With the close of 2006 approaching, we asked industry leaders to share their ideas of what the accounting profession will look like in five years: What will be its major concerns? Its challenges? The hot new service areas? What shape will the firm landscape have taken?Throughout November, WebCPA will post new comment collections each week.
This week, insight from practitioners, product pushers and policymakers, including the managing director of RSM McGladrey Business Services, Stuart Kessler; the chief executive of Sageworks, Brian Hamilton; and a number of leaders at the American Institute of CPAs, such as president and chief executive Barry Melancon and the institute’s new chairman, Jimmy Williamson.
Many of the commentators made Accounting Today's recently released Top 100 Most Influential People list, which can be viewed at http://sm.ebookhost.net/amg/top100people2006/1/.
Wanda Samek, President, National Society of Accountants:
“The profession is changing rapidly. In five years, we will likely recognize it as accountancy, but will be astounded by the burgeoning standards that must be followed, adherence to which will be difficult, time-consuming and costly. Entry into the profession will be difficult because of the complexity of practice.
“While more and more small companies attempt to handle their accounting needs themselves using low-priced software, larger companies will be increasingly dependent on technical assistance and advice from highly trained professionals.
“Companies will spin off satellite organizations that specialize in one service or another to take care of consumer needs such as taxation and consulting on financial planning, fraud detection, liability protection, and estate planning.
“More women and minorities will enter the profession. We will likely see the concept of ‘accountants without borders’ realized as standards become global.”
Jay Nisberg, Nisberg & Associates:
“Looking down the road five years, I see very few dramatic changes in the CPA profession, since we all know how slowly the world turns for CPAs, but here are a few of my visions:
- As for major concerns, I see alternative service providers competing with CPAs. MBAs, PhDs and other business advisors will enter the marketplace and compete vociferously without the restrictions of state boards or the AICPA.
- Sole practitioners may greatly decline, if not become extinct, as it gets nearly impossible for them to recruit staff, or afford health benefits or liability insurance.
- 404 work will be gone. The SEC will assign public section audits to CPA firms capable of doing the work and will require rotation every three to five years depending on size. Additionally, the SEC will determine the fees to be charged by each CPA firm.
- The 150-hour rule will be repealed to get more people in the CPA pipeline.
- CPAs will be doing more legal work as lawyers integrate CPA firms. CPA services will include all areas of financial services, not just be limited to asset management but will do more insurance and residential mortgages.
- Structure of firms will change over time to more of a corporate entity. During this transition, equity and non-equity roles will be delineated and lower level titles will be condensed into hierarchal levels. Many firms will look like law firms, owners and associates.”
Stuart Kessler, Managing Director, RSM McGladrey Business Services:“Some years ago, it seemed inconceivable to many that the Big Eight firms would be reduced in size by 50 percent, in less than 10 years. It now appears that the combined forces of government, business environment and the profession itself will keep the four active during the ensuing five years. However, the second tier will make strong advances. My own firm (RSM McGladrey Inc.,) Grant Thornton, The Crowe Group, Moss Adams on the West Coast, and perhaps one or two that I’m not giving sufficient credit to, will challenge the Big Four in a portion of the practice that until now was considered solely theirs.
“The major challenge that all firms are facing today -- recruitment -- will be solved within the next five years by the current resurgence of accounting students. The ongoing challenge after that will be retention. As this new group of recruits meets their five-year mark in the public accounting profession, they will question more than ever what their future is. This group’s desires are radically different than those of us that came before them. One of the real challenges of the next five years is how to live with this new generation and how to make them productive. This generation, which was labeled by a speaker at the recent AICPA Council meeting as “Millennials,” are said to be loyal to other people, not companies. Therefore, as indicated above, one of the great challenges is not in hiring people, but in retaining them.
“Five years ago, no one predicted that there would be SOX legislation that would lead to a major new service for CPA firms. It is highly unlikely that one can predict in the next five years that a new similar service will occur. However, in my area of taxation, it is fairly clear that five years from now retirement planning and business succession planning will provide greater income to many accounting firms than estate planning. Although the latter will continue to thrive, the logical increase in the estate tax exemption to $4-$5 million each and $8-$10 million per couple will eliminate many clients whose sole concern in estate planning is estate tax savings. On the other hand, I believe a new area of charitable giving will develop because of the reduction in estate taxes, and will just be reaching a modest level five years from now -- on its way to becoming a full-fledged planning area for CPAs.
“Another phenomenon which will just be beginning to develop five years from now in midsized firms, is that there will be more partners or those sharing in the firm’s equity. In order to retain personnel (and this, as indicated, is a major concern), forms of equity sharing will be developed so that people entering the profession will begin to share in the profits of the firm at a much earlier stage.
“Finally, one area of diminished income will be that of income tax preparation. This will be a serious problem for sole and small firm practitioners as their clients gravitate to preparing their own returns on their home computers and e-filing them with the government. Small firm practitioners will have to develop a greater expertise in innovative income and estate tax planning, along with that of personal financial planning. If they follow what is happening in both tax preparation and the profession, they will gravitate to the personal financial planning area, which will then become their major source of income.”
David Reedy, President, Genworth:
“In five years Baby Boomers, which are your best clients, will begin turning 65 -- the traditional retirement age. The biggest challenge will be that many of them have a huge shortfall in personal retirement assets and most do not have a pension. In addition most of this group does not have long-term care insurance, and as it stands today Medicare will not have the resources to care for 77 million boomers without some major overhauls to the system. The hot new service will therefore be to offer planning for retirement income replacement and wealth protection. The most successful firms will offer a fully integrated tax, accounting and financial planning package.”
Chandra Bhansali, President, AccountantsWorld:
“Internet-based products and services will exponentially boost the productivity of accountants. Accordingly, in the next five years the most significant development for the accounting profession will see accountants doing more work online using the Internet than with the desktop PC platform.
“Looking ahead, there will be many opportunities for accountants to expand into entirely new service areas. However, because of a high degree of complacency, for most accountants the core tax and accounting services will continue to be providing a bulk of their revenues over the next five years. There is one key exception -- many more accountants will be offering their clients payroll services. In fact, this trend is already well underway.”
L. Gary Boomer, CEO, Boomer Consulting:
“The major concerns will continue to focus on people:
- Retirement/succession planning;
- Retaining and attracting quality people; and,
- Development -- training and learning (employability for a lifetime, not employment for a lifetime).
“Due to the demographics in the U.S. workforce, the competition for quality employees will be great in most professions. There is already a gap between supply and demand in the U.S. skilled labor market. The challenges will include:
- Rapid integration of women into the ownership/leadership ranks;
- Developing a training/learning culture in firms in order to retain and attract people;
- Integration of technology; and,
“Firms will be composed of multi-disciplined teams servicing client’s requirements based upon their dangers, opportunities and strengths. Business coaching and the delivery of services through client portals will be widespread, creating improved efficiency and improved client service. Some of the most important new and expanded services will be:
- Forensic accounting;
- Business intelligence -- the use of technology-based tools to forecast trends and results;
- Planning (strategic, IT, succession, financial, training/learning, content management);
- Tax strategies (income, real estate, sales, credits, cost segregation, etc.); and,
- Real-time reporting (systems and assurances).
“Innovation requires a perceived increase in value with a decrease in the cost of production. Firms simply must do more with fewer people. Technology is the accelerator. Planning, times people, times processes, equals increased performance.“Due to the retirement of many older CPAs and the Baby Boomers, the number of firms will decrease by as much as 10 percent. There will be increased consolidation over the next five years. Firms are going to develop strategies to continue to employ people (with current marketable skills) beyond the age of 65 simply due to the fact the traditional sources of younger employees are scarce. People are living longer and will want to remain productive beyond the typical retirement age, even if in a different job.”
James Castellano, Chairman, RubinBrown LLP:
“Challenges will continue to be adding value to the marketplace we serve. Auditing has significantly increased in value over the past five years since the enactment of the Sarbanes-Oxley Act. The profession must continue to improve the value provided to stakeholders of the audit process and lead the development of financial reporting standards that are relevant for all entities.”
Gale Crosley, President, Crosley + Co.:
“Standards-setting will significantly drive the dynamics in the profession. The public focus will continue to be on the fiduciary responsibility of CPAs to provide accurate information to investors. Various organizations will attempt to ‘stake their claim’ as the standards-setting body within their jurisdiction. The impact on marketing strategy will be significant, as firms specialize even further, and make trade-offs between which services and industries they’ll serve.
“Standards-based niches will become as common as industry niches are today. Unable to keep up with the breadth of services that clients need, more relationships between firms will emerge, as they offer each other’s services to their own client base. These dynamics will cause buyers of accounting services to shift from a ‘single provider’ to a ‘multi-provider’ environment, where multiple CPA firms are involved with a client.
“Staffing shortages will drive different and more creative solutions, some of which we’re starting to see already. Low-margin, commoditized services will move offshore, as the concerns about client perception, security and quality are resolved. The paraprofessional model, so prevalent in medicine and law, will move beyond the ranks of bookkeeper to include tax and audit assistants. Two-year people with degrees, bank tellers and other alternative labor pools will be tapped and integrated into the delivery of mainstream audit and tax services. As they solve resource shortages and efficiency issues in low-margin services, leading firms will turn their attention toward developing and delivering higher-margin, higher-value-add services.
“Succession challenges will drive more investment in leadership skills for some firms and mergers for others. As a result, we’ll have better-managed firms than we have today, and we’ll have more mega-firms. There will be significant consolidation of the mid-market. Marketing strategy will become more sophisticated, as larger firms amass the resources to hire the best marketers and deploy the best strategies.
“Many smaller firms that make the choice to remain independent and invest in leadership will become service boutiques, as they discover that the dynamics of standards-setting and a multi-provider environment will enable them to grow and leverage talent better if they focus on a narrow complement of specialized services. Hot areas will be technology-based security, forensics and attest services, as well as specialization around specific standards -- especially industry-related standards in public-interest niches such as mortgage banking, investment management and insurance.”
Michael Dickson, Manager, Plante & Moran:
“Concerns and challenges include the ability of CPAs (in public and industry) to adapt to changes in regulatory environment, including new accounting and auditing standards. In order for CPAs to remain the business advisor of choice, we must rally together behind inevitable changes rather than be passive or resist change.
“CPAs must continue to gain specialized knowledge to compete with niche players who have specialized skills, but don’t have the broad business background CPAs have, while CPA firms need to expand their abilities to attract and retain staff.
“Hot service areas will include risk assessment, process and internal control reporting, analysis and documentation, and assurance surrounding information systems. Dare I say SysTrust?”
Mitchell Freeman, MFAC Accountancy Corp.:
“Here is my opinion of the major concerns of the CPA profession, on a go-forward basis.
“Obtaining and retaining adequate qualified staff will likely continue to be an issue that will challenge firms. Business continuity and succession will also be a big issue as the Baby Boomer partners begin to transition along life’s continuum. Much has been written and spoken about succession. However, continuity in the event of death or disability will also become a matter that smaller practice units will have to deal with.
“Another major issue will be how the AICPA manages the move of 400 jobs to Durham, N.C. As it is already apparent that a huge amount of institutional knowledge will evaporate because so many staffers are not making the move, the AICPA management will have its hands full providing continuous uninterrupted service to members. This could cause greater numbers of CPAs to opt not to continue membership. The AICPA’s finances will continue to haunt management. Unless they find a way to recover the costs of the computerized CPA Exam (which ballooned from an originally projected $19 million to in the neighborhood of $50 million), and make sure that the projections of the cost of the move from the New Jersey building were adequately projected, and that the costs savings of the move are achieved, the AICPA will have to substantially raise member dues, reduce services -- or both.”
James Smart, Managing Partner, Smart and Associates:
“There will be audit-only assurance firms and a wide array of consulting firms.”
Jayne Bates, President, Association for Accounting Marketing:
“Major concerns and challenges will continue to include staffing shortages at the senior level. In the future, firms will need to be able to test skills of individuals to place the individuals in positions where they can excel.
“With the availability of integrated information systems, clients will expect more than pure compliance work and after-the-fact information. They will want their accounting firm to manage their information, assist them in interpreting it, and then assist them in making better decisions for the future.”
Rick Richardson, CEO, Richardson Media & Technologies:
“There will be fewer mergers and much more collaboration. Practitioners will use professional organizations to network their special skills to other CPAs, and use those same networks to find individuals or firms with specialized skills needed for particular client engagements. One challenge in these new collaborative times will be insurance and indemnification.”
Brian Hamilton, CEO, Sageworks
“Within five years, the bulk of fees in the accounting industry will continue to be generated from where they are derived today -- from providing excellent and accurate financial data to managers. Yet it is important to also look over the landscape of the profession to identify trends and opportunities that loom large in the future, although they may seem small today.
“Economic history shows us that the most significant opportunities to make money are driven by small but significant changes which are unseen by most people and are able to be capitalized upon to make money. If you look carefully at U.S. history, this point is clear. The people and organizations that take advantage of real, sustainable and client-driven opportunities will prosper the most at any given time in history. This may seem like an obvious point, but is actually difficult to make tangible. … Innovation takes time to be recognized as valuable because it needs to find a market and most people don’t quite see the opportunity on the margin. Great companies live on the edge, where they are gaining from opportunity and trends but where they don’t go out so far that they live in a future that won’t exist in our lifetimes.
“So, what does this mean for accounting and accountants? While accountants need to create most of their revenue from performing accounting the way they do it today and have always done it … the leading firms will move beyond data presentation to interpreting and explaining the significance of the data to their clients. Accounting firms will provide meaning to the data they provide to clients and will help clients use the data to make better decisions.
“Why? Because using information to make good management decisions is core to the entire accounting profession. Financial data is not an end in itself -- it is a means to making better decisions. Leading firms are already taking advantage of this concept and will continue to do so. While we need to be sure that revenue, fixed assets and net income are calculated correctly, we also need to make sure that these numbers:
- Mean something to someone (our clients).
- Can provide us with clues on how to better manage a business (a client’s business).
- Can help us communicate better (with clients).
“Accountants in the future will take financial data, assist their clients in interpreting the data, and then help the clients make better decisions. The leading accounting firms will make the bulk of their revenue practicing accounting as always, but will also leverage emerging trends to generate larger-than-normal revenues and profits.”
Thomas Purcell, Associate Professor of Accounting and Professor of Law, Creighton University:
“I hope that in five years there is greater clarity on the issue of public expectations for the accounting profession. A time of constantly changing legal and governmental constraints (in both the financial accounting arena and the tax system) creates significant uncertainty in the minds of financial statement users and taxpayers and places significant burdens (economic, educational and motivational, to name a few) on practitioners and practice units.
“The challenge for governmental policymakers and leaders of the profession is to strike the right balance between protecting the public interest -- through a combination of self-governance and public institutions -- and removing barriers that create disincentives for people to come to, and remain in, the accounting profession.
“Increased access to real-time financial information, customizable financial statements, expanded transactional analysis, greater comparability of tax and financial information, and reduction in jurisdictional taxation barriers are a few possible services that accountants could provide over the next few years. Since firms react to the regulatory landscape, the profile and composition of firms in five years will depend on changes in regulatory structures. Recent trends would suggest that there will be continued divestitures of service areas that conflict with core assurance services, and possibly greater concentration, especially in the mid-market arena.”
Randy Johnston, Executive Vice President and Partner, K2 Enterprises:
“Finding enough qualified accounting talent will continue to be the major concern of the industry. Current talented accountants will retire, and there will be an increasing shortage of knowledgeable talent. Some of the challenges will include succession planning, as well as [adjusting to] firm mergers and acquisition. New service areas will include business analytics and reporting to help business owners and managers understand the impacts of actions and decisions on their business. The firm landscape will be profitable, with labor shortages and a reduced number of firms providing actual client service.”
Karen Pincus, Professor, University of Arkansas:
“Millenials (Generation Y) and aging Boomers will begin to work from both ends of the age spectrum to create workplaces with increased flexibility. Someone will start a professional services firm where part-time is the default and full-time is the exception, and be inundated with strong applicants who want to work there.”
Barry Melancon, President and CEO, AICPA:
“We can rest assured that the CPA profession will remain vital to the American market system. No other profession touches every sector of society as widely, or deeply. There will always be a place for qualified, talented CPAs. That said, a primary concern will be how to continue bringing qualified, talented people into the profession. The profession is aging. Over the next 15 years, around three-quarters of the AICPA’s membership will reach retirement age. Firms now contend with recruitment and retention issues. Those issues will probably be with us for the foreseeable future. Consequently, firms will have to think harder about work/life balance considerations.
“In 1998, we developed the CPA Vision, which identified five key service areas: Assurance, technology, management consulting and performance management, financial planning, and international services. In 2005, the AICPA’s Strategic Planning Committee and senior management determined these services areas still offer enormous potential for the profession.”
Susan Coffey, Senior Vice President, AICPA:
“Several issues that the profession will be faced with in five years include:
1. The HR pipeline -- ensuring there are sufficient qualified professionals with the requisite knowledge, skills and abilities.
2. Work-life balance -- as those entering the profession dictate their lifestyles, firms will need to adapt and develop new and innovative ways to attract and retain qualified professionals.
3. Liability reform -- the need for liability relief will increase and strong measures to address the issue will need to be explored
4. Mobility -- state licensing laws will become more complex and diverse, and the profession will need to figure out how to ease mobility issues in order to serve clients that are located in multiple jurisdictions
"Fraud prevention and detection will continue to be hot issues, as will fair value accounting and auditing. New assurance and non-assurance services will begin to develop as XBRL takes hold, and smaller, public and non-public companies begin to see the value in application.”
Charles Landes, Vice President, AICPA:
“Tort reform (or the lack of it) will have a major impact on how the CPA profession looks in five years. In addition to tort reform, the challenges facing the largest firms will be similar to those of today -- hiring and training of staff and capital for growth and technology. Firms of all sizes will see advantages in establishing and growing their forensic services and will find benefits in better integrating anti-fraud specialists into audit engagement teams.
"In addition to forensic services, hot service areas will continue to be valuation and technology. Local firms, many of whom have not yet discovered how to use CAATS from a cost/benefit perspective, will begin to do so. Finally, emphasis on internal controls over financial reporting to prevent and detect material misstatements will continue to be understood and refined and even smaller companies will begin to understand the advantages of risk management and integrating internal control into their processes.”
Tom Ochsenschlager, Vice President, AICPA:
“The benefit to constant change is that this is one of the factors that attract intellectually curious people to our profession. Most of us wouldn’t have it any other way…
“Regardless of which party wins the midterm elections, the pressure will build over the next five years to make major changes to Social Security, Medicare and, with the AMT looming over nearly everyone’s heads, even fundamental tax reform. I do not share the concern of some in the profession that, if we were to adopt a simpler taxing regime, such as a national value-added tax, that it would have negative repercussions on the demand for tax services.
“Any major change would almost certainly have to be accomplished with transitional rules that would likely further complicate tax matters during the transition period. Moreover, even the simplest alternative when fully phased in would continue to entail significant complexity to assure the fairness of the system. Accordingly, although I see significant change in the next five years, and while that may be a concern for some, I view the potential change as a challenge the profession is up to.
“Another, perhaps even more important change that I’m not as confident the profession is up to is that of recruiting good, capable people. Accountants are excellent with technical matters. That’s what we like best and that’s why we’re in this business. But it’s an unusual person that is excellent at both technical matters and personnel matters. That distinction was not so important in the past, because individuals entering the profession did so with the expectation that they would be working long hours, doing important but perhaps routine work … in anticipation of having an opportunity to become a partner or whatever the top tax position was in their organization.
“We are now seeing a new generation that, while perhaps equally capable, places a higher value on leisure time. If this trend continues, as we all expect it will, the effect will be to place economic stress on the profession. It will shift more emphasis to management of people, something that historically we have been able to minimize. The extreme result could be the outsourcing of tax preparation, something that is now only in its infancy.
“This would raise a whole new host of management issues, such as the monitoring of the quality of the work, the assurance of security of the taxpayer information and the general lack of direct control over projects, not to mention the issue of how we develop young people to take over the leadership positions.
“As for hot new service areas, I believe that, with the increase in the value of real estate and many types of intangible property, business valuations will be very important in the future. With the decline in defined-benefit plans, the uncertainty surrounding Social Security and Medicare, and the increasing longevity of individuals, personal financial planning will also become more important. Finally, I believe international tax expertise will be in high demand as ever-smaller businesses take advantage of the globalization trend.
“All in all, I see a very bright future for the tax profession.”
Jimmy Williamson, Chair, AICPA:
“I believe the profession will continue to be strong, as a result of the excellent people serving in it. One of our primary challenges as a profession -- indeed, it’s our mandate -- is to attract more young people, particularly minorities. The CPA profession offers rich career opportunities, some of the richest of any profession. For the foreseeable future, we have to continue communicating about that richness to students and new professionals.
“I think CPA firms will remain strong in core service areas, such as tax. No one knows the Tax Code as thoroughly as we do. No one has provided tax services at such a consistently high level for so long. The profession had a leadership voice in the tax reform debate, producing a detailed, impartial analysis of the various reform proposals.
“A personal goal of mine as chair is to encourage more CPAs to join the 360 Degrees of Financial Literacy campaign. It’s no secret that America is in a crisis. Americans have a negative savings rate. We’ve seen a record number of bankruptcies. This is where the CPA profession can really make a difference. I chaired the Financial Literacy Grassroots Mobilization Team. I had the pleasure of meeting many committed CPAs who viewed financial literacy as both a professional and community responsibility. I’d like to see every CPA firm take part in this important project. Even if it’s something as simple as recommending the 360 Web site to a client, the CPA is contributing to the financial literacy effort.”
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