controls, while the AICPA voted to let firms organize in any way allowed by the states, and, along with NASBA, released their two-years-in-the-making UAA proposal.

The IRS introduced its TeleFile file-by-phone service, got a new commissioner in Shirley Peterson, hit 10 million e-filed returns and announced plans to tackle the $100 million "tax gap" (though its move to release tax prep software was dropped when it riled vendors). Tax practitioners moved tax prep in-house and found they liked it, leaving tax processing centers to disappear. And H&R Block topped $1 billion in revenue for the first time.


In technology, software vendors moved en masse to Windows as PC prices plummet. Most accountants still used Lotus 1-2-3, according to the AICPA; HP introduced its first MICR toner cartridges; Creative Solutions launched its UltraTax solution; and in August, Accounting Today published its first Top 100 Products report. But the biggest development, at least for the long term, was the March release of the first version of Intuit's QuickBooks accounting software.

1993: DAWN!

Though liability reform remained a pressing issue, and the troubles at Laventhol and PKF's bankruptcy made many firms worry about their unfunded pensions, things looked better for CPAs in 1993: The Supreme Court struck down a Florida rule against soliciting clients, freeing accountants to market themselves like the rest of the world (though it was early days yet: An AAM survey revealed that marketers weren't respected at CPA firms, and that no one knew what they did), and also handed down a ruling that made it near-impossible to go after firms with RICO suits. What's more, tax law changes and the aging of the Baby Boomers sparked a resurgence in PFP practices, and overall hiring of new graduates finally picked up after two years of declines.

The 150-hour rule marched on, despite some setbacks, with 30 states passing it by mid-year. The AICPA began a controversial campaign to promote specialization, but temporarily backed off a valuation credential in the face of member opposition. An institute task force also proposed that non-CPAs be allowed to be partners.

Both FASB and GASB came under fire -- FASB for its stock option plan, which Congress blasted, and GASB for its proposal to move governments to accrual accounting, which is delayed.

Margaret Milner Richardson took over the IRS for President Clinton, promising more enforcement in response to congressional complaints that the IRS was too "kinder, gentler." The IRS considered banning RALs, but relented.


Smaller firms found themselves picking up SEC clients as the Big Six cleaned out their client rosters, and with hiring up, an AICPA study found that hiring of minority graduates had jumped four percentage points, to account for 12 percent of all new hires. Women, however, the institute said, still only represented 4.9 percent of partners at the top 16 firms, and the AWSCPA pointed out a significant dearth of mentors for women. Deloitte & Touche became one of the first firm's to launch a women's initiative.

E-mail began to make its way into offices, while software vendors switched to CD-ROM distribution, and tax vendors even distributed updates via online bulletin boards. Client/server technology was one buzzword; "consolidation" -- among vendors, that is -- was the other, with Intuit merging in TurboTax-maker ChipSoft, and H&R Block buying TaxCut-vendor Meca Software. Microsoft launched a low-end accounting software war with the release of Profit for Windows.

1994: WHAT'S IN A NAME?

Exactly who can call themselves an accountant or a CPA was the question this year: A Massachusetts court said non-CPAs could hold themselves out as accountants, a Florida tax lawyer won the right to hold out her CPA and CFP credentials, and American Express, having won the right for its CPAs to prepare financial statements, sued for the right to advertise their credentials. Meanwhile, the AICPA Council voted to allow non-CPA partners at CPA firms, and states looked set to follow, though NCCPAP and others launched a campaign to prevent it.

More names: David Costello became CEO of NASBA, and Philip Chenok announced he would step down as AICPA president in June 1995. Florida announced that it would create five new specialty certificates, while the CFP Board aimed to bring in more CPAs by making it easier for them to take the exam.

There were fireworks over FASB's stock options proposal -- Congress blasted the board, and the SEC accused the Big Six of "acting like cheerleaders" for their clients -- and it was eventually withdrawn as the board saw donations from industry declining. It did manage to rush out a new derivatives standard, and dropped two years of work on hedging standards to go back to square one.

An IRS computer glitch rejected thousands of low-income returns early in tax season, but the IRS bounced back with 13.42 million returns e-filed. It also expanded TeleFile to 10 states, introduced tough rules for electronic return originators, created a "privacy czar" to keep employees from snooping on returns, planned to test direct e-filing to bypass third parties, and heard recommendations for preparer regulation and registration, including FBI background checks and fingerprinting. The Clinton administration, meanwhile, mulled the use of private debt collectors in tax collection.

Firms were busy re-arranging, re-incorporating and hooking up: When New York allowed accountants to form LLPs in July, the Big Six all raced to re-organize there to limit liability (though a Supreme Court ruling that year seemed to say that auditors can't be sued in securities fraud cases as aiders and abettors), and CPA firm networks like the newly formed BDO Seidman Alliance were aggressively recruiting firms all year.


At the same time, Clifton Gunderson became one of the first firms to offer part-time schedules for partners, and Saltz, Shamis, Goldfarb & Co. announced that it would offer non-voting shares for non-partner CPAs.

In technology, vendors continued the move to Windows and online delivery; computer-based CPE made serious inroads; Cyma launched CYMA IV; and Great Lakes Business Forms changed its name to Greatland. The big news, though, came from two sales, and one proposed sale: The Sage Group acquired Timeslips and Intuit acquired Best's tax prep business -- and Microsoft proposed buying Intuit for $1.5 billion, an enormous deal that was still waiting for regulatory approval at the end of the year.

1995: AMEX ASCENDANT

The newly renamed American Express Tax and Business Services continued its push for recognition, winning the right in federal court for its CPAs to hold out in Florida, and taking on Texas, where the state board eventually had to redefine "public accountancy" in its favor.

In many ways, though, the major event of the year was the arrival of Barry Melancon as chief of the AICPA. At the same time as the institute launched its grassroots CPA Vision project and its "Never Underestimate the Value" campaign, Melancon swept in and shook things up, slimming its executive and director ranks and creating four new operating groups. The institute also opened up the Big GAAP/Little GAAP issue, examined revisions to SSARS No. 1 to loosen requirements for compilations and reviews, floated a plan -- quickly opposed -- to create a joint CPE registry, and squabbled with NASBA over the ownership of the CPA Exam.

FASB finally issued its compromise stock option plan, with expenses noted in the footnotes, while GASB took on an investment valuation project and mulled rules for OPEBs, and the SEC briefly considered "lite" alternatives to annual reports.


While Steve Forbes stoked flat-tax fever across the country, the IRS went through a "filing season from Hell," with millions of refunds delayed and a 16 percent decline in e-filing. A Taxpayer Bill of Rights aimed at IRS "attack auditors" moved through Congress, and the service backed off its plans for preparer registration, and faced opposition to its plans for direct e-filing. Still, it managed to make hundreds of forms available electronically, and to take its TeleFile service nationwide.

For firms, workload compression was a major issue, as they asked the IRS to spread out the schedule of estimated payments. At the same time, the Big Five saw their fastest growth in years, and consulting was the driving force. PW abandoned "up-or-out" partnership tracks for its consultants, and Deloitte separated out its consulting unit (while facing a major lawsuit for racial discrimination). KPMG developed an investment bank, KPMG BayMark, and Ernst & Young acquired the 11th-largest firm in the country, Kenneth Leventhal. And the profession got a late-in-the-year gift when Congress overrode a veto to pass a litigation reform law.

In technology, regulatory hurdles made Microsoft abandon its bid for Intuit, while software vendors everywhere braced for the release of Windows 95 -- which received mixed reviews, but still was expected to spell the end of Apple as a force in the accounting world, even as many clung (inexplicably) to DOS. The year also saw two major signs of the future: RIA announced plans to phase out paper versions of its SALT subscriptions, leaving only its CD-ROM OnPoint System, and Accounting Today asked of a new technology, with touching naivete, "Will the Internet affect accounting firms?"

1996: BUILDING MOMENTUM

Growth and a flurry of new opportunities and plans dominated 1996. Consulting again drove high growth rates at the Big Six (for the first time, it supplied more of the Top 100's revenue than audit or tax work), helped along by a wave of IPOs, and merger mania struck many firms, with AmEx announced an aggressive expansion plan that included the courting of Checker Simon & Rosner, the third largest firm in Chicago. With more and more states easing their bans on commissions, an Accounting Today survey found that ever-more firms were surging into financial planning, and they found themselves pursued vigorously by major broker/dealers like H.D. Vest, 1st Global and Raymond James.

Under new CEO Melancon, the AICPA was extremely busy, proposing a national CPA certificate, announcing aggressive plans to market everything from software to seminars, approving the new Accredited in Business Valuation credential, and floating ideas for six new assurance services, including ElderCare and WebTrust. It also unveiled a new plan for substantial equivalency with NASBA, and dropped its plan for a CPE network.

FASB and the FAF, stung by low donations in the wake of the stock option expensing battle, were quiet, and the FAF restructured its board under SEC pressure to include more public-interest members. The SEC also questioned a conflict of interest when KPMG audited a client of its investment bank, KPMG BayMark.

The flat tax continued to fascinate many, even as Congress gutted the IRS's modernization plan and cut its budget. Only a last-minute reprieve prevented massive IRS layoffs, despite a smooth tax season and 12 million e-filed returns.


In technology, firms were warned to get online or be left behind, particularly after a Florida practitioner registered the "aicpa.com" domain name, and tax research vendors started moving their products to the Web. Document imaging also began to draw attention, and accounting software vendors abandoned the Mac in droves. The AICPA took some heat for a buggy version of its Accountants Trial Balance for Windows, but fixed it over the course of the year. Thomson acquired SCS/Compute and Peachtree bought One-Write Plus, as Petz Enterprises entered the tax prep software market and Microsoft released its Small Business Financial Manager. Intuit launched its QuickBooks Pro Advisor program. And Accounting Today ran its first article about the Y2k computer problem, as the IRS started warning about potential problems.

1997: FROM BIG SIX TO ...

As they were in 1989, changes in the ranks of the Big Six were the major story, with Price Waterhouse and Coopers & Lybrand announcing plans to merge late in the year, and Ernst & Young and KPMG following suit shortly after. Both, however, needed approval from partners and regulators É

If there was a theme to the rest of the year, though, it might be conflicts of interest: NAPFA trademarked the phrase "fee-only" (implying that it didn't have any conflicts), which the AICPA filed a petition to cancel. Meanwhile, the institute and the SEC agreed to form an Independence Standards Board to make sure diversification in CPA firms didn't cause conflicts with auditing responsibilities; the NSA got ready to fight a NASBA/AICPA proposal that compilations be considered attest work; and lawyers complained loudly that CPAs might illegally be practicing law.

The institute also wrestled with the notion of "plain-paper" statements, unveiled the WebTrust service, offered the first Accredited in Business Valuation credential exam, and sent the substantial equivalency rules it had worked on with NASBA out for state approval, while its Council cleared a raft of regulatory reforms, including non-CPA ownership, easing experience requirements, and allowing all CPAs to hold out.

FASB got a new chair in Edmund Jenkins, succeeding long-time chair Dennis Beresford. Jenkins predicted global standards with 10 years, and FASB and the IASC issue nearly identical standards on EPS -- an early example of deliberate convergence. The board also voted to account for derivatives at fair value, despite corporate opposition.

The IRS also saw a change in leadership, when Margaret Milner Richardson announced that she would leave after tax season. Charles Rossotti came aboard an agency that was being roasted on TV and by Congress for taxpayer abuse and intimidation, with various plans for restructuring floating around the Hill and the Clinton administration, and the National Commission to Restructure the IRS slamming the agency's "tough-guy" attitude. At the same time, the IRS pushed back the enrollment deadline for EFTPS to January 1988, and a pilot program using private debt collectors spent more money than it took in.

Firms saw extremely strong growth of 21 percent in 1997 (versus 14 percent for 1996), though they found themselves a little hampered by shortages of mid-level staff after the cuts of the early 1990s. After winning yet another legal battle in Florida, AmEx continued its acquisition spree, snapping of Checkers Simon and aiming for $500 million in revenues by 2000. It was joined by another rollup, International Alliance Services, which picked up several local firms over the summer. And Andersen Consulting finally voted to separate itself from Andersen Worldwide; the ugly divorce went to arbitration.


In technology, CPA firm Web sites were still rare enough that Accounting Today covered them individually, though CCH was already letting customers order books online. RIA rolled out its CheckPoint online research platform, and CCH its Internet Tax Research Network. Denmark's Navision Financials began to make inroads in U.S., while Great Plains went public in an IPO. MicroVision launched its Accountants' Relief software. ACUTE changed its name to the Information Technology Alliance, and H&R Block sold its shares in CompuServe to WorldCom and AOL for $1.2 billion. Microsoft launched its Partner Conference to get accounting pros into tech consulting, with over 1,000 attendees, and Intuit launched its QuickBooks Pro Advisor program. Gary Boomer set up Boomer Consulting, which later in the year joined PPC. And in October, the SEC began asking companies to report Y2k exposure and costs.

1998: THE YEAR OF THE ROLL-UP

Roll-ups and consolidators dominated the landscape, snatching up firms left and right: The oldest, AmEx, grabbed New York giant Goldstein Golub & Kessler for $49 million, as well as key buys in Baltimore, before it began eyeing VARs, and was joined by Century Business Services, which bought up firms worth $420 million in revenue, including Mayer Hoffman McCann; and H&R Block, which grabbed the $45 million Friedman, Eisenstein, Raemer & Schwartz and planned one acquisition a month to reach $300 million in revenue. And when AmEx chief Bob Basten stepped down after a management shakeup, he reappeared later in the year at a fresh consolidator of his own -- Cornerstone Professional Advisors.

All of that activity somewhat overshadowed a growing list of accounting scandals at Jackson Hewitt parent Cendant, Livent, Sunbeam and Oxford Health Care, which led SEC Chair Arthur Levitt to suggest that reporting standards were eroding.

The AICPA reported on the results of its Grassroots Vision Project, with a focus on new market-based (not regulation-based) services, and technology competence. The Council voted to streamline the accreditation process, and the institute and NASBA began once again mulling a revamp to the CPA Exam. All the while, the new UAA was generating opposition from a wide range of non-CPAs, and looked set to face a difficult road.

GASB faced a tough year as it tried to shore up a proposed dual perspective model and issued a Y2k bulletin for governments, while FASB outlined principles-based accounting and why it would make convergence is possible, and also released what it promised was a final standard on derivatives.

It was a hard year for the IRS, with televised hearings of taxpayer horror stories, and the passage of a sweeping reform law that included an oversight board, some confidentiality privileges and more, including a target of 80 percent e-filing by 2007. Commissioner Rossotti unveiled a new four-division structure, and the agency moved to allow electronic signatures, and postponed once again the EFTPS deadline.

Only one of the previous year's Big Six mergers made it through -- PW and C&L merged in the summer to form PricewaterhouseCoopers, but KMPG and E&Y called off their union, citing a prohibitive regulatory process. Despite Top 100 revenues that were growing 26 percent, firms everywhere worried about seriously declining audit prices, technological change and staff shortages, even as many abandoned "up-or-out" practices to keep employees. They were also worried about threats to accountant-client privilege, but were buoyed up by growing financial planning businesses, with Charles Schwab, Smith Barney, Federated Funds, Legg Mason and Reliastar all bidding for CPAs' attention.


Consolidation was the name of the game in tech, too, with RIA offering $325 million for CLR Fast-Tax and buying the AICPA's Accountants Trial Balance Software; CCH acquiring ViewPlan; Sage Group agreeing to acquire State of the Art for $263 million; CCH buying tax prep vendor Pencil Pushers for $13 million; and Intuit acquiring Lacerte Software Corp. for $400 million. Eight in 10 CPAs reported using the Web for business at least once a week, and the application service provider model debuted as an alternative way of getting software. Intuit and ADP both made moves to launch Web payroll, and Thomson CLR planned to debut online tax prep, with its OneTax.com. Peachtree and Intuit squared off in a low-end accounting war, even as high-end vendors start moving down to the middle market. Microsoft's 2nd Partners Conference was something of a disappointment, as were Accpac's plans for an IPO, which were abandoned.

1999: THE Y2K BOOM

The Y2k bug created a boom for accountants and consultants working to make sure the world's computers didn't crash at the stroke of midnight on New Year's Eve. (It also gives a big initial boost to the outsourcing industry, particularly in India.) With so much to do and T100 revenues growing 13.5 percent, who had time hear Warren Buffett slamming auditors for "kowtowing" to clients, or SEC Chief Accountant Lynn Turner warning auditors of serious consequences for unethical practices, or SEC chair Arthur Levitt blasting auditors for bad audits -- and expressing doubt about the AICPA's capability for self-regulation? (Though the new ISB did issue its first rule on auditor independence, and the SEC leveled charges against a firm for helping release false audit reports.)

French consolidator Fiducial entered the market, but some of the older consolidators stumbled somewhat: Bob Basten's old Cornerstone, now Centerprise, had to withdraw an IPO, and CBiz, the old Century Business Services, briefly looked to sell or merge itself, but eventually got a $200 million line of credit to continue acquisitions. The big deal, though, wasn't H&R Block's purchase of McGladrey & Pullen for $240 million over four years, but router giant Cisco's purchase of 20 percent of KPMG Consulting for $1 billion, as the Big Five firm prepared its consulting unit for an IPO. Ernst & Young, meanwhile, proposed an alliance with a law firm, and the ABA looked like it might favor such partnering -- though it later voted down CPA-lawyer mergers.

The AICPA Council voted to allow non-CPA firms to perform compilations, and, having streamlined its decision-making by culling 49 of 120 committees, the institute announced major plans to move its CPE to the Web -- all while its UAA was meeting major resistance from groups like the NAEA, the NATP, the NSA and H&R Block.

FASB moved forward on a number of fronts: approving the IASC's plan for single set of international standards (though it questioned the form the new IASC would take); proposing to kill pooling in favor of purchasing in acquisitions, and cutting the goodwill write-off period in half to 20 years. GASB issued a standard calling for governments to report on physical assets like bridges, roads, buildings and the like.


The IRS managed to get its EFTPS off the ground, and also to allow some tax payments to be made by credit cards. E-filed returns were up to 21 million, an increase of almost 24 percent. The agency even began to crack down on abusive automobile donations, but still only barely managed to avoid significant funding cuts from Congress.

In technology, many high-end vendors moved down-market, particularly using ASP models, which didn't generate much interest. Starting in May, a host on online accounting vendors began launching, including Virtual Growth, NetLedger, Intacct and eLedger. Peachtree, on the verge of a $140 million IPO, was instead bought by Sage for $140 million. Tech guru Gary Boomer took back Boomer Consulting from PPC. And the "Four 9s" -- Sept. 9, 1999 Ð passed without trouble, leading many to hope for the best from Dec. 31.

2000: COGNITORIOUS

Strangely enough, despite all the excitement of the dotcom bubble straining against economic reality, the profession seemed unable to focus on much beyond two plans from the AICPA: one for a for-profit dotcom portal for accountants with the "placeholder" name of CPA2Biz, and the other for a global business designation originally known as "XYZ." CPA2Biz raised concerns about profit in a nonprofit organization, and the compensation proposed for institute executives; XYZ, despite $1.2 million in research, raised hackles and unleashed an unending debate in the profession, particularly after it was given the unfortunate and much-mocked named "Cognitor." There were other events of interest at the institute in 2000 -- it merged in the ITA, created and began testing for the Certified Information Technology Professional credential, and reported that fewer students than ever were considering accounting careers -- but all were overshadowed by CPA2Biz and Cognitor.

They sometimes seemed to overshadow even more important events, like the SEC investigation that discovered a great many PwC employees holding stock in audit client companies (all of the Big Five eventually participated in an SEC amnesty for independence violations, and the AICPA planned a $25 million investment tracking system to help) -- or the fact that SEC Chairman Arthur Levitt spent almost the entire year blasting the profession for poor-quality audits and saying that the AICPA couldn't be trusted to regulate or to fund the POB. Accountants did pay attention, though, when he proposed mid-year to limit their consulting activities to audit clients; the uproar from the profession and Congress led the SEC to release a much weaker version of independence standards in November, and Levitt eventually announced that he was stepping down.

Accounting firms briefly entertained the idea of forming multi-disciplinary practices with lawyers and others, but a resounding "No" vote by the American Bar Association put paid to that. In the meantime, large firms seemed determined to get rid of their consulting units: Ernst & Young sold its consulting unit to Cap Gemini for $11 billion, KPMG filed a $1 billion IPO for its consulting unit (though investor Cisco cuts its stake in the group in half, to $500 million, for ownership reasons), Grant Thornton sold its E-Business Consulting Group to Hitachi Ltd. for $175 million, and PwC looked set to sell its consulting unit to HP for $18 billion, until the tech company backed out. Andersen Consulting, meanwhile, was finally granted the divorce it wanted by an arbitrator, for a $1 billion payment and a change in name. It chose Accenture (there must have been something in the water that year when it came to naming things), while its ex launched a $500 million venture fund.

Accounting firm consolidators were mostly quiet, working on integrating their acquisitions, though Jackson Hewitt announced plans to roll up independent tax preparers, and roll-up Centerprise sprang back to life after its failed IPO of the previous year, this time with private backing. Large regional firms Plante & Moran and Olive discussed a merger.

With CPAs still flooding into planning, fee-only vs. commission became an even bigger issue, with four fifths of states allowing commissions, and Capital Professional Advisors arose as a consortium of over 20 firms that planned to offer financial products to members. Firms also were feeling the pinch from staff shortages and exorbitant salary demands, which they blamed on the lure of dotcoms and the newly active 150-hour rule.

When businesses and Congress could spare the time, they hated FASB's standard on business combinations, and fought to postpone the abandonment of pooling. The board, meanwhile, worked on fair value, the SEC issued a concept draft for international standards, and the European Union proposed that all of its companies adopt International Accounting Standards (which became IFRS) by 2005.


The IRS received praise for a smooth filing season, and saw a large jump in e-filing, including its first e-filing from a business. It also got its redesigned Appeals Division up and running, and appointed members to its new oversight board.

Once again, the operative word in technology was consolidation: The most important acquisitions were Microsoft's purchase of Great Plains for $1.1 billion (after GP had bought RealWorld for $21 million, Solomon for $145 million, and FRx Software), and Sage Group's purchase of Best Software for $445 million. But Accpac also bought SBT Accounting Systems, South Africa's Softline bought Canada's BusinessVision and the U.S.'s AccountMate, CCH bought Andersen's A-Plus-Tax software, and Danish accounting vendors Navision and Damgaard merged. Consolidation activity also heated up among resellers, led by ePartners and TexSys RD. And while the new release of Windows 2000 met with a cool reception from CPAs, the roll-out of XBRL generated some excitement, and the XBRL Consortium quickly gathered over 70 members.

2001: THE CRACKS SHOW

As the dotcom meltdown got into full swing and the economy teetered, accounting was still going strong, with growth among the Top 100 of 10.4 percent, and it would not be until the end of the year that trouble really reared its ugly head.

In the meantime, the debate over Cognitor went on. The AICPA dropped the name, but defeated attempts to kill the project, and staved off growing opposition until the fall, when it decided to let the membership vote on it. CPA2Biz was officially launched in June, and later acquired turnkey financial and insurance services group Capital Professional Advisors, and worked with a group called Shared Services Inc. to allow access to state society data and resources. The institute also pressed forward with NASBA on redesigning the CPA Exam, and on a $25 million campaign to lure students to accounting.

The SEC and the AICPA between them decided to shutter the ineffective ISB, but the IASC launched the new International Accounting Standards Board, with Sir David Tweedie as chair, giving him three years to set up international standards. FASB also exposed a standard on goodwill in combinations that pleased no one, and officially killed pooling with SFAS 141, while GASB still grappled with OPEB -- and theorists and technology types began talking about the possibility of "real-time" audits.

Harvey Pitt took up the top spot at the SEC, while Edmund Jenkins announced that he'd leave FASB in mid-2002.

In the middle of the year, the Economic Growth and Tax Relief Reconciliation Act of 2001 was signed into law, including big tax cuts.

Consulting still generated a lot of news, even as AmEx revved up for more acquisitions, and Olive and BKD set a merger date for June. KPMG Consulting raised $2 billion with its February IPO, Accenture got $1.67 billion in its NYSE debut later in the year, and PwC sold its corporate value consulting business to S&P for $120 million.

In technology, CRM was the big product of the year, but the news was still all about consolidation: Exact bought Macola; Microsoft closed the Great Plains deal; Intuit acquired tax prep software vendor TAASC; Sage Software bought Platinum software from Epicor for $7 million, nonprofit solutions vendor MIP for $20 million, SalesLogix, and Act!; and Creative Solutions bought ProTym. Great Plains held its last Fargo Stampede and unveiled a .Net strategy, while ASP eLedger shut down, and Sage Software lost the right to the name "Sage" in the U.S. At the end of the year it opted to be known as Best Software.


While the profession and its regulators as a group were quick to act in the aftermath of Sept. 11 -- raising funds and offering assistance, issuing regulatory and tax relief and advice, and even, in the SEC's case, temporarily waiving auditor independence rules -- they were not so quick to recognize the next major disaster heading their way.

The SEC had been investigating Xerox's accounting for some time, and the scandal at Lernout & Hauspie raised some alarms, but the profession spent September, October and November in a flurry of minor acquisitions, until the December 2 bankruptcy filing of Enron. Andersen chief Joseph Berardino appeared before Congress to assure them that the firm would not hide from its responsibilities, but as the year closed and corporate boards began recommending the dismissal of Andersen from audit engagements, it became clearer and clearer that this was no run-of-the-mill accounting scandal.

2002: ANNUS HORRIBILUS

Only two things mattered in 2002: The slow demise of Andersen, and the regulatory response.

Enron investigators started in on Andersen in January, and the firm soon revealed that documents had been destroyed. As its audit clients fled, the firm asked former Fed chair Paul Volcker to lead a team to restore its credibility, but even his proposal that it give up all non-audit work couldn't prevent a criminal indictment of the firm. Berardino resigned, the firm planned to cut 7,000 jobs and divest various units -- and then was found guilty of obstruction of justice on June 15, and later sentenced to probation and a half-million-dollar fine.

Meanwhile, everyone and their brother wrangled over proposals for reform, including suggestions from the AICPA for a new standard on fraud and from SEC chair Pitt for a new oversight board (which prompted the POB, feeling excluded, to dissolve itself). Various bills were floating in Congress, but it wasn't until the uncovering of yet another massive scandal at WorldCom that legislators buckled down and cobbled together a sweeping reform act in late July -- the Sarbanes-Oxley Act of 2002, which established a new oversight body, and required, among other things, regular audits of companies' internal controls.

The new regulator, the Public Company Accounting Oversight Board, shot itself in the foot almost immediately, with the October appointment as its first chair of former CIA director William Webster, who soon turned out to have sat on the audit committee of a company under investigation for fraud. But a caretaker board continued the work of setting up the fledgling regulator, and announced that it intended to run its own inspections of audit firms beginning in 2003.

The PCAOB wasn't the only regulator to end the year without a chair: SEC chair Pitt, roundly attacked for his inadequate response to the many scandals, stepped down in November, and William Donaldson was nominated to succeed him.

The AICPA wasn't having a very good year, either: Its membership voted 62.7 percent to 37.3 percent against XYZ; talks with the Shared Services Network broke down, denying it access to state society info; the ITA pulled itself out of the institute, as did Capital Professional Advisors; and its executives announced that they would donate their shares in CPA2Biz to charity, to allay concerns about conflicts of interest. The portal announced new payroll services, but still was embattled, and the end of the year saw a major shakeup in its executive suite. About the only thing that went right for it was that it and NASBA neared completion of a contract for computerizing the CPA Exam.

FASB got a new chief in Robert Herz in July, and boldly re-opened the issue of expensing stock options, as well as floating a trial balloon on principles-based standards. The IRS, too, had a decent year, with e-filing soaring to more than 46 million returns; a pilot plan for online refund status-checking; and a new software vendor consortium in the works that would become the Free File Alliance. It also aggressively pursued tax shelters, with the Justice Department suing both KPMG and BDO Seidman, but its offer in compromise program was bogged down.


PwC finally sold its consulting unit to IBM for $3.5 billion, and Deloitte planned to spin its unit off as well. CBiz consolidated its affiliated attest firms into Mayer Hoffman McCann, and rolled out a national branding campaign.

But despite scrambling to pick up clients fleeing Andersen, most firms had one of their worst years ever, with the Top 100 recording growth of less than 1 percent, and the many accounting scandals damaging the profession's credibility and driving up malpractice insurance costs.

There was one bright side, though: All the publicity, apparently, began to make accounting more attractive to students.

In technology, XBRL continued to generate interest, from banks, Nasdaq, software vendors like Creative Solutions, and federal agencies like the FDIC. The shakeout in the software market continued: Microsoft bought Navision for $1.3 billion, Intuit acquired nonprofit vendor American Fundware and Management Reports Inc.; Kleinrock acquired ATX Forms; and Best purchased CPASoftware. Accpac filed again for an IPO, while MicroVision adopted the name of its AccountantsWorld subsidiary, and focused on online services, and Gary Boomer began pointing out India as a tax prep outsourcing hub.

2003: THE ERA OF SOX

With its first full year as law, Sarbanes-Oxley began to dominate accounting news in a way that no issue in the past two decades ever has -- a domination that continues to this day. By the start of the year, it was clear that everyone hated SOX, but that didn't stop its creation, the PCAOB, from forging ahead with its mission, even without leaders. It got two in April: former Fed Governor William McDonough as chair, and Baruch College Professor Douglas Carmichael as chief of auditing. With them at the helm, the board began setting up a firm registration system and fees, inspection guidelines, enforcement policies, and a set of tough ethics standards for its own staff, while also reaching an accommodation with foreign regulators who worried that their countries' companies and audit firms would be subject to dual authority.

Grant Thornton became the first global firm to register with the PCAOB, and announced along with BDO Seidman that it would perform no Section 404 work for its audit clients. Firms and businesses feared a "cascade" of runaway regulation as many states considered SOX-type rules and private companies felt pressure to conform to SOX, but the real cascade was in new engagements for midsized and small firms, as larger audit firms trimmed their client lists to avoid conflicts of interest and to focus on larger engagements.

At the AICPA, questions about the viability of its specialty designations led to a year-long grassroots movement by credential holders to save them -- including offers to take them over from the institute. In the end, Council decided to keep them on a provisional basis, setting a schedule of benchmarks and required membership levels, with the PFS's date set for 2006, and the ABV and CITP due to report in 2008. The institute also made progress on the computerized CPA Exam, offering an online tutorial to get students used to it; announced plans for Audit Quality Centers for employee benefit plans and government audits that were launched in 2004; and set up a task force to inquire into the role and effectiveness of its own Council. And CPA2Biz, which had been much criticized for its unprofitability, managed to cut its losses by 91 percent.

William Donaldson was confirmed to head the SEC, and both the commission and FASB struggled over funding -- the SEC because of a stingy federal budget, and FASB because it hadn't been recognized yet as the official standard-setter envisioned in SOX, and so could not send out invoices. That didn't stop FASB from recommending the expensing of options, despite congressional hostility (Microsoft, following Intel's lead of the year before, announced that it would stop using options in September), or from issuing standards on special-purpose entities. GASB proposed a standard on impairment of assets, and reporting on post-employment benefits, while abroad, over 50 countries said that they would adopt the developing International Financial Reporting Standards.

The Bush administration and Democrats in Congress competed to offer stimulus packages to the troubled economy, leading to another tax-cut bill. The IRS, under new Commissioner Mark Everson, switched its focus to enforcement, even as its Free File Alliance debuted, displeasing tax practitioners but pleasing filers and vendors. Both RIA and CCH began offering the outsourcing of tax returns to India, highlighting what remains a major issue for many, in the profession and in the broader economy. The Bush administration proposed using private debt collectors for taxes. Finally, the IRS Oversight Board blasted the service's modernization program, which had become a mess.


Swamped with new SOX and cascade work, firms were busy, but some still had time to make big news: JH Cohn and Videre merged to form a $95 million firm super-regional firm, and Dixon Odom and Crisp Hughes Evans announced plans for a similar-sized merger at the end of the year. Deloitte cancelled its consulting spinoff due to market conditions, while the SEC announced that it was seeking a six-month suspension on taking new clients for Ernst & Young, due to its having been in a joint marketing agreement with an audit client, Peoplesoft, several years before. AmEx teamed up with SAP to launch its Business One ERP software, and Clifton Gunderson set up and branded its stand-alone technology unit. BDO Seidman went to court to claim privilege on the identity of some of its tax prep clients. An FPA study found that, despite tough times, planning practices were growing, and after being highlighted at an ASWA conference, the notion of work/life balance began to seriously enter the consciousness of CPA firms.

XBRL continued to grow -- Microsoft added it to Office, and the FDIC awarded a $39 million contract for it. The managers of RedWing Accounting Software purchased the company from owner Active IQ, while Creative Solutions bought Tax Relief from AccountantsWorld for $20 million, Best acquired Timberline, and, after a tumultuous bidding process, Sage Software bought Softline for $110 million.

2004: MERGER MARATHON

With growth rates rebounding, Financial Executives International announcing that audit fees were soaring 38 percent on average thanks to SOX, and practices changing, firms engaged in a frenzy of mergers -- over a third of the Top 100 were in at least one in 2004 (including the completion of the Dixon Hughes merger announced at the end of 2003), and the group as a whole saw growth of 8.3 percent.

There were some shadows, though: For the first time, all of the Big Four suffered audit client losses, as they trimmed the client lists, while KPMG endured a top-level shakeup as its tax shelter strategies come under scrutiny, and in May was ordered by a court to give up the names of its shelter clients. A judge also upheld the SEC's decision to fine Ernst & Young for improper conduct with audit client Peoplesoft and ban it from accepting new audit clients for six months. A circuit court also upheld Andersen's 2002 conviction, while a massive audit scandal at Italy's Parmalat proved that Europe wasn't immune to financial shenanigans -- and threatened to drag in Grant Thornton.

Delays in the implementation of Sarbanes-Oxley ran throughout the year. With companies struggling with Section 404 deadlines, the SEC moved back the deadline for SOX compliance by accelerated filers six months, and for others three months, to July 2005, and offered another extension in December. The PCAOB, though, forged strongly ahead, approving a tougher internal controls auditing standard, AS No. 2, which in June was okayed by the SEC (as was AS No. 3 on audit documentation), forming the Standing Advisory Group, allowing some but not all foreign firms to be regulated by their home regulators, and beginning a debate on whether it should allow audit firms to offer tax services. Perhaps most important, in September it released its first, limited inspection reports, finding deficiencies in audits from all the Big Four -- and in November, it approved a budget that was 50 percent larger, to step up inspections.

Standards-setters and regulators other than the PCAOB were also busy, with the SEC proposing tougher rules to curb the recently discovered and apparently widespread abuses among mutual funds, including making their boards independent. The Auditing Standards Board's SAS 99 on fraud went into effect, replacing the ineffectual Statement 82 from 1997. Robert Attmore was chosen to succeed Tom Allen as chairman of GASB, and that board issued a standard on post-employment benefits plans other than pensions, as well as proposing the expensing of options, even as FASB engaged in a running battle with Congress and industry over its plan to force options expensing. The Big Four supported FASB, and the House threatened a variety of legislation to water down the proposed standard, but by the end of the year FASB finally fought through and ruled that options must be expensed after June 15, 2005. In the midst of all the fuss, it also proposes tweaking four statements to bring them closer to international standards, to show willing on convergence.

With outsourcing of all kinds one of the big issues of the year, the AICPA began examining and adopting rules on the ethics of the practice, particularly as it relates to CPAs. The institute also re-opened the Big-GAAP/Little-GAAP issue. It also launched its enormously successful 360 Degrees of Financial Literacy campaign, announced that CPA2Biz had finally broken even, extended Barry Melancon's contract to 2010, and reported that accounting enrollments were growing -- just in time for students to take the new computerized CPA Exam, which debuted in April with a new four-section format, including case studies, and a focus on research skills and problem-solving.


Following the course of its usual cycle, the IRS announced that it would be switching back to an enforcement and compliance focus, even as it made cutbacks and fought with its main employees' union over a plan to raise agents' education requirements. After the 2004 election, it began investigating the role of nonprofit groups, particularly churches, in politics, leading to a long-running battle with the NAACP over whether it had violated its tax-exempt rules. The service also issued tougher new Circular 230 rules that were due to take effect June 2005, and various groups, including the Taxpayer Advocate, began calling for greater regulation and registration of tax preparers.

The long-running shakeout in accounting software continued, with Best snapping up Accpac International, Creative Solutions acquiring ExacTax Package EX, OpenPages buying PwC's Sarbanes-Oxley compliance software, and Kintera buying the American Fundware nonprofit line from Intuit. Microsoft reported delays in its Project Green for the next generation of accounting software, and XBRL made significant gains abroad -- and some at home, as well, when the SEC proposed letting companies report in it.

2005: REGULATION AND RELOCATION

It was an excellent year for firms, with the Top 100 ringing in revenue growth of 15 percent. In August, H&R Block's RSM McGladrey Business Services acquired American Express Tax & Business Services for $220 million, creating the first non-Big Four accounting firm with over $1 billion in revenue. There was even good news for Andersen, though of the posthumous kind: The Supreme Court agreed to hear its appeal, and in May overturned its 2002 conviction -- for all the good it did. Meanwhile, KPMG continued to face heavy fire over its tax shelters, with prosecutors warning that as many as 20 KMPG partners might face charges. After a summer of tense negotiations, the firm settled with the feds for $465 million, and agreed to beef up its governance.

The AICPA faced serious questions about its financials from grassroots group CPAs Reforming Our Profession, or CROP, but scored some major successes with its prize-winning 360 Degrees program, the news that CPA2Biz was finally profitable, and that it was planning to move much of its operations to North Carolina to save money. And while the Shared Services effort finally ground to an unproductive halt, the institute and NASBA did unveil a new draft of the UAA designed to address the problem of CPA mobility.

Early in the year the PCAOB fell behind in its hiring, crimping its plans for full inspections, but it still managed to release its first full reports by the end of the year -- still noting deficiencies in large-firm audits. It also proposed tough new rules on tax services for audit clients -- but not a complete ban -- and announced that 12 percent of companies that had gone through SOX audits were below standards on internal controls. COSO worked to offer help and guidance on SOX and particularly Section 404. And the announcement that PCAOB Chairman William McDonough would step down at the end of November rounded out the year.

Standards and regulation made big news, with IFRS coming into force for European companies, FASB and the IASB working ever more closely on standards, and the SEC and the European Commission establishing a "roadmap" for convergence, with 2009 as a goal. Comments by SEC Chief Accountant Donald Nicolaisen sparked a panic over accounting for leases, with over 300 companies restating their financials to bring them into compliance. William Donaldson stepped down at the SEC in June, and was succeeded by Christopher Cox, while the commission was sued by the Financial Planning Association over its attempt to exempt some broker/dealers from the Investment Advisors Act. It also voted to require mutual fund directors to be independent, a decision that would run into opposition later, and to postpone option expensing, which didn't.

In tax, the big news that wasn't was the work of the Bush administration's high-profile Advisory Panel on Tax Reform, led by Connie Mack and John Breaux. After a year of high-profile hearings and investigations, the panel offered a number of recommendations for changing the nation's tax system -- all of which were quietly allowed to die (as were the administration's attempts to reform Social Security). Meanwhile, the GAO reported that Earned Income Tax Credit fraud drained $2 billion a year from Treasury, and the IRS noted that false returns from prisons had jumped to 17,000, even as it continued its battle with the NAACP, and announced plans, later suspended after public outcry, to close some of its Taxpayer Assistance Centers. E-filing, though, continued to surge towards its goal of 80 percent of returns, and the IRS extended its extensions, offering six months where taxpayers used to only be able to ask for four. Preparer licensing continued to gain adherents, from industry groups and in Congress. And in October, the Streamlined Sales Tax Program passed a major participation threshold that guaranteed its implementation.


In technology, identity theft and data security quickly became two of the greatest concerns, while dashboards emerged as the must-have technology, and VoIP technology was the must-have technology no one had. Best Software finally bought the rights to the name "Sage" in the U.S., and announced plans to fully rebrand the firm by March 2006. Meanwhile, Intuit launched its innovative TaxAlmanac wiki site on the Web, and in November Microsoft re-entered the small-business accounting market with its Microsoft Office Small Business Accounting 2006 software.

2006: RETHINKING SOX

Even as the Big Four said that SOX 404 costs were dropping, the PCAOB acknowledged that many companies were struggling with it, and joined the SEC in offering short postponements and promises of guidance that would ease the workload -- though they stood strongly by SOX as a whole. As the options backdating trouble exploded, the board issued an audit practice alert on the subject. It also welcomed a new chairman, former Federal Reserve Governor Mark Olson, in June, and fought off a lawsuit questioning the constitutionality of its creation.

Constitutional issues didn't matter to many firms, which too busy dealing with a serious shortage of staff, as engagement opportunities mushroomed, with the Top 100 Firms reporting growth of over 11 percent.

The AICPA successfully completed the bulk of its move to Raleigh, N.C.; CPA2Biz reported its second year of profits; and the PFS credential met the membership goals set for it in 2003. The institute also joined the New York State Society of CPAs in a call to make peer review mandatory for licensing, but it clashed with NASBA over the sharing of PCAOB inspection reports. In July, it joined with FASB to propose a procedure to help the standard-setter take account of small companies' needs, which led to the creation of FASB's Private Company Financial Reporting Committee.

FASB was also active in other fields, proposing giving companies the option of reporting in fair value, recommitting to convergence with the IASB and unveiling a joint conceptual framework project, and issuing a tough new standard on pensions. The SEC got a new chief accountant in Conrad Hewitt, and issued stricter rules on executive pay, but various courts hampered its attempts to regulate hedge funds and ensure independence for mutual fund boards. The ASB, meanwhile, issued eight new standards on risk assessment in audits, and new standards on internal controls audits for private companies.

It was not a great year for the IRS -- it began choosing debt collection agencies for its private collection initiative and started sending them cases, which met with widespread disapproval; continued to fight bitterly with the NAACP; put out new rules on the disclosure of tax return information that some thought were too loose and some too tight; and then was flooded out of its Washington, D.C., headquarters over the summer, and had to spend $25 million for repairs. State and federal mandates, however, sparked another surge in e-filing. Practitioners had to deal with new Circular 230 rules requiring specific disclosures to clients. Tax prep giant H&R Block faced a lawsuit by California's attorney general claiming its refund anticipation loans were unfair, but at the end of the year it announced plans to expand into banking to make it easier for clients to get their refunds. And everyone and their brother suddenly noticed that the tax gap between taxes owed and taxes paid was getting wider, and wider.


The most common thread in technology was the ability of everyone -- from the government agencies like the IRS, to accounting firms like Ernst & Young, to organizations like the AICPA -- to lose computers with private information on them. Meanwhile, Microsoft released Dynamics GP 9.0, Wave One of its long-awaited new Dynamics line, at the beginning of the year, and Office Accounting for small businesses at the end of the year, while LexisNexis entered the online tax research arena with its TaxCenter. The acquisitions continued, but moved farther afield, with Sage Group buying Norway's Visma accounting and tax vendor for $584 million, CCH agreeing to buy both ATX/Kleinrock and TaxWise, and Intuit buying Web banker Digital Insight for $1.35 billion. Also, the SEC issued $54 million in contracts to make its Edgar database XBRL-compatible, and XBRL US became a nonprofit independent of AICPA.

2007: READY FOR THE FUTURE?

After much debate, the SEC and the PCAOB came out with new guidance aimed at reducing the cost and effort of Section 404 audits, including the new Auditing Standard No. 5, which offered a more risk-based approach to internal controls audits. The board also proposed ethics rules on communicating with audit committees, and saw the lawsuit claiming it was unconstitutional dismissed. With SOX now five years old, a study by the new Center for Audit Quality, which was established by the AICPA and the top firms early in the year, noted that investors didn't want SOX to be watered down.

Firms continued to struggle with staff shortages, and began pursuing "Best Place to Work" titles with unprecedented fervor -- though a survey of 5,000 MBA students reported that they thought accounting was the career field that offered the least financial reward. Broker/dealers reported a pick-up in accountants going into financial planning (Genworth saw 62 percent more recruits over the previous two years). KPMG finally officially emerged from under the shadow of its tax shelter woes, when a federal judge dismissed a criminal conspiracy charge against it because it had met its settlement obligations. The one merger of note for the year actually didn't happen -- UHY Advisors announced plans to merge with New England powerhouse Carlin, Charron & Rosen early in the year, but the deal was called off early in the spring. And in what might be a sign of things to come, regional firm Smart and Associates got $60 million in funding from private equity sources.

Though still settling in in Raleigh, the AICPA issued new standards for valuation engagements, and proposed new ethics guidelines for networks of accounting firms, while reaching out to over a million students in an attempt to ease the ongoing staff shortage. CPA2Biz, now comfortably profitable, announced a major revamp of its site.

FASB made a lot of corporate finance-types sweat when it issued FIN 48 on accounting for taxes in February. It continued to push forward on convergence with the IASB, and the two also mulled the possibility of a brand-new statement model. GASB saw off challenges to its authority from Texas, where legislators tried to vote away its Statement 45 on post-employment benefits, and Connecticut, where a bill, later vetoed by the governor, would have given standard-setting power to the state comptroller. It also began examining its conceptual framework, and started defining the fundamental elements of governmental accounting.

The SEC got in a tiff with the Financial Accounting Foundation over the process of appointing members to FASB, and also lost a court battle on broker/dealer exemptions from the requirements for financial advisors. On the plus side, it set up a committee to examine better financial reporting requirements, and issued a groundbreaking proposal to let statement issuers choose whether to report in IFRS or GAAP. The Federal Accounting Standards Board, under former GASB Chair Tom Allen, undertook a massive project to determine standards for determining the financial condition of federal government, and proposed that federal agencies display their changes in assumptions. And the Treasury Department created a panel to study the future of the auditing profession, with former SEC Chair Arthur Levitt and former chief accountant Donald Nicolaisen in charge.

The IRS had another tough year: It had to revamp its Free File program to remove all cross-selling opportunities -- and still saw usage of the service slide; dealt with both fraud and general confusion in claims for long-distance telephone tax refunds; and continued to face fights over its private tax collection strategy. Most important, though, it lost Commissioner Mark Everson to the Red Cross in the spring Ð and then lost his replacement, Acting Commissioner Kevin Brown, to the same organization in the summer. Shortly afterward is appointed Linda Stiff as acting commissioner. Lawmakers continued to be fascinated by the tax gap, and also began to address preparers' concerns over the patenting of tax strategies. Calls for preparers to be registered grew louder, and legislation and IRS regs created new and higher penalties for preparers, and a discrepancy between standards for preparers and standards for taxpayers that threatened conflicts of interest.


The big news in technology were the C-suite changes at both Intuit and Sage Software: Intuit chief Steven Bennett announced that he would step down at the end of the year, with Brad Smith stepping up; and after a major restructuring of Sage Software earlier in the year, in October, its parent Sage Group suddenly ousted much of its leadership, including CEO Ron Verni, chief technology officer Jim Foster, and channel leader Taylor Macdonald. With software as a service looking like it might finally be taking off in accounting, NetSuite filed for an initial public offering. Microsoft announced that its Office Accounting Express had hit 1 million downloads, and released its Money Plus personal financial software, while SAP announced that it would start moving into the small and midsized market. And the SEC released XBRL for GAAP, so companies can download Edgar information, and set up a special unit to speed up the development and acceptance of the technology.

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