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? Challenges? Hot new service areas? What will shape will the firm landscape have taken?
Through the Thanksgiving holiday, WebCPA will post new comment collections each week.
This week, insight from practitioners, product pushers and policymakers, including practice management consultant Marc L. Rosenberg, H.D. Vest president Roger Ochs, National Association of Certified Valuation Analysts chief executive Parnell Black, and a trio of leaders from the country’s largest state societies.
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/.
Sally Glick, Chief Marketing Officer, Sobel & Co.:
“I believe that we will continue to see the growth of large regional firms as a result of mergers, as well as a continued strong presence for the smaller, middle-market local firms. These smaller firms will help to ‘fill in the gaps’ left by the larger firms regarding cost-effective fees and highest-quality service and responsiveness -- which will give them a chance to own a piece of the market, despite their size.
“Also, I believe the focus on infrastructure in firms of all sizes will continue to grow. This means more credibility and internal influence for human resources, marketing and IT -- and I also believe firms will put resources into business development (sales!) in addition to pure marketing initiatives. Even smaller firms will pay more attention to marketing, and will institute some consistent, disciplined marketing activities to help distinguish their firms from others. They may not hire a full-time professional, but they will become more committed to encouraging a marketing-driven culture within their organization.
"While our core competencies of accounting, audit and tax will always be at the forefront, I think firms will continue to expand their expertise -- or partner with firms that have services needed by clients -- to ensure that every client’s needs are met as they evolve and change. There may not be “new” services on the horizon, but firms will develop new skills or hire experienced professionals with skills to enhance areas that are lacking in the firm. … Firms with a concentration of clients that fall into key areas will be able to add more value by immersing themselves in the industry and developing a true ‘niche’ around the existing clients.
"Eventually, the impact of SOX will slow, as it already has, and companies begin to see the internal audit as a ‘commodity.’ The original excitement that resulted as companies sought new accounting firms to conduct corporate governance and testing engagements has slowed and relationships that were made are now becoming more permanent. There will still be some shakeout as clients move about, but I don’t think it will present overwhelming opportunities or much of a change in our profession.”
Marc L. Rosenberg, President, The Rosenberg Associates:
“First, there’s the matter of succession planning. What will the thousands of firms who need an exit strategy in the next five to 10 years do? Most will have no choice but to seek sales and upward mergers. This will turn the CPA firm merger market, for the first time in its history, into a buyer’s market instead of a seller’s market.
“Next, shortage of staff will be a major factor. Every demographic I see points towards this getting worse instead of better, despite the nice gains experienced in the past two to three years. This will all be exacerbated by a severe shortage of college accounting professors. Nothing has been done about the fundamentals that cause young people to seek other professions and jobs, which include the drag of the tax season; the burn-out of young staffers at firms due to SOX work; heavy work hours in general; low pay compared to new lawyers, engineers and high-tech workers; the inability of most firms to retain female staff entering their child-rearing years; the total failure of the profession to attract black and Hispanic people; and a lack of promotion of the profession to impressionable teens.
“As the succession planning and shortage of staff issues collide, over the next five years, the CPA landscape will change dramatically. The many upward mergers of smaller firms into larger firms will result in the birth of a new tier of large super-regional CPA firms. Instead of 40 firms nationally with annual fees over $50 million, there will be 100 to 200, the larger of these firms approaching the Big Four in size.”
David Costello, President and CEO, NASBA:
“A major concern and challenge will be instilling and sustaining the public’s trust. Each accounting scandal, no matter how relatively insignificant, screams loudly to the public (through the media) that you cannot trust CPAs. We as a profession, and as regulators, must be more proactive in showing the public why we merit their trust and the methods and measures we use in plain English to sustain their trust.”
Mark Tibergien, Principal, Moss Adams:
“The profession continues to be under pressure from regulatory bodies, an aging population of partners and an acute talent shortage, especially for assurance practitioners. There is a huge opportunity to provide career opportunities for minorities and immigrants who focus their education in accounting instead of general areas, but it will be up to the profession to raise the appeal of this profession for them.”
Roman Kepczyk, President, InfoTech Partners North America:
“Technology will have an increasingly important impact on all business processes and the advent of Microsoft SharePoint and enhanced search capabilities within document management applications will provide CPA firms with extensive knowledge management capabilities that, when utilized, will provide a significant competitive advantage.
“Concerns in regards to staffing and succession planning will only increase, but those firms that strategically utilize technology will be able to do more work with less people and be much more profitable in the long run.
“Specialized niche practices will thrive as the Internet allows firms to extend their services to a broader range of clients, and completely Web-based information systems will allow firms to outsource their entire IT infrastructures, so that all resources and applications are Web-hosted and anyone with an Internet connection and authorization can work on firm projects.”
Mark Schlageter, Executive Vice President, Thomson Tax & Accounting:
“New and more complex tax legislation and stricter auditing standards and guidelines will be a major concern for the profession. The reality is that tax and accounting issues will continue to become more complicated. In broader terms, other trends/issues impacting the profession are changing workflow processes and globalization. The challenge for the profession and for firms will be to find ways to differentiate themselves within the market.”
Roger Ochs, President, H.D. Vest:
“As they have in all aspects of our society, the Baby Boomers will reshape the next phase of retirement and, in turn, the next phase of the accounting, tax and financial services businesses. In other words, ‘It’s not your father’s retirement.’
“This presents a tremendous opportunity for the CPAs who have added financial planning to their practices. … The transfer of wealth created when these affluent Boomers die will be the next big opportunity for CPAs who offer financial planning. The waves just keep coming … but the CPA needs to be prepared to provide important services like financial planning, investment solutions, money management, risk management and banking products.
“On the flipside, the retirement of the Baby Boomers creates the biggest challenge for the majority of the individual practitioners we serve, simply because they are themselves Boomers. Most are without a transition or succession plan. Most have not groomed a replacement. Almost weekly, we encounter the death or serious illness of an advisor who had no plan in place to pass along the day-to-day management of his or her business. This has prompted H.D. Vest to develop a new specialization in practice management to help systematize the financial services side of our advisors’ businesses -- similar to the systems in place on their tax side.
“As far as the landscape of the combination accounting/financial services business line, we will continue to see the divergence of the bigger firms from the individual practitioner in terms of what they do, what they need and who they serve. The small businesses served by the individual practitioner will dictate their menu of services, which will look nothing like the needs and wants of the larger corporate clients served by larger accounting firms with experts in audit and SOX. Will smaller firms be consolidated? It would be difficult. The average individual practitioner has a unique shop with strong client relationships. This is not easily consolidated, but can better be transitioned to a groomed successor.”
Gary John Previts, Professor and Associate Dean, Weatherhead School of Management, Case Western Reserve University:
“The major concerns is that demographic trends suggest that we are coming upon a decade of substantial retirement which will severely reduce the number of CPAs in practice. This is the single most challenging item because it underlies all other matters.
“A major challenge will be finding a way to balance the SME accounting needs and the accounting and auditing service needs of global firms and their clients. Technology will also continue to re-invent and redefine the scope of services. Some combination of the retirement demographic and technology will permit flexible and entrepreneurial firms to create new service networks as efficient new applications replace the practice habits of Boomers entering retirement.”
Doug Meyer, President, Small Business Division, Sage Software:
“One of the most significant changes for the industry in the next five years will involve the Internet and the online collaboration opportunities that are beginning to become reality. Particularly in the SMB space, the CPA/client relationship has long been a personal, face-to-face relationship.
“In the future, this will often continue to be the case, but more and more SMBs are becoming comfortable with the Internet as a serious medium to conduct business. High-quality collaboration environments are beginning to enable the seamless exchange of financial information and content between CPAs and their clients anywhere in the world.
"The implications for CPAs are that they will be able to attract clients across a much broader geographic territory than has been historically the case and that client acquisition will less often be based on a face-to-face relationship. … [This] also means that competition is likely to increase, as firms that specialize in the online world will expand their reach, often with aggressive prices due to their ability to achieve economies of scale.
“At a minimum, CPAs will have to ensure that their offerings enable online collaboration as increasingly this will become a minimum expectation for clients who no longer will expect to drive their information to their CPA, but rather simply send it securely online.”
Joseph Wells, Founder and Chairman, Association of Certified Fraud Examiners:
“First, if we believe that Sarbanes-Oxley is the magic bullet to sound the death knell to all future occurrences, we may as well believe in the tooth fairy, too. The root cause of most financial statement frauds is the pressure to show short-term earnings in the market and the near-obscene compensation packages awarded to top executives who can boost the stock price. Unless and until that changes, we should continue to see large financial statement frauds.
“Second, for fraud examiners and forensic accountants, career opportunities continue to grow. It is important to understand that all forensic accountants are not fraud examiners, and vice-versa. Many in the former category don’t have an investigative background and the latter are particularly good at rooting out the truth through skilled interviews and other lawful techniques. Conversely, many forensic accountants are not skilled in fraud. For some time, I have advocated assigning an anti-fraud specialist to the team on every major audit. I believe it will have a significant deterrent effect.”
Melvyn Weiss, Senior Partner, Milberg Weiss Bershad & Schulman LLP:
“Major concerns include that doing business will continue to be more complicated and global in nature. The challenge will be, as in the past, to adequately train the staff to understand the underlying dynamics of the client’s business and to not be afraid to stand up to the client who is paying the fees. Auditors will develop areas of expertise and technology to better advance their forensic skills. They will also create alliances with consulting firms to help them better understand and audit their clients.”
Paul Sharman, President and CEO, Institute of Management Accountants:
“SOX 404 will be satisfied largely by professional accountants who work inside organizations re-instating all the internal controls that corporations used to have prior to 1990, when economic value creation drove downsizing and the evisceration of accounting departments.
“The definition of ‘management accounting’ in the United States will begin to approach the broader understanding of ‘controllership’ in more sophisticated markets, while the firm landscape will be re-enforced as the representative of objective third-party review of corporation financial reporting. It should stop there.”
James Metzler, Vice President for Small Firm Interests, AICPA:
“The Baby Boomer generation will be deep into the challenging issues related to their succession in their firms. New, young talented practice leaders will be emerging, along with an entirely new culture that will be significantly different than their predecessors’. Repetitive tasks and mundane work will be handled through technology and easy availability of the global work force.”
Parnell Black, CEO, NACVA:
“I see the profession becoming even more divided, with one half devoted to traditional tax and accounting services and the other half focused on business consulting services of a wide variety. And of the consulting firms, most will have a few areas of specialty focus like business valuation, litigation support and M&A, which are hot areas and will remain hot, and other larger firms will have different departments covering all the business consulting bases, including IT, financial planning, strategic planning, business plans, budgeting and forecasting, etc.
“This division of the profession will come about because it is the only way to deal with the challenges of survival and growth. In effect, to survive, firms need to stay on top of their game, whatever that may be, because in all areas of traditional practice and consulting the landscape is becoming increasingly complex. And to grow, it requires dedicated focus in marketing and positioning to be recognized in a field of specialty, which is an essential ingredient to success.
“Many of NACVA’s members have discovered that by dropping their accounting and tax services they are considerably more effective at obtaining valuation service referrals from traditional CPA practices, who previously saw them as a competitor. This industry dynamic will continue to drive the division within our profession.
“For some years I have been convinced that one of the hottest new business service opportunities is assisting business owners in building company value, sometimes referred to as ‘strategic benchmarking to drive company value.’ Our profession is still very much caught up in reporting results or providing a work product for a given and finite purpose. Strategic benchmarking is a work in process, where the end result for the business owner is retiring wealthy. Common sense would say this is what all business owners truly want from their professional advisors, but historically have not received this kind of service.”
John Hewitt, Founder, Liberty Tax Service:
“The future is bright for tax preparation and accounting, but we must adapt to new ways of doing business. Electronic filing has exploded, with 70 million e-filed returns this year through April 21, 2006. Paper return filing is quickly becoming obsolete. Taxpayers’ usage of their home computers to file returns was up 18 percent. Clearly, tax firms and tax preparers must offer some form of online preparation, e-file, and cutting-edge tax preparation technology to survive.
In addition, the future holds more regulation for tax preparers regarding their educational requirements and certification requirements. I support this, and Liberty Tax has been working on our own certification program because we want to be a leader on this industry threshold. ... Add tax changes to the mix of changing technology and regulations. There’s nothing as certain as an ever-changing Tax Code. For this reason alone, taxpayers will continue to value the face-to-face tax interview experience and the customer service aspect of this numbers business. The true battle for dominance of this industry will be fought and won on customer service, regardless.”
Michael Young, Partner, Willkie Farr & Gallagher:
“Five years from now the accounting profession will be facing two primary challenges. The first challenge? Managing success. The second challenge? Survival.
“That may seem a strange combination. I start with the challenge managing success because I believe that we are now at the dawn of a ‘Golden Age of Auditing.’ A series of events -- the rise of audit committees, Sarbanes-Oxley, the innumerable scandals, lifetime prison terms for financial misreporting -- have resulted in a new appreciation for a zealous, robust, independent audit. Going forward, we should expect that appreciation to increase.
“But we must not lose sight of the second challenge, survival. Today’s environment for the accounting profession is treacherous. Threats to the viability of the individual firms come from all directions -- litigation, regulatory action, criminal prosecution, the scandal du jour. Collectively, the members of the financial community must move beyond an attitude that basically seeks to hold auditors responsible for anything in a company that goes wrong. If we cannot do that, it is hard to have the confidence in the future viability of the existing large firms.”
Rebecca Todd McEnally, Director, Capital Markets Policy Group, CFA Centre for Financial Market Integrity:
“Major issues are just coming to the fore, include the:
- Convergence of financial reporting standards to a single, high-quality financial reporting standard;
- Development of a single education and competency standard for audit professionals in all countries claiming compliance with the global financial reporting standard; and,
- Development and adoption of a single standard for oversight and enforcement of auditing standards in all countries.
“As markets are merging and consolidating, and capital increasingly flows cross-border, it is essential that financial reporting and auditing standards be of high quality in all markets. Small markets will have the greatest challenges, but also the most to gain in reducing the risk premium companies must bear to raise capital by improving the accuracy and completeness of their financial reporting.” Ronald Baker, Founder, VeraSage Institute:
“As Samuel Goldwyn once remarked, ‘Only a fool would make predictions -- especially about the future.’
“One major concern that will continue is attraction and retention of human capital to the profession. Even with the increase in accounting enrollment, there will continue to be shortages in this area. Also, SOX aggravates the problem, since SOX work is dull, repetitive and rote -- like a surgeon piercing ears. It’s a gross misallocation of intellectual capital, and firms need to delegate this work to paraprofessionals, not assign their young team members to this equivalent of digging ditches busy-work.
“The billable hour will continue to come under strain, as more enlightened firms begin to charge for the value they create, rather than the time that they spend. Moreover, the young talent entering the profession understands that the value they create is not related to the time that they spend, and will demand to monetize a portion of the value they create, as do other knowledge workers, rather than being paid as if they were union employees.”
Carl George, CEO, Clifton Gunderson:
“In five years, the profession will continue to be a leader in advising the public (including Congress) on what is correct in regulating corporate America. The SOX legislation will have gone through revisions that more truly align the intent of the legislation. Our profession will contribute significantly to that alignment by Congress.
“Our significant challenge in five years will be to develop enough ‘new age’ leaders, arguably the first generation of leaders raised with technology as a second language. That will present new challenges, but will offer innovative leaders that will elevate the status of our profession, to the point that all service professions will model their future organizations after ours.”
William Hermann, Managing Partner, Plante & Moran:
“In the next five years, the major challenges and concerns for the profession can be summarized as people, people, people. We will be challenged by our ability to attract enough people to the profession to meet the increasing demands, and the willingness of the current generation of managers to embrace the changes that will be required to retain the new generation of CPAs who are entering the profession. Another challenge will be globalization and our ability to deal with the complexity, logistics and language barriers which will occur.
“Another concern will be the portability of our professional licensure and the ability to practice our trade throughout North America and the world. This, coupled with not having a single set of international standards, will create additional complexity, which does not add value.
“The new services which our client base will demand include a holistic approach to wealth management services that includes financial advisory, trust bank services, insurance, succession planning, family office, and tax and estate planning delivered through a single network. Next, our clients will require global representation to assist them in learning how to do business in new countries. These services will go way beyond assurance and tax, and may include identification of joint ventures, language, customs assistance and even sourcing assistance for product development.
“What will the firm landscapes look like? The large international firms will continue to have a special role as globalization continues. Associations and alliances on a global and national basis will take on heightened importance and will make it possible to create a solution for clients without the need to have offices located throughout the world. … Within the profession we may end up with a number of firms capable of providing a range of services, and an increasing number of firms or service groups that focus only on specific niche activities.
“If you were to compare the strategic plans of most firms, you’d find very similar strategic objectives. We will become more of what we’ve always been, but with a more focused approach. The ability to thrive in the future will be a function of how firms execute their plans, and learn which activities to continue and which to discontinue.”
Louis Grumet, Executive Director, New York State Society of CPAs:
“The major challenge will be bridging the gap between the public’s perception of what the profession does and performance reality -- particularly the gap between the public believing that the profession warrantees it from fraud and misrepresentation. If there are many more scandals, there could be competition from other sources.
“The hottest new services will mainly be directed at closing that gap. The firms that can best convince the public that they can come closer to ensuring honest, fraud-free fiscal and performance audits will be the ones that will do the best.”
Loretta Doon, CEO, California Society of CPAs:
“The definition of what a CPA is and does and his or her role will change as technology continually shrinks the globe. CPAs with small firms in small towns will increasingly find that they must think globally and explore opportunities beyond their immediate vicinity.”
John M. Sharbaugh, CEO, Texas Society of CPAs:
“The profession will continue to be challenged in identifying and recruiting its most valuable resource -- people -- although conditions will improve somewhat due to increased enrollments in college accounting programs. While the number of accounting grads will increase, they will be offset by the retirement of CPAs from the Baby Boomer generation. We will probably see an increased use of non-CPA specialists within firms and use of outsourced services in particular service areas as a means of dealing with this staffing issue.
“Mergers and acquisitions of firms will continue to take place as the Baby Boomer partners/owners try to position themselves for retirement, and firms try to consolidate their resources and talent to more efficiently serve their client base. Use of technology in firms will continue to increase, again to more efficiently serve clients and reduce cost of service.
“Accounting, tax and audit/compliance services will continue to be the dominant service areas for CPA firms, but they will look for ways to expand beyond those baseline services to deliver more value to their clients. Firms will move beyond providing accounting data and financial statements and assist clients in using that information to better run their businesses. Likewise, in addition to doing the tax compliance work for clients, they will help clients position themselves to minimize future tax liabilities.
SOX compliance work opened the door for small and midsized firms to provide these needed services to larger companies that they had not traditionally served in the past. … As the Baby Boomer generation moves into retirement, we will probably see an increase in financial planning and wealth management by CPA firms. Clients are going to desire a one-stop shop for such advice, and the trust CPAs garner with clients positions them to capitalize on providing service in these areas.
“In the future, we will probably see a smaller universe of firms as consolidations take place, but the firms that remain will be healthy and profitable. The future for CPA firms looks very bright.”
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